Annual Report
and Accounts
2022
FINANCIAL STATEMENTS
Independent Auditor’s Report
Consolidated Financial Statements
- 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 (unaudited)
Reserves statistics (unaudited)
Report on payments to governments (unaudited)
Transparency disclosure 2022 (unaudited)
Glossary of terms
Company information
162
171
171
171
172
173
174
175
203
205
206
207
208
209
211
STRATEGIC REPORT
Who we are
Pharos at a glance
Where we operate
Our strategy & purpose
Our strategic objectives
Investment case
- Capital discipline in the DNA
- Focused portfolio of diverse organic opportunities
- Operational capability
- Diverse & inclusive workforce
Chair’s statement
Market overview
Chief Executive Officer’s statement
Business model
Key metrics
Operational review
Section 172(1) Companies Act 2006
Chief Financial Officer’s statement
Risk management
Principal risks and mitigations
Corporate responsibility
TCFD
02
03
05
06
07
09
10
11
13
14
15
17
19
23
24
28
35
39
47
53
61
79
Corporate Responsibility Non-Financial Indicators
107
GOVERNANCE REPORT
Chair’s introduction to Governance
Leadership & Governance
Board of Directors
2018 UK Corporate Governance Code
Environmental, Social and Governance (ESG)
Committee report
Nominations Committee report
Audit and Risk Committee report
Directors’ Remuneration Committee report
Directors’ report
109
111
113
115
122
125
127
134
156
1
Pharos Energy Annual Report and Accounts 2022
Who we are
Pharos Energy is an independent energy company with a focus on
delivering long-term sustainable value for all stakeholders through
regular cash returns and organic growth, underpinned by a robust
cash flow and resilient balance sheet.
With a registered office in London and listed on the
premium segment of the main market of the London
Stock Exchange, we have production, development and
exploration interests in Egypt and Vietnam.
Our purpose is to provide energy to support the
development and prosperity of the countries,
communities and families wherever we work, in line with
recognised social and environmental practices.
EGYPT
VIETNAM
www.pharos.energy
2
2
Pharos Energy Annual Report and Accounts 2022Governance ReportFinancial StatementsAdditional InformationStrategic Report
PHAROS AT A GLANCE
Pharos Energy
at a Glance
As a business, our ability to deliver value is
key to our robust stakeholder investment case.
2022 KEY FIGURES
1997
Listed on London
Stock Exchange
17,839
Acreage km2
6
Blocks
2022 GROUP HIGHLIGHTS
Cash operating costs * ($/boe)
Operating Cash Flow ($m)
$16.36/boe
(2021: $16.05/boe)
$53.4m
(2021: $10.8m)
Cash & cash equivalents ($m)
Revenue ($m)
Prior to hedging loss of $22.5m
$45.3m
(2021: $27.1m)
$221.6m
(2021: $163.8m, prior to hedging loss of $29.7m)
* Read More
Non-IFRS measures on page 203
3
Pharos Energy Annual Report and Accounts 2022 Governance Report
Financial Statements
Additional Information
12
Oil &
Gas fields
36
Global Employees
(2021: 65 employees)
2
Countries
RETURN TO SHAREHOLDERS
Share Buybacks
Average net production (boepd)
$3m
(2021: 0p)
7,166 boepd
(2021: 8,878 boepd net, 7,533 boepd
net on a comparative basis)
First Dividend Proposed on 2022 Earnings
(Subject to shareholder approval at 2023 AGM)
1p per share
(2021: 0p)
4
Pharos Energy Annual Report and Accounts 2022Strategic Report WHERE WE OPERATE
Focused portfolio of
complementary assets
We have a diversified mix of onshore and offshore producing,
development and exploration assets in two territories - Egypt and
Vietnam.
El Fayum Concession
Cairo
+
+
North Beni Suef Block
EGYPT
EGYPT (D,P,E)
We have high quality onshore, low-cost oil production operations, development and
exploration assets in Egypt. Production is from 10 development leases in the El Fayum
Concession located in the Western Desert south west of Cairo and close to local energy
infrastructure. We hold further low-risk low-cost near-term exploration opportunities in the
North Beni Suef Concession to the south of El Fayum. In March 2022, Pharos completed
a farm-out transaction with IPR, following which IPR now holds a 55% working interest
and operatorship in each of the El Fayum and North Beni Suef Concessions, with the
Group holding the remaining 45% non-operated working interest.
1,748 bopd*
2022 Average Production (net)
(2021: 3,318 bopd; or 1,973 bopd
on a comparative basis*)
* The farm-down transaction and transfer of
operatorship of the Group’s Egyptian assets to
IPR completed on 21 March 2022. Although the
economic date of the transaction was 1 July 2020,
working interest production for Egypt in 2022 is
reported as 100% through to completion and 45%
thereafter. The comparative basis for 2021 is also
given as 100% working interest until 21 March
2022 and then 45% for the remainder of the year.
D: Development P: Production E: Exploration
VIETNAM
VIETNAM (D,P,E)
We have valuable and long-established producing fields in Vietnam, with the first
discovery in 2004 and first oil production in 2008. Production is from two fields (TGT
in Block 16-1 and CNV in Block 9-2) in the Cuu Long basin. There is further potential
for organic growth from a basin-opening frontier play with a number of potentially
world class prospects and leads already identified in two exploration blocks in the Phu
Khanh basin (Blocks 125 & 126).
5,418 boepd
2022 Average Production (net)
(2021: 5,560 bopd)
Block 125
+
+
Block 126
Ho Chi Minh City
Block 16-1 TGT Field
+ +
Block 9-2 CNV Field
Read More
Operational Review on page 28
5
Pharos Energy Annual Report and Accounts 2022 OUR STRATEGY & PURPOSE
A focused strategy
to fulfil our purpose
Our strategy has positioned the business for long-term value
creation, whilst building on a track record of
20+ years of shareholder returns.
Our Purpose
Our Strategy
Our Stakeholders
Our purpose is to provide energy to
support the development and prosperity
of the countries, communities and families
wherever we work, in line with recognised
social and environmental practices.
We are committed to deliver long-term,
sustainable value for all our stakeholders
though regular cash returns and organic
growth, underpinned by a robust cash flow
and resilient balance sheet.
We invest in a balance of near-term
potential and longer-term value, with the
aim of enhancing value creation for all
stakeholders.
To achieve this, we focus on maximising
reserves from existing producing oil
and gas fields, such as from our El
Fayum Concession in Egypt and TGT &
CNV fields in Vietnam, through flexible
capital investment across oil price
cycles to unlock reserves upside and
improve operating performance. This is
complemented by organic growth activity
through further extensions in existing fields
and developments & explorations offshore
Vietnam on Blocks 125 and 126 and
onshore Egypt on both the El Fayum and
NBS Concessions, to unlock longer-term
value.
To our investors:
Creating and returning value to
shareholders through a combination of
annual dividends and organic growth.
To our host countries:
Creating shared prosperity & helping
countries use oil revenues to promote
sustainable, inclusive economic
development, manage the impact of
climate change and achieve their COP
and other domestic and international
commitments.
To our people:
Providing an inclusive and diverse
workplace, empowering people with
differing backgrounds, skills, and
experiences to do meaningful work based
on the Pharos Way principles of openness,
safety and care, and mutual trust and
respect.
To all stakeholders:
Engaging and dealing with stakeholders
in a transparent and constructive manner
in accordance with applicable local and
international laws and otherwise aspiring
to the highest ethical standards of
business conduct.
6
Pharos Energy Annual Report and Accounts 2022Governance ReportFinancial StatementsAdditional InformationStrategic Report OUR STRATEGIC OBJECTIVES
Our Strategic
Objectives
Strong
balance sheet
Complementary
portfolio
Transparency
in sustainability
Mutually
beneficial
partnerships
Provide energy to support
the development and
prosperity of the countries,
communities and families
wherever we work
Rigorous
approach to
cost control
Operational
efficiency &
production
growth
Responsible &
flexible stewards
of capital
Value creation
per share
7
Pharos Energy Annual Report and Accounts 2022
OUR STRATEGIC OBJECTIVES - CONTINUED
Mutually beneficial
partnerships
The operational successes the Company
had over the years would not have
been possible if not for the supportive
relationships we have with our valued
partners and stakeholders. Our assets
are operated predominantly through
JOCs, but we are actively involved in JOC
management and work collaboratively with
our partners to identify areas of mutual
sustainable benefits. A combination
of long-standing in-country presence
and focus on building relationships with
both host governments and regulatory
authorities have cultivated many
successes for the Group, our partners,
the JOCs and the local economies. We
also maintain good relationships with our
valued group of lenders to ensure financial
stability in times of uncertainties.
Transparency in
sustainability
Sustainability is a key value in our
business. In 2022, we made a formal
commitment to achieve Net Zero on our
Scope 1 (direct) and Scope 2 (indirect)
GHG emissions from all our current and
future assets by no later than 2050. We
recognise that the journey to Net Zero
and a more sustainable future will not be
simple nor straightforward, but we remain
committed to transparency in our reporting
and to keeping stakeholders updated on
our progress.
Strong balance sheet
In this prolonged period of uncertainty
in the macroeconomic environment, a
major priority for the Group has been
the preservation of cash in order to
protect balance sheet strength. Costs
and the balance sheet are actively
managed through maintaining positive
operational cash flow combined with a
focused approach to capital allocation,
an active hedging programme, a mix of
debt instruments in place, and a modest
gearing level.
Complementary portfolio
Over the past years, we have built a
distinctive and complementary portfolio in
the energy regions of Asia and MENA, with
multiple organic growth opportunities and
value-adding activities that have potential
to generate near-term free cash flow.
Rigorous approach to cost
control
We focus on our cost base wherever we
are. As we have gone about reshaping
our business for the future, we have kept
a rigorous approach to drive down costs
and created a new, leaner Board and
organisational structure. This positions us
well to thrive throughout the commodity
price cycle.
Operational efficiency &
production growth
We apply our expertise locally with
operational teams in each region, working
closely with partners and joint operating
companies to achieve operational
efficiency and grow production. We
encourage dialogue and co-operation
between the different business assets
to ensure new ideas and solutions
are shared. Our stable operational
performance in 2022 has laid a strong
foundation for our future work programmes
to move forward with the growth potential
of our assets and support delivery of our
strategy.
Value creation per share
Our goal is to deliver a combination of
regular cash returns plus growth potential
for shareholders. We aim to maximise
value per share for all shareholders, and
we are not chasing scale for its own sake.
We are committed to delivering value on all
sides of the equation.
Responsible & flexible
stewards of capital
Capital discipline and financial stability
have always been key to the Group and
continue to underpin the business. The
Board and senior management team
maintain a clear focus on our capital
allocation goals: to balance regular returns
to shareholders with investment in our
assets to generate sustainable value and
cash flow, while preserving the resilience of
the balance sheet.
8
Pharos Energy Annual Report and Accounts 2022Governance ReportFinancial StatementsAdditional InformationStrategic Report
INVESTMENT CASE
Our Investment
Case
T h e Pharos Way
Openness
& Integrity
Energy &
Challenge
S t
r
r a t egic Objectives
O u
Pragmatism
& Focus
Strong
balance sheet
Complementary
portfolio
Empowerment
& Accountability
Transparency
in sustainability
Provide energy to support
the development and
prosperity of the countries,
communities and families
wherever we work
Mutually
beneficial
partnerships
Responsible
& flexible
stewards of
capital
Value creation
per share
Capital
discipline in
the DNA
Rigorous
approach to
cost control
Operational
efficiency &
production
growth
Safety &
Care
Diverse
& inclusive
workforce
Portfolio of
diverse organic
opportunities
Excellent safety
record
Long operational
history in
Asia-MENA
Our Differentiatin g F a c t o r
s
9
Pharos Energy Annual Report and Accounts 2022 INVESTMENT CASE – CAPITAL DISCIPLINE IN THE DNA
CASE 1
Capital discipline
in the DNA
We have a culture of prudent financial management, capital
allocation and capital return.
We exhibit capital discipline through a focus on cost management and control, a part of our DNA, underpinned and enhanced by our
commitment to annual cash returns to shareholders. Capital allocation decisions are taken to make investments where they will generate
risk-adjusted full-cycle returns, with a focus on near term cash generation.
We use our expertise to:
ALLOCATE
capital to those assets which
offer a combination of cash flow,
growth and sustainability
FOCUS
on our cost base
wherever we are
ASSESS
and develop high grade
growth opportunities
PROVIDE
cash returns to
shareholders
A commitment to cash returns to shareholders remains a core element of our overall allocation framework. We aim to create value per
share, not chasing scale for its own sake. It is this approach that has allowed us to return significant amounts of capital to shareholders
since 2006, through a combination of dividends, share buybacks and capital growth.
Total since
2006 when the first
returns were made
$529.2m
FY
2006
$14m
FY
2012
$33m
FY
2014
$119m
FY
2016
$17.5m
FY
2018
$23.3m
FY
2011
$7m
FY
2013
$213m
FY
2015
$51m
FY
2017
$21m
FY
2019
$27.4m
Market
cap ($bn)
4.0
3.0
2.0
1.0
0
1998
RV
RV
RV
RV
RV
RV
RV
RV
RV
RV
RV
RV
RV
RV
RV
RV
RV
Brent price
($/bbl)
140
FY
2022
$3m
105
70
35
RV
0
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
UK onshore
$18m
Russia
$50m
Vietnam
farm-out
Tunisia
$25m
Mongolia
$93m
Yemen
$465m
Thailand
$105m
Asset disposals
RV Realising Value
Realising value through disposals and returns made over the decade
either through share buybacks, sepecial distributions or dividends
Read More
Chief Financial Officer’s statement on page 39
10
Pharos Energy Annual Report and Accounts 2022Governance ReportFinancial StatementsAdditional InformationStrategic Report
INVESTMENT CASE – FOCUSED PORTFOLIO OF DIVERSE ORGANIC OPPORTUNITIES
CASE 2
Focused portfolio of
diverse organic opportunities
Over the past years, we have reshaped the portfolio into a unique
and complementary mix of Asia-MENA assets, with a range of near-
term organic growth opportunities, ranging from low-cost low-risk
onshore producing assets to basin-opening world-class potential
offshore exploration.
EGYPT
Onshore, low cost,
in-fill drilling path to grow
production with exploration
upside
Egypt is a growing economy, hungry for
the energy provided by its domestic oil
and gas sector, which operates within a
well-established regulatory framework.
In 2022, Pharos completed a farm-down
transaction and transfer of operatorship
over our Egyptian assets to IPR. The
Group now has a 45% working interest in
two concessions in Egypt - El Fayum and
North Beni Suef. In 2022, a number of
factors combined to put us in a good place
to deliver cash flow from these assets:
IPR’s long track-record of success in
Egypt, the enhanced fiscal terms awarded
to us over the El Fayum Concession
early in 2022, a rig secured on long-term
contract to ramp up activities in El Fayum,
plus the carry over our remaining 45%
interest all helped to support our revenues.
However, the Egyptian economy suffered
during 2022 with high inflation and a
currency devaluation, which has led to
an increase in the level of our receivables
due from the sale of El Fayum crude to the
EGPC owned Suez refinery. The working
capital facility which we have in place with
National Bank of Egypt has helped to
alleviate this situation and there is now an
IMF package in place for Egypt which we
expect to flow through during 2023.
Read More
Operational Review on page 28
11
Upcoming catalysts in 2023
• Multi-well development drilling in El
Fayum continues in 2023, with nine
wells planned for the year.
• Two commitment exploration wells
expected to be drilled in the El Fayum
Concession.
• Drilling of first commitment exploration
well on NBS underway, with the
additional commitment exploration well
to follow later in the year. An additional
extension of the exploration period until
September 2023 was granted by EGPC
in March 2023.
• Acquisition of the c.110 km2 of
additional 3D seismic at NBS has
started.
1,748 bopd
NET 2022 PRODUCTION
FROM EL FAYUM
(2021: 3,318 bopd; 1,973 bopd
on a comparative basis)
15 mmboe
2P RESERVES AS AT YEAR
END 2022
(2021: 37.8 mmboe)
10
DEVELOPMENT LEASES AT THE
EL FAYUM CONCESSION
45%
PHAROS WORKING INTEREST
AFTER TRANSACTION
WITH IPR
(2021: 100%)
Pharos Energy Annual Report and Accounts 2022 INVESTMENT CASE – FOCUSED PORTFOLIO OF DIVERSE ORGANIC OPPORTUNITIES - CONTINUED
VIETNAM
High net back producing
assets with further
significant exploration
potential
The Group’s current producing interests
in Vietnam, the Te Giac Trang (TGT) and
Ca Ngu Vang (CNV) fields in the Cuu Long
basin off the southern coast, together, are
amongst Vietnam’s largest oil producers.
Most notably, in June 2022, TGT officially
reached a production milestone of 100
million barrels of crude oil produced. We
have further potential for growth from two
deep-water basin-opening exploration
positions in Blocks 125 & 126 in the
Phu Khanh basin off the eastern coast,
where we see material world-class
frontier exploration potential, and we are
in discussions with a number of parties
interested in partnering with us in our plans
for drilling.
Upcoming catalysts in 2023
• Work on submitting Revised Field
Development Plans (RFDPs) for two
wells on TGT and one on CNV is
progressing, with all wells remaining in
contingent budget until approval.
• Application for extensions to TGT &
CNV licences submitted to partners for
approval.
• Application for extension to Blocks 125
& 126 licence submitted in December
2022, as no suitable rigs were available
for drilling in 2023, and is now with the
Prime Minister’s office for approval.
• Discussions ongoing with a number of
interested parties to secure a farm-in
partner before drilling the commitment
well on Block 125.
5,418 boepd
NET 2022 PRODUCTION
FROM TGT & CNV
(2021: 5,560 boepd)
12.2 mmboe
2P RESERVES AS AT YEAR
END 2022
(2021: 15.2 mmboe)
4
BLOCKS IN VIETNAM
25+
YEARS ACTIVE IN
VIETNAM
12
Pharos Energy Annual Report and Accounts 2022Governance ReportFinancial StatementsAdditional InformationStrategic Report
INVESTMENT CASE – OPERATIONAL CAPABILITY
CASE 3
Operational
capability
Amidst ongoing global uncertainty, Pharos continues to deliver
consistent operational results, thanks to the efforts of our teams,
our partners and the local JOCs, who have managed to navigate
the macroeconomic challenges without compromising our
operational capability.
Long operational history in
Asia-MENA
Our 26-year history with Vietnam has been
a success story both for the company
and the country. As at 2022, Pharos has
invested over $1 billion in the exploration,
appraisal and development of oil and
gas projects located offshore Vietnam
since inception, making Pharos one of
the largest British investors in the country.
In Egypt, IPR has a long-standing in-
country presence and relationships with
the Egyptian government and regulatory
authorities, which position them well to
support the expansion of operational
activity needed to develop the resource
base.
Our long operational history provides
a strong foundation for our future work
programmes to manage both the cash
generation and the growth potential of our
assets, and to deliver on the core pillars of
our strategy.
Excellent safety record in Vietnam
The health & safety of the Group’s
workforce is the highest priority for Pharos.
We are proud to report an exceptional
safety record of 0 lost time injuries and 0
fatal incidents in our Vietnam assets since
our operational inception in 1996. This is
thanks to the JOCs’ consistent effort to
provide and champion workers’ health,
safety and well-being, and we look to
support IPR and Petrosilah to replicate this
success with the assets in Egypt.
Read More
Corporate Responsibility on page 61
13
Pharos Energy Annual Report and Accounts 2022 INVESTMENT CASE – DIVERSE & INCLUSIVE WORKFORCE
CASE 4
Diverse & inclusive
workforce
Greater diversity and inclusivity brings greater understanding
of people. 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.
We recruit talents from diverse
backgrounds across our entire
organisation. Most notably our UK-based
staff comprises 16 people from 9 different
nationalities, of which women accounted
for c.65%.
Our Code of Business Conduct and
Ethics, associated policies and the Pharos
Guiding Principles commit us to providing
a workplace free of discrimination where all
employees can fulfil their potential based
on merit and ability, and we will continue to
align our Company with this ethos.
Regional knowledge and
experience
We apply our expertise locally with
operational teams in each region, working
closely with partners and JOCs. We
encourage dialogue and co-operation
between the different business assets to
ensure new ideas and solutions are always
being considered. We are committed to
providing meaningful opportunities for
training and capacity building in host
countries. We have maintained a gender-
neutral recruitment process and, wherever
possible, we first look to fill any vacancy
internally with a local candidate in London,
Vietnam and Egypt.
Diversity in all dimensions
We operate in a global industry, and it
is vitally important to ensure that we
benefit from the diverse perspectives
that people can bring. For this reason,
equality, diversity and inclusion sit at the
heart of our recruitment, development and
promotion processes. Across all of our
assets, we acknowledge diversity in all
its dimensions and welcome people with
differing backgrounds, skills, nationalities,
gender and experiences to help us
deliver our business strategy of long-term
sustainable growth. The board now has
four female directors out of a reduced
board size of six, with both executive
positions held by women.
Read More
Corporate Responsibility on page 61
14
Pharos Energy Annual Report and Accounts 2022Governance ReportFinancial StatementsAdditional InformationStrategic Report CHAIR’S STATEMENT
JOHN MARTIN
Non-Executive Chair
15
Chair’s statement
A strong culture to deliver
sustainable value.
2022 has been an extraordinary year for the energy sector globally.
An extended period of volatility has driven pivotal changes for
Pharos. The Company’s response to the dynamic environment during
the year has included the reshaping of its portfolio, balance sheet,
Board, and its worldwide organisation.
As a result of strong operational
performance, completion of the IPR
transaction, securing the improved fiscal
terms over El Fayum, and with the support
of continuing high oil prices resulting
from the easing of pandemic restrictions,
Pharos now stands in a much stronger
financial position than where we were
just a year ago. This has allowed us to
commence a share buyback programme,
which has continued into 2023, and to
announce a new dividend policy focused
on making sustainable annual cash returns
to shareholders. The last twelve months
saw us take key steps in our effort to
transform the Company, and I strongly
believe that we are now well positioned
for a positive and sustainable future, with
a robust capital structure and exciting
organic opportunities in a refocused
portfolio.
Board changes
Underpinned by the financial discipline in
our corporate DNA, Pharos has remained
relentlessly focused on cost control,
starting from the Board and moving
throughout the organisation. In 2022,
as Non-Executive Chair of the Board, I
oversaw the reshaping of the Board from
nine to six Directors and salary reductions
for myself and both of the two Executives,
a decision that is commensurate with the
scale of the business and the strategic
challenges ahead of us as the Company
reframes its portfolio. Following the
completion of the farm-down of our assets
in Egypt to IPR, on 23 March 2022, Jann
Brown assumed the role of Chief Executive
Officer. On the same date, Ed Story and
Dr Mike Watts resigned as Directors of
Pharos, with Ed now serving as President
of the Group’s Vietnam business. Senior
Non-Executive Director and Deputy Chair,
Rob Gray, also stepped down in May
2022. On behalf of the Board, I would
like to thank Ed, Mike and Rob for their
long and valued service to the Company
as Directors. Going forward, I believe
we now have a reshaped Board fit for
purpose, which will provide the necessary
governance and oversight to support our
strategic framework.
Diversity in all forms
Across our entire business, we
acknowledge the benefits of diversity in
all its dimensions and welcome people
with differing backgrounds, skills, and
experiences. Our commitment to inclusion
and diversity remained strong in 2022. As
at year-end, I am pleased to report that
the Company has four female Directors,
representing two thirds of the Board. We
are proud that we are able to recruit talent
from diverse backgrounds and ethnicities
across our entire organisation. Most
notably, our UK-based staff comprises
16 people from 9 different nationalities,
of which women accounted for c.65%.
We operate in a global industry, and it is
important to ensure that we benefit from
the diverse perspectives that people bring,
and we will continue to align our Company
with that ethos.
Pharos Energy Annual Report and Accounts 2022 CHAIR’S STATEMENT - CONTINUED
People & Culture
I would like to express my gratitude to
all our colleagues whose hard work,
professionalism and dedication has
ensured Pharos’ resilience, delivery and
efficiency during a challenging year.
2022 saw the departure of many of our
longstanding talented Egyptian colleagues
following the transfer of operatorship
of our Egyptian assets to IPR, but I am
delighted that so many of them have
found new positions so quickly. The team
who have stayed with us have all risen
to the challenge, and I am impressed
by their commitment to maintain open
communication and trust, welcoming
constructive changes while adapting
to new working practices. They have
demonstrated that the culture of our
workforce is strong and resilient. It is
built on the Group’s guiding principles of
openness and integrity, safety and care,
and mutual trust and respect.
The in-person feedback sessions which I
conducted during the year with staff has
informed the development of our hybrid
working programme in the UK. We no
longer maintain a permanent office space
in London, with UK-based staff now having
access to a modest serviced office space
in central London. This arrangement, in
addition to significantly reducing costs,
provides greater flexibility in how and
where employees work. We have found
this approach has contributed positively to
both our cost base and our productivity,
and we will maintain an active dialogue
with our workforce to adapt to changing
situations as we go forward and ensure
that this remains the case. We have also
introduced initiatives to address staff
isolation and promote team building by
hosting in-person meet-ups throughout
the year.
Strategy Day & Stakeholder
engagement
In October 2022, the Board held a
Strategy Day to focus on where and how
we can offer value to our stakeholders.
On the day, we had presentations and
inputs from a number of key parties,
including shareholders. Despite the
volatility we have experienced in the
global macro-economic environment, our
strategy to deliver long-term sustainable
value for all our stakeholders through
regular cash returns to shareholders and
organic growth, remains unchanged. The
results of our Strategy Day reinforced our
commitment to pursue a combination
of growth and cash returns per share,
and the resumption of the dividend
in a clear policy framework has been
particularly appreciated. We are grateful
to our shareholders who have been
crucial to our growth and transformation
throughout the years, and I thank you for
your encouragement and patience as we
navigate through challenging times and
move towards a new phase of growth.
Sustainability
In a year when energy security has been
at the top of the agenda for governments
worldwide, I firmly believe that oil and gas
will continue to play an essential role in the
global energy mix for many years to come,
and that the importance of producing
this energy in a safe, environmentally
sustainable and socially responsible way
will continue to grow. During my role
as Senior Vice President of the World
Petroleum Council (WPC), I witnessed the
transformational impacts of the oil and
gas industry, particularly where it replaces
coal, on countries that suffer from energy
poverty. I strongly believe that there are
real opportunities in the energy transition,
especially for countries such as Egypt and
Vietnam, to benefit from the responsible
and sustainable development of their
natural resources. Pharos stands ready
to play our part in this transition and will
continue to support our host governments
as they seek to use oil revenues to
promote sustainable, inclusive economic
development, manage the impact of
climate change and achieve their COP
commitments.
Sustainability has always been a key value
in Pharos’ purpose and business strategy.
In 2022, we brought this even more to
the foreground. In September 2022, we
made a formal commitment to achieve a
Net Zero target on Scope 1 (direct) and
2 (indirect) GHG emissions from all our
existing and future assets by no later than
2050, with a detailed Net Zero roadmap
to come in late 2023. We have also
established an Emissions Management
Fund to provide support for emissions
management projects in line with our
climate goals. We are committed to
transparency in our reporting and will keep
stakeholders updated on our progress.
Outlook
2022 was a year of change for
Pharos, and I am honoured to
be the Chair of the Company at
such a pivotal stage in its history.
Thanks to the effort, ingenuity and
hard work of all of our colleagues,
the Company is now well-
positioned to deliver sustainable
value, with a stable balance sheet
and a clear strategy, underpinned
by a commitment to Net Zero by
2050 and to safe and responsible
operations. We enter 2023 with a
more confident outlook. On behalf
of the Board, I would like to thank
our shareholders for their support
through the year, as well as our
staff, partners, suppliers and
advisers, all of whom have helped
to provide stability through this
period of uncertainty and volatility.
JOHN MARTIN
Non-Executive Chair
16
Pharos Energy Annual Report and Accounts 2022Governance ReportFinancial StatementsAdditional InformationStrategic Report MARKET OVERVIEW
Market overview
Economics and political
Energy independence, security and the
pace of the energy transition emerged
as major themes for the energy markets
in 2022 following Russia’s invasion of
Ukraine which plunged Europe into an
energy crisis. Many countries responded
by looking at ways to reduce or eliminate
Russian oil and gas imports, imposing
different forms of sanctions and leading to
significant volatility in the oil prices during
the first half of the year.
Alongside geopolitical conflicts, the
macroeconomic environment was
challenging with record debt levels,
declining investment rates, and high
inflation, leading in turn to political
instability and a cost of living crisis. While
COVID-19 was not the key driver of market
changes, as it has been the last few years,
China’s attempt to manage the virus with
a zero COVID-19 policy contributed to
supply side inflation.
From a market perspective, the S&P 500
in the US finished the year down 19.44%,
its worst year since 2008, with energy the
only sector to finish 59.05% up on the
year. The MSCI World index also finished
down 17.7% for the year with inflation a
primary macroeconomic concern for the
markets during this period and a weaker
economic growth outlook. The slowdown
of global economic activity, high inflation,
the cost of living crisis and the war in
Ukraine continues to weigh heavy on the
outlook for 2023. The IMF forecasts global
growth to slow from 3.4 percent in 2022
to 2.9 percent in 2023 then rebound to 3.1
percent in 2024.
Oil price
The oil price climbed on tight supplies
following Russia’s invasion of Ukraine,
peaking at US$123.58 in June 2022 with
an average Brent crude price over the year
of US$101, an increase of 39.5% from the
average price in 2021.
Demand for oil grew modestly by
2.3mmbbls/d versus the previous year as
a result of these higher oil prices and the
decline of the economy. High commodity
prices have delivered record cash flows
for oil and gas companies with many
countries introducing windfall taxes as
they face fiscal pressures to support an
17
economic recovery and reduce the burden
of individuals impacted by the high energy
prices.
The average realised crude oil price for
Vietnam was $106.44/bbl (2021: $72.61/
bbl), representing a premium to Brent of
just over $4/bbl on average (2021: just
under $2/bbl). For Egypt, the average
realised crude oil price was $96.03/
bbl (2021: $65.12/bbl), representing a
discount of over $5/bbl to Brent for the
year (2021: $5/bbl).
The Board’s strategy to mitigate the
principal risk of commodity price instability
is set out on pages 53 to 60. Our
approach to hedging is partly dictated
by the minimum requirements of our
RBL facility and the maximum of our
RWC support, but is otherwise regularly
reviewed to evaluate whether the benefit
of hedging its oil production is in the
best interest of shareholders. The Board
considers the balance between protecting
the Group in low oil price scenarios and
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. Cost efficiencies are maintained,
even in higher oil price environments, as a
result of our strong capital discipline with
all operational decisions – including new
country entry, production optimisation
and acquisitions. Operational decisions
are reviewed through the lens of full-cycle
project economics in a range of oil price
scenarios.
The IEA forecasts global oil demand to
rise by 1.9 million barrels a day in 2023, to
a record 101.7 million barrels a day, with
nearly half of the demand driven by China
lifting its COVID-19 restrictions, which
depressed economic activity in 2022. The
loosening of restrictions is expected to
drive global growth and support oil prices
in the year ahead. Global supply growth is
set to slow to 1 million barrels a day versus
last year’s OPEC+ led growth of 4.7 million
barrels a day, with western sanctions on
Russia impacting supply. Looking forward,
with interest rate increases and concerns
remaining about a global recession, crude
oil prices will remain under pressure with
EIA forecasting an average Brent crude
price of US$83.
For more information on the impact of
climate change on the long-term oil prices
and demand, please see page 59 of the
Viability Statement.
Egypt
Egypt’s economic recovery gained
momentum in 2022, although high
levels of public and domestic debt and
delayed reforms persisted. The country
suffered from the Russia-Ukraine war,
which impacted the Egyptian economy
in various ways. A foreign capital outflow
from Egypt, coupled with a drop in tourism
revenues, plus a sharp increase in the
prices of wheat (Egypt is the world’s
biggest importer of wheat, with Russia and
Ukraine its two main suppliers) and crude
oil triggered a liquidity crisis.
As a result, foreign exchange reserves
dropped from c. US$41 billion (in
February) to c. $33 billion (in August),
weakening Egypt’s ability to meet its debt
repayment obligations and its ability to
import products. Consequentially, the
Egyptian pound fell to record lows in
2022, with 1 USD selling for 15.7 Egyptian
pounds (EGP) in January and 24.7 EGP
in December (with further devaluation to
> 30 EGP in early January 2023), and
restrictions were placed on outgoing USD
transfers by the Central Bank of Egypt,
with inflation rising from 7.3% in January to
21.3% in December (and then to 25.8% in
January 2023).
In late October 2022, the IMF approved
a US$3 billion, 46-month extended
facility financial support package, with
the Egyptian Government committing to
critical structural economic reforms, with
permanent full floating of the currency and
a privatisation programme as the main
pillars.
In 2023, the Egyptian economy is
expected to stabilise, with the IMF
forecast GDP growth of 4% in the year
ahead, albeit continued high inflation and
significant debt repayment obligations are
likely to remain prominent through the year.
Vietnam
Despite relatively high inflationary pressure
which rose to 4.55% in December 2022,
the highest level since March 2020,
Pharos Energy Annual Report and Accounts 2022 MARKET OVERVIEW - CONTINUED
Vietnam’s economy was the fastest
growing in Asia this year, following the
easing of COVID-19 restrictions, with
GDP rising 8.02% in the year ahead of
forecast, driven by the manufacturing
sector with supply chains relocating out
of China. Vietnam maintained a stable
macro-economy during 2022 and the IMF
forecasts GDP growth to slow to 5.8% in
2023.
Driven by its robust manufacturing
industry, the country’s demand in
conventional energy remains high in
the foreseeable future. Additionally,
the government’s efforts to promote
investment and maintain economic stability
will contribute to its economy’s strength,
making the country a popular destination
for foreign capital.
E&P Merger & Acquisition
activities
M&A activity within the industry slowed
down during the year, with deal value
down 41% compared to 2021 and just
over US$53 billion allocated towards
activity in the E&P sector. Despite high
oil prices and strong cash generation
across the sector, geopolitical unrest and
macroeconomic uncertainty weighed
heavily on M&A activity, and will likely
continue to impact 2023.
Climate change regulation
The 2022 United Nations Climate Change
Conference (the Conference of the Parties
or COP27) was held in Sharm El-Sheikh
last year. The issue of loss and damage
was firmly on the agenda for 2022,
focusing attention on the challenges
facing the global south as it adjusts to the
very real effects of climate change. This
proved to be a contentious issue, and
perhaps detracted attention away from
the targets set at COP26 in Glasgow to
keep global temperatures below 1.5°C.
It was however, successful in creating a
mechanism for advanced economies to
pay for the carbon emissions they create
as a result of growth, which is to be
invested in less advanced economies to
help them to adapt to climate change and
accelerate their net zero transition.
The International Energy Agency (IEA)
2022 Energy Outlook report presents
a price curve as an output of Net Zero
Emissions (NZE). The scenario outlines a
pathway to 1.5 °C stabilisation in global
average temperature rise and a transition
to an energy system with net zero CO2
emission by 2050. To achieve the NZE
target, it is necessary to transition away
from fossil fuels and towards cleaner,
renewable energy sources. This transition
will likely lead to a decrease in demand
for oil and a corresponding decrease in oil
prices. Therefore, according to the IEA,
the price curve for oil is expected to be
in backwardation with a gradual decline
through to 2050. Pharos takes this into
consideration and utilises it as a reference
for estimating future value and making
predictions.
In September 2022, the Company
announced a commitment to achieve
Net Zero on Scope 1 (direct) and Scope
2 (indirect) GHG emissions from all of its
assets by no later than 2050. This Net
Zero target underscores the principle that
sustainability is a key value in our purpose
and business strategy. Further detail can
be found in our Corporate Responsibility
Report on pages 61 to 107.
Pharos seeks transparency in its emissions
performance reporting and in 2022 we
continued to report our emissions and
disclose them in accordance with UK
industry requirements and standards.
We continued to ensure the Group is
prepared to report in line with the TCFD
recommendations and, during the first
half of 2022, carried out physical climate
and transition risk analysis to identify risks
/ opportunities for the business under
different climate scenarios and pathways.
Details of this analysis can be found in the
Corporate Responsibility Report on pages
61 to 107.
Global Crude Oil Consumption 2013-2023E
Source: Bloomberg
Brent crude 2013-2022 ($bbl)
Source: EA
d
p
b
m
m
104
102
100
98
96
94
92
90
88
l
b
b
$
120
100
80
60
40
20
0
2013A 2014A 2015A 2016A 2017A 2018A 2019A 2020A 2021A 2022A 2023E
2013
2014
2015
2016 2017
2018
2019
2020
2021 2022
Global E&P M&A, 2013-2022
Source: IHS
160.0
D
S
U
s
n
o
i
l
l
i
B
120.0
80.0
40.0
0
143.5
87.4
124.2
96.0
86.8
78.3
58.1
90.6
63.7
53.4
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
18
Pharos Energy Annual Report and Accounts 2022Governance ReportFinancial StatementsAdditional InformationStrategic Report
CHIEF EXECUTIVE OFFICER’S STATEMENT
CEO’s statement
Delivering value to all stakeholders.
2022 was a year of significant change for Pharos. Amidst the
challenges and ongoing volatility facing the industry, we delivered
crucial milestones that have allowed us to rebuild resilience in the
balance sheet and helped us deliver on our strategy of offering long
term, sustainable value to our shareholders via both regular cash
returns and organic growth.
• January 2022
• September 2022
We announced a clear policy for the
recommencement of regular dividend
payments, the first of which will be put
to the AGM in May 2023 and, subject
to shareholder approval, paid in July
2023.
Also in September 2022 we set out a
formal commitment to achieve a Net
Zero target on Scope 1 (direct) and 2
(indirect) GHG emissions from all our
existing and future assets by no later
than 2050, which we recognise is a key
component for stakeholders.
These key steps, combined with the
operational performance set out below,
have reset the dial for Pharos. The Group
now has a refreshed portfolio, a reduced
cost base, and a more resilient balance
sheet to allow us to invest in the organic
growth opportunities in the portfolio.
These opportunities range from near-term
developments and exploration potential
in Egypt to world-class potential basin-
opening exploration in Vietnam.
The Company received presidential
approval on the El Fayum Third
Amendment which increased
Contractor share of revenues from
c.42% to c.50%, thus improving fiscal
terms in Egypt.
• March 2022
We completed the farm-out transaction
and transfer of operatorship of
our Egyptian assets to IPR. The
combination of IPR’s long track-record
in Egypt, the enhanced fiscal terms,
the Egyptian rig secured on a long-
term contract, plus the carry over our
remaining 45% interest through 2022
and into 2H 2023, all combined to
support delivery of the full potential
of these assets, despite the current
challenges in the Egyptian economy.
• July 2022
We initiated a $3m share buyback
programme to return value to
shareholders at a time where the share
price was trading at a material discount
and to enhance NAV, earnings and
dividends per share to shareholders
over time. The programme took
around six months to complete and,
in January of this year, we announced
its continuation with a further $3m
committed.
JANN BROWN
Chief Executive Officer
19
Pharos Energy Annual Report and Accounts 2022 CHIEF EXECUTIVE OFFICER’S STATEMENT - CONTINUED
Strong operational performance in 2022 …
In Vietnam, the Group continued to
deliver high netback, stable production.
Production in 2022 from the TGT
and CNV fields net to the Group’s
working interest averaged 5,418
boepd, in line with guidance. To sustain
production levels, the JOCs carried
out a drilling programme comprising
two development wells at TGT and
one at CNV, which was completed
on time and under budget. In 2022,
the crude produced from the fields in
Vietnam commanded a premium to
Brent of just over $4/bbl, achieved
a netback of c.$50 per barrel and a
forecast payback period for the wells
drilled of less than 12 months, making
investment in these fields an attractive
proposition.
In Egypt, we completed the farm-
out to IPR in March 2022, and
production from the El Fayum
Concession averaged 3,128 bopd
gross, 1,748 bopd net to the Group,
in line with guidance announced in
May 2022. A multi-well development
drilling programme on El Fayum was
undertaken, with a total of seven
wells drilled and put on production
in 2022. Most notably, in July 2022,
the JOC (Petrosilah) secured a rig on
a long-term contract, one year firm
plus an option for a second year, from
December 2022. This rig is expected
to provide a stable platform for a
continuous drilling campaign which
is essential to adding new barrels
to production, subject to improving
macroeconomic position in Egypt.
The health and safety of our workforce
remains our number one priority and
we are committed to operating safely
and responsibly at all times. We
continue to have an excellent safety
record in Vietnam, and I am pleased to
report that the Company reported zero
LTIs and zero fatal incidents in Vietnam
for the past 26 years. This is thanks
to the JOCs’ consistent efforts to
provide and champion workers’ health,
safety and well-being, and we are
careful to maintain this achievement as
we have done since 1996. In Egypt,
we regret to report one LTI and one
environmental spill in 2022, details
of which are set out in our Corporate
Responsibility report on page 61.
We are working with our partner IPR
and JOC Petrosilah to investigate
and address the underlying issues
behind the safety measurements and
precautions in operations in order to
return to our track record of zero safety
and environmental incidents across all
assets.
Our operational performance in 2022
has laid a strong foundation for our
2023 work programme to move
forward with the growth potential of
our assets, supporting delivery of our
strategy.
Pharos Energy Annual Report and Accounts 2022
20
Governance ReportFinancial StatementsAdditional InformationStrategic Report
CHIEF EXECUTIVE OFFICER’S STATEMENT - CONTINUED
… Helping us deliver our strategy
As we navigate the many challenges throughout the year, the Board and senior management team maintain a clear focus on our capital
allocation goals: to balance regular returns to shareholders with investment in our assets to generate sustainable value and cash flow,
while preserving the resilience of the balance sheet. As the Company reshapes its portfolio and financial position, our strategy of creating
and returning value to shareholders through a combination of annual dividends and organic growth, underpinned by robust cash flow
and strengthened balance sheet, stays consistent through changing times. We are committed to delivering value and invest where
we see near term cash flow and longer term value per share. We keep each asset in our portfolio under review to ensure that they are
delivering the expected value and we have a track record of monetising at the right point in the cycle.
4. Capital allocation
We have a culture of prudent
financial management, capital
allocation and capital return.
We exhibit capital discipline
through a focus on cost
management and control,
a part of our DNA. Capital
allocation decisions are taken
to make investments where
they will generate risk-adjusted
full-cycle returns and it is this
approach that has allowed us
to return significant amounts
of capital to shareholders in
the past. We retain a flexible
approach to our portfolio and
look to time acquisitions and
divestments to optimise cash
flow and value per share.
3. Cash flow protections
We have run cash flow
projections over a number of
different scenarios and have a
balance of hedged and free-
floating Group production, with
71% of forecast production
unhedged at 31 December
2022, thus providing exposure
to the oil price. We also
operate in two very different
jurisdictions, which provides
diversification and resilience in
a volatile world. Additionally,
to mitigate the impact of the
current late payment issues
in Egypt, we have a working
capital facility with the National
Bank of Egypt (NBE) to
smooth out payment cycles
there. Under this arrangement,
Pharos is able to access
USD cash from the facility of
up to 60% of sales invoices
outstanding, with a cap of
$18m.
1. Shareholder Returns
We have established a
sustainable shareholder
return framework via share
buybacks and dividends. Our
initial $3m share buyback
programme announced in
July 2022 has completed
and we have announced
a further commitment
of $3 million to continue
the programme in 2023.
Additionally, in September
2022, we announced our
intention to recommence
dividend payments starting
in 2023. Our policy is set at
returning not less than 10%
of Operating Cash Flow
(OCF) and accordingly takes
account of volatility in the
market, such as movements in
Brent price, tax, and working
capital movements. Based
on the 2022 results, where
OCF of $53.4m (£43.2m) was
achieved, the first dividend
under this policy will amount to
1p per share, and will be put
to shareholders at the AGM
in May 2023. Payment of the
2022 dividend is scheduled
for July 2023, and the Board
expects to pay an interim
dividend based on forecast
results for 2023 in early
January 2024.
2. Organic growth
opportunities
We have a portfolio of organic
growth opportunities in both
Vietnam and Egypt, with
options continuously being
explored and development
work progressed to maximise
the potential of these
complementary assets.
In Vietnam, 3D seismic
processing is complete on
Block 125, a basin-opening
frontier play with world-class
potential, and a variety of
interesting Prospects have
been identified. We are in
discussions with a number of
parties interested in farming
in to support the funding of a
commitment well on this Block.
Lastly, we are progressing
work to submit licence
extension requests across
our asset base to extend the
periods over which we can
continue our work. In Egypt,
we have infrastructure-led
exploration (ILX) opportunities
in both the North Beni
Suef (NBS) and El Fayum
Concessions, which are being
developed with our partner IPR
in the 2023 work programme.
21
Pharos Energy Annual Report and Accounts 2022 Outlook
The key steps we have taken to
reshape our business have taken
Pharos to a stronger place. After
a year of delivery, we now have a
combination of assets which offer
resilience in difficult times, strong
cash returns even at low oil prices,
plus valuable organic growth
potential when investment capital
is available. Having taken over the
reins at Pharos a year ago, I am
confident that we have the assets,
plan, team, capital structure
and financial discipline to deliver
long-term sustainable return to all
stakeholders. I would like to thank
our global colleagues, investors,
government and JV/JOC partners
for their continued support through
these changes as we navigated
through a year of challenges and
uncertainties, and I look forward
to working with all of them to steer
Pharos on a path towards a new
phase of growth.
JANN BROWN
Chief Executive Officer
CHIEF EXECUTIVE OFFICER’S STATEMENT - CONTINUED
Stakeholder engagement
The operational successes the
Company had during the year, as
well as the strategic building blocks
towards reshaping the business, would
not have been possible if not for the
supportive relationships we have with our
stakeholders.
After an extended period of travel
restrictions due to the pandemic, in 2022,
I was able to travel to Egypt and Vietnam
to meet with many of our colleagues
and key stakeholders in-person. I am
personally very grateful to have been able
to reconnect and refresh relationships
with our partners after a long period of
remote working, and have been greatly
encouraged by the supportive and open
engagement with our colleagues, JV/JOC
partners, regulators, and governments.
I met the Chair of EGPC, the industry
regulator and state oil company in
Egypt, in H2 2022, whose support was
a crucial step towards the approval for
the improvement in our fiscal terms. In
Vietnam, I had the opportunity to meet
with both our partners and the regulator
to discuss the Revised Field Development
Plans and licence extensions for TGT
and CNV, and the exploration potential
and licence extension for Block 125/126.
Closer to home, we also hosted an
extensive delegation from Vietnam to
contribute our thoughts and experiences
as they prepared to take a new petroleum
law through the National Assembly,
which has now been approved and will
take effect from 1 July 2023, helping to
expedite some of the approval processes
in country. Finally, in December 2022, John
Martin and I were honoured to be granted
a private audience with the Prime Minster
of Vietnam to discuss the proposed
licence extensions on our assets in
country, highlighting the important benefits
that these bring not just to Pharos but
also to Vietnam. Most recently, in January
2023, the Company held a lunch to
engage with analysts, both those covering
and not covering the Company, to foster
open and communicative relationships
with key figures in the industry. We
will continue to engage in a personal
and meaningful way with our various
stakeholders in 2023 and beyond.
Sustainability & Net Zero
Sustainability is a key value in our
purpose and business strategy. We are
committed to providing energy to support
the development and prosperity of the
countries, communities and families
wherever we work, in line with recognised
social and environmental practices.
The use of oil and gas in developing
economies, particularly where it replaces
coal, can provide the energy needed to
drive GDP growth as a foundation for
long-term economic and social benefits,
as long as those resources are developed
efficiently, safely and responsibly. In this
way, we can create sustainable value for
all of our stakeholders: investors, host
countries, business and communities.
This year, we have taken an important
step with regard to our environmental
responsibilities to society and the countries
in which we operate. In September 2022,
we announced a commitment to achieve
Net Zero on our Scope 1 (direct) and
Scope 2 (indirect) GHG emissions from
all our current and future assets by no
later than 2050. We look to achieve this
by progressing operational efficiencies,
reducing flaring and venting where
possible, replacing the power consumption
of our facilities with less impactful energy
sources and eventually procuring nature-
based carbon offset projects for hard-to-
abate, residual emissions. As we develop
our emissions reduction plans, we will look
to accelerate this 2050 target whenever
we can. We have also established
an Emissions Management Fund in
2022 to provide support for emissions
management projects in line with our
climate goals. Additionally, we also pledge
to publish a detailed Net Zero roadmap in
late 2023, to include a baseline emissions
inventory for all our assets, asset-level
emission reduction frameworks, and
introducing interim targets over the short
and medium term as well as the capital
expenditure and resourcing needed to
achieve targets.
We recognise that the journey to Net Zero
will be neither simple nor straightforward.
Nevertheless, we remain committed
to transparency in our reporting and
to keeping stakeholders updated on
our progress. For more details on
our Net Zero commitment, Emissions
Management Fund, our emission impact
and how we deliver value to the local
community, please refer to our Corporate
Responsibility Report on page 61.
22
Pharos Energy Annual Report and Accounts 2022Governance ReportFinancial StatementsAdditional InformationStrategic Report BUSINESS MODEL
How our business model
creates sustainable value
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
organic opportunities, particularly those with near-term low-cost
development and exploration assets with transformative potential
within Asia and MENA.
VALUE INPUTS
VALUE INPUTS
VALUE INPUTS
Our people
• Extensive industry experience
Our assets
• Mix of complementary assets
• Technical expertise & commercial
• Low-cost onshore drilling in Egypt
acumen
• Relationship-driven
• Diverse & inclusive workforce
• Mature, short payback in Vietnam
• Basin-opening frontier offshore
exploration in Vietnam
Our capital
• Rigorous approach to cost
• Low breakeven oil price in Vietnam
• Modest gearing
• Disciplined capital allocation
process
Assess
Invest
Develop
& Produce
We assess opportunities which offer near
term cash generation and longer term
growth. We generate opportunities from
within our existing asset base and balance
the value of investing in the business with
the value of cash returns to shareholders.
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.
Our production increases through the
development of existing discovered
resources. We seek to maximise margins
through optimising production at low
operating costs. We are committed to
responsible and safe operations at all
times.
VALUE OUTPUTS
VALUE OUTPUTS
VALUE OUTPUTS
Organic growth
opportunities
• Development of existing
discovered resources
• New exploration prospects and
leads in both Concessions in
Egypt and in Block 125/126 in
Vietnam
• Conventional and unconventional
+ exploration potential
Stakeholders
Growth metrics
• Net Asset Value (NAV) per share
• Safe and responsible operations
growth
• Regular cash return to
shareholders
• Development of discovered
Egyptian resources through
onshore, low cost, in-fill drilling
• Local capability & trusted
• Continued development of
partnerships
•
In-country economic contribution
and social investment
• Local employment and capability
training
Vietnam producing assets through
licence extensions and revised
field development plans
• Farm-in partner to support the
funding of a commitment well and
develop the full potential of Block
125
23
Pharos Energy Annual Report and Accounts 2022 KEY METRICS
Reporting on
our performance
We use both financial and non-financial metrics to manage long-
term performance and deliver on our responsible business plans.
They are kept under review and regularly tested for relevance
against our strategies and policies.
* Read More
Non-IFRS measures on page 203
2022 Financial Measures
LOW CASH OPERATING COST
$/BOE *
CAPITAL EXPENDITURE CASH
$M (includes abandonment funding)
16.36
2022
2021
2020
29.8
16.36
16.05
2022
2021
2020
11.60
29.8
39.8
41.3
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.
Description
Investment in the asset base required to maintain and grow the
business and directed to the assets in Egypt and Vietnam.
Objective
To be profitable at lower oil prices.
Performance
Pharos achieved an operating cost of $16.36/boe in 2022, an
increase over 2021, largely due to higher variable costs as a result
of an upsurge in the fuel price, offset by the significant devaluation of
EGP against the US dollar during the year.
Outlook
We continue to target improvements in 2023 and beyond through
managing costs and increasing production
Links to strategy
• Deliver value through
growth
Associated risks
• Partner alignment risk
• Political and regional risk
Links to Remuneration Report (See page 134)
Objective
To achieve returns in excess of cost of capital.
Performance
The 2022 cash capital expenditure was lower than 2021. In 2022, the
TGT drilling programme for two development wells completed in H2
2022, on time and under budget. For CNV Field, one development
well commencing in H2 2022 and has now been completed (most
of CNV cash capex was deferred from 2022 to 2023). In Egypt,
seven wells were put on production in 2022 (including one well
drilled in 2021), and one additional well drilled in Q4 2022 is due for
completion in Q1 2023.
Outlook
The cash capex forecast for 2023 is expected to be c.$38m (c.$23m
after Egyptian carry by IPR).
Links to strategy
• Deliver value through
growth
•
Investment growth
Associated risks
• Commodity price risk
• Partner alignment risk
24
Pharos Energy Annual Report and Accounts 2022Governance ReportFinancial StatementsAdditional InformationStrategic Report KEY METRICS - CONTINUED
2022 Financial Measures - Continued
CASH AND CASH EQUIVALENTS
$M
RETURNS TO SHAREHOLDERS
PENCE PER ORDINARY SHARES
45.3
2022
2021
2020
1
45.3
2022
2021
2020
0
0
27.1
24.6
1
Description
Pharos has a history of stable finances and a strong balance sheet
due to the prudent management of producing assets.
Description
Commitment to cash returns to shareholders remains a core element
of our overall allocation framework.
Objective
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 $45.3m, an increase of 67% on prior
year, mainly driven by net cash flows from operating activities of
$53.4m (2021: $10.8m) as a result of higher commodity prices during
the year, offset by lower production.
Outlook
Capital discipline and financial stability have always been key to the
Company and continue to underpin the business.
Objective
To provide sustainable cash returns to shareholders.
Performance
In 2022, the Board recommended recommencement of regular
dividend payments starting in 2023, subject to shareholder approval
at AGM 2023, returning no less than 10% of Operating Cash Flow
(OCF). The Board have recommended a final dividend of 1p per share
based on 2022 Operating Cash flow.
Also completion of the initial $3m share buyback programme,
completed early January 2023, with a further $3m committed for
2023.
Outlook
We are committed to deliver long term, sustainable value to our
shareholders via both regular cash returns yield and organic growth.
An annual dividend remains a key aspect of the Company’s capital
discipline and investment thesis.
Links to strategy
• Deliver value through
growth
Associated risks
• Commodity price risk
• Financial discipline and
Links to strategy
• Deliver value through
growth
• Return to shareholders
governance risk
• Return to shareholders
Associated risks
• Commodity price risk
• Climate change risk
• Sub-optimal capital
allocation risks
25
Pharos Energy Annual Report and Accounts 2022 KEY METRICS - CONTINUED
Operational measures
LOST TIME INJURY FREQUENCY (“LTIF”)
PER MILLION MAN-HOURS WORKED
GROUP NET PRODUCTION
BOEPD
0.42
2022
2021
0
2020
7,166
0.42
2022
2021
2020
0.34
7,166
8,878
11,373
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.
Description
Production revenues generate cash flows which are re-invested in
the portfolio of assets, new business opportunities, and in returns to
shareholders.
Objective
To achieve zero LTIF across the Group’s operations.
Performance
In Vietnam, our Joint Operations continue to deliver an exceptional
record of safety, reporting zero LTIs since operational inception in
1996. In Egypt, we regret to report one LTI in 2022, details of which
are set out in our Corporate Responsibility report on page 61, and
we are working with the operator IPR to investigate and address the
underlying issues behind the safety measurements and precautions in
our operations in order to return to our track record of zero LTI across
all assets.
Outlook
Continue to work closely with the Joint Operating Companies to
maintain high safety standards and training with the aim of driving
continuous improvement year-on-year.
Objective
To optimise production from the Group’s asset base.
Performance
Vietnam 2022 production was 5,418 boepd net (2021: 5,560 boepd
net) and Egypt 2022 production was 1,748 bopd net.
Outlook
Group working interest 2023 production guidance is 6,050 – 7,500
boepd net. Vietnam 2023 production guidance is 4,700 – 5,700
boepd net, and Egypt 2023 production guidance is 1,350 – 1,800
bopd net
Links to strategy
• Focus on stakeholders
Associated risks
• HSES and social risk
• Partner alignment risk
Links to strategy
• Deliver value through
growth
Associated risks
• Reserve risk
• Sub-optimal capital
allocation risks
• Commodity price risk
Links to Remuneration Report (See page 134)
Links to Remuneration Report (See page 134)
26
Pharos Energy Annual Report and Accounts 2022Governance ReportFinancial StatementsAdditional InformationStrategic Report KEY METRICS - CONTINUED
Operational measures - Continued
SOCIAL AND ECONOMIC INVESTMENT
$
EMPLOYEES UNDERTAKEN ANTI-BRIBERY
AND CORRUPTION TRAINING %
698,600
100
2022
2021
2020
698,600
765,000
745,191
2022
2021
2020
100
100
100
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. 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.
Objective
To continue supporting local capability building and social
investments in Vietnam and Egypt.
Performance
In 2022, in addition to the aforementioned training levy funds (which
totals to $500,000), a further $198,600 was invested in 9 community
and charitable partnerships and investment projects.
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.
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
To have all Group personnel complete the annual ABC programme
including training, testing and self-declaration statement.
Performance
100% of personnel completed the ABC training as at year end 2022.
Outlook
Maintain 100% completion rate for the ABC training and testing.
Comply with new legislations and industry best practices and ensure
the training programmes are up-to-date.
Links to strategy
• Focus on stakeholders
Associated risks
• Commodity price risk
• Financial discipline and
governance risk
• Business conduct and
bribery
Links to strategy
• Deliver value through
growth
Associated risks
• Partner alignment risk
• Business conduct and
•
Investment growth
bribery
27
Pharos Energy Annual Report and Accounts 2022 OPERATIONAL REVIEW
Egypt
The Group has a 45% non-operating interest in two concessions
in Egypt - El Fayum and North Beni Suef. *
1,748 bopd
2022 EGYPT PRODUCTION
(NET)
10
DEVELOPMENT LEASES IN
EL FAYUM
El Fayum (D&P)
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.
Area E
CAIRO
EGYPT
El Fayum Concession
North Beni Suef (E)
The North Beni Suef (NBS) Concession
is also located in the Western Desert, to
the south of the El Fayum Concession. It
is currently in the first exploration period,
during which the Contractor parties are
committed to drill two exploration wells
and acquire new seismic.
CAIRO
EGYPT
North Beni Suef Block
* The farm-down transaction and transfer of operatorship of Pharos’ Egyptian assets to IPR completed on 21 March 2022. Although
the economic date of the transaction was 1 July 2020, working interest production for Egypt in 2022 is reported as 100% through to
completion and 45% thereafter. The comparative basis for 2021 also assumes 100% working interest until 21 March 2021 and then
45% for the remainder of the year.
28
Pharos Energy Annual Report and Accounts 2022Governance ReportFinancial StatementsAdditional InformationStrategic Report 2023 Work Programme
El Fayum
Egypt production guidance for 2023 is 1,350 – 1,800
bopd net (equivalent to gross production of 3,000 –
4,000 bopd).
In El Fayum, multi-well development drilling continues in
2023, with nine wells planned for the year.
On the exploration side, two commitment exploration
wells are expected to be drilled in the El Fayum
Concession as part of the planned 2023 work
programme. These two Satellite exploration wells are
planned to target two separate structures near existing
producing fields with primary reservoir targets in the
Abu Roash G and Upper Bahariya formations. We are
working closely with IPR to progress well planning and
optimise drilling schedules.
The drilling of the first NBS exploration commitment well,
originally planned for Q4 2022, has started in Q1 2023.
In March 2023, a further extension to the exploration
period was granted by EGPC. These two extensions,
which run until September 2023, provide additional
time to fulfil the Contractor parties’ commitment to
drill this commitment well. The second commitment
exploration well on NBS is planned to be drilled later in
2023, dependent on rig availability. Several prospects
have been identified from the existing 3D seismic and
acquisition of c.110 km2 of additional 3D seismic has
started in Q1 2023.
OPERATIONAL REVIEW - CONTINUED
Egypt Production in 2022
The transaction with IPR and transfer of operatorship completed
on 21 March 2022. Although the economic date of the transaction
was 1 July 2020, operatorship remained with Pharos until March
2022. Accordingly, working interest production in 2022 is reported
in the Financial Statements as 100% through to completion of the
farm-down and 45% thereafter.
Production for 2022 from the El Fayum Concession averaged
3,128 bopd gross and 1,748 bopd net to the Group. This is in line
with the 2022 production guidance announced in January 2022.
Egypt Development and Operations in 2022
Following the transaction with IPR in March 2022, the main
El Fayum multi-year and multi-well development programme
commenced in Q2 2022. Seven wells were put on production in
2022 (including one well drilled in 2021), and one additional well
was drilled in Q4 2022 and completed in Q1 2023.
In July 2022, the El Fayum JOC, Petrosilah, secured a rig on a
long-term contract, one year firm plus an option for a second year,
which started drilling in December 2022. This rig is expected to
provide a stable platform for a continuous drilling campaign, which
we consider essential to adding new barrels to production.
Additionally, two workover rigs are on field to contribute to
production through low-cost well repairs, recompletions, and
deployment of water injection.
Egypt Commercial in 2022
In January 2022, the Company received approval on the Third
Amendment to the El Fayum Concession. The agreement, and the
improved fiscal terms, were retroactively effective from November
2020.
As a result of the changes introduced by the Third Amendment,
the Contractor parties’ share of revenue while in full cost recovery
mode increases from c.42% to c.50% as from November 2020,
(corresponding to additional net revenues to the Contractor of
c.$7 million to the date of signature) significantly lowering the
development project break-even. The Third Amendment also
grants Contractor a three-and-a-half-year extension to the
exploration term of the El Fayum Concession, with an additional
obligation on Contractor to drill two exploration wells and acquire
a 3D seismic survey in the northern area of the concession.
The Group is cognisant of the current macroeconomic situation
in Egypt, and will continue to review its investment programme in
light of recovery of the receivable position.
Egypt Exploration in 2022
North Beni Suef (NBS) exploration
In Q4 2022, the Company was granted a short extension on
North Beni Suef (NBS) to allow additional time to drill high-ranked
prospects and all work programme commitments, including the
first of two commitment exploration wells, originally planned for Q4
2022. Several prospects have been identified from the existing 3D
seismic.
29
Pharos Energy Annual Report and Accounts 2022 OPERATIONAL REVIEW - CONTINUED
Vietnam
Pharos has two producing assets, Te Giac Trang (TGT) and
Ca Ngu Vang (CNV), and two exploration blocks (Blocks 125 & 126)
in Vietnam.
5,418 boepd
4
2022 VIETNAM PRODUCTION (NET)
BLOCKS IN VIETNAM
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.
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.
VIETNAM
Block 16-1 TGT Field
Block 9-2 CNV Field
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.
NHA TRANG
VIETNAM
Block 125
Block 126
30
Pharos Energy Annual Report and Accounts 2022Governance ReportFinancial StatementsAdditional InformationStrategic ReportCAMBODIACAMBODIA OPERATIONAL REVIEW - CONTINUED
Vietnam Production in 2022
Production in 2022 from the TGT and CNV fields net to the
Group’s working interest averaged 5,418 boepd (2021: 5,560
boepd). This is in line with the production guidance for Vietnam
announced in January 2022.
TGT production averaged 13,784 boepd gross and 4,089 boepd
net to the Group (2021: 13,887 boepd gross and 4,120 boepd
net). CNV production averaged 5,317 boepd gross and 1,329
boepd net to the Group (2021: 5,762 boepd gross and 1,440
boepd net).
Vietnam Development and Operations in 2022
TGT & CNV Fields
On Block 16-1 – TGT Field, the drilling programme for two
development wells completed in H2 2022, on time and under
budget. The first well, H1-35P, commenced production on 21
October 2022, and the second well, 11XPST, commenced
production on 10 November 2022.
Additionally, the JOC continues to execute an active well
intervention and data-gathering programme on TGT to further
optimise production.
On Block 9-2 – CNV Field, one development well, CNV-2PST1,
started drilling in H2 2022 and completed in Q1 2023 on time and
under budget.
Vietnam Exploration in 2022
Blocks 125 & 126
On Block 125, the 3D seismic processing was completed in
November 2022 and the ongoing interpretation of this data has
resulted in the mapping of a variety of world class Prospects in
this relatively unexplored basin.
The analysis of the 2D seismic shot in 2019 indicated
prospectivity in both the shallow and deeper water, and the
ongoing interpretation of the 3D seismic has highlighted greater
prospectivity in the deeper water section given the scale of the
Prospects identified there.
2023 Work Programme
TGT & CNV Fields
Vietnam production guidance for 2023 is 4,700 to 5,700
boepd net.
For the 2023 work programme, the JOCs are working
towards submitting Revised Field Development Plans
(RFDPs) for two wells on TGT and one on CNV, with all
wells remaining in contingent budget until approval by
partners and the Ministry of Industry and Trade (MOIT).
Production guidance has assumed no contribution from
these wells in 2023.
The official licence extension requests have been sent
to partners for approval, prior to submission to PVN for
their approval before being put to the Prime Minister for
final assent.
Blocks 125 & 126
As noted, the ongoing interpretation of 3D seismic
data has highlighted greater prospectivity in the deeper
water section of Block 125. In order to drill one of
these deeper water prospects as the commitment
exploration well under the current exploration phase
of the PSC, a Drillship or Dynamically-Positioned (DP)
Semi-Submersible Rig is needed. Due to limited regional
availability the Group has been unable to source a
suitable drilling unit for 2023 on acceptable terms. We
therefore submitted an application in December 2022 for
an extension of the current exploration phase of the PSC
which is now with the Prime Minister’s office for approval.
We will use the time to optimise drilling locations and
well planning for this deeper water well, to source a
Drillship or DP Semi-Submersible Rig and other long-
lead procurement items and to find a partner to support
the funding of this well. A number of parties have been
invited to review data and discussions are ongoing.
In addition, we are now engaged in updating our
3D Hydrocarbon Modelling of the area and in fully
analysing the 3D seismic data for amplitude anomalies
– spectral decomposition for reservoir facies distribution
patterns and AVA/AVO analysis for the presence of
hydrocarbons. We have also started a detailed Peer
Review study of all our technical work with a leading
Energy Subsurface consultancy (ERCE), who will also
perform an Independent Resource assessment of our
key Prospects.
31
Pharos Energy Annual Report and Accounts 2022 OPERATIONAL REVIEW - CONTINUED
Group Reserves and Contingent Resources
The Group Reserves Statistics table below summarises our reserves and contingent resources based on the Group’s unitised net
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.
Group Reserves Statistics
Net Working Interest (mmboe)
Oil & Gas 2P Commercial Reserves1,2
As of 1 January, 2022
Production
Revision
Change in net working interest5
2P Commercial Reserves as of 31 December 2022
Oil & Gas 2C Contingent Resource1,2
As of 1 January, 2022
Revision
Change in net working interest5
2C Contingent Resources as of 31 December 2022
Total Group 2P Reserves & 2C Contingent Resources3,4
As of 31 December 2022
TGT
CNV
Vietnam3
Egypt4
Group
10.9
(1.5)
(0.6)
-
8.8
7.6
(0.2)
-
7.4
16.2
4.3
(0.5)
(0.4)
-
3.4
3.8
(0.4)
-
3.4
6.8
15.2
(2.0)
(1.0)
-
12.2
11.4
(0.6)
-
10.8
23.0
37.8
(0.6)
(1.5)
(20.7)
15.0
18.6
0.5
(10.2)
8.9
23.9
53.0
(2.6)
(2.5)
(20.7)
27.2
30.0
(0.1)
(10.2)
19.7
46.9
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.
5) Pharos Energy net working interest in El Fayum is 45% post completion of farm-down transaction to IPR on 21 March 2022
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 2022.
Vietnam Reserves Statistics
Net Working Interest (mmboe)
TGT
CNV
Total Vietnam
Oil & Gas 2P Commercial Reserves1,2
As of 1 January, 2022
Production
Revision
2P Commercial Reserves as of 31 December 2022
Oil & Gas 2C Contingent Resource1,2
As of 1 January, 2022
Revision
2C Contingent Resources as of 31 December 2022
Total Vietnam 2P Reserves & 2C Contingent Resources3
As of 31 December 2022
10.9
(1.5)
(0.6)
8.8
7.6
(0.2)
7.4
16.2
4.3
(0.5)
(0.4)
3.4
3.8
(0.4)
3.4
6.8
15.2
(2.0)
(1.0)
12.2
11.4
(0.6)
10.8
23.0
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.
On TGT, 2P reserves were revised downwards due to lower than expected performance from one of the new infill wells and a slow
production ramp-up following the annual maintenance shutdown. 2C contingent resources were revised as volumes from two future infill
wells were moved into the reserves category.
On CNV, the 2P reserves and 2C contingent resources were revised downwards due to lower performance from the existing wells and
delayed dewatering of well 5PST2.
32
Pharos Energy Annual Report and Accounts 2022Governance ReportFinancial StatementsAdditional InformationStrategic Report OPERATIONAL REVIEW - CONTINUED
Egypt Reserves and Contingent Resources
Egypt Reserves Statistics
Net Working Interest (mmboe)
Oil 2P Commercial Reserves1
As of 1 January, 2022
Production
Revision
Change in net working interest3
2P Commercial Reserves as of 31 December 2022
Oil 2C Contingent Resource1
As of 1 January, 2022
Revision
Change in net working interest3
2C Contingent Resources as of 31 December 2022
Total Egypt 2P Reserves & 2C Contingent Resources2
As of 31 December 2022
Egypt
37.8
(0.6)
(1.5)
(20.7)
15.0
18.6
0.5
(10.2)
8.9
23.9
1) Reserves and contingent resources are categorised in line with 2018 SPE standards.
2) Reserves and Contingent Resources have been independently audited by McDaniel.
3) Pharos Energy net working interest in El Fayum is 45% post completion of farm-down transaction to IPR on 21 March 2022
On El Fayum, the delay in the execution of the field development plan have resulted in a downward revision of the 2P reserves, pushing
some volumes into the contingent resources category.
Group’s Net Working Interest Reserves and Contingent Resources
El Fayum Fields at 31 December 2022 (mmboe)
Reserves
Oil
Contingent Resources
Oil
Sum of Reserves and Contingent Resources1,2
Total
Total
1P
7.3
1C
3.3
1P & 1C
10.6
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.
TGT Field at 31 December 2022 (mmboe) (net to Group’s working interest)
Reserves3
Oil
Gas1
Total
Contingent Resources3
Oil
Gas1
Total
1P
6.7
0.4
7.1
1C
4.7
0.1
4.8
2P
15.0
2C
8.9
2P & 2C
23.9
2P
8.1
0.7
8.8
2C
7.1
0.3
7.4
3P
20.0
3C
18.0
3P & 3C
38.0
3P
9.2
0.9
10.1
3C
9.0
0.5
9.5
Sum of Reserves and Contingent Resources2
1P & 1C
2P & 2C
3P & 3C
Oil
Gas1
Total
11.4
0.5
11.9
15.2
1.0
16.2
18.2
1.4
19.6
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.
33
Pharos Energy Annual Report and Accounts 2022
OPERATIONAL REVIEW - CONTINUED
CNV Field at 31 December 2022 (mmboe) (net to Group’s working interest)
Reserves3
Oil
Gas1
Total
Contingent Resources3
Oil
Gas1
Total
1P
1.8
1.1
2.9
1C
1.3
0.8
2.1
2P
2.1
1.3
3.4
2C
2.1
1.3
3.4
3P
2.5
1.5
4.0
3C
3.0
1.8
4.8
Sum of Reserves and Contingent Resources2
1P & 1C
2P & 2C
3P & 3C
Oil
Gas1
Total
3.1
1.9
5.0
4.2
2.6
6.8
5.5
3.3
8.8
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.
34
Pharos Energy Annual Report and Accounts 2022Governance ReportFinancial StatementsAdditional InformationStrategic Report SECTION 172(1)
S.172(1) Companies Act 2006
The duty under section 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 (“s.172(1)"),
the Directors of the Company have a
statutory duty to promote the success of
the Company. The Board of 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 it¬s 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(1) 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(1) 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(1) factors have
been applied by the Board are set out
below and can also be found throughout
the Strategic Report of which this
statement forms part.
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, in October
2022, the Board held a Strategy Day to
assess and evaluate our strategy to deliver
long-term, sustainable value for all our
stakeholders, and its implications on our
decision-making process. This involved,
amongst other things, presentations and
other inputs from a number of key external
parties, including shareholders and
advisers. At all meetings and discussions
of the Board and committees of the Board
(“Board Committees"), several papers
are presented 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 53 of the Risk Management
report for all principal risk and page 47 of
the Risk Management report. For more
information on the Strategy Day, see page
15 of the Chair’s Statement.
35
Pharos Energy Annual Report and Accounts 2022
SECTION 172(1) - CONTINUED
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). Throughout the year, we
have run a dedicated Monday weekly
meeting to ensure all colleagues are
continuously informed about important
business developments in the Company
and the Group, and have channels
through which they can ask questions
and provide input. We have continued to
make extensive use of video conferencing
facilities during calls and meetings to
maintain visibility and connection. The
recent reorganisation of the Group has
instituted a flatter organisational structure,
allowing for shorter lines of management
and more direct, accessible channels of
communication with leadership.
The Executive Directors receive regular
updates on colleague engagement to
understand any complaints or troubles
from the hybrid work environment. At
the beginning and end of each calendar
year, every employee is encouraged to
set their own personal and professional
development objectives and appraisal for
the upcoming year, and to discuss this
with their line managers who can provide
any additional support where needed
and to remediate any troubles that each
employees might face. Additionally, Jann
Brown, the Company’s CEO, held virtual
and in person one-to-one meetings
with employees in the UK, Vietnam and
Egypt to understand their concerns over
the past years. Feedbacks from these
sessions have resulted in several solutions
being proposed and implemented going
forward, such as: off-site away days/
in-person meetings monthly to avoid
staff isolation and promote team culture,
learning sessions on technology and
public capital markets, and a discussion
on how best to ask others for info/help/
support when working from home. During
the year, John Martin, as Non-Executive
Chair of the Board and designated
Non-Executive Director responsible for
workforce engagement, carried out in-
person town hall meetings, during which
staff were invited to share their feedback
and views about the Company without
the presence of any Executive Directors to
provide an open, honest and safe space
for all employees to express any concerns
they might have. Feedback from these
sessions were then taken into account
and communicated back to the Board and
Executive Directors as suggestions for
improvements.
For more information on the Board’s
engagement with employees, see
page 115 for the 2018 UK Corporate
Governance Code.
c) The requirements to foster
business relationships with
suppliers, customers, and others
d) The impact on the community
and environment of the Group’s
operations
The Group’s business relationships
with stakeholders, such as suppliers,
service providers, vendors and joint
venture partners 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 Directors
and the Board, or relevant Board
Committee, supported by papers outlining
impact and consequences of potential
decisions. All significant contracts and
other commitments are also thoroughly
reviewed by the Group General Counsel.
Our relationships with our joint venture
partners, shareholders and analysts are
the foundation to support the success of
our business. In 2022, Jann Brown met
with the President of EGPC, the industry
regulator and state oil company in Egypt,
and met with both our JOC partners and
with the regulator in Vietnam to discuss
the Revised Field Development Plans and
licence extensions for TGT and CNV and
the licence extension for Block 125/126.
Additionally, during the Strategy Day held
in London in October 2022, the Board had
presentations and inputs from a number
of key parties, including shareholders.
The results of our Strategy Day were then
communicated to key investors as part of
our overarching objective of maintaining
open and constructive two-way dialogues
with our stakeholders. Most recently,
in January 2023, the Company held
an analyst lunch to engage with media
journalists and analysts, both covering and
not covering the Company, to foster open
and communicative relationships with key
figures in the industry.
We plan to continue to engage in a
personal and meaningful way with our
stakeholders, such as suppliers, joint
venture partners, shareholders, and others
in the future.
For more information on how the Company
foster relationships with stakeholders, see
page 19 of our CEO’s Statement and page
115 of our Corporate Governance report.
The organisation has provided robust
evidence of its commitment to ESG in
the sector through its ESG Committee
and ESG Working Group. Over the
past five years, we have participated in
the CDP (Climate Disclosure Project)
Climate Change Questionnaire and have
maintained our score (C), which is also the
industry average. 2022 also marks the first
year that the Company was graded on their
water usage disclosure in the CDP Water
Security Questionnaire, which also received
a score of (C). As a Company, we continue
to work to bring our disclosures in line
with the requirements of the TCFD. Most
notably, in September 2022, the Company
made a formal commitment to achieve Net
Zero on all Scope 1 and 2 GHG emissions
across all assets by no later than 2050,
with plans to publish a Net Zero roadmap
later in 2023.
In addition to this, the Company has always
remained committed to creating value in
a sustainable manner for host countries
and local communities as well as for staff.
In recent years, we have structured our
social investment programme to align
more with the United Nations Sustainable
Development Goals (UN SDGs). We’ve
worked closely with our local partners
and joint ventures in order to make sure
that our social initiatives continue to bring
more positive impacts to the region. In
2022, $198,600 was invested in 9 long-
term community projects, and a further
$500,000 was invested in ring-fenced
funds for training to develop future talents
in the industry in Egypt and Vietnam.
The Board regularly monitors the Group’s
business activities, financial position,
cash flows and liquidity, and operating
environment through detailed forecasts.
Scenarios and sensitivities are carefully
researched and prepared by the Group’s
Business Intelligence Analyst and 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 the Board’s
commitment to ESG and considerations on
the community and the environment, see
pages 122 to 124 for the ESG Committee
report, pages 15 to 16 for the Chair’s
Statement, and pages 61 to 107 for the
Corporate Responsibility report.
For more information on Board oversight
on business activities, financial position and
the environment of the Group’s operations,
see page 47 of the Risk Management
report.
36
Pharos Energy Annual Report and Accounts 2022Governance ReportFinancial StatementsAdditional InformationStrategic Report SECTION 172(1) - CONTINUED
e) The desirability of the Company
maintaining a reputation for high
standards of business conduct
The Group’s Code of Business Conduct
and Ethics and associated policies and
procedures have been followed rigorously
in 2022. In H2 2022, the Group’s Risk
Manager hosted a virtual sessions on
anti-bribery and corruption (“ABC”)
for the global workforce to reiterate
the importance for every employee
to understand the Code of Business
Conduct and Ethics and to place it at
the forefront of our engagement with
suppliers, vendors, partners, and public
officials. It is also a requirement for all
employees and the Board to complete and
successfully pass their ABC and Criminal
Finance E-Learning modules every year
to ensure we hold the Company to the
highest standard of business conduct.
Our Whistleblowing Policy 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 year also saw the Russian invasion
of Ukraine in February 2022 and the
introduction of an unprecedented suite of
international sanctions and export controls
in response to Russia’s aggression. The
Group’s own response to the situation,
and the prospect of a protracted conflict,
included the establishment of dedicated
cross-functional Pharos working group in
March 2022 and the adoption of a new
Group Sanctions Policy in May 2022. At
an operational level, the Group continues
to work with the JOCs on contingency
planning and mitigation in the event that
the sanctions of the conflict has a direct
impact on the Group’s business.
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.
The Executive Directors communicate
regularly with the Board 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. For more
information on this, please refer to point a)
and b) above.
For more information on the Company’s
commitment to maintaining high standards
of business conduct, see pages 47 to 60
of the Risk Report, pages 61 to 107 of the
Corporate Responsibility report.
37
Pharos Energy Annual Report and Accounts 2022
SECTION 172(1) - CONTINUED
f) The need to act fairly as between
members of the company.
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.
Our Code of Business Conduct and
Ethics, associated policies and the Pharos
Guiding Principles commit us to providing
a workplace free of discrimination where all
employees can fulfil their potential based
on merit and ability. We remain respectful
and accepting in our relationships with
current and future employees without
discrimination or prejudice on grounds
of age, disability, gender, marital status,
sexual orientation, colour, race, religion
or any other characteristic protected by
applicable laws. 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 14 of the Investment
Case, pages 61 to 107 of the Corporate
Responsibility report, or visit our website at
https://www.pharos.energy/responsibility/
policy-statements/ for our Human Rights
statement.
Conclusion
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 other stakeholders, delivering our plan and working closely
to consider the best opportunities for the Company. Detailed Board and Board
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), the Board has also continued to consult with, and
take account of, the views of our investors, employees, partners, governments,
suppliers and other stakeholders throughout the year.
Other stakeholder engagement initiatives, which were not mentioned above,
included but not limited to:
• Robust process to refresh Board members and reduce Board size.
• Agile and responsible response to continue the implementation of a flexible
working model for UK staff, with the option but not the obligation to work
primarily from home – protecting people, accommodating diverse working
preference, cutting costs and deferring capex.
• Open and active dialogue with its institutional, private and retail shareholders
via website, Twitter and LinkedIn, email communications, and online meeting
with Q&A to allow the wider public a free platform to raise questions directly to
the Executive Directors.
• Frequent meetings between Executive Directors and in-country regulators and
partners, both in-person and virtual, reported to the Board.
• 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 firm on feedback from investors and
research analysts.
Pharos Energy Annual Report and Accounts 2022
38
Governance ReportFinancial StatementsAdditional InformationStrategic Report CHIEF FINANCIAL OFFICER’S STATEMENT
Chief Financial
Officer’s Statement
I am pleased to report the strengthening
of our balance sheet and a considerable
improvement in the liquidity of the business.
The steps we took in previous periods to streamline our business are
showing results, with improved fiscal terms in Egypt and reduced costs
throughout the Group. Our finance strategy continues to underpin our
business model and our commitment to building shareholder value
through organic growth and sustainable returns to shareholders. We
have continued with our infield development programme in Vietnam,
allowing us to sustain production levels in these highly attractive fast
payback wells. The successful completion of the farm down in Egypt in
March brought in a small initial cash payment on completion, but more
significantly allowed us to benefit from a full carry of all contractor costs
for G&A, opex and the capital programme into 2023. This activity has
all been supported by improved oil prices and has allowed us to deliver
strong positive cash flow and growth in value. As a direct result, we were
able to announce returns to shareholders with the $3m share buyback
programme in July and also announce our proposal to recommence
regular dividend payments, the first based on 2022 Operating Cash
Flow.*
*Subject to shareholder approval at 2023 AGM
Operating performance
Revenues
Group revenues were up 35% at $221.6m
prior to realised hedging loss of $22.5m
(2021: $163.8m prior to realised hedging
loss of $29.7m).
Revenues for Vietnam of $184.8m (2021:
$131.0m) increased significantly year
on year. The average realised crude oil
price was $106.44/bbl (2021: $72.61/
bbl), a 47% increase year on year, and
the premium to Brent was over $4/bbl
on average (2021: just under $2/bbl).
Production was largely flat at 5,418 boepd
(2021: 5,560 boepd).
The revenue for Egypt of $36.8m
(2021: $32.8m) increased largely due
to an additional $7m following the
improvement in the fiscal terms with
the Third Amendment to the El Fayum
Concession, increasing cost recovery
oil from 30% to 40% from November
2020. This was combined with higher
average realised crude oil price, up 47%
to $96.03/bbl (2021: $65.12/bbl), though
offset by reduced production of 1,748
bopd from 3,318 bopd, following the
farm-down of 55% interest and transfer
of operatorship of the Group’s Egyptian
assets to IPR completed on 21 March
2022. 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 and combined stayed consistent at
over $5/bbl for the year.
SUE RIVETT
Chief Financial Officer
39
Pharos Energy Annual Report and Accounts 2022
CHIEF FINANCIAL OFFICER’S STATEMENT - CONTINUED
Hedging
A number of hedges were put in place
in 2021 for the 2022 year to support
our stress testing for going concern and
the working capital test required for the
prospectus for the Egyptian farm down.
We were hedged more than required
under our RBL and higher than we would
normally commit to in order to support
this. For full year 2022, Pharos entered into
different commodity (swap and zero collar)
hedges to protect the Brent component
of forecast oil sales and to ensure future
compliance with its obligations under the
reserve based lending facility (RBL) over
the producing assets in Vietnam. The
commodity hedges run until December
2023 and are settled monthly. The majority
of hedged production volumes (61%) were
in H1 2022, leading to realised losses
of $17.3m out of total realised losses
of $22.5m for the year, in order to meet
requirements under the RBL and also
going concern and working capital tests in
relation to the Egypt farm out deal.
For 2022, 30% of the Group’s total
production was hedged, securing an
average realised price for the hedged
volumes of $73.1/bbl. The Group’s RBL
requires the Company to hedge at least
35% of Vietnam RBL production volumes
and the current hedging programme meets
this requirement through to December
2023, leaving 71% of Group production
unhedged as at 31 December 2022.
Please see below a summary of hedges
outstanding as at 31 December 2022,
which are all zero cost collar.
Production hedge per quarter – 000/bbls
Min. Average value of hedge - $/bbl
Max. Average value of hedge - $/bbl
Operating costs
Group cash operating costs, defined
in the Non-IFRS measures section on
page 203, were $42.8m (2021: $52.0m).
Vietnam increased marginally by 2% from
$31.0m to $31.7m in 2022, which equates
to $16.03/bbl (2021: $15.28/bbl). The
increase is due to higher costs relating
to the FPSO as a result of lower Thang
Long Joint Operating Company (TLJOC)
production (TLJOC has 14.5% cost share
in 2022 compared to 22.7% in 2021)
throughput, which increased the HLJOC’s
share of the costs.
Cash operating costs in Egypt were
$11.1m in 2022 (2021: $21.0m), which
equates to $17.40/bbl (2021: $17.34/bbl).
Cash operating costs from 1 January 2022
up to 20 March 2022 are 100% share and
from 21 March 2022 includes the Group’s
remaining 45% share. The increase in cash
operating costs relates largely to higher
variable costs as a result of an upsurge
in the fuel price, offset by the significant
devaluation of EGP against the US dollar
during the year.
DD&A
Group DD&A associated with producing
assets increased to $55.1m (2021:
$51.0m) driven by a higher depreciating
cost base following 2021 and June 2022
impairment reversals taken on both
Vietnam and Egypt, partially offset by the
decrease in group production year on year.
DD&A per bbl is currently $25.79/boe for
Vietnam (2021: $21.19/boe). DD&A per
bbl for Egypt is $6.43/boe for the full year
production entitlement, as the Company
had 100% share of Egypt production
1Q23
180
65.33
102.88
2Q23
180
65.33
102.88
3Q23
180
63.33
102.23
4Q23
45
63.33
107.80
for the period through to completion of
the farm-down, 1 January 2022 to 20
March 2022, and then 45% share for the
remainder of the year. At 31 December
2021, 55% of El Fayum property, plant
and equipment (PP&E) was re-categorised
to assets classified as held for sale. The
remaining 45% PP&E cost base was
depreciated over 45% share of production
for the period through to completion of the
farm-down, giving a comparable DD&A
per bbl of $7.98/boe (2021: $6.61/boe),
which reflects the impairment reversals
previously noted.
Administrative Expenses
Administrative expenses in 2022 of
$10.0m (2021: $13.2m) are substantially
lower than prior year due to our
restructuring efforts. After adjusting for the
non-cash items under IFRS 2 Share Based
Payments of $1.3m (2021: $2.2m), the
administrative expense is $8.7m (2021:
$11.0m). Following completion of the farm
down to IPR in March 2022 and the AGM
in May 2022, the Board was reduced
from 9 to 6 Directors. The remaining non-
executives’ fees were restated to the levels
prior to the reductions taken during 2020
and 2021. As previously noted in the 2021
Annual Report & Accounts, the incoming
CEO took a 21% reduction in base salary
on assuming the role. The Egypt office was
also restructured following the farm down.
Operating Profit
Operating profit from continuing operations
for the year was $72.3m (2021: $6.3m)
excluding the net impairment reversal of
$27.9m (2021: $42.0m net impairment
reversal), reflecting the higher commodity
price environment throughout the year,
offset by 19% reduction in production
volumes.
Other/Restructuring Expenses and
Loss on Disposal
Other/restructuring expenses for the year
totalled $0.8m (2021: $3.3m) and included
restructuring costs for both the head office
in London and the Egypt office in Cairo
($0.1m). In addition, there was $0.7m
charge relating to the premium on the
transfer of the lease on the London office.
Loss on disposal for the year totalled
$6.3m (2021: $nil) and related to the
farm-down transaction, where 55% of
the Group’s operated interest in each of
our Egyptian Concessions, El Fayum and
North Beni Suef, were acquired by IPR
on 21 March 2022. Pharos is entitled to
contingent consideration depending on the
average Brent Price each year from 2022
to the end of 2025 (with floor and cap at
$62/bbl and c.$90/bbl respectively). The
contingent consideration is calculated
yearly and is capped at a maximum total
payment of $20.0m (please refer to Note
37 for further details). The first payment
of the contingent consideration, being $5
million in respect of the Brent price during
2022, is due from IPR in June 2023.
40
Pharos Energy Annual Report and Accounts 2022Governance ReportFinancial StatementsAdditional InformationStrategic Report CHIEF FINANCIAL OFFICER’S STATEMENT - CONTINUED
Finance Costs
Finance costs increased to $12.7m (2021: $6.4m), mainly relating to a one-off charge of $2.6m following a change in estimated future
cash flows following the December 2022 RBL redetermination and amortisation of capitalised borrowing costs of $1.5m (2021: $2.4m),
interest expense payable and similar fees of $6.1m primarily due to higher interest rates charged on the RBL and NBE (2021: $3.8m),
unwinding of discount on provisions of $1.3m (2021: $0.8m) and foreign exchange losses of $1.2m primarily driven by the devaluation of
EGP against USD (2021: foreign exchange gains of $0.6m).
Cash operating cost per barrel*
Cost of sales
Less
Depreciation, depletion and amortisation
Production based taxes
Export duty
Inventories
Trade Receivable risk factor provision
Other cost of sales
Cash operating costs
Production (BOEPD)
Cash operating cost per BOE ($)
DD&A per barrel*
Depreciation, depletion and amortisation
Production (BOEPD)
DD&A per BOE ($)
2022 $m
116.8
2021 $m
114.6
(55.1)
(14.7)
(3.2)
1.8
(1.5)
(1.3)
42.8
7,166
16.36
2022 $m
(55.1)
7,166
21.07
(51.0)
(10.1)
-
0.1
-
(1.6)
52.0
8,878
16.05
2021 $m
(51.0)
8,878
15.74
* Cash operating cost per barrel and DD&A per barrel are alternative performance measures. See page 203.
Cash operating cost per barrel by Segment
Egypt
Vietnam
$m
Up to 20/03/221
$m
Egypt
From 21/03/22
to 31/12/221
$m
Cost of sales
Less
Depreciation, depletion and amortisation
Production based taxes
Export duty
Inventories
Trade Receivable risk factor provision
Other cost of sales
Cash operating costs
Production (BOEPD)
Cash operating cost per BOE ($)
99.6
(51.0)
(14.5)
(3.2)
1.6
-
(0.8)
31.7
5,418
16.03
4.9
(0.6)
-
-
-
(0.5)
(0.2)
3.6
2,857
15.94
Egypt
Total
$m
17.2
Total $m
116.8
12.3
(3.5)
(0.2)
-
0.2
(1.0)
(0.3)
7.5
(4.1)
(0.2)
-
0.2
(1.5)
(0.5)
11.1
1,441
18.21
1,748
17.40
(55.1)
(14.7)
(3.2)
1.8
(1.5)
(1.3)
42.8
7,166
16.36
1) movements from 1 January 2022 up to 20/03/22 are 100% share and from 21/03/22 includes the Group’s remaining 45% share. 100% cash operating costs
for period from 21/03/22 to 31/12/22 amounts to $16.7m.
41
Pharos Energy Annual Report and Accounts 2022 CHIEF FINANCIAL OFFICER’S STATEMENT - CONTINUED
Cash flows and accounting for Egypt
Following the completion of the farm-out transaction of Egyptian assets to IPR, the accounting for the assets reflect the following:
The effective date of the transaction was 1 July 2020, with completion on 21 March 2022.
The Group, through its subsidiary PEF, owned and managed the business up to completion. On completion an adjustment to
compensate IPR for 55% of net cash flows, revenue offset by costs since the effective date has been adjusted for in the level of carry to
be provided by IPR to Pharos.
In the Financial Statements, for the period post completion, the Group’s 45% share of field costs – capex, opex and G&A – are
accounted for as incurred by the Group, although all such costs are paid by IPR and set off against the carry. Please see Note 37 for
more details on the disposal of asset held for sale.
All revenues earned are paid direct to the Group.
DD&A per barrel by Segment
Depreciation, depletion and amortisation
Production (BOEPD)
DD&A per BOE ($) *
Vietnam $m
Egypt $m
Total $m
51.0
5,418
25.79
4.1
1,748
6.43
55.1
7,166
21.07
* Calculation based on full production entitlement for the year. Actual DD&A charges were calculated on 45% share of production for the
full year, giving a revised DD&A per bbl metric of $7.98/boe.
Movements in the Property, Plant and Equipment
As at 1 Jan
Capital spend
Revision in decommissioning assets
Recognition of right-of-use assets
Re-classification of assets held for sale
DD&A- Oil and gas properties
DD&A – Other assets
Impairment reversal/(charge) – PP&E
As at 31 Dec
Property, Plant and Equipment
Right-to-use-Asset (IFRS 16 Impact)
As at 31 Dec
Taxation
The overall net tax charge of $56.2m
(2021: $43.3m) relates to tax charges
in Vietnam of $47.9m plus the deferred
tax charge on impairment reversal of
$8.3m (2021: Vietnam tax charges of
$24.8m plus the deferred tax charge on
impairment reversal of $18.5m).
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 PEF. The Group
2022 $m
399.8
23.2
(13.9)
0.8
-
(55.1)
(0.1)
27.1
381.8
381.0
0.8
381.8
2021 $m
435.8
24.7
(1.9)
-
(62.0)
(51.0)
(0.4)
54.6
399.8
399.8
-
399.8
records a tax charge, with a corresponding
increase in revenue, for the tax paid by
EGPC on its behalf. However, this is only
valid if PEF is in a tax paying position and
no such tax has been recorded this year.
One of the Group’s companies entered
into commodity swaps designated as
cash flow hedges. In accordance with
IAS 12, a deferred tax asset has not been
recognised in relation to the hedging
losses of $22.5m recorded in the year
as it is unlikely that the UK tax group
will generate sufficient taxable profit in
the future, against which the deductible
temporary differences can be utilised.
Profit/(loss) post-tax
The post-tax profit for the year from
continuing operations and prior to the
impairment reversal of $27.9m, impairment
tax charge of $8.3m, exceptional costs of
$0.8m and loss on disposal of $6.3m was
$11.9m (2021: post tax loss for the year
of $24.9m from continuing operations and
prior to the impairment reversal of $42.0m,
impairment tax charge of $18.5m and
exceptional costs of $3.3m). The overall
profit for the year was $24.4m (2021:
$4.7m loss).
42
Pharos Energy Annual Report and Accounts 2022Governance ReportFinancial StatementsAdditional InformationStrategic Report
CHIEF FINANCIAL OFFICER’S STATEMENT - CONTINUED
Capital expenditure on continuing
operations for the year was lower at
$31.9m (2021: $41.8m). On Block 16-1
– TGT Field, the drilling programme for
two development wells completed in H2
2022, on time and under budget. The first
well, H1-35P, commenced production on
21 October 2022, and the second well,
11XPST, commenced production on 10
November 2022. On Block 9-2 – CNV
Field, one development well, CNV-2PST1,
commencing in H2 2022 and has now
been completed. In El Fayum, seven wells
were put on production in 2022 (including
one well drilled in 2021), and one
additional well drilled in Q4 2022 is due for
completion in Q1 2023.
Net cash outflows from financing activities
of $19.8m (2021: $31.1m inflow) included
outflows in relation to the RBL of $0.2m
in June 2022 and $12.9m in December
following the half year and year end
redetermination processes and the amount
drawn stood at $65.0m at year end.
The RBL loan, which is secured over
only the existing Vietnam producing
assets, matures in July 2025. The facility
amount is amortised by $14.2m every
re-determination from 1 July 2022, with a
facility amount as at 31 December 2022
of $85.75m, which decreased to $71.5m
from 1 January 2023 and will decrease
further to $57.3m from 1 July 2023.
The Group is able to dividend up from
the Vietnam RBL zone to the Company
twice a year in January and July following
approval of the redetermination.
Financing activities also included net
$2.7m outflow in relation to the NBE
revolving credit facility, which allows PEF
to draw down 60% of the value of each El
Fayum invoice in USD. The amount drawn
under the NBE facility as at 31 December
2022 was $9.2m. A further $2.9m outflow
was due to the share buyback programme
that was initiated in July 2022. The first
phase of that programme, completed in
January 2023, resulted in a total of 10.3
million shares being purchased, at a daily
average price of 24.4p.
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 the
Group’s sustainable business model.
The Group’s Code of Business Conduct
and 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 2022, the total payments to
governments for the Group amounted
to $245.3m (2021: $198.2m), of which
$211.5m or 86% (2021: $151.9m or 77%)
was related to the Vietnam producing
licence areas, of which $140.7m (2021:
$102.6m) was for indirect taxes based
on production entitlement. In Egypt
payments to government totalled $31.3m
(2021: $44.7m), of which $28.8m (2021:
$44.1m) related to indirect taxes based on
production entitlement.
Balance sheet
Intangible assets increased during the
period to $16.5m (2021: $12.4m).
Additions for the year related to Blocks
125 & 126 in Vietnam $3.1m (2021:
$10.6m), Egypt $1.0m (2021: $3.9m) and
$0.2m (2021: $0.7m) for the Israeli bid
round licence fee. The Group has written
off $0.2m (2021: $2.2m) relating to the
Israel asset as no substantive expenditure
has been identified under IFRS 6. In 2021,
$2.1m of intangible assets relating to the
Egypt concessions were re-classified as
assets held for sale.
The movements in the Property, Plant and
Equipment asset class are shown above.
Cash flow
Operating cash flow (before movements
in working capital) was $128.8m (2021:
$60.1m). After tax charges of $54.7m
(2021: $39.9m), restructuring and
exceptional expenses $2.7m (2021:
$0.7m) and working capital adjustments of
$18.1m (2021: $8.6m), the cash generated
from operations was $53.4m (2021:
$10.8m). Cash generated from operations,
after tax charges, exceptional expenses
and working capital movements, will form
the basis of our dividend framework going
forward.
Operating cash flow (before movements
in working capital) adjusted for the impact
of the hedging positions of $22.5m loss
(2021: $29.7m loss) gives an underlying
operational performance of $151.3m
(2021: $89.8m), which is consistent
with the significant improvement seen in
commodity prices offset by the production
decrease year on year.
The increase in receivables was $7.7m
(2021: increase in receivables of $7.2m).
The movement in 2022 is primarily driven
by $16.1m increase from Egypt, which
was mainly due to the increase in EGPC
receivables inclusive of $7m catch-up
invoice for improved fiscal terms under
the Third Amendment to the El Fayum
Concession and the lack of hard currency
in country. As noted in previous updates
to the market, the Group has opted not to
accept the payment of PEF’s receivables
balance in EGP unless required for
operations. PEF is entitled under contract
to be paid for hydrocarbon sales in US
dollars. The progressive devaluation
of EGP against USD means that it is
preferable to continue to hold USD
denominated receivables. The International
Monetary Fund (IMF) recently announced
that its Executive Board had approved
the provision of a $3 billion, 46-month
extended fund facility to Egypt, which
the IMF expects to catalyse additional
financing of approximately $14 billion from
Egypt’s international and regional partners.
In addition, Egypt is seeking access to up
to a further $1 billion from the IMF’s newly
created resilience and sustainability facility
to support climate-related policy goals.
Taken together, these developments are
widely anticipated to improve Egypt’s FX
reserves and overall liquidity in the first half
of 2023. The Company therefore remains
optimistic that outstanding receivables with
EGPC will start to be recovered during
2023. The increase in Egypt receivables
was partially offset by timing differences
on the Vietnam cargoes, leading to a
decrease in receivables of $6.9m despite
higher commodity prices.
43
Pharos Energy Annual Report and Accounts 2022 CHIEF FINANCIAL OFFICER’S STATEMENT - CONTINUED
Impairment reversals
As a result of previously recognised impairment losses, combined with ongoing oil price volatility, economic uncertainty leading to an
increase in inflation and discount rates, 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 value in use 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.
Summary of Impairments - Oil and Gas properties
2022
Pre-tax impairment reversal
Deferred tax charge
Post-tax impairment reversal
Reconciliation of carrying amount:1
As at 1 Jan 2022
Additions
Changes in decommissioning asset2
DD&A
Impairment reversal
As at 31 Dec 2022
2021
Pre-tax impairment reversal
Deferred tax charge
Post-tax impairment reversal
Reconciliation of carrying amount:1
As at 1 Jan 2021
Additions
Reclassified as assets held for sale
Changes in decommissioning asset2
DD&A
Impairment reversal
Sub-total
Reclassified as assets held for sale
As at 31 Dec 2021
TGT
$m
19.7
(6.9)
12.8
266.0
7.0
(11.1)
(39.2)
19.7
242.4
TGT
$m
49.1
(17.1)
32.0
239.3
11.4
-
(1.0)
(32.8)
49.1
266.0
-
266.0
CNV
$m
3.6
(1.4)
2.2
84.2
3.2
(2.8)
(11.8)
3.6
76.4
CNV
$m
3.8
(1.4)
2.4
91.2
0.3
-
(0.9)
(10.2)
3.8
84.2
-
84.2
Egypt
$m
3.8
–
3.8
49.2
13.6
–
(4.1)
3.8
62.5
Egypt
$m
1.7
–
1.7
104.1
12.9
(1.4)
-
(8.0)
1.7
109.3
(60.1)
49.2
Total
$m
27.1
(8.3)
18.8
399.4
23.8
(13.9)
(55.1)
27.1
381.3
Total
$m
54.6
(18.5)
36.1
434.6
24.6
(1.4)
(1.9)
(51.0)
54.6
459.5
(60.1)
399.4
1) Egypt carrying value reflects 45% share (2021: 100%).
2) Changes in decommissioning asset for TGT is due to changes in discount rate and the field abandonment plan, whereas CNV reflects the change in discount
rate only (2021: change in discount rate only for both TGT and CNV)
It should be noted that the TGT impairment reversal for full year 2022 has been restricted to reflect the remaining balance of historic
impairment charges previously recorded against the field. Further details of these impairment charges, including key assumptions in
relation to oil price and discount rate are provided in Note 16 of the financial statements.
44
Pharos Energy Annual Report and Accounts 2022Governance ReportFinancial StatementsAdditional InformationStrategic Report CHIEF FINANCIAL OFFICER’S STATEMENT - CONTINUED
Dividend Framework
The Company intends to recommence
dividend payments starting in 2023. Our
policy is now set at returning no less than
10% of Operating Cash Flow (OCF).
OCF has been selected as the most
appropriate measure as it automatically
takes account of:
• movements in Brent price;
• tax, which is the main form of
government take in Vietnam; and
• working capital movements.
The first dividend will therefore be a
final dividend for the 2022 financial year.
The Board have recommended a final
dividend of 1.00 pence per share (based
on a minimum 10% OCF of $5.34m at
the average rate of exchange for 2022)
subject to approval of the shareholders
at the Company’s 2023 AGM. The final
dividend will be paid in full on 12 July 2023
in Pounds Sterling to ordinary shareholders
on the register at the close of business
on 16 June 2023. Going forward, we
expect the payment pattern will move to
a conventional pattern of an interim and
a final dividend. As is normally the case
with interim dividends, and unlike the final
dividend for 2022 to be proposed at the
2023 AGM, the interim dividend will not
be conditional on separate shareholder
approval.
Long-term provisions comprise the
Group’s decommissioning obligations and,
for 2021, the royalty over the El Fayum
asset. In Vietnam, the decommissioning
provision decreased from $66.9m at 2021
year-end to $54.3m at 2022 mainly due to
an increase in discount rate from 1.51%
to 3.83% as a result of an increase in
prevailing risk-free market rates, partially
offset by the TGT infill wells programme
completed during the year. The amounts
set aside into the abandonment funds
total $50.2m (2021: $48.1m). No
decommissioning obligation exists under
the El Fayum Concession.
The royalty provision relates to a historical
arrangement granting a 3% royalty on
PEF’s share of profit oil and excess cost
recovery from El Fayum in Egypt. At 31
December 2022, the long-term provision
was $nil (2021: $2.2m) and the amount
disclosed in current payables is $2.5m
(2021: $3.4m)
Own shares
The Pharos Employee Benefit Trust (“EBT”)
holds ordinary shares of the Company
for the purposes of satisfying long-term
incentive awards for senior management.
At the end of 2022, the trust held
2,126,857 (2021: 1,767,757), representing
0.48% (2021: 0.40%) of the issued share
capital.
In addition, as at 31 December 2022,
the Company held 9,122,268 (2021:
9,122,268) treasury shares, representing
2.06% (2021: 2.02%) of the issued share
capital. All shares purchased under the
on-market buyback programme originally
announced in July 2022 and extended
in January 2023 have been or will be
cancelled rather than retained in treasury.
Cash is set aside into abandonment
funds for both TGT and CNV. These
abandonment funds are controlled 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 the Financial Statements.
Oil inventory was $7.2m at 31 December
2022 (2021: $5.9m), of which $7.0m
related to Vietnam and $0.2m to Egypt.
Trade and other receivables increased to
$60.9m (2021: $28.1m) of which $11.4m
(2021: $18.2m) relates to Vietnam and
$49.0m (2021: $8.5m) relates to Egypt.
For Egypt, the closing balance includes
$20.9m of carry (2021: $nil), which reflects
the remaining disproportionate funding
contribution from IPR to compensate for
net cash flows since the economic date of
the farm down transaction, 1 July 2020,
and the completion date of 21 March
2022. The carry decreases every month
by the cash calls received from IPR. In
addition, Egypt trade receivables include
$24.2m from EGPC where collection has
been delayed by the devaluation of EGP
and ongoing restrictions on outgoing USD
transfers by the Central Bank of Egypt
previously highlighted.
Cash and cash equivalents at the end of
the year were $45.3m (2021: $27.1m)
mainly driven by net cash flows from
operating activities of $53.4m (2021:
$10.8m) as a result of higher commodity
prices during the year, offset by lower
production.
Trade and other payables were $14.0m
(2021: $30.6m), of which $6.3m (2021:
$14.5m) relates to the Egypt payables,
inclusive of Stratton royalty obligation and
following re-classification of Petrosilah
working capital balances to joint venture
receivables following the farm-down
transaction. $4.8m (2021: $4.8m) relates
to Vietnam payables, $0.5m (2021:
$6.5m) net hedging liability and $1.9m
(2021: $4.4m) Head Office payables. Tax
payables decreased to $5.2m (2021:
$5.4m) which is linked to the timing of
cargoes from TGT.
Borrowings were $74.2m (2021: $80.5m),
a decrease of $6.3m with $13.1m
related to repayments following the RBL
redeterminations in June and December,
partially offset by $4.1m amortisation of
capitalised borrowing costs and one-off
charges in relation to the redeterminations.
This was offset by a net increase in the
NBE credit facility of $2.7m during the
year.
45
Pharos Energy Annual Report and Accounts 2022 CHIEF FINANCIAL OFFICER’S STATEMENT - CONTINUED
Going concern
Pharos continuously 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
that utilises oil prices of $88.3/bbl in
2023 and $84.8/bbl in 2024. The key
assumptions and related sensitivities
include a “Reasonable Worst Case” (RWC)
scenario, where the Board has taken
into account the risk of an oil price crash
broadly similar to what occurred in 2020.
It assumes the Brent oil price down by a
third to $59/bbl in May 2023 and gradually
recovers to base price in next 12 months,
concurrent with 5% reductions in Vietnam
and Egypt production compared to our
base case from June 2023. Both the base
case and RWC take into account effect of
hedging that has already been put in place
at 31 December 2022 and subsequent
hedges placed in 2023, now covering
c.33% for the full year 2023 and 6% of
Q1 2024. We have therefore secured an
average floor price and ceiling price of
c.$64/bbl and c. $100/bbl, respectively,
for the entire hedged volumes. Under
the RWC scenario, we have identified
appropriate mitigating actions, which
could look to defer capital expenditure
programme as required.
In addition, we have conducted a reverse
stress test sensitivity analysis that
indicates the magnitude of oil price decline
required to breach our financial headroom,
assuming all other variables remain
unchanged.
Our business in Vietnam remains robust,
with breakeven price of c.$30/bbl. We
have limited capital expenditure in Vietnam
which includes the delay of CNV 2PST1
well. The cash flows have also been tested
in the unlikely event that an extension for
the 125/126 is not secured. The majority
of our debt is secured against the Vietnam
assets under the RBL, only $9.2m drawn
on an uncommitted revolving credit facility
on the Egypt revenue invoices.
In Egypt, we have 9 wells in 2023 and
the Base case assumes a full investment
scenario.
On the basis of the forecasts provided
above, the Group is expected to have
sufficient financial headroom for the
12 months from the date of approval
of the 2022 Accounts. Based on this
analysis, the Directors have a reasonable
expectation that the Group has adequate
resources to continue its operations in the
foreseeable future. Therefore, the Financial
Statements have been prepared using the
going concern basis of accounting.
Financial outlook
We have a lot to look forward to
as we move forward in 2023 and
beyond.
• A strong and stable balance
sheet, improved liquidity,
improved fiscal terms in Egypt,
stable production with a
solid USD cash flow from our
Vietnam portfolio and a reduced
cost base throughout the
Group.
• Continued development drilling
and carry in Egypt, extra $5m
contingent consideration
payment in 2023 and potentially
for the next 3 years (oil price
dependent). We are encouraged
by the intervention from the IMF
and hope to see an improved
position in our Egyptian
receivables.
• Strong support from our RBL
lenders over the Vietnam assets
as we continue in 2023 to pay
down this facility and a renewal
of our uncommitted revolving
credit facility with the National
Bank of Egypt.
Further returns to shareholders
are anticipated in 2023, with the
announcement in January of an
additional $3m committed to an
extension of the Company’s on-
market share buyback programme,
and the resumption of sustainable
dividends based on OCF to be
proposed at the 2023 AGM.
SUE RIVETT
Chief Financial Officer
46
Pharos Energy Annual Report and Accounts 2022Governance ReportFinancial StatementsAdditional InformationStrategic Report RISK MANAGEMENT
Risk Management
Report
Governance, authorities and
accountability
The Board of Directors, supported by
its various Committees, ensures that
the internal control functions operate
properly. The Audit and Risk Committee
oversees the implementation by the
senior management team of the internal
control and risk management procedures
based on the risks identified to support
the Group’s objectives.
Control environment
The Group’s control environment is based
primarily on its Code of Business Conduct
and Ethics, which carries a number of
fundamental values, including openness
and integrity, safety and care 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 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 assessment at least
once a year.
Risk Management Framework
at Pharos
Pharos carried out regular and robust
risk assessments to identify and manage
its Principal and Emerging risks during
2022. The Group’s risk management
activities during the year focused on the
ramifications of the war in Ukraine with
increased uncertainties and volatilities
on world commodity markets and the
ensuing Western sanctions on Russia
and vice versa which have negatively
impacted on the recoveries of many
economies, particularly Egypt. Our
management undertook a number of
deep-dive exercises 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.
MANAGING OUR RISKS
RISKS
2022
Principal risks in 2022
• Prolonged War in Ukraine / ensuing sanctions
RISKS
2023
Principal and Emerging risks in 2023
• Prolonged War in Ukraine / ensuing sanctions
• Risk of rising inflation and stagflation
• Risk of rising inflation and stagflation
•
Inability to repatriate cash earned from Egypt
•
Inability to repatriate cash earned from Egypt
• Further devaluation of the Egyptian pound
• Further devaluation of the Egyptian pound
• Legal risks – Sanctions related
• Climate Change
• Commodity price volatility
• Volatility in production levels
• HSE & Social
• Partner alignment
• Legal risks – Sanctions related
• Climate Change
• Commodity price volatility
• Volatility in production levels
• HSE & Social
• Partner alignment
• Sub-optimal capital allocation
• Sub-optimal capital allocation
• Political and Regional
• Cyber security
• Reserves downgrades
• Political and Regional
• Cyber security
• Reserves downgrades
•
Insufficient funds to meet commitments
•
Insufficient funds to meet commitments
47
Pharos Energy Annual Report and Accounts 2022 RISK MANAGEMENT - CONTINUED
Risk Management Framework
TOP DOWN
Oversight
Accountability
Monitoring
Deep-dive
Pharos Risk Management Framework
Set
Strategic
Objectives
Define
Risk
Appetite
Identify
Principal
Risks
Apply Risk
Assessment
Process
Deliver
Strategic
Objectives
Risk Governance 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
The Pharos Risk Management Framework
requires that all business units within the
Group conduct on-going risk management
and report to the Audit and Risk
Committee and the Board. The Group’s
Risk Management Policy defines the
specifics of the risk management process,
describes the risk tools (for example, the
preparation and maintenance of a Group
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
those risks 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 and develop
alternate strategies
• Better manage the business by
anticipating potential risks and devise
preventive / mitigating measures
• Meet regulatory requirements
• Promote sustainability and help build
more resilient systems
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 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. The internal control
framework and risk management process
under the BMS seeks to ensure that risk
identification, assessment and mitigation
are all properly embedded throughout
the organisation. Whilst the Group’s
approach to risk management 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. The Group’s 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.
A challenging future - The war in
Ukraine and its ramifications
Repercussions of the Russian invasion of
Ukraine and ensuing sanctions continue
to reverberate globally and will test the
resilience of the financial system.
Serious impacts on the Egyptian
economy
The impact of the war on Egypt’s economy
is especially significant. Egypt is the
world’s top wheat importer; before the
invasion of Ukraine, around 80 percent of
its wheat imports came from Russia and
Ukraine. Since the beginning of the war,
food prices have risen significantly, more
than doubled.
Egypt has faced economic and financial
difficulties due to the impact of COVID-19
and now the impact of the war in Ukraine
is putting a severe strain on the country.
•
•
Inability to receive cash revenue’s in
USD in order to repatriate to the UK
Inability to convert Egyptian Pound
(EGP) into USD
• Further devaluation of the Egyptian
pound
The recent global macroeconomic volatility
has seen both a significant devaluation
of the Egyptian Pound and continued
restrictions on outgoing USD transfers
by the Central Bank of Egypt. Pharos
have opted not to accept the payment
of our receivables balance in EGP unless
required for operations. The progressive
devaluation of EGP against USD means
that it is preferable to continue to hold
USD denominated receivables.
48
Pharos Energy Annual Report and Accounts 2022Governance ReportFinancial StatementsAdditional InformationStrategic Report RISK MANAGEMENT - CONTINUED
The International Monetary Fund (IMF)
announced in December 2022 that
its Executive Board had approved the
provision of a $3 billion, 46- month
extended fund facility to Egypt, which
the IMF expects to catalyse additional
financing of approximately $14 billion
from Egypt’s international and regional
partners. In addition, Egypt is seeking
access to up to a further $1 billion from
the IMF’s newly created resilience and
sustainability facility to support climate-
related policy goals. In addition, the
Government has officially launched a multi-
year privatisation programme whereby it
intends to sell stakes in 32 companies,
which are currently fully or partially owned
by the State (or the Military), with a target
to raise c. $40 billion in four years. The
Government’s plan is to kick-start the
programme with a round of sales to
strategic buyers, which will be followed by
the offer of smaller stakes on the Egyptian
Stock Exchange. In fact, the first 11 (of the
32) companies have just been transferred
to a pre-IPO fund that will manage
strategic sales worth an expected $6
billion over the coming few months.
Taken together, these developments are
widely anticipated to improve Egypt’s
FX reserves and overall liquidity in H1
2023. We therefore remain optimistic that
outstanding receivables with EGPC will
start to be recovered during 2023.
In the event of continued delays in our
El Fayum invoices being paid, we have
access to our revolving credit facility with
the National Bank of Egypt (NBE), which
allows us to draw down 60% of the value
of each invoice in USD. As announced in
our January 2023 trading and operations
update, we agreed with NBE to extend the
current $18m facility on the same terms to
31 March 2024.
The conflict in Ukraine and
international sanctions
The extensive sanctions and export
controls introduced by the US, EU and
UK on key Russian industries, entities
and individuals following the invasion of
Ukraine on the 24 February 2022 remain
an important consideration for the Group
and its approach to risk management.
Throughout 2022 and in early 2023 the
scope of international sanctions and
controls has expanded incrementally. To
date, neither the conflict in Ukraine nor
the sanctions themselves have had a
material impact on the Group’s business.
Despite this, the Group continues to be
prepared to act swiftly in the event that
an existing counterparty were to become
a sanctioned entity or otherwise affected.
The dedicated cross-functional Pharos
working group covering sanctions and
the impact of the conflict in Ukraine
established in March 2022 remains active.
The working group reports to the Audit
and Risk Committee and also contributes
to regular risk management reporting. The
Group Sanctions Policy was adopted in
May 2022 and is available on the Pharos
website with the Group’s other principal
corporate policies. At an operational
level, the Group continues to work with
the JOCs on contingency planning and
mitigation.
Inflation and risks of stagflation
After the double shock of COVID-19 and
the Russian invasion of Ukraine, inflation
rates have surged, surging to the highest
levels in decades in many countries and
triggering many currencies devaluation
while economic growth forecasts are
rapidly deteriorating. At the start of
2022, most economists were expecting
2022 to be a period of strong economic
rebound but the start of the war in Ukraine
led to higher commodity prices which
fuelled further inflation. Geopolitics and
macroeconomic factors are causing
disruptions in commodity markets, leading
to increased counterparty risk exposures,
poor market liquidity and funding strains
further down the line.
Egypt devalued its pound by 14% on
21 March 2022 after Russia’s invasion
of Ukraine prompted foreign investors
to pull billions of dollars out of Egyptian
treasury markets, putting pressure on
the currency. The Egyptian pound fell to
record lows in 2022, with 1 USD selling
for 15.7 EGP in January and 24.7 EGP
in December (with further devaluation to
> 30 EGP in early January 2023). Pharos
crude receivables in early 2022 from EGPC
were being settled mostly in EGP which
creates currency exchange risk due to the
devalued Egyptian pounds and repatriating
cash earned requires currency transfer to
USD which was taking much longer than
previously to arrange. Since Q2 2022 the
Group has only been accepting USD with
the impact that the receivables position
has grown significantly.
49
Pharos Energy Annual Report and Accounts 2022
RISK MANAGEMENT - CONTINUED
Climate Change risks
During 2022 a number of trends peppered
the energy sector; the energy price inflation
crisis, the war in Ukraine ramifications,
the questioning by activist of companies
on overpromising and under delivering on
climate and the recovery of oil price.
The COP27 summit in Egypt in November
2022 culminated with a historic agreement
on a fund to compensate developing
countries for losses and damage caused
by the climate crisis. These countries,
which suffer the most extreme impacts
despite small carbon footprints, have
called for loss and damage to be
addressed for the past 30 years.
Although discussed and questioned by
several participants and big emitters, the
commitments made in Paris (COP21) and
Glasgow (COP26) were renewed, however
no stronger climate goals and ambitions
were put into work.
Summary of COP27 results:
• Major breakthrough on loss and damage funding for vulnerable developing
countries suffering the most from the effects of climate change
• Agreements on mitigation measures only include a coal phase down
(instead of a phase out) and ignore emissions from the use of gas and oil
• Mitigation commitments from Paris and Glasgow were renewed but not
strengthened or ambitions increased
• To be able to reach net zero emissions by 2050 about $4 trillion per year
needs to be invested in renewable energy
As the outcome of COP27 is debated, a number of ESG topics have been
elevated and will likely dominate 2023:
• Focus on reporting and reducing Scope 3 emissions
• How private capital can influence and assist the energy transition journey?
• Carbon markets - how to set a globally acceptable price and ensure
carbon offsets are verifiable?
• The rise of sustainability accounting
• Focus on diversity, equity and inclusion
50
Pharos Energy Annual Report and Accounts 2022Governance ReportFinancial StatementsAdditional InformationStrategic Report
RISK MANAGEMENT - CONTINUED
Climate Risk and Resilience
Climate change risks, both arising from
energy transition and the physical effects
of changes in climate, are identified and
assessed as part of the Group’s integrated
risk management approach and mitigated
within the remit of a diverging set of key
stakeholders’ aspirations and calibrated
within the Group’s risk appetite and
corporate strategy. Climate change and
the transition to a low carbon economy
were also considered in preparing the
consolidated financial statements, more
details of which can be found on page 59
of our Viability Statement and Note 4 of
the financial statements.
In Q1 2022, Pharos advanced its
alignment with the four TCFD pillars and
disclosures on Governance, Strategy, Risk
Management and Metrics and Targets.
A detailed analysis was commissioned
with the help of a Climate Change and
TCFD specialist consultancy which
produced in-depth assessments of the
transition and physical climate risks
followed by a hi-grading risk exercise
based on the Group internal risk matrix.
These assessments were then discussed
with the Senior Management team and
submitted to the ESG committee of the
Board. Throughout the year, these risks,
along with every other principle and
emerging risks presented on page 53
of the Risk Report, are discussed and
reviewed by the Audit and Risk Committee
every quarter to ensure they are up to
date and remain dynamic to the changing
nature of the macroeconomic environment
and the business. In Q1 2023, a deeper
analysis into Group’s transitional and
physical risk assessment was conducted
with the Management team to update the
hi-grading risk assessment and ensure
its severity and likelihood grading are in
line with the Group’s latest risk matrix. For
a full list of our transitional and physical
climate risks, please see page 94 for our
full TCFD reporting.
The physical risk assessment focused
on screening our operational interests in
Vietnam and Egypt using the consultant’s
physical risks datasets to quantify changes
in key climate variables (e.g. drought,
rainfall, wave height) over a 5 and 10
year timeframe under the three emissions
scenarios – Representative Concentration
Pathways (RCPs). The transition analysis
focused on the potential impacts of
different future scenarios on the key
transition risks facing the Group and the
oil and gas sector more broadly over the
next 5-10 years. By undertaking these
assessments, Pharos is in a better position
to formulate strategies which will increase
its resilience to climate related risks - and
51
better cope with the uncertainty, speed
and extent of the energy transition. The
transition risk analysis conducted by the
independent Climate Change and TCFD
specialist consultant was assessed under
the International Agency (IEA) Sustainable
Development Scenario (SDS) and Stated
Policies Scenario (STEPS). Additionally,
Pharos has considered the risk that
climate change pressures could reduce oil
prices during the 3-year Viability Statement
window under the recommended IEA’s
Net Zero Emissions scenario. For more
information, please see pages 59 to 60 for
the Viability Statement and page 79 for our
full TCFD reporting.
Commodity Price risk
Brent and WTI oil spot prices climbed
during the first half 2022 because of
supply concerns following the Russian
invasion of Ukraine. The increase in
commodity prices causing geo-political
and economic tensions among some
governments forcing them to tap into
their oil / gas strategic reserves and
boost supplies to avoid excessive petrol
rises at the pump and further inflationary
pressures. Europe and Asia in the
meantime faced a severe gas shortage
causing gas prices to shoot up. Prices
then declined during the second half back
to the levels at the start of the year.
In its most recent publication, the IMF
painted a reasonably gloomy picture of the
world economy, with high inflation, rising
interest rates, continuing impacts of the
Russia-Ukraine conflict and the COVID-19
pandemic, all weighing down on near-term
growth. Despite the expected slowdown
in global growth, oil demand growth
is still expected to be well within the
positive territory, driven mainly by China’s
reopening and the continuing recovery in
international air travel.
A buoyant oil market and price is
sometimes perceived as an unconditional
positive for the oil and gas sector, but
the costs of material and services in this
capital intensive industry can lead to big
changes to predicted returns and stifle
cash flows.
Carbon Tracker, a London-based not-for-
profit think tank researching the impact
of climate change on financial markets,
warned oil producers they should not let
high prices today lure investments into
pricey new projects that will lose money
when the fever breaks and the energy
transition cripples fossil fuel demand over
coming years.
Commodity price uncertainty persists and
is factored into all stages of the planning
process. Please refer to the Viability
Statement on page 59 for more details
of how the Group has stress tested its
assets and projected cash flows against
its principal risks.
Cyber risks
Cyber attacks remain a critical threat
as the war in Ukraine has raised acute
concerns about cyber operations. WFH
also creates an increased dependence on
cloud-deployed services and thus opening
more vulnerabilities to cyber-attacks.
Pharos continues its focus on the
robustness of its business continuity and
collaborate closely with its IT partners
to minimise disruption to our business.
Specific cyber training was carried out
across the Group in 2022.
Insurance costs / pollution
liability
At the time of writing, it remains unclear
whether energy insurance premiums for
the renewal of the Group’s cover this year
will increase broadly in line with inflation,
as was the case with the 2022 renewal.
As noted in last year’s report, the energy
insurance markets are increasingly difficult
to access for oil and gas exploration and
production businesses. Climate change
risks and broader ESG objectives remain
at the forefront of insurers’ attitudes to oil
and gas assets, with prominent insurers
already taking steps to rebalance their
portfolios. By way of example, the major
reinsurer Munich Re, a current underwriter
of the Group’s oil and gas package policy,
announced in October 2022 that it will
no longer invest in or insure contracts or
projects relating to new oil and gas fields
not already producing on 31 December
2022 or new midstream infrastructure
related to oil.
This trend of oil and gas businesses
suffering reduced access to the insurance
market is likely to continue, resulting in
significant premium increases ahead of
inflation over time. While the Group may
be able to mitigate the impact of premium
increases by agreeing to more restrictive
terms of cover or reduced financial cover
limits, this strategy will inevitably result in
increased exposure to risk elsewhere.
More positively, but with a smaller financial
impact on the Group, there are indications
that the cost of directors’ and officers’
liability insurance (D&O) has stabilised,
after increasing dramatically over the last
two years due to reduced availability of
D&O cover in the market and an increase
in liability claims during the COVID-19
pandemic.
Pharos Energy Annual Report and Accounts 2022 RISK MANAGEMENT - CONTINUED
Operational Cost risk
Rising operational costs may become
a big risk because they are directly
impacted by the other factors, particularly
our ability to meet capex commitments.
Generally speaking, the larger a project,
the greater the legal and regulatory
burden and associated costs. In addition,
higher oil prices result in services
companies increasing prices, creating
further inflationary pressure. With the
unpredictability of oil and other commodity
prices and owing to global manufacturing
beyond any one company’s control, there
are genuine cost concerns.
Additionally, many oil and gas firms
struggle to find and keep skilled employees
during boom periods. Thus payroll can
rapidly grow to add another expense
to the total picture. The cost of training
employees in the oil and gas sector has
increased, reducing the number of firms in
the industry. As a result, oil and gas have
become a very capital-intensive business
with fewer participants each year.
Out-sourcing is becoming more common
in the industry, and while this offers
flexibility to operators, it also results in
greater exposure to increases in daily rates
for essential services, such as drilling and
well services, when the oil price rises.
With heightened scrutiny on environmental,
social, and governance (ESG)
transparency, there will be continuous and
more onerous regulatory challenges which
oil and gas companies must handle to
sustain their growth and purpose.
Following the completion of the farm-out
transaction to IPR in March and AGM in
May the Board was reduced from nine
Directors to six (two Executive Directors
and four Non-Executive Directors).
The remaining non-executives’ fees
were restated to the levels prior to the
reductions taken during 2020 and 2021.
The incoming CEO took a c.21% reduction
in base salary on assuming the role. The
headcount reduction will contribute to
lower G&A costs.
Emerging Risks
Areas of emerging risks will be around
regulatory changes, digital transformation,
remote working, risks of social disorders
and the role of the Board in crisis
situations.
Similar to our principal risks, emerging
risks are identified using our bottom
up approach with the 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 engaged
with the industry with organisations such
as BRINDEX and assesses news alerts
from such sources as Oil & Gas UK,
FT, Refinitiv (Eikon and Worldcheckone)
Bloomberg Green and the World Economic
Forum. Pharos also conducts internal
benchmarking analyses with its industry
peers to better understand emerging
trends in the sector.
Opportunities
For the oil and gas sector the lack of
liquidity and increased scrutiny from
investors on fossil fuel producers to
decarbonise may create investment
opportunities for oil and gas independents
with a lower cost base than the oil majors
and which are more able to adapt to a
rapidly changing risk landscape. 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, wind power and other carbon
reduction 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.
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 regularly 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 & Note 36
to the Financial Statements. The Group’s
Risk Management Framework, Policy
and associated procedures are further
discussed in the Corporate Governance
Report on pages 109 to 160 and in the
Audit and Risk Committee Report on
pages 127 to 133, where the significant
issues related to the 2022 Financial
Statements are also reported. The Group’s
Business Management System, which
includes the Health, Safety, Environmental
and Social Responsibility (‘HSES’)
Management System, incorporating the
Group’s internal control mechanisms
of policies, procedures and guidelines
through which it assesses, manages and
mitigates its HSES risks and impacts,
is described more fully in the Corporate
Responsibility Report on pages 61 to 107.
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 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.
52
Pharos Energy Annual Report and Accounts 2022Governance ReportFinancial StatementsAdditional InformationStrategic Report
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
Principal risks
Change in
likelihood
Causes
Risk Mitigation
• Emergence of new variants or
other viruses
• Continue to maintain and promote precautionary
measures to minimise disruption to business
• Waving efficacy of vaccinations
• Procure long lead items as early as possible from
and boosters
reliable suppliers / contractors
• COVID-19 infections continue to
• Tight cash management and forecasting
go up
• The virus maintains its pandemic
status throughout 2023
• Social disorder as poorer nations
/ populations fall behind on
vaccination programmes
• 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 applicable law,
regulation and public health guidance relating to
the COVID-19 pandemic
• Reallocation of capital away from
• Regular review of funding options
oil and gas
• Huge swings in oil and other
commodity prices
• Assets bubble bursts
• Global debt crises emerging
• Inadequate cost control
• Poor technical data to support
allocations
• High inflation
• Stress testing forecast
• Proactive dialogue with banks and other providers
of capital
• Opportunity screening
• Effective project management and resourcing
• Cost carry by farm-in partner(s)
• Thorough capital allocation process
STRATEGIC
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
53
Pharos Energy Annual Report and Accounts 2022 RISKS - CONTINUED
Principal risks
3. Production
levels below
expectation
• Sub-Optimal well
performance
• Reduced drilling
4. Health, Safety,
Environmental
and Social
Risk
• Reputational
• Operational outages
leading to lower
production
Change in
likelihood
Causes
Risk Mitigation
• Inadequate waterflood responses
• Develop a clear wells strategy, focusing on
• Incorrect well placements
• Development wells uncommercial
• Poor reservoir models
• Lack of financing for drilling
programme
performance improvement, regulatory compliance
and increased activity
• Increase drilling activity / plan-drill additional
injection wells / frac injection zone
• 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
• Implement planned drilling programmes
• Active participation in dialogue with JVs/ JOCs
• Business disruption due to
• Improve structural and Asset Integrity through
workforce affected by COVID-19
• Health, safety and environmental
risks of major explosions, leaks
or spills
• High-risk operating conditions and
HSES risks
• Climate change impacts on the
sector, such as extreme weather,
sea level rise and water availability
affecting production
• Gas venting and flaring hazards
and risks - well blow outs, 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
strong operational and maintenance processes
which are critical to preserving a safer
environment
• Comply with all legislative / regulatory frameworks
and transition 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 Assessments
relating to, for example:
- 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
- Active participation in dialogue with JOC to
influence them on best work practices
• Maintaining adequate energy insurance for our
assets and operations
54
Pharos Energy Annual Report and Accounts 2022Governance ReportFinancial StatementsAdditional InformationStrategic Report RISKS - CONTINUED
Principal risks
5. Climate
Change –
transition and
physical risks
• Lack of Capital
• Reputational
• Increased capex and
operating costs
• Physical damage to
assets
• Lower oil prices
• Stranded assets
• Regulatory changes –
potential taxes
FINANCIAL
6. Commodity
Price risk
• Uncertainty on
planning
• Inability to fund work
programme / dividend
55
Change in
likelihood
Causes
Risk Mitigation
• Pressure on investors to divest
/ avoid fossil fuel companies /
projects
• Inability to find economically viable
CO2 reduction solutions
• Lack of alignment between our key
stakeholders’ priorities and climate
change concerns
• Global transition to a lower carbon
intensity economy
• Net Zero commitment on all assets by 2050,
detailed roadmap coming in 2023
• Establishment of an Emission Management
Fund, under which we will set aside $0.25 for
each barrel sold at an oil price above $75/bbl to
support emissions management projects
• Transparent reporting and participation in Carbon
Disclosure Project (CDP) Climate Change and
Water Security questionnaires
• Continue alignment with TCFD recommendations
• Increased climate regulation and
• Further integrate climate risk management within
disclosure
• Increase in carbon taxes /
decarbonisation charges
Pharos Risk Management Framework
• Stress test our going concern scenarios under a
Net Zero Emissions price scenario and carbon tax
• Transformational shifts leading to
reduced demand for fossil fuels
• Embed Climate change scenarios and evaluate
decisions on key business operations / directions
• Climate activists pressing
prominent institutions and
investors to abandon fossil
investments - “greening” the
financial system
• Increased frequency of extreme
weather events
• Supply chain disruptions causing
delay/shutdowns to operations
• Lack of partner alignment on
decarbonisation initiatives
• Continuous improvement of GHG emissions
management and get JOCs to support CO2
emissions reduction initiatives
• Update our Climate Change Policy and keep
it fit for purpose and in line with evolving
decarbonisation developments
• Comprehensive insurance cover for Physical
Damage
• Regional close monitoring of extreme weather
developments so that evacuation or shut-down
are activated in good time
• Regular and timely control of inventories to ensure
essential spares are sourced in advance
• Prepare business case or back study to support
decarbonisation initiatives
• On-going market volatility and
uncertainties from COVID-19
• Oil commodity Hedging
- 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 risk analysis to ensure a level of
robustness to downside price scenarios
• Capital discipline with focus on controlling and
managing costs
• Discretionary spend actively managed
• Maintain and cultivate good relationships with
lenders
• Geo-political factors and
international conflicts
• 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 as market dynamics
are influenced by the speed of
recovery from COVID-19 and
growing ESG pressures
• Negative cash flows & earnings
degradation
• Market speculation and trading in
oil futures
• Resurgence of new COVID-19
variants
• Repercussions of the Russian
invasion of Ukraine
Pharos Energy Annual Report and Accounts 2022 RISKS - CONTINUED
Principal risks
7. Rising
operational
costs
• Reduced profits
• Strain on cash flows
• Shortages in skilled
labour
8. Egyptian
economy
• The impact of the war
on Egypt’s economy
is especially significant
OPERATIONAL
9. Reserves
Risk
• Future cash flows
and value depend
on producing our
reserves
Change in
likelihood
Causes
Risk Mitigation
• Global inflation
• Regular updates to yearly budgets and forecasts
• Turmoil in the energy markets
causing sharp price hikes
• Focus in discretionary spend
• Secure long-term contracts where appropriate
• Sudden unplanned rate increases
without lock-ins
for oil and gas services
• Explore applying new technological advances,
focus on prevention and early detection
• Inability to repatriate cash earned
• Pharos have opted not to accept the payment of
from Egypt
• Further devaluation of the Egyptian
pound
our receivables balance in EGP unless required for
operations.
• Revolving credit facility with the National Bank of
Egypt (NBE), which allows us to draw down 60%
of the value of each invoice in USD (extended the
current $18m facility on the same terms to 31
March 2024)
• Inaccurate reserves estimates
• Monitor and maintain standards of reserves
• Subcontracting certain reserves
estimation work to independent
reserve engineers outside the
direct control of the Group
• Earlier impairment triggers due to
low commodity price
• 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
• Slower drilling programmes
reporting by adhering to three key considerations:
consistency, transparency and utility, including
disclosure of movements in reserves on a country-
by-country basis, disclosure of material projects
and moderation of subjective judgements
• 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
• 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 facility compliance - Vietnam Reserves are
audited independently by reserves consultants
approved by lenders
56
Pharos Energy Annual Report and Accounts 2022Governance ReportFinancial StatementsAdditional InformationStrategic Report RISKS - CONTINUED
Principal risks
10. Partner
Alignment
Risk
Vietnam
• Misalignment at JV/
JOC level can delay
investment
• Adverse impact on
Production and Cash
flow
Egypt
• Technical
Misalignment at JV/
JOC level can delay
investment
• Adverse impact on
Production and Cash
flow
11. Cyber risk
• Major cyber security
breach may result
in loss of key
confidential data
• Unavailability of key
systems
12. Human
Resource
Risk
• Good skilled people
are essential to ensure
success
57
Change in
likelihood
Causes
Risk Mitigation
• FPSO Tie-in Agreement from other
• Active Participation in JOC management
Operator
• Delay in the Field Development
Plans
• Technical disagreement caused by
quality of JV staff, work ethic, low
productivity, competency issues
• Geological Modeling differences
resulting in sub-optimal well
locations
• JOC partner (IPR and EGPC)
divergent views on investments,
and difference in value-drivers.
• Direct secondment
• Build Senior Management level relationship with
local Partners
• Continue good relationship with other Foreign
Partner
• Close collaboration with JOCs partners
• Support JV training initiatives
• Engage with JV Exploration Manager. Achieve
technical buy-in to ERCE model
• Waterflood analogue success education
• Sophistication and frequency of
• Update Service level agreement with IT providers
cyber-attacks increasing
• Offsite Installation of back-up system and
• Heavy reliance on and disruption
Business Recovery / continuity Plan in place
to critical business systems
• Infiltration of spam emails
corrupting our systems
• Critical reliance on remote working
in light of COVID-19 pandemic and
expectation of longer term hybrid
working practices
• The war in Ukraine has raised
acute concerns about cyber
operations
• Enhance our Cloud back-up data and solutions
• Prevention & detection of cyber threats via a
programme of effective continuous monitoring
• Plan for staged integration (new acquisition) and
upgrade of IT systems
• Cyber Security and Phishing training for all our
workforce globally in 2022
• Failure to recruit and retain high
• Remuneration Committee retains independent
calibre personnel to deliver on and
implement growth strategy
advisors to test the competitiveness of
compensation packages for key employees
• Challenges in the recruitment &
• On-going succession planning
integration of additional technical
expertise for any new acquisition
• Negative view of the oil and
gas industry amongst younger
professionals, particularly in light of
climate change impacts
• High costs of recruiting
experienced workforce
• Weakened corporate culture and
collegiate responsibility due to
remote working
• Restructuring workforce
• Board re-composition and
retirements
• Maintain a competitive remuneration mix regarding
bonus, long-term incentive and share option plans
• Build and use people networks in each country
and advertise vacancies in these networks
• Maintain a programme for staff wellbeing
• Facilitate and encourage workforce
communication via employee surveys and shared
feedback
• The Board was reduced from 9 to 6 (two
Executive Directors and four Non-Executive
Directors)
Pharos Energy Annual Report and Accounts 2022 RISKS - CONTINUED
Principal risks
Change in
likelihood
Causes
Risk Mitigation
REPUTATION
13. Sub-optimal
capital
allocation
• Adverse reaction
from current / future
stakeholders
• Investment decisions
based on realistic /
achievable economic
assumptions
14. Political and
Regional risk
• Energy sector
exposed to a wide
range of political
developments which
may impact adversely
on operating costs,
compliance and
taxation
• Scarcity of capital for investment
projects
• A volatile macroeconomic
environment resulting in significant
differences to key assumptions
underpinning investment decisions
• Pressure to invest and produce
growth and returns in the short
term to maintain dividend
payments
• Shareholder focus on increasing
returns in conflict with wider
strategic considerations
• Inability to “switch-off” drilling
/ investment commitments if
economic assumptions change
rapidly
• Lack of partner/stakeholder
alignment on decarbonisation
initiatives
• Operations in challenging
regulatory and political
environments
• Changes to fiscal regimes without
robust stabilisation protections
• Protracted approval processes
causing delays
• Government reform, political
instability and/or civil unrest
• Impact of financial sanctions,
export controls and other
trading restrictions on industry
counterparties and sectors (in
particular, Russian state-controlled
entities, or certain other connected
entities or Individuals, arising from
the continuing conflict in Ukraine)
• 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
• Seeking to maximise influence to promote best
practice in non-operated ventures
• Seek the views of stakeholders through direct and
indirect engagement
• Maintain a balanced investment portfolio which
allows a degree of resilience in adjusting short-
term investment commitments
• Prepare business case or back pay study to
support decarbonisation initiatives
• Canvas 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
• Maintain political risk insurance at appropriate
levels of cover
• Maintain USD as the main currency of our
business
• Active working group monitoring sanctions arising
from conflict in Ukraine and assessing/managing
associated risk to Group
• Adoption in May 2022 of new standalone Group
Sanctions Policy, to supplement existing Group
Code of Business Conduct and Ethics
• Develop and maintain mitigation planning in
relation to certain counterparties with potential to
come within the future scope of sanctions
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Pharos Energy Annual Report and Accounts 2022Governance ReportFinancial StatementsAdditional InformationStrategic Report RISKS - CONTINUED
Principal risks
15. Business
Conduct and
Bribery
• Reputational damage
and exposure to
criminal charges
Change in
likelihood
Causes
Risk Mitigation
• Present in countries with below
• Ensure adequate due diligence prior to on-
average score on the Transparency
International Corruption Index
boarding with a risk based approach, including
independent “Red flags” checks
• Lack of transparent procurement
and investment policies
• Annual training, testing and compliance
certifications by all associated persons
• Non-compliance with Criminal
• Increase awareness of the Group’s Code of
Crime Offences (CCO) and/or UK
Bribery Act
Business Conduct and Ethics and related policies
for all employees and associated persons
• Corruption and human rights
• Mandatory Gifts and Hospitality declaration and
issues
register
• Group Whistleblowing Policy and confidential
ethics 24 hour hotline supported by EthicsPoint
with numbers displayed in all offices
• CCO risk assessment and on-going
implementation of adequate procedures to
prevent facilitation of tax evasion across all
operations
• Comply with 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 179 of the
Financial Statements. The Audit & Risk
Committee reapproved in December
2022 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 as 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, with particular
attention given to the principal and
emerging risks.
Our strategy and associated principal and
emerging risks underpin both the Group’s
3-year base forecast and scenario testing,
as well as our longer term prospects and
position.
Group’s current position
How we assess our viability
• Production assets in Vietnam and Egypt
with low operating cost base
• 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 in Vietnam
• Repayment of current RBL loan in the
3-year period of the VS
Strategy & business model
• Business model drawing on
geoscience, engineering, financial and
commercial talent
• Responsible and Flexible stewards of
capital
• Focus on stakeholders
The principal and emerging risks, which
are considered in assessing the Group’s
prospects, are the same as those used
to stress test our viability over the 3-year
period.
Our forecast is built on an asset by asset
basis using a bottom up model and is
stress tested by compounding downward
scenarios.
The 3-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
3-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.
59
Pharos Energy Annual Report and Accounts 2022 RISKS - CONTINUED
Key Assumptions
During the 3-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.
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 $87.3/bbl in 2023, $84.8/bbl in 2024
and $79.4/bbl in 2025. 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 $100 million
over its Vietnam producing assets,
with a further US$50m available on an
uncommitted “accordion” basis. It has a
four-year term that matures in July 2025
and has been subject to amortisation since
July 2022. As of December 2022, the
facility amount was $87.5m, with $65m
drawn. The current borrowing level and
the repayment schedules in the model
are based on the RBL's economic and
technical assumption as of the December
2022 redetermination. In the current VS
period, the RBL loan is expected to be
repaid by 2025.
Pharos El Fayum have an uncommitted
revolving credit facility through to 31
March 2024 for up to $18m with the
National Bank of Egypt (UK). This facility
was implemented to help mitigate the risk
of late payment from debtors. Under this
arrangement, Pharos is able to access
cash from the facility for up to 60% of the
value of each El Fayum oil sales invoice.
Stress testing linked to Principal Risks
As well as the base model, the Group also
evaluates other scenarios and has stress-
tested the forecast for a combination of
severe but plausible events (linked to the
majority of the Group’s principal risks)
that could potentially 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
Base Forecast flexed for
combinations of the
following scenarios
Link to Principal Risks and
Uncertainties
Sustained and sharp drop in
oil price
1,2,5,6
Reduction in production
2,3,4,7,9,10,12,13,14
Level of Severity Tested
Sharp drop in the oil price, down
by a third to $59/bbl in May 2023,
then rising gradually over a year till
in line with base price
Conclusion
Company remains viable
with mitigating actions
5% drop in production from June
2023 over the period of testing
Company remains viable
with mitigating actions
Unfavourable event leading to lost
production and price shock
1,2,3,4,5,6,7,8,9,12,13,14
Combination of tests above
Company remains viable
with mitigating actions
Climate Change
We have also factored in the risk of
potential price reductions due to climate
change pressures during the 3-year VS
window. We have therefore considered
the price curve as an output of a Net
Zero Emissions by 2050 (NZE) based
on IEA’s World Outlook 2022 report,
which is consistent with achieving
1.5 °C stabilisation in global average
temperatures and a net zero CO2 emission
by 2050. The nominal Brent prices used
in this scenario are comparable to our
base case oil price assumptions over the
3-year VS period. Nevertheless, we have
concluded that the stress testing outlined
above adequately accounts for the risk of
any downside adjustments to our revenue
base over the 3-year VS period due to
climate change pressures.
To date, there is no official carbon tax
established in either jurisdictions where
our operations are located i.e. Vietnam
and Egypt. Furthermore, the imposition
of carbon taxes would likely to uplift the
Brent prices as some of the burden will be
passed to the consumer.
As a sensitivity test, we have run the effect
of carbon tax from 2025 on Base case
without assuming any increment in Brent
price and the Group remains viable over
the 3-year VS period (see TCFD report for
more information).
It should be noted that majority of the
existing RBL facility will be repaid within
two years, falling within the 3-year viability
statement window. This provides us
certain level of protection against the risk
of capital availability being constrained by
concerns related to climate change.
In all combinations of scenarios that
were tested, the Group had implemented
mitigating actions including hedging
and deferring non-committed capital
expenditure beyond the 3-year window
of the VS. 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 undertake any
necessary mitigating actions.
The potential impact of other principal
risks on the group’s viability during the
assessment period were also 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 in place are sufficient to reduce
the impact of each risk, making it unlikely
to jeopardise the Group’s viability during
the 3-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 hold 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 2025.
60
Pharos Energy Annual Report and Accounts 2022Governance ReportFinancial StatementsAdditional InformationStrategic Report CORPORATE RESPONSIBILITY
Responsibility
framework
Business
Ethics
People
100%
El Fayum oil
100%
CNV oil
$245.3m
Taxes and royalties to host governments,
includes host governments share of
production entitlements in 2022
100%
Oil sold domestically in Egypt and Vietnam
in 2022, contributing to host country
development goals and access to energy
Percentage of staff receiving
anti-bribery and corruption training
by 31 December 2022
1 LTIs
One Lost Time Injury event in
Egypt in 2022
Zero Lost Time Injury event in
Vietnam in 2022
c.65%
Female employees at corporate level
in London in 2022
Environment
Society
340
$500,000
Tonnes CO2e per 1,000 tonnes of
hydrocarbon produced in 2022
Combined total training levies in Vietnam
and Egypt for investment in industry
capacity building in 2022
1
Oil/chemical spills (quantities greater than
100 litres) in Egypt in 2022
$198,600
Community and charitable investments
supporting 9 social projects in Vietnam
through the HLHVJOC Charitable Donation
Programme in 2022
61
Pharos Energy Annual Report and Accounts 2022 CORPORATE RESPONSIBILITY - CONTINUED
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.
Stakeholder groups and corporate responsibility topics
Stakeholder group
How we engage with them and
understand any concerns
Key areas of concern
for stakeholder groups
Structure of the Group’s
Corporate Responsibility and
HSES Management System
1. Code of Business Conduct
and Ethics
2. Key Corporate Responsibility
(CR)/HSES policies supporting
the Code
Climate Change Policy
Code of Business Conduct
and Ethics Code
Human Rights Policy
Security Policy
HSE Policy
Social Responsibility Policy
Biodiversity Conservation Policy
Water Resource Management Policy
Prevention of Slavery and Human
Trafficking Policy
Sanctions Policy
Tax Strategy Statement
Non-Audit Services
3. Standards, procedures and
guidance supporting the
policies
See https://www.pharos.energy/
responsibility/policy-statements/ for the
full text of each of these policies.
Local
communities
Environmental and social impact
assessments and grievance
mechanisms at project level
National and host
governments
Regular dialogue
• Community
investment
• Effluents and waste
management
• 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
Annual feedback sessions with all
staff members
• Keep workforce safe
during COVID-19
pandemic
• Local capacity
building
• Contractor
management
• Staff wellbeing
Shareholders
Regular dialogue
International
community
Responding to inquiries and
media scanning
• Climate risk/energy
transition and other
ESG risks
• Health and Safety
• HSES Management
System
• Preventing corruption
• Climate risk/energy
transition
• GHG emissions
• Preventing corruption
• Human rights
62
Pharos Energy Annual Report and Accounts 2022Governance ReportFinancial StatementsAdditional InformationStrategic Report CORPORATE RESPONSIBILITY - CONTINUED
Corporate Responsibility 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.
The Board takes overall responsibility
for our Net Zero climate goal, ESG
strategy and climate-related risk and
opportunities, overseeing executive
management in developing the approach,
execution, associated reporting and
climate disclosures. Progress against
our ESG ambitions is reviewed through
Board discussion at quarterly Board
meetings and review of key topics such
as updates on GHG/HSES performance
and decarbonisation projects. The Chief
Executive Officer is accountable to the
Board for implementation of CR policies
and HSES performance.
Given the wide-ranging remit of climate-
related matters, the governance activities
are managed interdisciplinary through a
combination of different committees.
• The Audit & Risk Committee (ARC)
oversees all principle and emerging
risks in our risk management process,
in which climate risk is considered
a principle risk. It also oversee the
adequacy and effectiveness of our
policies, standards and management
system for HSES.
• The ESG Committee oversees the
Group’s management of ESG matters
and compliance with legal and
regulatory climate-related reporting
and disclosure requirements, as well
as assists the Board in defining and
implementing the Group’s strategy
relating to ESG matters.
• The Remuneration Committee oversees
the level of management incentives
attached to improvements in climate-
related performance in order to further
encourage action on this agenda.
For each Committee’s Terms of Reference
(ToR), please visit https://www.pharos.
energy/about-us/governance/committees/.
Corporate Responsibility objectives are
defined annually and reviewed quarterly in
relation to: our business, our ethics, our
people, environment and society.
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 2022. The
Board’s objective is to be recognised for
its high standard for 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 Group
CR and HSES policies described above
support our Code.
Our corporate standards, procedures and
guidelines support the policies. Project-
specific operational plans, programmes
and procedures set out the specific
approach to CR and HSES issues and
risks 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.
63
Stakeholder engagement &
materiality screening
We engage with our stakeholders on a
regular basis and receive feedback through
a range of formal and informal processes,
which we set out in more detail in the
UK Governance Code report on pages
115 to 121. We listen to their concerns
and feedbacks when determining our
corporate responsibility strategy and use
the information they provide us to identify
the issues that are most important to
the successful delivery of our corporate
objectives and most important to our
stakeholders.
The Board, the ARC and the ESG
Committee also regularly discuss, at each
quarterly Board/Committee meetings,
the new and existing themes and issues
that matter to our stakeholders. Our
management team then uses this insight
and other applicable disclosure laws and
regulations to choose what we measure
and publicly report in our Annual Report.
Following an earlier screening of material
ESG factors relevant to the oil and gas
sector, in 2022 Pharos has been referring
to the Sustainability Accounting Standards
Board (SASB) materiality map for Oil & Gas
- Exploration and Production, to ensure
that the material issues of importance to its
activities are appropriately managed and
reported. Our approach on environmental
and social reporting in 2022 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. We
report on jointly operated companies in
Egypt and Vietnam.
We are also informed by the London
Stock Exchange listing and disclosure
rules in areas where we have operations,
and are held accountable by our auditors
and Company Secretary. The Board
will further reinforce the integration of
climate considerations into its governance
frameworks by implementing the principles
stated in our Climate Change Policy and
continuing the Company’s alignment with
TCFD recommended disclosures.
We know that what is important to our
stakeholders evolves over time and we
plan to continue to assess our approach
to ensure we remain relevant in what we
measure and publicly report.
Pharos Energy Annual Report and Accounts 2022 CORPORATE RESPONSIBILITY - CONTINUED
Business
Our objective is to provide responsible and
sustainable development throughout our
operations.
Climate risks and global energy transition
Climate change is considered a principal
risk to the Group and its business over
the medium and long term, and this
is discussed in more detail in the Risk
Management report on page 47.
Both transition and physical climate
risks may further impact many of the
Group’s principal risks including those
associated with commodity price, access
to capital, reserves, operations, political,
stakeholders’ and reputational risks. We
recognise that the global energy transition
to a lower carbon intensity world in
response to climate change could result
in reduced demand for fossil fuels,
lower oil prices and increased operating
cost, increased capital cost, further
regulation and carbon taxation which
may significantly increase our operating
costs and reduce our revenue. Our overall
risk management framework integrates
climate change and carbon related risks
by stress-testing key a number of our
principal risks on key variables for the
Going Concern and Viability Testing.
Established management processes
include any physical risks associated with
climate change and our energy insurance
programmes cover to a large extent
our asset portfolio against the risks of
extreme weather events.
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,
we also recognise that oil and gas will
continue to play an essential role in
the global energy mix for many years
to come, and that the importance
of producing this energy in a safe,
environmentally sustainable and socially
responsible way will continue to grow. We
believe that there are real opportunities
in the energy transition, especially for
countries such as Egypt and Vietnam,
to benefit from the responsible and
sustainable development of their natural
resources. Pharos stands ready to play
our part in this transition and will continue
to support our host governments
as they seek to use oil revenues to
promote sustainable, inclusive economic
development, manage the impact of
climate change and achieve their COP
commitments.
We report transparently and have
participated in the CDP (formerly Climate
Disclosure Project) Climate Change
Questionnaire over the past five years.
In 2022, we maintained our score of (C),
originally awarded in 2019. 2022 also
marks the first year that the Company
received a score (C) for our disclosure to
the CDP Water Security Questionnaire.
Our greenhouse gas emissions (“GHG”)
are reported in the Environment section
on page 71. Our commitment to align
our reporting to TCFD recommended
disclosures are set out on page 79.
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 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 and JOCs 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
or part of a JOC, 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.
64
Pharos Energy Annual Report and Accounts 2022Governance ReportFinancial StatementsAdditional InformationStrategic Report CORPORATE RESPONSIBILITY - CONTINUED
Vietnam interests and operations
Degree of
influence
High
Blocks
Country
Pharos
ownership
Pharos
role
2022
field activity
Target HSES
outcome
Blocks 125
& 126
Vietnam
70%
Operator
Block 125 3D seismic
processing completed.
Interpretation underway
Full application of the
Pharos HSES MS
Moderate
Block 16-1
Vietnam
30.5%*
Joint operating partner
(in Hoang Long Joint
Operating Company)
Completion of Phase
2 of TGT Revised Field
Development Plan. 2 well
development drilling and
intervention campaigns
Influence to bring
alignment to the
Pharos HSES MS
Moderate
Block 9-2
Vietnam
25%
Joint operating partner
(in Hoan Vu Joint
Operating Company)
Development drilling of
one additional sidetrack
underway
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. The Group’s unitised interest in the TGT field is 29.7%
Egypt interests and operations
Degree of
influence
Blocks
Country
Pharos
ownership*
Pharos
role *
2022
field activity
Target HSES
outcome
Moderate
El Fayum
Concession
Egypt
45%
Joint operating partner
(in Petrosilah)
Continuation of
development drilling and
waterflood programme
Influence to bring
alignment to the
Pharos HSES MS
Moderate
North
Beni Suef
Concession
Egypt
45%
Joint operating partner
(in Petrosilah)
Interpretation of pre-
existing 3D seismic survey.
Several low risk drillable
prospects identified.
Influence to bring
alignment to the
Pharos HSES MS
*
In September 2021, Pharos announced the farm-out and sale of a 55% working interest and operatorship in each of the El Fayum and
North Beni Suef Concessions to IPR Lake Qarun Petroleum Co, a wholly owned subsidiary of IPR Energy AG. The transaction was
completed on 21 March 2022.
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Pharos Energy Annual Report and Accounts 2022 CORPORATE RESPONSIBILITY - CONTINUED
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 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.
HSE trainings and exercises
In Vietnam, the HLHVJOCs continued HSE induction to new staff,
maintained its HSE Training Matrix such as travel safety by boat,
firefighting and rescue, working at height and also conducted
training for offshore production team such as Personal Protective
Equipment training, refresh safety induction for contractors,
behavioural safety and tank inspection procedure.
In Egypt, HSES training focused on increasing the staff’s
capabilities and competence on ISO 14001 and 45001
management systems, safety at rig, firefighting, lifesaving rules,
permit to work, hot work hazards and safety requirements in
confined space entry and working at height.
Overall objective
To provide responsible and sustainable development
Key Performance Indicators
KPI
Target
2022
2021
2020
HSES regulatory
non-compliances
0
0
0
0
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 its contractors are in alignment with our
requirements.
Hours worked in Vietnam and Egypt assets
Percentage of total
Company staff: 734,620
Contractors: 2,614,898
22%
78%
2022 Objectives
2022 Outcomes
2023 Objectives
Further alignment with Pharos HSES
Management System.
Pharos Energy continued to work
towards full implementation of our HSES
Management System across our business.
Further alignment with Pharos HSES
Management System.
Work closely with new partner HSES
department to ensure a similar HSES
approach is shared.
Pharos Energy worked closely with IPR
to achieve good alignment between our
respective HSES Management Systems.
Close any outstanding gaps between HSES
procedures with a focus on land transport
and environmental risks.
Update Pharos HSES Management
System.
Pharos Energy to consider creating
a single easily accessible online
repository for accessing emergency
response and relevant project
documentation to ensure this can
be readily sourced following an
emergency.
HSES Management System policies and
procedures have been updated and will
be submitted to the board for approval in
March 2023. Updates include the role of
the ESG Committee and embedding ESG
considerations into daily work.
Emergency response procedures have
been updated and an online repository
containing all relevant documentation
created.
Review implementation of updated HSES
Management System across business
functions.
Further training on crisis management and
emergency response to be held in 2023.
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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 77 (87 in
2021) out of 180 countries in the 2021
CPI. Egypt is ranked at 130 on the same
CPI (117 in 2021). 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
of the Group’s risk management and
internal control systems, see the Audit
Committee and Risk report page 127.
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 hotlines supported by
EthicsPoint with numbers displayed online
and in local offices available 24 hours a
day all year round. Zero calls were made
to the EthicsPoint hotlines in 2022.
100 %
EMPLOYEES AND RELEVANT
CONTRACTORS HAVE
UNDERTAKEN ANTI-BRIBERY
AND CORRUPTION TRAINING
BY 31 DECEMBER 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 2022, the total payments to
governments for the Group amounted
to $245.3m (2021: $198.2m), of which
$211.5m or 86% (2021: $151.9m or 77%)
was related to the Vietnam producing
licence areas, of which $140.7m (2021:
$102.6m) was for indirect taxes based
on production entitlement. In Egypt
payments to government totalled
$31.3m (2021: $44.7m), of which $28.8m
(2021: $44.1m) related to indirect taxes
based on production entitlement. Our
Code prohibits contributions to political
parties, candidates or other political
organisations.
Overall objective
To conduct our business in an honest and ethical manner
2022 Objectives
All personnel to complete the annual ABC
programme including training, testing and
self-declaration statement.
2022 Outcomes
Completed.
2023 Objectives
All personnel to complete the annual
ABC programme including training,
testing and self-declaration statement.
Continue to review ABC programme and
update as required.
No updates required.
Continue to review ABC programme and
update as required.
Update and republish the Modern Slavery
annual statement and all other corporate
policy statements.
The annual statement on Modern Slavery has
been reviewed by the Board and republished on
the Pharos website.
Update and republish the Modern Slavery
annual statement and all other corporate
policy statements.
67
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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.
On-going monitoring and
precautionary / preventive
measures under COVID-19
The Group adhered to the requisite
precautionary procedures and
restrictions, in line with the government
directives in Egypt, Vietnam and the UK.
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
2022 in which we were the operator, we
continued to work with our partners in
Vietnam where the HLHVJOCs 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 lost time injury target is
maintained. One medical treatment
case was however recorded, when one
catering crew accidentally stepped and
broke a drinking glass on a bedside table,
causing him to trip and fall, lacerating the
back of his head and a toe in the process.
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 recorded one lost time injury
in 2022. On the 30/08/2022, when the
ECDC drilling crew assembled the mast
parts at Silah-2-6, the support beam
under the crown block was broken and
the mast warped. One person fractured
his knee bone and sustained a partial
cut in the ligament, with treatment taking
over two months. Two other people were
injured but were able to return to work
and were recorded as First Aid Cases.
Safety of our workforce remains our
number one priority and Pharos has
reinforced the use of stop cards and
safety training across all of the Group’s
operations.
Safety record
2022
2021
2020
KPI
Target rates
Pharos
IOGP4
Pharos
IOGP4
Pharos
IOGP
Fatal Accident Frequency Rate1
Lost Time Injury (“LTI”) Frequency Rate2
Total Recordable Injury Rate3
Million-man hours worked
0
0
<0.34
0
0.30
0.60
3.35
0
0
0
0.75
0.22
0.77
3.17
2,679
0.34
0.34
0.34
2.97
0.55
0.22
0.70
2,544
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 2022.
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Diversity and Inclusion
Greater diversity and inclusivity brings
greater understanding of people. Through
our 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.
Our Code of Business Conduct and
Ethics, associated Policies and the Pharos
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.
The spirit of diversity, inclusion and
trust lies behind everything we do. Our
commitment to inclusion and diversity
remains strong in 2022. As at year-end
2022, the Company has four female
Directors, representing two thirds of the
Board. We are proud that we are able to
recruit talents from diverse backgrounds
and ethnicities across our entire
organisation. Most notably, our UK-based
staff comprises 16 people from 9 different
nationalities, of which women accounted
for c.65%, which ensures that we cultivate
a culture that recognises and promotes
diversity in all forms and where every voice
is heard.
Critical Incident Risk
Management
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. We ensure
asset integrity and control operations in
order to effectively manage all significant
risks during all stages of the operations.
During 2022, 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
2022
Lost Time Injury (“LTI”) Cases
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
1
3
1
1
15
776
913
5,688
568
2022
98
0
39
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Pharos Energy Annual Report and Accounts 2022
CORPORATE RESPONSIBILITY - CONTINUED
2022 Corporate Employees (*)
(*) Figures correct as at 31 December 2022.
Non-Executive Directors
2
2
Executive Directors
2
Senior Management
3
1
Other Employees
3
Male
Female
Local capability building
We are committed to providing meaningful
opportunities for technical cooperation,
training and capacity building in host
countries. 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
candidate in London, Vietnam and Egypt.
In Egypt, under the El Fayum and North
Beni Suef Concession Agreements, the
Contractor party commits to a total of
$200,000 split equally between the two
Concessions for training and development
of employees. In Vietnam, as part of the
HLHVJOCs, a training levy of $150,000
for each JOC goes into a fund which is
ring-fenced to support the development
of future talent in Vietnam in the industry.
The HLHVJOCs also invest in staff
development and training.
9
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
2022 Objectives
2022 Outcomes
2023 Objectives
Close gaps and initial
improvements identified in
employee surveys
Established new routine post COVID for Directors
to travel internationally and engage with teams.
Reinstated weekly Head office business focus
meetings to further improve staff engagement.
Regular in person Head office events to continue
building a cohesive team.
Extended the performance appraisal system to
the global business.
Further develop, deliver and refine Head office
options of hybrid or home working, following
learnings from COVID remote working practices.
Develop and deliver company wide global team
engagement events, uniting colleagues from
Egypt, Vietnam, US and UK for business review
and updates.
Further embed and develop the performance
appraisal system globally.
Focus on maintaining safe working
environment
Safety workshops are routinely held at our field
locations to raise awareness. Where incidents
occurred, thorough investigations were carried
out and lessons learned were captured and
communicated.
Ensure worker health and safety is maintained
to a high standard during both desk-based and
operational activities.
Engage with the teams about workplace
wellbeing schemes.
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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 the Group’s corporate responsibility priorities, our objective is to protect
the environment and conserve biodiversity.
Greenhouse gas emissions
(“GHG”)
GHGs associated with energy use, natural
gas flaring and venting are a key issue for
the Group.
In 2022, we continued to monitor
our emissions and disclose them in
accordance with industry requirements
and standards. Additionally, we also
participated in the Carbon Disclosure
Project (“CDP”), details of which can be
found in the Business section of the this
report on page 64, and continue to align
our disclosure with TCFD recommended
disclosures, details of which can be found
in our TCFD report on page 79.
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 and included in the emissions
calculations, although N2O quantities
produced via combustion is relatively
small.
In addition to emissions resulting from
combustion, Pharos reports its direct
methane emissions from routine venting
and has been doing so since 2021.
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, as well
as venting). 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 our Cairo office (Egypt)
and in Ho Chi Minh City (Vietnam). No
Scope 3 emissions (indirect emissions
created in the value chain) are reported
for this financial year due to limitations
of data collection & concerns around
double-counting/ integrity of data.
Reporting of Scope 3 emissions would
involve voluntary disclosure of usage
from end-user and consumers, which
provides limitation in data integrity & data
collection. The company is cognisant that
TCFD advocates the reporting of scope
3 and the Group will endeavour to review
and follow this route where possible to be
in line with TCFD recommendations.
Reporting boundary
Pharos has elected to report its emissions
of GHGs from Egypt and Vietnam
operations on the basis of equity share.
Under equity share reporting, Pharos
reports a pro-rata share of the emissions
from partnerships or assets over which
the Group has operational control (i.e.,
Vietnam Blocks 125 &126) and a pro-rata
share of the emissions from partnerships
or assets it does not control (i.e., Vietnam
Blocks 9-2 and 16-1 and Egypt, all of
which are operated through JOCs)
according to its ownership interest. Since
the middle of July 2021, Pharos has
rented flexible office space consisting
of six desks at WeWork based in Soho,
London. The electricity consumption from
this office is not included in the figures
discussed thereafter.
Pharos Energy commits to making all
efforts to minimise all GHG Emissions
during its ongoing exploration activities
in Blocks 125 & 126, where it has
operational control. Where we are a joint
operating partner, we seek to influence
and ensure alignment with our systems
to promote best practice. 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 and TCFD recommendations.
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, 2022) 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 for the TGT and the CNV fields
as per a January 2023 gas daily report.
For the calculation of gas consumed,
vented 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).
71
Pharos Energy Annual Report and Accounts 2022 CORPORATE RESPONSIBILITY - CONTINUED
In 2022, we have again reported our
GHG emissions intensity in 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
2021, in addition to our emissions from
combustion which had been the focus
of Pharos’ reporting until then, we have
started to report our direct methane
emissions resulting from venting, and we
have continued to do so in 2022. In 2022,
gas fuel and gas flaring in TGT remain the
largest single contributor to Pharos’ total
emissions. Venting in Egypt represented
over 12 percent of our gross emissions.
The Group’s total CO2e emissions for
2022 is 376,915 tonnes of CO2 equivalent
(109,539 tonnes of CO2 equivalent based
on equity share). This corresponds to a
decrease of 0.3 percent compared to
2021 (approximately 2 percent decrease
based on equity share). It can therefore be
considered that Pharos’ emissions have
remain relatively stable compared to last
year despite some variations per source.
Activity data pertaining to GHG emissions
by the HLHVJOCs and Egypt is reported
to Pharos. Telos NRG assisted with data
collation and GHG emissions calculations.
Verification was undertaken by RPS
Consulting UK & Ireland with the following
limits:
• Activity data completeness, accuracy
and data collection and control
procedures have not been verified
due to the majority of GHG emissions
arising from activity in operations not
under Pharos’ direct operational (and
data collection) control.
• Activity data from Pharos’ Egypt
operations is considered to have a
higher risk of uncertainty.
next year will be on exploring opportunities
and technologies to reduce gas venting in
Egypt, which can potentially reduce our
Scope 1 emissions while also resulting in
economic gains, such as solar photovoltaic
powered pumping systems, increased
used of gas generators at wellsites and
further deployment of flare stacks, among
other gas utilisation opportunities. In
terms of energy efficiency, the usage of
a WeWork office is an initiative to reduce
both our cost base and our energy usage.
This is a continuation of our energy-
saving initiative from the previous year.
Additionally, in 2022, we moved to a
smaller office in Egypt as part of our effort
to reduce our cost base, thus conserving
more energy.
• There is inherent variability and
uncertainty associated with the
available methods for calculation of
GHG emissions from activity data;
reported emissions and the assurance
statement should be understood in that
context.
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.
Approaches to reducing
emissions
In Vietnam, we continue to manage
gas flaring by carefully monitoring and
optimising the processing facilities in the
TGT FPSO. Unfortunately, an extended
repair and maintenance in the receiving
facilities resulted in disruptions to gas
export and increased flaring levels in the
first quarter of 2022. The focus for the
Environmental permit non-compliances
- the company achieved zero Legal
Environmental Violation during 2022 and
did not obtain any violations from the
Environment Authority in Egypt in 2022.
The Company obtained 9 Environmental
Approvals from the Ministry of Environment
during 2022.
GHG emissions and activity data
GHG Data - tonnes of CO2 equivalent for 2020 to 2022
393,655
340,606
378,048
376,915
115,342
101,173
112,024
109,539
400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0
2020
(venting
excluded)
2021
(venting
excluded)
2021
(venting
included)
2022
(venting
included)
Gross GHG emissions (CO2e (t))
Net to Pharos GHG emissions based on Equity Share (CO2e (t))
72
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Carbon intensity of production (tCO2e per 1,000 tonnes of oil equivalent produced)
Vietnam
Egypt
Overall
289
280
240
289
281
237
541
458
289
313
307
340
600
500
400
300
200
100
0
2020
(venting
excluded)
2021
(venting
excluded)
2021
(venting
included)
2022
(venting
included)
Charts: Scope 1 and 2 emissions from the Group’s operated and joint-operated projects on an equity share basis calculated pro-rata to its
ownership interest.
Greenhouse Gas Emissions Contributors (Total CO2e (t))
for 2022 – Vietnam (Based on total field emissions)
Greenhouse Gas Emissions Contributors (Total CO2e (t))
for 2022 – Egypt (Based on total field emissions,
including venting)
Gas Flared - TGT
105,405 (36.6%)
Gas Fuel - TGT
142,425 (49.4%)
Marine Gasoil (MGO)
21,873 (7.6%)
Gas Flared (CNV)
13,877 (4.8%)
Diesel
4,561 (1.6%)
Aviation Fuel
(<0.1%)
Vietnam
Total CO2e (t)
Venting
43,815 (49.4%)
Gas Fuel
20,536 (23.2%)
Diesel
16,422 (18.5%)
Gas Flared
7,493 (8.5%)
Petrol (0.3%)
Electricity from
the grid (0.2%)
Egypt
Total CO2e (t)
In 2022, 35 tonnes of gas were flared for every 1,000 tonnes of total hydrocarbon production from Group assets on a gross basis (not
equity share adjusted). This is a slight increase from 32 tonnes in 2021.
Venting
Routine venting emissions have been
included for the second year in GHG
report in 2022. Routine venting only
occurs in Egypt. Although there is no
routine venting in Vietnam, accidental leaks
can occur. In addition, some activities
do occasionally require depressurisation
of differing process systems. In these
instances, the system(s) will be isolated,
and depressurised to as low as possible,
and then drained to a closed drain tank.
A minor amount of gas commingled with
liquid will evacuate out through cold vent
line to a safe area. Associated emissions
are negligible (8 tCO2e) but for the sake of
completeness have been included within
the report for 2022.
Although venting in Egypt was not
recorded before 2020, quantities involved
are likely to have been lower, as the oil
production decrease in 2021 meant the
amount of gas produced had become
insufficient to operate flare or power gas
generators at some locations and had
been vented instead. In 2022, the amount
of associated gas used as fuel in gas
generators in Egypt was 234 mmscf,
which resulted in 20,536 tCO2e (gross).
However, had this associated gas been
vented it would have resulted in additional
emissions in the order of 51,630 tCO2e, or
14% of the Group’s total emissions on a
gross basis.
73
The Group’s energy use from grid
electricity was 323,492 kWh in 2022 for
overseas offices in Egypt and Vietnam.
In 2021, the Group’s energy use was
311,692 kWh. Since the middle of July
2021, Pharos has rented a flexible six-
desk office space in London, the electricity
consumption of which is not included in
the report.
Pharos Energy Annual Report and Accounts 2022
CORPORATE RESPONSIBILITY - CONTINUED
Effluents and waste
During 2022, Pharos maintained its record of no spills into the environment in Vietnam. In Egypt, there was one environmental spills as
follows:
Date
Location
Description
Estimated Quantity (bbls)
August 2022
Egypt - El Fayum fields to Suez oil
processing company, about 2 km
away from Suez city
Following a collision with a gravel truck, a crude oil shipping
truck overturned causing a leak in tank– no injury
362
Water is extracted along with hydrocarbon
reservoir fluids as part of normal
production operations; in Egypt, water is
also withdrawn from deep saline aquifers
and injected into hydrocarbon-bearing
formations to enhance production. In 2022
we generated 6.3 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 all
disposed of in disposal wells. The
company has three Produced Water
Treatment Facilities (PWTF), two of them
are in-service at the gathering stations
(GS) in Silah and North Silah Deep (NSD)
and the third is yet to be used at North
East Tersa. The produced water is being
collected in both PWTF (Silah & NSD) and
then disposed of by injecting it into the
Abu Roash “E” formation through disposal
wells at each location (approximately 5,000
bbls/d of water disposed into SILAH-15 &
and 6,500 bbls/d of water into NSD-1-1).
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 2022, freshwater consumption for both
Vietnam and Egypt amounted to 70,582
cubic metres. Our use of freshwater has
increased by 21 percent compared to
2021, due to an increase in the number of
drilling activity carried out through the year.
Tonnes (t) of CO2e equivalent for 2022 Operations
CO2e (t)
CO2e (t) per 1000 tonnes of oil
produced by equity share3
Reported
operations
Operational
phase
Overall1
Based on
equity share1,2
Per field
Per
country
Country
UK
Israel
Egypt
Rented flexible office
space - not reported
Administration (office – electricity
usage)
No activity
Office
Administration support for exploration
El Fayum Concession
Production
Field development
Office
Administration (electricity usage)
Blocks 125 & 126
Seismic exploration
Vietnam Cuu Long
Basin (offshore)
Block 9-2 – Ca Ngu Vang
(CNV) field
Block 16-1 – Te Giac
Trang (TGT) field
Production
Field development
Production
Field development
–
–
328
84,592
3,746
2
–
16,130
2,790
262,640
6,687
–
–
95
23,652
1,069
2
–
4,033
698
78,004
1,986
–
–
–
–
–
–
541
541
–
307
–
83
368
–
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) GHG emission intensity is calculated, per field, and at country level, based on equity share, and gross/net boepd produced in 2022 in the CNV and TGT fields
as well as in El Fayum Concession. Calculations have been made using the following constants:1 m3 = 6.2898 barrels of oil, specific gravities of 0.8283,
0.728 and 0.8527 for El Fayum, CNV and TGT respectively.
Total
376,915
109,539
340
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Pharos Energy Annual Report and Accounts 2022Governance ReportFinancial StatementsAdditional InformationStrategic Report CORPORATE RESPONSIBILITY - CONTINUED
Tonnes (t) of CO2e equivalent for 2022 Operations
Biodiversity
The Group’s 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 habitats. 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. Consistent with the Biodiversity and
Conservation 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
(as defined by UNESCO) of these sites.
Non-Financial KPIs (HSES)
KPI
Spills to the environment
KPI
Solid non-hazardous waste produced (tonnes)
In Vietnam, safe practices were adhered
to ensure the surrounding environment is
protected at all times:
• The oil in water content of produced
water were continuously monitored
• Hazardous wastes have been strictly
managed, with hazardous wastes
manifests completed and submitted to
the relevant authorities
• All waste waters and sewage generated
on the drilling rigs, supply vessels
and FPSO have been treated before
discharge
• All solid wastes were collected,
segregated and transported to shore
and sent to the appointed contractors
who provided waste treatment system
Target - 2022
0
Target
Set per project
Percentage of non-hazardous waste reused or recycled
Set per project
Solid hazardous waste (tonnes)
Percentage of hazardous waste reused or recycled
Set per project
Set per project
In Egypt, similar safe practices were in
place:
• For normal waste, handling and
disposal was undertaken in compliance
with applicable environmental law
and regulatory requirements, involving
contracting with local units.
• Handling, transportation and disposal
of hazardous waste was undertaken as
follows:
- solid hazardous waste to approved
governmental landfill in El Nasrya in
Alexandria
- liquid and solid hydrocarbon waste
to approved landfill by contractor
Petrotrade
- water-based mud cutting waste to the
Fayum Governorate landfill.
An annual environmental monitoring was
conducted over Petrosilah work locations
by IMS Company to assess compliance
with applicable environmental law and
regulation.
We are committed to developing site-
specific biodiversity action plans 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.
2022
1
2022
109
15
60
11
2021
3
2021
111
24
48
<1
2020
4
2020
94
25
41
4
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Pharos Energy Annual Report and Accounts 2022 CORPORATE RESPONSIBILITY - CONTINUED
Overall objective
To protect the environment and conserve biodiversity
2022 Objectives
2022 Outcomes
2023 Objectives
Obtain all necessary environmental
permits for all drilling programmes /
seismic studies.
All necessary permits for our 2022 field development
operations were obtained successfully.
Obtain all necessary environmental permits
for all drilling programmes / seismic
studies.
Improve methane emissions
management and reporting.
Carry out further feasibility studies /
cost benefit analysis on CO2 reduction
technologies.
Continue with TCFD alignment -
disclosure & reporting
Map out Pharos decarbonisation plan.
In progress. Pharos has been reporting methane
emissions from venting following established
industry procedures. In 2023 we plan to focus on
improving the reliability of these estimates through
better measurements.
Ongoing. Partly achieved in Vietnam where we
have conducted a review of potential technology
to reduce GHG emissions. Focus will now shift to
evaluate technologies to reduce venting in Egypt.
Improve methane emissions management
and reporting.
Carry out further feasibility studies /
cost benefit analysis on CO2 reduction
technologies.
Ongoing. Net-zero emissions roadmap to be
published in 2023.
Produce net-zero GHG emissions
roadmap.
Pharos Energy Annual Report and Accounts 2022
76
Governance ReportFinancial StatementsAdditional InformationStrategic Report CORPORATE RESPONSIBILITY - CONTINUED
Society
Our Social Responsibility and Human Rights Policies
set our requirements for social responsibility,
community engagement and human rights.
Human rights
The Group 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 Social Responsibility 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 Group corporate policies
including the Human Rights Policy and
the Social Responsibility Policy, 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. The Group’s Statement
on Modern Slavery is available on the
Company’s website at https://www.
pharos.energy/modern-slavery-act/.
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 countries
and communities. In recent years, we
have structured our social investment
programme to align more with the United
Nations Sustainable Development Goals
(UN SDGs).
Pharos works closely with our local
partners and joint ventures in order
to make sure that our social initiatives
continue to bring more positive impacts to
the region. In Vietnam in 2022, 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 $198,600 was invested in 9
community projects. The JOCs actively
inquired and listened to locals to identify
which areas of the country would need the
greatest assistance in order to ensure that
we were investing in local projects that
would bring the most sustainable positive
impact to the community. For instance,
in H1 2022, the Group provided financial
support towards physical improvement
education programme for children with
disabilities at Khanh Tam Specialised
Educational Centre and An Tue Social
Assistance Centre (UN SDG 3: Good
health & wellbeing and UN SDG 4: Quality
education). In H2 2022, the Donation
Programme helped fund the renovation
of classrooms for primary school in
Tien Cau village, which will bring about
positive impacts on the development and
education of children in the area for years
to come (UN SDG 4 Quality education
and UN SDG 9: Industry, innovation and
infrastructure).
In Egypt, under the El Fayum and North
Beni Suef Concession Agreements, the
Company contributes a total of $200,000
split equally between the two Concessions
to support long-term training and
development of talents within the industry
(UN SDG 9: Industry, innovation and
infrastructure). Additionally, in cooperation
with the Ministry of Higher Education and
Scientific Research, Petrosilah holds an
annual summer training programme for all
students applying from public and private
Egyptian universities for training in the
administrative office and the company’s
fields, of which they can obtain a training
certificate from the company (UN SDG 4:
Quality education).
Social projects like these have been part
of Pharos since inception, and we have
always sought to invest sustainably so that
the initiatives that we helped set up stay in
place, and have lasting impacts for many
generations.
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.
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Pharos Energy Annual Report and Accounts 2022
CORPORATE RESPONSIBILITY - CONTINUED
Community projects in Vietnam 2022 via the
HLHVJOC Donation Programme
$198,600
TOTAL
UN SDG 1 – No poverty
End poverty in all its forms everywhere
• Financial Support for House of Grace orphanage in Thu Duc city
• Financial support towards Saigon Children Charity to help children orphaned by COVID-19 in Vietnam
• Financial support to Agent Orange victims in Thai Binh province
• Financial support for flood victims with difficult family situation in Phu Luu commune, Ha Tinh province
UN SDG 4 – Quality education
Ensure inclusive and equitable quality education and promote lifelong learning
opportunities for all
• Financial support for the physical improvement education program for children with disabilities for Khanh Tam
Specialised Education Centre
• Financial support for therapy for children with disabilities at An Tue Social Assistance Center – Thua Thien
Hue province
• Financial support to purchase computer equipment for English labs in Tan Thanh commune’s middle school,
Kim Son district, Ninh Binh province
• Financial support to renovate classrooms for primary school in Tien Cau village, Hiep Cuong commune, Kim
Dong district, Hung Yen province
• Financial support for school facilities for lab teaching at Nguyen Van Troi secondary school, Hoang Quy
commune, Hoang Hoa district, Thanh Hoa province
SOCIETY CASE STUDY
Engaging with host
communities to
provide sustainable
positive impacts
Vietnam
• $95,000 in financial support from the
HLHVJOCs to renovate classrooms
for primary school in Tien Cau village,
Hiep Cuong commune, Kim Dong
district, Hung Yen province.
• $15,000 in charitable donation to
provide support for physical therapy
treatments for children with disabilities
at An Tue Social Assistance Center –
Thua Thien Hue province.
• $7,000 in financial support towards
Saigon Children Charity to help
children orphaned by COVID-19 in
Vietnam.
Egypt
•
In cooperation with the Ministry of
Higher Education and Scientific
Research, Petrosilah holds an annual
summer training programme for all
students applying from public and
private Egyptian universities for
training in the administrative office
and the company’s fields, of which
they can obtain a training certificate
from the company.
Overall objective
To consult with and contribute into our host communities
2022 Objectives
2022 Outcomes
2023 Objectives
Continuation of the social investment programme in
Vietnam, with further alignment to UN SDGs
On target
Improvement in social investment programmes in
Egypt and London
Ongoing
Continuation of the social investment
programme in Vietnam
Social investment programmes in Egypt
and London implemented
78
Pharos Energy Annual Report and Accounts 2022Governance ReportFinancial StatementsAdditional InformationStrategic Report
TCFD
Task Force on Climate-related
Financial Disclosure
Our approach on TCFD disclosure
Pharos is in the early stages of our climate-related financial reporting journey and therefore always aim to
improve our disclosure in order to better align the Group with the TCFD recommendations.
Stakeholder
engagement
Gap
analysis
Approach:
• Build a roadmap
• Adopt an integrated approach
• Approach as cyclical process
Reporting &
disclosure
Internal
alignment
Benefits:
• Demonstrates awareness of growing importance of climate-related issues to key
stakeholders
• Staying ahead of mandatory disclosure requirements
• Creates efficiencies and relieves reporting burden
Overview of TCFD recommended
disclosures
The table below sets out our climate-
related financial disclosures and
summarises where additional information
can be found. As at 31 December 2022,
Pharos is fully consistent with 8 out of 11
TCFD recommended disclosures. There
are certain areas where we are not yet
aligned with the TCFD recommendations,
a summary of these are set out below:
Strategy: b) Describe the impact of
climate-related risks and opportunities
on the organisation’s businesses,
strategy and financial planning
The TCFD recommends that organisations
should describe their plans for transitioning
to a low-carbon economy, which should
include GHG emissions targets and
specific activities intended to reduce GHG
emissions in their operations and value
chain. All of this information will be part of
Pharos’ Net Zero Roadmap, which will be
published later in 2023 and therefore we
consider ourselves to be not fully aligned
with Strategy (b) as at year end 2022.
Partial disclosure of our progress towards
this Roadmap, such as the GHG emission
targets in the Company’s KPI, emission
reduction opportunities already explored
such as the gas generators, carbon pricing
and operational cessation sensitivity
analyses, business impact of transitional
and physical risks, definition of resilience
over different time timeframes and more
are discussed in the below sections of the
report to help readers understand other
aspects of our consideration towards
climate-related risks and opportunities
over the short, medium and long-term.
Metrics & Targets: b) Disclose scope
1, scope 2 and, if appropriate, scope
3 greenhouse gas emissions and the
related risks
We currently only disclose Scope 1 and
Scope 2 greenhouse gas emissions and its
related risks. While the Group have taken
into considerations the assessment of
Scope 3 reporting as recommended by the
TCFD guidelines, Scope 3 emissions are
currently not being reported in our reports
due to limitations of data collecting,
concerns around double-counting and
integrity of data. We are non-operator in
Vietnam and Egypt and do not have a
line of sight through to end-user energy
consumption and usage. Nevertheless,
the Company is cognisant that TCFD
advocates the reporting of scope 3 and
therefore will look to disclose our Scope 3
reporting within the next 2 years.
Metrics & Targets: c) Describe the
targets used by the organisation to
manage climate-related risks and
opportunities and performance against
targets
For measurement of our GHG
performance as part of the determination
of our corporate KPI and LTIP, we have
set reduction targets on both absolute
and intensity. Details can be found in
the Directors’ Remuneration Report. For
targets on longer-term climate-related
risks, we are in the process of developing
a Net Zero roadmap, which will include
short and medium term targets we need
to achieve in order to meet our climate
ambition of achieving Net Zero by 2050
and manage our climate risks. This will be
published in late 2023.
Pharos Net Zero target measures
Scope 1 (direct) and 2 (indirect) GHG
emissions from all our existing and
future assets by no later than 2050,
against a baseline of 2020 GHG
emissions. Our GHG emissions from
Egypt and Vietnam operations are
reported 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 Block 9/2 and
Block 16/1 and Egypt) according to its
ownership interest.
79
Pharos Energy Annual Report and Accounts 2022 TCFD - CONTINUED
Where we have not included climate-related financial disclosures consistent with all of the TCFD Recommendations and Recommended
Disclosures, we have added icons to highlight disclosures where we are partially or non-compliant and included our reasons in the
Response column in the table.
Disclosure Level:
Full
Partial
Omitted
Recommendation
Response
Disclosure location
GOVERNANCE
a) Describe the Board’s oversight of climate-related risks & opportunities
Board governance
process and
frequency
Sub-committee
accountability,
processes and
frequency
• The Board takes overall responsibility for our Net Zero climate
goal, ESG strategy and climate-related risk and opportunities,
overseeing executive management in developing the approach,
execution, associated reporting and climate disclosures, with the
help of multiple committees such as the Audit & Risk Committee,
the ESG Committee, and the Remuneration Committee.
• The Board takes into account climate-related issues when
reviewing and guiding the Group’s strategy via a number of
considerations, such as the risk management process and its
risk grading (in which climate risk is considered a principal risk),
Going Concern and Viability Statement which includes NZE curve
stress testing and carbon pricing sensitivity analysis, and the
Remuneration Committee’s ESG and climate-related KPIs.
• Given the wide-ranging remit of climate-related matters, the
governance activities are managed through a combination of
different committees, detailed below. Climate-related matters,
as well as progress against our ESG performance and Net Zero
ambitions, are reviewed and discussed at each committees
meetings. Information are then flown to the main Board for
considerations when they review the Group’s strategy at quarterly
Board meetings. The Chief Executive Officer is accountable to the
Board for implementation of Corporate Responsibility (CR) policies
and HSES performance.
• The Audit & Risk Committee (ARC) oversees all principal and
emerging risks in our risk management process, in which climate
risk is considered a principal risk. It also oversees the adequacy
and effectiveness of our corporate policies, standards and
management system for HSES.
• The ESG Committee oversees the Group’s management of ESG
matters and compliance with legal and regulatory climate-related
reporting and disclosure requirements, as well as assists the
Board in defining and implementing the Group’s climate strategy
relating to ESG matters.
• The Remuneration Committee oversees the level of management
incentives attached to improvements in climate-related
performance in order to further encourage action on this agenda.
•
In 2022, each Committee meets four times, as scheduled.
• All the sub-committees then reports to the main Board, which
meets every quarter, as scheduled. In 2022, the Board meet four
times.
Skills/competency/
training of
the board/
management
regarding climate
matters
• The Board takes an active approach to ensure Board members
are aware of key climate matters. In 2022, the Board invited
an ESG specialist to educate Board members on key issues
regarding industry’s expectation on Net Zero commitment, GHG
Scope 1,2,3 disclosures across peers, and emerging climate
regulatory trends.
•
In 2022, Mike Watts who was a member of the Board at the time,
also presented his research to Management and the UK staff on
a Company offsite day to help educate and raise awareness on
important climate matters.
• See page 112 for the Board &
Principal Committees structure
• See page 63 of the Corporate
Responsibility Report in the
Strategic Report for Board
governance process in regards
to ESG and climate-related
matters
• See page 112 for the Board &
Principal Committees structure
• See pages 122 to 124 for the
ESG Committee report
• See pages 127 to 133 for the
ARC Committee report
• See pages 137 to 140, and
pages 145 to 146 of the
Remuneration Report for more
details on how the Committee
measure remuneration progress
in regards to ESG and climate-
related KPIs
• See pages 122 to 124 for the
ESG Committee report
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Pharos Energy Annual Report and Accounts 2022Governance ReportFinancial StatementsAdditional InformationStrategic Report TCFD - CONTINUED
Recommendation
Response
Disclosure location
Examples of the
Board and relevant
Board committees
taking climate into
account
• The Board considers climate-related issues when reviewing and
guiding the Group’s strategy and any major action plans. For
example, climate risks’ impacts, mitigation, the Going Concern
and Viability of our business, and our emissions data were all
taken into consideration when the Group made its commitment
to achieve Net Zero on Scope 1 and 2 GHG emissions across
all of its assets by no later than 2050, including all future
business decisions and developments. This commitment was
discussed at the ESG Committee meetings and Board meetings
and approved by the Board.
• During the Board’s Strategy Day in October, climate-related risks
were presented to the Board when they reviewed our future
strategy.
• The ARC also monitor the Group’s sensitivity analysis for stress
testing, NZE scenario analysis, and carbon tax analysis as part
of our Viability Statement and Going Concern.
• The Remuneration Committee continues to set GHG reduction
target as a 2023 KPI.
• See pages 122 to 124 for the
ESG Committee report
• See pages 127 to 133 for the
ARC Committee report
• See pages 137 to 140, and 145
to 146 of the Remuneration
Report for more details on
how the Committee measure
remuneration progress in regards
to ESG and climate-related KPIs
• See pages 61 to 78, and
page 107 for our Corporate
Responsibility report and our
Corporate Responsibility Non-
Financial Indicators
• See pages 47 to 60 for more
details on climate risks’ impacts
and mitigations, which were
taken into consideration when the
Board reviewed and guided the
Group’s strategy
b) Describe management’s role in assessing and managing climate-related risks and opportunities
Who manages
climate-related
risks and
opportunities
• See page 112 for the Board &
Principal Committees structure
• See pages 122 to 124 for the
ESG Committee report
• See pages 47 to 60 for the Risk
Report
• The Group’s Chief Executive Officer and Chief Financial Officer
manage our climate progress and is responsible for the delivery
of our Net Zero climate commitment, with management
responsibilities integrated into the relevant business and
functional areas, such as HSE, Operations, Risk, ESG. They
oversee and direct the climate-related opportunities. They were
involved in every ARC and ESG Committee meetings in 2022
and oversaw the Net Zero Working Group, which meets monthly
since May 2022.
• The Group’s Head of Operations supports the Executives in
the development of emission reduction projects and provides
oversight and management on HSE performance & activities.
• The Group’s Heads of Risk and Business Intelligence support
the Executives in managing principal and emerging risks,
including climate-related risks, by providing detailed scenario
analysis and stress testing updates throughout the year.
How management
reports to the
Board
• The Group’s Chief Executive Officer and Chief Financial Officer
provided regular updates to the Board. In 2022, they provided
updates to the Board, which met every quarter during the year.
• The sub-committees regularly report to the Board on climate-
related issues at every Board meeting.
• See pages 109, 110 for Chair’s
Introduction to Governance
• See page 112 for the Board &
Principal Committees structure
• See pages 122 to 124 for the
ESG Committee report
Processes
used to inform
management
• Ahead of each Board meeting, Board papers are prepared and
approved by the Executives before submission to the Board.
At each Board meeting, management and related Head of
functions will provide additional verbal updates and answer
questions when challenged.
• See pages 35 to 38 for the s.172
(1) on how the Board is informed
in their decision-making process
81
Pharos Energy Annual Report and Accounts 2022
TCFD - CONTINUED
Recommendation
Response
Disclosure location
STRATEGY
a) Describe the climate-related risks and opportunities the organisation has identified over the short, medium
and long term
Processes used
to determine
material risks and
opportunities
• We use scenario analysis conducted both internally and by a
third-party climate consultant to help us identify and understand
climate-related risks.
• See below for more details on
the process used to determine
material risks and opportunities
• We use an internal risk matrix to grade the risks identified in
order to determine their impact and materiality on the business.
• We conduct sensitivity analysis to outline the impact on the
impairment charges using the average of the NZE (Net Zero
Emissions) scenarios.
• As part of our business risk management guideline and risk
management policy, we consider all risks with potential cash
impacts above $5m as material. These guidelines and policies
are reviewed and re-approved every year by the Board.
Relevant short,
medium, and long
term time horizons
• We are committed to achieve net zero on all Scope 1 and 2
GHG emissions across all our assets by no later than 2050.
• See pages 59 to 60 for the
Viability Statement
• We use our license period, plus any potential extensions, as
• See pages 47 to 60 for the Risk
determination of useful life of assets.
Report
• See below for more details on
the risks identified over 5 and
10-years
• We consider a short term horizon to be 3 years, which is the
same time horizon we use in our Going Concern & Viability
Statement. We consider medium terms to be 5 years, as our
most cash-generative asset in Vietnam, if not granted the
licence extension, would expire in 2026 and 2027. We consider
long-term to be 10 years, as our producing licences in Vietnam
are currently due to expire within the next 10 years, and have
therefore set ‘long-term’ as 10 years.
•
In identifying short-term climate-related risks, we are in regular
conversation with our stakeholders, such as our RBL lenders,
on their commitments around climate change and how those
might impact our business. In the short term (3-year period),
we take this into account when running our Going Concern and
Viability Statement, and NZE stress testing. Short-term climate
risks and its impacts are also linked to our capital financing risk
which is considered in the Risk Report. We aim to address and
mitigate these short-term risks by looking at decarbonisation
projects as part of our Net Zero roadmap, which is currently
being developed.
• Climate-related risks and opportunities were identified across
5-year and 10-year timeframes. While these time-horizons
may be on the longer side of a ‘typical’ business strategy, they
are designed to highlight the importance of sustainability and
climate-related issues in the longer-term. Also, many climate-
related risks are likely to manifest in the medium- and long-term,
so longer time-horizons ensure these risks are not excluded
from consideration.
Transition or
physical climate-
related issues
identified
• Details of the transition and physical-climate related issues
• See below for more details on the
identified are set out below.
risks identified
• Overall, based on risk high-grading and scenario analysis, we
believe that transition risk is material for Pharos.
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Pharos Energy Annual Report and Accounts 2022Governance ReportFinancial StatementsAdditional InformationStrategic Report TCFD - CONTINUED
Recommendation
Response
Disclosure location
Climate-related
opportunities
identified
Risks and
opportunities by
sector and/ or
geography
• See pages 61 to 78 & page 107
for our Corporate Responsibility
report and our Corporate
Responsibility Non-Financial
Indicators
• While many climate-related opportunities are being explored by
the Group as part of the development of our Roadmap, we have
identified one notable emission-reduction opportunity, which
is the associated gas-powered electricity generators in Egypt.
This is part of a broader plan to utilise produced associated
gas instead of diesel for power generation, along with flare
reductions. The generators reduce CO2e emission by using
the associated gas that otherwise would have been flared,
and turn them into electricity to be used for field operations in
Egypt. This opportunity directly improves our expenditure, as
we reduce the purchase of diesel to power operations in the
field. More information on the usage of gas-powered generators
in Egypt can be found on pages 72 and 73 of the Corporate
Responsibility Report.
• Both transition and physical risks have been assessed by
• See below for more details on
geography of operations (Vietnam and Egypt).
the risks identified
b) Describe the impact of climate-related risks and opportunities on the organisation’s businesses,
strategy and financial planning
• See below for more details
on the risks identified and its
potential financial impact
• See pages 59, 60 for the
Viability Statement
• See Note 16 for details on NZE
sensitivity
• Carbon pricing in the GC
Impact on strategy,
business, and
financial planning
• We considered the impact of climate-related issues on our
businesses and strategy through the severity and likelihood
high-grading process of all transition and physical risks
identified, plus the feedbacks from our stakeholders.
• We also assess the significance of certain transitional risks,
such as carbon tax and stranded assets, by evaluating their
potential financial impact on cash in different time periods if
no mitigating actions are taken. The Assessment is based
on NZE scenario analysis.
• We explain the business and financial impacts of each risks
in the sections below.
• Climate-related issues are considered in our financial
planning, as we conduct sensitivity analyses bi-annually,
which involves analyses on carbon pricing and stress
testing using the NZE scenario, in order to evaluate the
Group’s going concern and viability. Climate-related risks
and opportunities are also considered when we hold regular
conversation with our RBL lenders, on their commitments
around climate change and how those might impact on our
business. We also consider climate-related issues when
financially planning any potential new business opportunities,
as evident in our NZ statement in September which includes
NZ emissions commitment on all assets, including the
development of new asset such as Block 125 in Vietnam.
Therefore, the Group takes into account the cost and
benefits of projects/technologies that can reduce our carbon
footprints.
• Additionally, our Net Zero commitment is also a part of the
Board’s decision making process when considering new
business ventures.
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Recommendation
Response
Disclosure location
Impact on products
and services
Impact on supply
chain and/or value
chain
Impact on
adaptation and
mitigation activities
Impact on
operations
Impact on
investment in
research and
development
How we are striving
to meet investor
expectations
• Details set out below from page 94
• Details set out below from page 94
• Details set out below from page 94
• Details set out below from page 94
• As part of our Net Zero commitment, we are developing
a Net Zero roadmap, in which we are investigating new
technologies that can be developed and employed to help
us reduce our carbon emissions and lessen climate-related
impacts on our business.
•
In December 2022, we have contracted a third-party
ESG specialist company to provide the additional
expertise needed to help us develop our Roadmap. As
at the publication date of this report, we have verified
the baseline emission, mapped emissions across the
business and reviewed existing emission reduction
initiatives. Our next step of the roadmap is to calculate
the remaining emission reduction required to achieve Net
Zero by 2050, and explore and rank emission reduction
options based on cost, impact, maturity, and start to map
emission reduction targets along a Net Zero timeline. As
we explore technology to reduce our GHG emissions, we
prioritise those that can help us reduce emissions directly
from operations, either by improving efficiency in current
facilities, reducing flaring and venting, or replacing the
power consumption of our facilities with less impactful
energy sources. We will only look to procure nature-
based carbon offset projects for hard-to-abate, residual
emissions. The outcome of this work will be published in
our Net Zero roadmap later in 2023.
• We are committed to transparency in our climate-related
disclosure and reporting.
• We strive to achieve a balance of delivering value to all
stakeholders via cash returns & organic growth while
minimising climate-related impacts on our long-term
business model, while providing energy security for
host countries in which we operate and helping local
government achieve their economic development goals
and prosperity using oil revenues from our operations.
• As part of our NZ by 2050 commitment to all stakeholders,
we aim to reconcile our commitment to existing FPSO
facilities in our operations with future business endeavours,
such as exploration commitments on Block 125 in
Vietnam, in order to minimise environmental impacts and
achieve our climate goals.
• See pages 122 to 124 for the
ESG Committee report
• See the Chair’s Statement
(pages 15, 16) and CEO’s
statement (pages 19 to 22)
for our strategy, purpose, and
commitment to transparent
climate disclosure and reporting
• See pages 122 to 124 for the
ESG Committee report
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Recommendation
Response
Disclosure location
c) Describe the resilience of the organisation’s strategy, taking into consideration different climate-related
scenarios, including a 2°C or lower scenario
Business
resilience
• We consider our business to be resilient when we can continue
• See pages 59, 60 for the
our business when stress-tested. This is in line with our
assumptions in the Going Concern and Viability Statement.
Viability Statement
Embedding climate
into scenario
analysis
• Climate-related issues are always taken into consideration when
we conduct scenario analysis. Our sensitivity test is conducted
based on International Energy Agency’s (IEA) NZE curve,
which is more conservative than the Sustainable Development
Scenario (SDS), in order to showcase our resilience, viability and
going concern.
• The Climate change price used is based on Brent which is
estimated to reach $35/bbl in 2030 in real terms as of 2021
($43/bbl in nominal terms as of 2030). Pharos YE 2022 Brent
price forecast was extrapolated from 2026 to reach the NZE
price in 2030.
• See pages 59, 60 for the
Viability Statement and the NZE
consideration in our financial
reporting below
Key drivers of
performance and
how these have
been taken into
account
Scenarios
used and how
they factored
in government
policies
How our strategies
may change and
adapt
• Key drivers of the Group’s performance include operational/
• See below for more details on
production stability, reputational risks, financial risks and legal
risks, all of which are set out on page 94 below.
the risks identified
• While every company may use a different curve, Pharos uses
NZE as we believe it is the most conservative measure to
demonstrate our resilience.
• Additionally, we also review carbon tax policies in host countries
in which we have operations. Currently there is no active carbon
tax policy. Impairments, have also been run on the NZE curve,
which we believe take into account carbon pricing. Nonetheless,
we’ve still conducted carbon tax sensitivity analysis at group
level, covering all assets.
• Our scenario analyses on the financial impact of carbon tax and
operational cessation is detailed in the table below.
• We aim to regularly review and enhance our own selection
process and design standards to help these reflect the potential
impacts of climate change.
• While we are proud of our role in the energy transition as an
oil & gas provider to help developing countries, like Vietnam
and Egypt, develop their natural resources in a responsible
and sustainable manner in order to achieve their economic
development goals and prosperity, we also understand the
complex nature of climate-related issues. As our approach to
climate-related reporting becomes more refined over time, we
will look to broaden the energy portfolio.
• See pages 59, 60 for the
Viability Statement and the NZE
consideration in our financial
reporting below
• See below for more details on
the financial impact of carbon
tax and operational cessation
scenario analysis
• See the Chair’s Statement
(pages 15, 16) and CEO’s
statement (pages 19 to 22) on
how our strategy and purpose
take into account climate
considerations
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Recommendation
Response
Disclosure location
RISK MANAGEMENT
a) Describe the organisation’s processes for identifying and assessing climate-related risks
Process
• See below for more details on
the risks identified
• See pages 47 to 60 for the Risk
Report
• We use scenario analysis conducted both internally and by a
third-party climate consultant to help us identify and assess
climate-related risks.
• The process to assess to size, scope and significance of
climate-related risks and opportunities is integrated into the
business. Climate risks, along with other principal risks, are
considered as part of the Group’s Risk Management Process
(RMP), which is regularly reviewed by the Board and ARC. In
determining the significance of each risk, the Group Head of
Risk will discuss the risk grading, its impacts and mitigations
with Country Managers & Head of Operations. Challenges on all
risks, its grading and mitigation actions are welcomed and are
documented in every ARC meeting.
•
In identifying climate-related physical and transition risks, the
Group and its third-party climate consultant also consider
regulatory requirements and emerging trends related to climate
change of each host government, such as assessing Vietnam
and Egypt’s national energy plans as well as STEPS and SDS.
Integration into
policies and
procedures
• Our Climate Change policy is available on our website and is
• See pages 127 to 133 for the
subjected to annual review by the Board.
ARC Committee report
• Our Risk Policy is reviewed and re-approved by the Board
every year. In addition, quarterly risk reports, conducted by the
Group’s Head of Risk, is also submitted to the Board ahead of
every Board meeting throughout the year.
• Climate risk is integrated into the supporting policies, processes
and controls and we will continue to update these as our climate
risk management capabilities mature over time.
• See below for more details on
the risks identified
• See pages 47 to 60 for the Risk
Report
• See pages 127 to 133 for the
ARC Committee report
b) Describe the organisation’s processes for managing climate-related risks
Process and how
we make decisions
• We carefully consider the environmental performance of assets
and opportunities as part of our decision-making process,
underpinned by our net zero commitment.
• The Group’s ARC receives quarterly scheduled updates on all
principal and emerging risk.
• Our risk matrix helps the Group determine its appetite for
all risks, thus supporting the Board in their decision-making
process, oversight and management of the Group’s financial
health and business strategy.
• The Board and management team believes that the Group’s risk
matrix is a living/ ever-evolving dynamic document, and thus
additional risk-assessment meetings, aside from the quarterly-
scheduled ARC meetings, can be called if a new emerging risk
is deemed significant.
• Our approach to climate risk management is continually
developing and how we manage these risks will vary by risk
type. For examples on how we manage mitigation actions
for different climate-related risks types, please see our risk
table below. We will continue to review our risk management
framework when determining the materiality of its exposure to
climate-related risks.
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TCFD - CONTINUED
Recommendation
Response
Disclosure location
c) Describe how processes for identifying, assessing and managing climate-related risks are
integrated into the organisation’s overall risk management framework
How we have
aligned and
integrated our
approach
How we take
into account
interconnections
between entities,
functions
• Climate risk is a principal risk, which is integrated into the
• See pages 47 to 60 for the Risk
Group’s Risk Management Process (RMP). The RMP is regularly
reviewed by the Board and ARC.
Report
• See pages 127 to 133 for the
ARC Committee report
• Our RMP takes into account relevant interconnections
• See pages 47 to 60 for the Risk
within global businesses, functions and entities. In all of our
risk meetings, we invite staff from all functions, entities and
locations to participate and contribute to the risk matrix.
Report
• See pages 127 to 133 for the
ARC Committee report
METRICS AND TARGETS
a) Disclose the metrics used by the organisation to assess climate-related risk and opportunities in line with its
strategy and risk management process
Metrics and
targets used to
assess the impact
of climate-related
risks
• See pages 61 to 78 and 107
for our Corporate Responsibility
report and our Corporate
Responsibility Non-Financial
Indicators
• See below for our
considerations on materiality
and its impacts over different
time periods
• Our considerations & disclosure on 7 cross-industry metrics
categories recommended by the TCFD are detailed below.
• Our GHG emissions is recorded on Scope 1 & 2 CO2e
absolute and intensity. We also measure total hydrocarbon
flared as part of our Corporate Responsibility Non-Financial
Measure. Both of these metrics is directly related to our
commitment to achieve Net Zero emissions across all assets
by 2050.
• We also measure other industry metrics such as energy
consumption, process emissions, combustion, venting,
waste usage and recycled, freshwater use, and oil spills,
which we track as part of our HSE performance. We do
not measure fugitive emissions as they are not considered
material.
• We measure the impact of climate-related risks by risk-
grading its severity and likelihood across a 5-10 year
timeframe. We evaluated transition and physical risks,
including policy, market and long-term chronic effects of
global warming and used NZE price testing and carbon
pricing as metrics to assess the impact of climate-related
risks on business viability and financial planning.
• We also conduct scenario analysis to assess the financial
impacts of carbon tax and operational cessation across 3, 5
and 10 year timeframe, more details of which can be found
below.
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Pharos Energy Annual Report and Accounts 2022 TCFD - CONTINUED
Recommendation
Response
Disclosure location
Metrics and
targets used
to assess
progress against
opportunities
Board or senior
management
incentives
• We use GHG % reduction against the 2020 baseline as the
main metrics to identify projects and opportunities with the
most impact to reduce our environmental impact.
• We are in the process of developing our NZ roadmap
and are looking at all carbon reduction projects and
opportunities. Results of this will be published in 2023.
• Additionally, the transition and physical risk assessment
conducted by the third party consultant have strengthened
our position to look at further carbon-reduction
opportunities.
• See pages 61 to 78 and 107
for our Corporate Responsibility
report and our Corporate
Responsibility Non-Financial
Indicators
• We use a number of sustainability and climate-related
• See pages 137 to 140 and
metrics for our KPI (applicable for all staff & Board members)
& LTIP (applicable only to Board members), details are set
out in the Directors’ Remuneration Report.
145, 146 of the Remuneration
Report for more details on
how the Committee measure
remuneration progress in
regards to ESG and climate-
related KPIs
b) Disclose scope 1, scope 2 and, if appropriate, scope 3 greenhouse gas emissions and the related risks
Our operations
• We report scope 1 and 2 greenhouse gas emissions as
calculated following the ISO 14064 guidelines which are
considered acceptable in line with the GHG protocol, on a
location/geographical basis. We report on jointly operated
companies in Egypt and Vietnam.
• See pages 61 to 78 and 107
for our Corporate Responsibility
report and our Corporate
Responsibility Non-Financial
Indicators
• The Company have taken into considerations the
assessment of Scope 3 reporting as recommended by the
TCFD. Scope 3 emissions are currently not being reported
due to limitations of data collecting, concerns around
double-counting and integrity of data. We are non-operator
in Vietnam and Egypt and do not have a line of sight through
to end-user energy consumption and usage. Nevertheless,
the Company is cognisant that TCFD advocates the
reporting of scope 3 and therefore will look to start our
Scope 3 reporting within the next 2 years.
c) Describe the targets used by the organisation to manage climate-related risks and opportunities and
performance against targets
Details of targets
set and whether
they are absolute
or intensity based
• For measurement of our GHG performance as part of the
determination of our corporate KPI and LTIP, we have set
reduction targets on both absolute and intensity. Details can
be found in the Directors’ Remuneration Report.
• For targets on longer-term climate-related risks, we are in
the process of developing a Net Zero roadmap, which will
include short and medium term targets we need to achieve
in order to meet our Net Zero target.
• See pages 137 to 140 and
145, 146 of the Remuneration
Report for more details on
how the Committee measures
remuneration progress in
regards to ESG and climate-
related KPIs
• See page 107 for our Corporate
Responsibility Non-Financial
Indicators for more details on
absolute and intensity-based
GHG emissions (Scope 1 & 2)
and comparative data to our
baseline (2020)
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Recommendation
Response
Disclosure location
Other key
performance
indicators used
• We also report on energy consumption, waste produced
and recycled, freshwater usage, environmental spills.
Details are set out in the CR report and Non-Financial
Indicators.
• See pages 61 to 78 and 107
for our Corporate Responsibility
report and our Corporate
Responsibility Non-Financial
Indicators
In 2022, throughout the year, these key climate risks, along with
every other principal and emerging risks presented on page 47
of the Risk Report, are discussed and reviewed by the Audit and
Risk Committee every quarter to ensure they are up to date and
remain dynamic to the changing nature of the macroeconomic
environment and the business. In Q1 2023, a deeper analysis
into Group’s transitional and physical risk assessment was
conducted with the Management team to update the hi-grading
risk assessment and ensure its severity and likelihood grading
are in line with the Group’s latest risk matrix. For a full list of our
transitional and physical climate risks, please see below for our full
TCFD reporting.
Our approach on Physical Climate Risk Scenario
analysis:
This analysis adopted a data-driven approach to identify and
analyse the most material physical climate risks facing Pharos
Energy’s activities in Egypt and Vietnam and how those risks
may manifest differently under three emissions scenarios -
Representative Concentration Pathways (RCPs) 2.6, 4.5, and 8.5:
• RCP2.6: Aggressive mitigation assumes that global annual
GHG emissions peak immediately, with emissions declining
substantially thereafter
• RCP4.5: Strong mitigation assumes that emissions peak
around 2040, then decline
• RCP8.5: Business-as-usual assumes that emissions continue
to rise throughout the 21st century.
SDS
STEPS
RCP2.6
RCP4.5
RCP8.5
2000
2010
2020
2030
2040
2050
2060
2070
2080
2090
2100
It assesses current climate extreme, such
as flooding, heat stress and storms, as
well as how long-term shifts if climate
features will affect these events.
The information provided will help Pharos
understand the inherent risk profile of the
locations and identify current and future
operational weaknesses, vulnerabilities
and opportunities and inform strategic
decision around resilience building.
Furthermore, the assessment can inform
climate risk disclosures in line with the
recommendations of the Taskforce on
Climate-related Financial Disclosure
(TCFD).
Key findings:
• Common to all onshore and offshore oil
and gas activities, projected increases
in the frequency, duration, and intensity
of extreme heat events will pose
threats to the health of workers and
heat-sensitive equipment, which in
some cases could result in reduced
efficiencies and even operational
downtime.
• Offshore sites will experience increases
in sea level of between 18cm and
22cm under all emissions scenarios
considered with direct implications of
offshore activities as well as onshore
infrastructure.
• Onshore Egyptian operations are found
in locations which already experience
extremely hot and dry conditions,
climate change will marginally raise
risks of disruption from rare extreme
rainfall and flash flooding events.
• Offshore sites in the Eastern
Mediterranean currently have low
exposure to climate-related disruption
risks. A reduction in average wind
speeds and wave heights is projected
under all emission scenarios,
suggesting that these threats could
weaken further by 2045.
• The southern offshore Vietnamese
blocks are more exposed to higher
wind speeds than the northern blocks
and these are projected to increase in
the future under all emission scenarios,
creating more challenging operating
environments for oil and gas activities.
However, wave heights are projected
to fall under most emission scenarios
in the South China Sea due to shifts in
the prevailing wind direction, reducing
disruption risks to platforms and service
vessels.
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Pharos Energy Annual Report and Accounts 2022 Identifying the costs of mitigating
climate risks
One of the most important considerations
in assessing climate risk is the cost of
mitigation action and solutions. As part of
our Net Zero roadmap due to be published
in 2023, we are exploring the capital
expenditure required to mitigate climate
risks and achieve our climate goals by
2050, based on findings conducted from
our emissions reduction framework. We
are committed to transparency and will
keep our stakeholders updated on our
progress.
In addition the Net Zero roadmap, to
support our efforts to mitigate climate
risks, we have also established an
Emissions Management Fund in
September 2022. For every barrel sold
at an oil price above $75 in 2023, we
will set aside $0.25 into this Fund. The
capital accumulated from the Fund will
be used to invest in worthwhile emissions
management projects for Pharos and
our operational partners, in line with our
climate commitments. We are also in
the process of developing our Net Zero
Roadmap, which will help us identify the
projects and technology to invest in to
reduce our climate impacts, the funding of
which will come from this Fund.
TCFD - CONTINUED
Our approach on Transition Risk
Scenario Analysis
The aim of this analysis is to supplement
the work that Pharos has already
undertaken by assessing the potential
impacts of different future scenarios on the
key transition risks facing the company,
and the oil and gas industry more broadly,
over the next 5-10 years.
By assessing how a range of transition
risks manifest differently under these
contrasting scenarios, Pharos can
demonstrate how it tests portfolio
resilience amid the uncertainty of the
speed and extent of the energy transition
in line with the recommendations of
the TCFD. As Pharos has already used
the International Energy Agency (IEA)
Sustainable Development Scenario (SDS)
and NZE to benchmark its Reasonable
Worst Case price curve, the same scenario
is used here. This is supplemented by the
IEA’s Stated Policies Scenario (STEPS).
Under SDS, it is assumed that there is
a rapid implementation of clean energy
policies that set the planet on course to
meet the objectives of the Paris Climate
Agreement. Meanwhile STEPS is a more
conservative view of the future, in which
only current and planned policies are
enacted, and oil and gas play a greater
role in the energy system for longer.
To tackle the climate and environmental
challenges Pharos will continue to focus
on the following:
• Measuring and assessing our
environmental footprints
• Conducting climate scenario analysis
• Evaluating our alignment with market
frameworks and regulations designed
to support the transition to a low
carbon, sustainable and equitable
future
• Continuing on our TCFD commitments
and alignment
• Exploring partnerships with effective
CO2 reduction solutions
• Build an emissions reduction
framework, as part of our Net Zero
roadmap in 2023, to achieve our Net
Zero by 2050 commitment
Climate change, the energy
transition and its consideration in
our financial reporting
Climate change and the transition to a low
carbon economy were considered in the
preparation of our Annual Report, including
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). 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. When
the field is transferred from exploration to
development stage; (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 8-9 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.
The International Energy Agency (IEA)
2022 Energy Outlook report presents a
price curve as an output of a Net Zero
Emissions (NZE). The scenario outlines
a pathway to limiting the global average
temperature rise to 1.5 °C, the Paris
Agreement objective, by achieving net zero
CO2 emissions by 2050. Our sensitivity
test is conducted based on IEA’s NZE
curve, which is more conservative than
SDS, in order to showcase our resilience,
viability and going concern.
To achieve the NZE target, it is necessary
to transition away from fossil fuels and
towards cleaner, renewable energy
sources. This transition will likely lead
to a decrease in demand for oil and a
corresponding decrease in oil prices.
Therefore, according to the IEA, the
price curve for oil is expected to be in
backwardation with a gradual decline
through to 2050.
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Fossil fuel prices by scenario
Real terms (USD 2021)
IEA crude oil (USD/barrel)
2010
96
2021
69
2030
35
2050
24
2030
64
2050
60
2030
82
2050
95
Net Zero Emissions
by 2050
Announced
Pledges
Stated
Policies
The Climate change price used in the sensitivity test is based on IEA’s NZE scenario, in which Brent is estimated to reach $35/bbl in
2030 in real terms as of 2021 ($37/bbl in real terms and $43/bbl in nominal terms as of 2030). Pharos YE 2022 Brent price forecast was
extrapolated from 2026 to reach the NZE price in 2030.
Nominal price ($/bbl)
Pharos Net Zero Brent
2023
88.3
2024
84.8
2025
79.4
2026
72.7
2027
65.6
2028
58.3
2029
50.7
2030
42.7
More details on this can be found in our Viability Statement on pages 59, 60.
evaluated for severity and likelihood over
5 and 10 year timeframes. Based on this
framework, the Group considered each
risk’s ’materiality’ whilst bearing in mind
operational continuity and their importance
to our investors and other stakeholders.
This allows Pharos to prioritise resources
in managing the most material climate-
related impacts, determine the best
management response or highlight areas
requiring further investigation.
We are also informed by the London
Stock Exchange disclosure and listing
rules in areas where we have operations,
and are held accountable by our auditors
and Company Secretary. The Board
will further reinforce the integration of
climate considerations into its governance
frameworks by implementing the principles
stated in our Climate Change Policy and
continuing the Company’s alignment with
TCFD recommended disclosures.
We know that what is important to our
stakeholders evolves over time and we
plan to continue to assess our approach
to ensure we remain relevant in what we
measure and publicly report.
Materiality assessment - How we decide what to measure
We engage with our stakeholders on a
regular basis and receive feedback through
a range of formal and informal processes,
which we set out in more detail in the UK
Governance Code report on pages 115 to
121 of our Governance Report. We listen
to their concerns and feedbacks when
determining our Corporate Responsibility
strategy and use the information they
provide us to identify the issues that are
most important to the successful delivery
of our corporate objectives and most
important to our stakeholders.
activities are appropriately managed and
reported. Our approach on environmental
and social reporting in 2022 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. We
report on jointly operated companies in
Egypt (IPR and Petrosilah) and Vietnam
(HLHVJOCs).
In identifying short-term climate-related
risks and opportunities, we are in regular
conversation with our stakeholders, such
as our RBL lenders, on their commitments
around climate change and how those
might impact our business. In the short
term (3-year period), we take this into
account when running our Going Concern
and Viability Statement, and NZE stress
testing. Short-term climate risks and its
impacts are also linked to our capital
financing risk which is considered in the
Risk Report. Medium term and longer term
climate-related risks and opportunities,
which were conducted with the help of
a third-party climate consultant, were
The Board, the ARC and the ESG
Committee also regularly discuss, at each
quarterly meetings, the new and existing
themes and issues that matter to our
stakeholders. Our management team
then uses this insight and other applicable
disclosure laws and regulations to choose
what we measure and publicly report in
our Annual Report.
Following an earlier screening of material
ESG factors relevant to the oil and gas
sector, in 2022 Pharos has been referring
to the Sustainability Accounting Standards
Board (SASB) materiality map for Oil & Gas
- Exploration and Production, to ensure
that the material issues of importance to its
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Summary of high-level quantitative assessment
For those risks and opportunities where we have undertaken high-level quantitative assessments, the results are shown in the tables
below. These assessments show the gross impact on cash before any mitigation action which Pharos might take to respond. We
undertook scenario analysis based on NZE’s 1.5°C scenario.
Financial quantification of the assessed transitional & physical risks
Potential financial impact on cash in the year
if no actions to mitigate risks are taken (NPV)
Risks
2025
2027
2032
Carbon tax
-$1.8m
-$5.8m
-$11.3m
Operational
cessation
-$132.5m
-$59.1m
-$1.7m
Key assumptions
(calculations based on forecasted level of production)
• Although there is currently no carbon tax in Egypt and Vietnam,
we still conduct a sensitivity test where carbon tax is effective
from 2025 at $20/tonne CO2 gradually incrementing to $40/
tonne at 2030.
• This results in a carbon tax of around $1.8m (NPV) in 2025. In
Base case scenario, the low point in cash balance is $32.3m in
2025.
• The present value of total carbon tax is estimated to be c.
$11.3m (NPV) until 2032.
• Operational cessation scenario analysis is an extreme scenario
analysis that takes into account a scenario of all operational
cessation, i.e. no operational, drilling, exploration, development,
etc. activities from the Company, which can be considered as
a result of all other climate-related risks identified in the table
below, regardless of transitional or physical risks (regulatory,
market, legal, physical risks, any external or internal risks, etc.)
Financial quantification of the assessed opportunities
Potential financial gains in the year if actions
to capitalise on opportunities are taken (NPV)
2025
$1.1m
2027
$1.6m
2032
$2.4m
Opportunities
Gas-powered
electricity
generator
Key assumptions
(calculations based on forecasted level of production)
• For our field operations in Egypt, we employ gas-powered
electricity generator units. This is part of a broader plan to utilise
produced associated gas instead of diesel for power generation,
along with flare reductions. The generators reduce CO2e
emission by using the associated gas that otherwise would have
been vented, and turn them into electricity to be used for field
operations in Egypt.
• For more details on the gas generators, please see pages 72, 73
of our Corporate Responsibility Report.
• The potential financial savings gained from the usage of these
generators are based on savings earned from the rental cost of
the diesel generators that otherwise would have been employed
to generate electricity, as well as the cost of diesel that otherwise
would have been used.
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Cross-industry metrics
Metric Category
Measurement
Explanation
GHG Emissions
• Metric tonnes of CO2e
produced
Our GHG emissions are recorded on Scope 1 & 2 CO2e absolute and
intensity. We also measure total hydrocarbon flared as part of our Corporate
Responsibility Non-Financial Measure. We also measure other industry
metrics such as energy consumption, waste usage and recycled, freshwater
use, and oil spills which we track as part of our HSE performance. Details of
this can be found in our Corporate Responsibility Non-Financial Disclosures
on page 107.
Transition Risks
Physical Risks
• Risk grading by levels of
severity & likelihood
• Amount ($m) of potential
financial impact on cash if
no mitigation actions were
taken
• Carbon tax analysis & NZE
price testing
We monitor and report on a variety of transition risks, such as regulatory,
financial, legal, technological and reputational, as part of our climate-related
reporting. We measure the impact of these transition risks by risk-grading
its severity and likelihood across a 5-10 year timeframe. We also use
NZE price testing and carbon pricing as a metrics to assess the impact of
climate-related risks on business viability and financial planning.
We also conduct scenario analysis to measure the potential financial
impacts of carbon tax and operational cessation across 3, 5 and 10 year
timeframe.
Details can be found in our TCFD report above and below.
• Risk grading by levels of
severity & likelihood
• Amount ($m) of potential
financial impact on cash if
no mitigation actions were
taken
Similar to above, we also monitor and report on our physical risks, which
were analysed over 3 emission scenarios and measure the impact of these
physical risks by risk-grading its severity and likelihood across different
time frames. We also conduct scenario analyses to measure the potential
financial impacts of carbon tax and operational cessation across 3, 5 and
10 year timeframe.
Details can be found in our TCFD report above and below.
Climate-Related
Opportunities
• Metric tonnes of CO2e
reduced
Capital
Deployment
• Percentage of revenue
Internal Carbon
Price
• $ per metric tonne of CO2e
While many climate-related opportunities are being explored by the Group
as part of the development of our Roadmap, we have identified one notable
emission-reduction opportunity, which is the associated gas-powered
electricity generators in Egypt. This is part of a broader plan to utilise
produced associated gas instead of diesel for power generation, along
with flare reductions. The generators reduce CO2e emission by using the
associated gas that otherwise would have been flared, and turn them into
electricity to be used for field operations in Egypt. More details on how
much venting has reduced is available in our Corporate Responsibility
Report from pages 71 to 76 and 107.
As part of our commitment towards Net Zero, in September 2022, we
announced the establishment of an Emissions Management Fund. For
every barrel sold at an oil price above $75 in 2023, we will set aside $0.25
into this Fund. The intended purpose of the fund is to provide support for
emissions management projects for Pharos and our operational partners
in line with our climate goals. Details of this can be found in our CEO’s and
Chair’s Statement in the Annual Report.
Pharos currently uses the NZE prices to stress test, which we believe is the
most conservative price curve compared to SDS and STEPS, at a targeted
price of $35 per barrel by 2030. We believe that the NZE price curve has
already incorporated carbon tax considerations into their price deck.
Although there is currently no carbon tax in Egypt and Vietnam, we still
conduct a sensitivity test where carbon tax is effective from 2025 at $20/
tonne CO2 gradually incrementing to $40/tonne at 2030. Details can be
found in our Viability Statement and in our Risk table below.
Remuneration
• Percentage weighting as
part of Group’s annual KPI
The Remuneration Committee continues to set GHG reduction target as
a 2023 KPI, details of which can be found in our Directors’ Remuneration
Report.
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Summary of climate-related risks & opportunities identified (YE2022)
Key – Risk Type
Transition
REGULATION
FINANCIAL
TECHNOLOGY
LEGAL
MARKET
REPUTATION
Physical
CHRONIC
ACUTE
TRANSITION
RISK TYPE: REGULATION
Risk
Regulatory changes
Description
Emerging regulations and disclosure requirements
Business element impacted
Legal and compliance
Financial impact
Expenditure
Financial impact pathway
Emerging regulations and disclosure requirements may result in increased baseline costs
Mitigation
Engage with industry bodies and track development of strategies
Severity (5 year)
Moderate
Likelihood (5 year)
Likely (60%-85%)
Severity (10 year)
Moderate
Likelihood (10 year)
Very likely (>85%)
Analysis for risk rating
• Under all scenarios, disclosure requirements will continue to become more stringent. All UK listed
companies will be subject to mandatory climate reporting by 2025 under current government plans.
Pharos is already implementing climate reporting.
Risk
Description
Carbon price
Increased price of carbon through national and international schemes
Business element impacted
Operations, market
Financial impact
Costs
Financial impact pathway
Higher cost of operating. Reduced demand due to rising product prices
Mitigation
Use a carbon tax in stress-testing for viability & going concern
Severity (5 year)
Moderate
Likelihood (5 year)
Very unlikely (< 15%)
Severity (10 year)
Major
Likelihood (10 year)
Medium likelihood (40%-60%)
Analysis for risk rating
• By 2030, SDS assumes that developing countries and emerging economies with Net Zero pledges will
have implemented an effective carbon price of $40 per tonne CO2 - Under STEPS it is assumed that
operations Egypt and Vietnam will not be subject to a carbon price within 5 years.
• Pharos currently uses the NZE prices to stress test, which we believe is the most conservative price
curve compared to SDS and STEPS, at a targeted price of $35 per barrel by 2030. We believe that the
NZE price curve has already incorporated carbon tax considerations into their price deck.
• Although there is currently no carbon tax in Egypt and Vietnam, we still conduct a sensitivity test where
carbon tax is effective from 2025 at $20/tonne CO2 gradually incrementing to $40/tonne at 2030.
• More details can be found in our Viability Statement on pages 59, 60.
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Risk
Stranded assets
Description
Asset suffers unanticipated or pre-mature write-downs
Business element impacted
Operations
Financial impact
Assets and liabilities, Revenue
Financial impact pathway
Full potential of asset not realised; therefore, restricted revenue and potential project level null payback
Mitigation
• Diversification of assets by location, technology, fuel source
• Increase proportion of natural gas in portfolio
Severity (5 year)
Severe
Likelihood (5 year)
Very unlikely (< 15%)
Severity (10 year)
Severe
Likelihood (10 year)
Very unlikely (< 15%)
Analysis for risk rating
• In a push to decarbonise power generation, Egypt and Vietnam both have plans to increase the
proportion of gas, and decrease the proportion of oil, in the energy mix. While under both SDS and
STEPS, energy demand per capita continues to increase through to 2030 in many developing countries,
pursuit to net zero pledges under SDS, the likelihood of stranding the most carbon intensive oil assets is
slightly elevated.
• The Egyptian government is expanding its natural gas electricity generation capacity and intends to
phase out the use of heavy fuel oil by increasing domestic gas production and imports. As Pharos no
longer has gas assets in Israel, this remains a high severity risk.
• However, this remains unlikely in the 5 to 10-year timeframe, as it would take time for Vietnam & Egypt
to completely phase out oil & gas.
Risk
Restriction on use of carbon intensive assets
Description
Countries may place caps on imports / use of carbon intensive fuels
Business element impacted
Market
Financial impact
Revenue
Financial impact pathway
Demand will reduce due to restrictions of use result in a loss of revenue
Mitigation
Engage with ministries to keep track of developments
Severity (5 year)
Major
Likelihood (5 year)
Unlikely (15%-40%)
Severity (10 year)
Major
Likelihood (10 year)
Medium likelihood (40%-60%)
Analysis for risk rating
• Our analysis is the same as the above
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Risk
International measures to limit fossil fuel use
Description
Net-zero commitments will result in a decreased demand of fossil fuels
Business element impacted
Market
Financial impact
Capital and financing, Revenue
Financial impact pathway
Restriction of use or investment in carbon intensive fuel will result in reduced demand
Mitigation
• Investment in greener technology
• Build in reduced market share into company strategy to limit stranded assets
Severity (5 year)
Major
Likelihood (5 year)
Medium likelihood (40%-60%)
Severity (10 year)
Major
Likelihood (10 year)
Likely (60%-85%)
Analysis for risk rating
• Pharos is likely to be somewhat insulated to the impacts of this risk given that 100% El Fayum & CNV
Oil is sold domestically. During 2022, TGT sales were exported in H1 2022, however, we will look to
prioritise domestic sales going forward, thus mitigating this risk. While Vietnam have made net zero
pledge, we believe fossil fuels will continue to play a major role in energy production in these countries
under both SDS and STEPS.
Risk
Reduced access
Description
New oil fields prohibited access due to environmental pressure
Business element impacted
Market
Financial impact
Assets and liabilities / Capital and financing
Financial impact pathway
Investments in new oil fields are seeing opposition from political and environmental groups. This may limit
access or have a negative impact on investor confidence
Mitigation
Build resilience and capacity within existing locations
Severity (5 year)
Moderate
Likelihood (5 year)
Medium likelihood (40%-60%)
Severity (10 year)
Major
Likelihood (10 year)
Medium likelihood (40%-60%)
Analysis for risk rating
• Under SDS a drop in oil and natural gas demand means that there is a limited additional development of
oil fields required beyond those that have already been approved. However, we believe the phasing out
of oil & gas usage will have a longer time horizon than what we measured here (5 to 10-year).
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RISK TYPE: FINANCIAL
Risk
Description
Challenges in raising capital
Pressure on investors to divest / avoid fossil fuel companies / projects
Business element impacted
Assets, Market
Financial impact
Capital and financing, Expenditure
Financial impact pathway
Pressure from investors and other stakeholders may result in divestment from O&G projects
Mitigation
• Set a Net Zero target
• Set interim targets and a decarbonisation strategy
Severity (5 year)
Major
Likelihood (5 year)
Medium likelihood (40%-60%)
Severity (10 year)
Major
Likelihood (10 year)
Likely (60%-85%)
Analysis for risk rating
• Oil demand rebounded quite rapidly in 2022-23. At the same time gas demand, particularly in South
East Asia is projected to grow significantly. As such, capital is likely to continue to be available to oil
& gas companies. The SDS assumes that there is a near term surge in clean energy investment in
order that all net zero pledges are achieved, diverting investment from the oil and gas sector, but not
eliminating it completely.
• For Pharos, we recently negotiated the NBE loan, thus limiting the impact of this risk to a certain extend.
We also got existing borrowing facilities in place, which decreases the impact of this risk, at least in the
5-year horizon.
Risk
Description
Divestment
Questioning of long-term viability of oil and gas market participants by institutional and retail investors
Business element impacted
Group
Financial impact
Capital and financing
Financial impact pathway
This could have a negative impact on share price and limit the ability to attract further investment
• Set a Net Zero target and communicate it widely to the public
Mitigation
• Transparent carbon emission reporting
• Offsetting residual emissions
Severity (5 year)
Moderate
Likelihood (5 year)
Unlikely (15%-40%)
Severity (10 year)
Moderate
Likelihood (10 year)
Medium likelihood (40%-60%)
Analysis for risk rating
• Fossil-fuel divestment is not explicitly captured within the STEPS and SDS parameters, but the likelihood
is implicitly greater under these scenarios as governments implement increasingly punitive emissions
policies and encourage investment in renewables.
• However, for Pharos, we are still receiving interests from potential partners looking to invest/farm-in on
our assets in Vietnam. The Company also recently completed the farm-out transaction in Egypt with IPR
and completed the equity placing in January 2021, thus demonstrating various long-term interests from
investors.
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Risk
Description
Increased cost of insurance
Insurance costs increase due to higher frequency of extreme weather events
Business element impacted
Insurance (Business costs)
Financial impact
Expenditure
Financial impact pathway
Cost of insuring assets increases. In extreme cases assets may be uninsurable
Mitigation
• Stress tests of impacts of climate change on existing a proposed asset
Severity (5 year)
Moderate
Likelihood (5 year)
Medium likelihood (40%-60%)
Severity (10 year)
Moderate
Likelihood (10 year)
Likely (60%-85%)
Analysis for risk rating
• Unlikely to be directly affected by the different parameters modelled under STEPS and SDS.
• However, we recognise that there is potential for growing costs and/or difficulties in getting insurance
covering oil & gas assets. While there likely will be a surge in clean energy investment, thus diverting
investment from the oil and gas sector, the sector will not be eliminated completely, therefore capital
(and insurance coverage) is likely to continue to be available to oil & gas companies in the 5 to 10 year
time horizon.
RISK TYPE: TECHNOLOGY
Risk
Description
Lack of portfolio diversification
Transition towards low-carbon economy will see a reduced demand for oil
Business element impacted
Capital projects / Research and development
Financial impact
Revenue
Financial impact pathway
Not making meaningful investments into a lower-carbon portfolio will increase exposure to the impact of
stranded assets and also overlook the opportunities of potential revenue from other energy sources
Mitigation
• Diversification of assets by; location, technology, fuel source
• Investment in low-carbon technology
Severity (5 year)
Major
Likelihood (5 year)
Medium likelihood (40%-60%)
Severity (10 year)
Major
Likelihood (10 year)
Medium likelihood (40%-60%)
Analysis for risk rating
• Oil demand rebounded quite rapidly in 2022-23, with prices rising slowly in and then plateauing.
However, Egypt & Vietnam both all have current plans to increase the proportion of gas, and decrease
the proportion of oil, in the energy mix. On balance, these factors may offset each other under STEPS.
Meanwhile, under SDS, the drop in oil demand poses a threat to Pharos’ operating model. However, we
believe that, while the impact of this risk can be major, the likelihood of completely phasing out of oil &
gas usage in Vietnam & Egypt will have a longer time horizon than 5 to 10 years.
• For the 10-year timeframe, we are working towards a Net Zero roadmap that is exploring options
towards investment in low-carbon technology in the longer term.
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Risk
Accelerating electrification of the transport & heating sectors
& advances in plastic recycling
Description
Could result in lower demand for hydrocarbons
Business element impacted
Market
Financial impact
Revenue
Financial impact pathway
Could result in lower demand for hydrocarbons
Mitigation
• Monitor competitor’s decarbonisation strategies; adoption of low-carbon technology, technology
• Benchmark against peer group carbon intensity
Severity (5 year)
Moderate
advancements
Likelihood (5 year)
Medium likelihood (40%-60%)
Severity (10 year)
Moderate
Likelihood (10 year)
Likely (60%-85%)
Analysis for risk rating
• Neither Egypt nor Vietnam have announced plans for a nationwide electrification of the transport sector.
• Nevertheless, transport is the biggest contributor to GHG emissions in Vietnam and would likely be a
key target for reductions under SDS and STEPS in order to meet its Net Zero pledge. Likewise, Egypt is
already eyeing the decarbonisation of the transport sector through electrifying rail and building Electric
Vehicles (EV) charging infrastructure.
• However, while it is assumed that the global uptake in e-mobility will be the key driver of this risk, the
pandemic have slowed down this progress. Furthermore, Egypt is experiencing a high level of inflation
and suffering from liquidity issues due to the devaluation of its currency, which we believe will hinder the
facilitation of electrification of carbon-intensive sectors.
Risk
Description
Low carbon technology maturity
Low carbon technology becomes more mature and cost-competitive could reduce the demand for fossil
fuels, which could result in lower prices and reduced revenue for oil and gas companies
Business element impacted
Market
Financial impact
Financing
Financial impact pathway
Technology maturity in other field will serve as a competitive alternative for investors
Mitigation
• Monitor competitors and assess opportunities for adoption of low carbon technology
• Set a net zero target
Severity (5 year)
Moderate
Likelihood (5 year)
Unlikely (15%-40%)
Severity (10 year)
Moderate
Likelihood (10 year)
Medium likelihood (40%-60%)
Analysis for risk rating
• Uptake in EVs and renewable energy coupled with renewable energy costs projected to drop
significantly under SDS as current trends in technology and battery storage are accelerated will present
a competitive alternative to fossil fuel. While this remains a risk for Pharos, we believe that green
technology will continue to be tried and tested, but not yet mature enough to completely phase out oil &
gas in the next 5 years. This risk is increased in the 10-year timeframe, as renewable technology would
be more advanced then.
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Risk
Lack of investment in innovation
Description
Lack of innovation in equipment of conventional fossil fuel-based technology
Business element impacted
Research and Development / Operations
Financial impact
Expenditure
Financial impact pathway
Not able to capitalize on opportunity to reduce operational inefficiencies
Mitigation
• Development of new products or services through R&D and innovation
Severity (5 year)
Moderate
Likelihood (5 year)
Unlikely (15%-40%)
Severity (10 year)
Moderate
Likelihood (10 year)
Medium likelihood (40%-60%)
Analysis for risk rating
• While Pharos is limited in terms of development and innovation of equipment to reduce carbon
emissions due to its commitment to existing facilities, we believe there is an opportunity here to explore,
as Pharos is looking to develop Block 125 in Vietnam, which provides options to employ newer facilities/
platforms/ equipment that improves efficiency & limits our carbon footprint, if proven commercially
successful.
RISK TYPE: LEGAL
Risk
Description
Non-compliance with standards or targets
Not able to comply with TCFD recommendations / Global Reporting Initiative / SASB Sustainable
Accounting Standard Board
Business element impacted
Reputation
Financial impact
Investment / Costs
Financial impact pathway
Non-compliance with climate change policies could result in lower level of investor trust. This could also
result in fines or additional taxes
Mitigation
• Transparent disclosure of climate risks and carbon accounting
• Development of decarbonisation strategy
Severity (5 year)
Moderate
Likelihood (5 year)
Unlikely (15%-40%)
Severity (10 year)
Moderate
Likelihood (10 year)
Medium likelihood (40%-60%)
Analysis for risk rating
• As more climate-related disclosures, policies, frameworks and standards became mandatory, especially
for UK-listed companies, there is a risk of non-compliance with these requirements, which would result
in a lower level of trust between stakeholders and the Company. Additionally, companies will have to
face fines or spend additional resources to meet the extra level of disclosures required.
• While growing climate regulations and policies remains a risk to the sector, Pharos remains committed
to comply with all regulations, and have demonstrated this through our disclosures for many years.
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Risk
Liability exposure
Description
Acts or omissions that result in suits against the organization
Business element impacted
Reputation
Financial impact
Expenditure / Financing
Financial impact pathway
Liability exposure could result in high legal fees and lead to a risk of access to capital finance
Mitigation
Transparent disclosure of climate risks and carbon accounting
Severity (5 year)
Moderate
Likelihood (5 year)
Unlikely (15%-40%)
Severity (10 year)
Major
Likelihood (10 year)
Unlikely (15%-40%)
Analysis for risk rating
• Our analysis is the same as the above.
RISK TYPE: MARKET
Risk
Shift in consumer demand
Description
The conscious-consumer may demand a shift from fossil fuels
Business element impacted
Sales of product
Financial impact
Revenue
Financial impact pathway
Increased demand for renewable energy tariffs coupled with and increased penetration of low-carbon
energy sources in the energy mix undermine the competitiveness of fossil fuels. Resulting in a negative
impact on share price
Mitigation
• Set a Net Zero target
• Set interim targets and a decarbonisation strategy
Severity (5 year)
Moderate
Likelihood (5 year)
Unlikely (15%-40%)
Severity (10 year)
Major
Likelihood (10 year)
Medium likelihood (40%-60%)
Analysis for risk rating
• Global consumer demand for EVs and renewable energy is significantly greater under SDS than
STEPS. However, trends in Pharos’ key markets in Egypt and Vietnam are likely to lag global trends,
and especially those in the EU. Under both SDS and STEPS energy demand per capita continues to
increase through to 2030 in many emerging economies, with consumers likely to be more price sensitive
than in developed countries and unlikely to immediately phase out oil & gas from the energy mix, thus
mitigating the risk for Pharos given its current markets.
• Additionally, Pharos is currently developing its Net Zero roadmap, and is actively exploring emission
reduction technology to be a more sustainable oil & gas producers.
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Risk
Commodity prices
Description
Oil and gas price volatility
Business element impacted
Operations
Financial impact
Revenue
Financial impact pathway
A lower market cost of oil and will have a negative impact on revenue
Mitigation
• Hedging programmes
• Diversification of asset portfolio
Severity (5 year)
Major
Likelihood (5 year)
Medium likelihood (40%-60%)
Severity (10 year)
Major
Likelihood (10 year)
Likely (60%-85%)
Analysis for risk rating
• Egypt & Vietnam have plans to decrease the carbon intensity of domestic energy production by increasing
the proportion of natural gas in the energy mix. At the same time energy demand in these countries is
expected to grow to 2030, placing pressure on national governments to balance decarbonisation aims
with economic and development agendas. Based on Vietnam and Egypt’s NZ and COP commitments, in
order that these goals are achieved, oil demand must drop significantly in the 2020s with a commensurate
uptick energy generation from gas and renewables. The Egyptian government is expanding its natural gas
electricity generation capacity and intends to phase out the use of heavy fuel oil by increasing domestic
gas production and imports. However, these goals are proving to be more challenging than expected
given the economic challenges both countries, especially Egypt, are facing.
Risk
Uncertainty in energy market
Description
Shift in demand to less carbon intensive primary energy sources
Business element impacted
Market
Financial impact
Revenue
Financial impact pathway
Uncertainty in energy market dynamics as demand changes in fossil fuel costs pose a challenge for the
industry
Mitigation
• Stress test asset portfolio with lower demand
Severity (5 year)
Moderate
Likelihood (5 year)
Unlikely (15%-40%)
Severity (10 year)
Moderate
Likelihood (10 year)
Medium likelihood (40%-60%)
Analysis for risk rating
• Our analysis is the same as the above.
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RISK TYPE: REPUTATION
Risk
Shareholder activism
Description
This may arise due to the carbon emissions produced from the organisation and the wider sector
Business element impacted
Reputation
Financial impact
Capital and financing
Financial impact pathway
This could have a negative impact on share price and limit the ability to attract investment
Mitigation
• Set a net zero target and communicate it widely to the public
• Transparent carbon emission reporting
Severity (5 year)
Minor
Likelihood (5 year)
Unlikely (15%-40%)
Severity (10 year)
Moderate
Likelihood (10 year)
Medium likelihood (40%-60%)
Analysis for risk rating
• Under SDS, the assumption is that organisations that are not perceived to be contributing to the global
decrease in GHG emissions will come under greater scrutiny from shareholders.
• To address this, Pharos engage with stakeholders on a regular basis to understand their concerns. We
also report transparently on our emissions. Additionally, we are actively exploring options to reduce our
carbon emissions and will publish our NZ roadmap in 2023. We also announced the establishment of
our Emissions Management Fund as part of our effort to be a sustainable & responsible producer.
Risk
Internal frustration from employees
Description
Careers in oil and gas E&P are considered less attractive
Business element impacted
Recruitment / Retention
Financial impact
Expenditure
Financial impact pathway
Impact ability to attract and retain talent
Mitigation
• Set a net zero target and invest in low carbon technologies
Severity (5 year)
Moderate
Likelihood (5 year)
Unlikely (15%-40%)
Severity (10 year)
Moderate
Likelihood (10 year)
Medium likelihood (40%-60%)
Analysis for risk rating
• The assumption is made that under SDS global GHG emissions drop significantly and careers in oil and
gas E&P are considered less attractive.
• For Pharos, we recognize the importance of climate action throughout the organization. ESG is
embedded in different parts of the organization and includes involvement from a lot of the workforce.
Furthermore, Chair of the Company and Chair of the ESG Committee, John Martin, also host annual
town-hall meetings with the global workforce to address any concerns or frustrations.
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PHYSICAL
RISK TYPE: CHRONIC
Risk
Water stress
Description
Limited freshwater availability due to shifting hydrological regimes
Business element impacted
Assets / Operations
Financial impact
Assets and liabilities
Financial impact pathway
Conflict over local water resources between domestic / agricultural / business users may limit ability to
source water and / or impact social license to operate
Mitigation
• Business continuity and crisis management planning
• Local engagement
Severity (5 year)
Minor
Likelihood (5 year)
Unlikely (15%-40%)
Severity (10 year)
Minor
Likelihood (10 year)
Medium likelihood (40%-60%)
Analysis for risk rating
• Pharos operations only uses fresh water from the national grid for domestic use by workers.
Groundwater used directly for injection during extraction activity is of very high salinity and unsuitable for
municipal or agricultural use, is not therefore a scare resource.
Risk
Description
Sea level rise
Inundation and enhanced erosion rates due to rising sea levels
Business element impacted
Operations
Financial impact
Expenditure / Assets and liability
Financial impact pathway
Infrastructure may be impacted by flooding or near-shore erosion. Supporting infrastructure may
experience increasingly frequent disruption and / or damage
Mitigation
• Assessment of reliance on critical infrastructure in coastal zones
• Identification of assets in flood zones
• Build in flood resilience protection
Severity (5 year)
Minor
Likelihood (5 year)
Very unlikely (< 15%)
Severity (10 year)
Moderate
Likelihood (10 year)
Unlikely (15%-40%)
Analysis for risk rating
• Offshore sites will experience increases in sea level of between 18cm and 22cm by 2045 under
all emissions scenarios considered with direct implications of offshore activities as well as onshore
infrastructure. Pharos do not foresee this becoming a high-severity and likely issue within the 5 to 10-
year timeframe.
104
Pharos Energy Annual Report and Accounts 2022Governance ReportFinancial StatementsAdditional InformationStrategic Report TCFD - CONTINUED
RISK TYPE: ACUTE
Risk
Description
Flash flooding
Infrastructure may be impacted by heavy rainfall and flooding
Business element impacted
Assets / Operations
Financial impact
Assets and liabilities
Financial impact pathway
Flash flooding may damage infrastructure increasing expenditure on replacement and maintenance
Mitigation
• Identification of assets in flood zones
• Build in flood resilience protection
Severity (5 year)
Minor
Likelihood (5 year)
Very unlikely (< 15%)
Severity (10 year)
Moderate
Likelihood (10 year)
Unlikely (15%-40%)
Analysis for risk rating
• Intensive flash floods can occur due to high levels of surface run-off. Under low and moderate emission
scenarios (RCP2.6 and RCP4.5) there is likely to be a moderately higher risk of more frequent disruption
from flash flooding.
Risk
Description
Coastal flooding
The physical threat of extreme sea levels along global coastlines
Business element impacted
Operations
Financial impact
Expenditure / Assets and liability
Financial impact pathway
Infrastructure may be impacted by flooding
Mitigation
• Identification of assets in flood zones
• Build in flood resilience protection
Severity (5 year)
Minor
Likelihood (5 year)
Very unlikely (< 15%)
Severity (10 year)
Moderate
Likelihood (10 year)
Unlikely (15%-40%)
Analysis for risk rating
• Offshore sites will experience increases in sea level of between 18cm and 22cm by 2045 under
all emissions scenarios considered with direct implications of offshore activities as well as onshore
infrastructure. Pharos do not foresee this becoming a high-severity and likely issue within the 5 to 10-
year timeframe.
Risk
Description
Heat waves
Rising temperatures and more frequent and intense heat waves will result in increased operational costs
Business element impacted
Operations
Financial impact
Expenditure / Assets and liability
Financial impact pathway
Exposure to high temperatures and humidity can lead to a reduction in productivity
Heat extremes can impact infrastructure
Mitigation
• Reinforce key infrastructure to be resilient in future climate scenarios
Severity (5 year)
Minor
Likelihood (5 year)
Unlikely (15%-40%)
Severity (10 year)
Minor
Likelihood (10 year)
Medium likelihood (40%-60%)
Analysis for risk rating
• Common to all onshore and offshore oil and gas activities, projected increases in the frequency,
duration, and intensity of extreme heat events will pose threats to the health of workers and heat-
sensitive equipment, which in some cases could result in reduced efficiencies and even operational
downtime.
105
Pharos Energy Annual Report and Accounts 2022 TCFD - CONTINUED
Risk
Description
Storm frequency
Operations impacted from high winds (and waves if offshore)
Business element impacted
Operations
Financial impact
Expenditure
Financial impact pathway
Storms may delay operations or cause damage to existing assets
Mitigation
• Build in suitable storm protection
• Business continuity and crisis management planning
Severity (5 year)
Minor
Likelihood (5 year)
Unlikely (15%-40%)
Severity (10 year)
Moderate
Likelihood (10 year)
Medium likelihood (40%-60%)
Analysis for risk rating
• Shifting storm, wave and wind characteristics will impact on the uptime of processing platforms and
Risk
Description
affect service vessels.
Global extreme weather events
Suppliers adversely affected by extreme weather events, such as flood, storms, wildfires
Business element impacted
Supply chain
Financial impact
Expenditure
Financial impact pathway
Extreme weather events cause direct damage to supplier manufacturing facilities or impact ability of
employees to get to work. Reduced / delayed supply can drive up pricing and cause project delays
Mitigation
• Conduct risk assessment of suppliers
• Diversify supplier base
• Supplier engagement to understand mitigation strategies
Severity (5 year)
Moderate
Likelihood (5 year)
Unlikely (15%-40%)
Severity (10 year)
Major
Likelihood (10 year)
Medium likelihood (40%-60%)
Analysis for risk rating
• In Egypt, under all climate change scenarios, extreme temperatures will rise, precipitation will decline,
and extreme heat events will become more frequent and intense. In Vietnam, both heatwave events
and extreme temperatures will become more frequent and longer in duration. Heath related hazards will
become more severe under the highest emissions scenario, with heatwaves expect to last almost five
times longer in that scenario.
106
Pharos Energy Annual Report and Accounts 2022Governance ReportFinancial StatementsAdditional InformationStrategic Report 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 equity4
Scope 1 total GHG emissions (tCO2e) by equity
Scope 2 total GHG emissions (tCO2e) by equity
Scope 3 total GHG emissions (tCO2e) by equity
GHG intensity 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)
Total energy consumption (from fuel combustion, other operations and purchased electricity) in MWh3
Non-hazardous waste produced (tonnes)
Hazardous waste produced (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 ($)
2022
3.35
0.3
0
0
0.6
109,539
109,491
48
340
35
323,492
257,246
109
60
15
11
1
28
20215
3.17
0
0
0
0
20205
2.97
0.34
34
1
0.34
112,024
111,977
46
115,3421
115,2941
481
Not measured
3131
32
311,692
285,942
111
48
24
<1
3
28
2802
412
309,942
256,913
94
41
25
4
4
29
70,582
0
58,525
102,820
0
0
198,600
265,000
245,191
1) Pharos normalised emissions in 2021 and 2022 include emissions from venting in Egypt, whilst they were not included in 2020.
2) Pharos unitised net working interest in Vietnam TGT field changed from 30.16 % in 2019 to 29.67 % in 2020. The equity variation is not significant compared
to Pharos total emissions, and therefore data of 2020 provide a meaningful comparison.
3) In line with the UK government’s Streamlined Energy and Carbon Reporting (SECR) policy, energy consumption from fuel combustion
4) Under Section 385(2) of the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations, 2013 and in line with the requirements of the Climate
Change Act (2008), carbon reporting for UK-listed companies in Directors’ Annual Report is mandatory for reports published after 30 September 2013.
The regulations cover the six Kyoto Protocol GHG cited in Section 92 of the Climate Change Act: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O),
hydrofluorocarbons (HFC), perfluorocarbons (PFC) and sulphur hexafluoride (SF6). The Companies Act 2006 regulation does not state which methodology a
company has to use but requires that this methodology is clearly disclosed.
5) On the 21 of March 2022 Pharos net revenue entitlement in Egypt decreased from 42.60 to 22.86%. This corresponds to a weighted average of 28.98% for
the year. According to section 5 of the GHG protocol on base year recalculation following an acquisition, GHG emissions for the years 2020 and 2021 have
been recalculated using this weighted average.
Approval of the Strategic Report
This report was approved by the Board of Directors on 21 March 2023 and is signed on its behalf by
JANN BROWN
Chief Executive Officer
107
Pharos Energy Annual Report and Accounts 2022 Strategic Report
Financial Statements
Additional Information
Governance
Report
Chair’s introduction to Governance
Leadership & Governance
Board of Directors
2018 UK Corporate Governance Code
Environmental, Social and Governance (‘ESG’) Committee report
Nominations Committee report
Audit and Risk Committee report
Directors’ Remuneration report
Directors’ report
109
111
113
115
122
125
127
134
156
Pharos Energy Annual Report and Accounts 2022
108
Financial StatementsAdditional InformationGovernance Report CHAIR’S INTRODUCTION TO GOVERNANCE
A year of
significant change
Dear shareholders
On behalf of the Board, I am pleased to present the Pharos
Corporate Governance Report for the financial year ended 31
December 2022. The Company was in full compliance with the UK
Corporate Governance Code throughout the year.
The role of the Board
The Board as a whole is responsible
for the determination of the Group’s
strategy and objectives, the approval of
overall financial budgets and financing
agreements, the approval of key corporate
relationships with operators and other
joint venture partners and for corporate
governance.
The Board provides leadership to the
Group by monitoring culture across the
organisation, ensuring its alignment with
Group strategy, objectives and values,
and overseeing its implementation by
management. The Directors are expected
to act at all times with integrity and
honesty, to lead by example and to
promote the Pharos Way principles of
openness, safety, care and mutual trust
and respect. The Board also ensures
there are appropriate processes in place
to assess and manage risk, including
the overall appetite for risk across the
Group, and monitors the Group financial
and operational performance against
objectives and KPIs. The Board is
committed to ensuring the Group complies
with applicable law, regulation, rules and
requirements in all host countries and
other relevant jurisdictions.
The authority for implementing Group
strategy, including the taking of decisions
and the making of financial and other
commitments, is generally delegated
by the Board to the executive Directors
and the senior management team. This
delegation by the Board includes the
authority to approve expenditure in relation
to any budgeted item. However, certain
matters are not delegated and require
approval by the Board itself, and these
are set out in the Group Delegation of
Authority, a key corporate policy document
issued and maintained by the Board that
sets out in detail the financial and non-
financial authority held by individuals within
the Group.
Overview of 2022
2022 was a year of significant change for
Pharos. The restructuring of the Board and
the wider organisation, the completion of
the farm-out in Egypt and the continuing
drive to reduce costs across the Group
have challenged the robustness and
durability of our governance systems and
structure. I am gratified to say that these
challenges have been met, and I believe
we are now in a much stronger position
across all fronts than we were at the start
of the year.
In particular, we are seeing the benefits
of in a materially improved financial
position for the Group, allowing the
Board to announce an initial $3 million
share buyback programme in July 2022
and then to reward shareholder patience
with the announcement of a return to a
regular dividend in September 2022. We
are proposing a final dividend of 1p per
share in respect of the 2022 financial
year, subject to the passing of the
relevant resolution at the AGM on 25 May
2023. We announced completion of the
initial $3 million buyback programme in
January 2023 and, at the same time, we
committed a further $3m to an extension
of the programme. The Board believes that
the Company's shares are still trading at
a material discount to their underlying net
asset value, despite improved performance
across the Group, and remains of the view
that share buybacks are an appropriate
means of returning value to shareholders
in the circumstances. The Board engaged
with shareholders regularly throughout the
year and, based on those interactions,
remains committed to capital discipline
and regular shareholder returns as core
elements of the overall shareholder
offering.
JOHN MARTIN
Non-Executive Chair
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Pharos Energy Annual Report and Accounts 2022
CHAIR’S INTRODUCTION TO GOVERNANCE - CONTINUED
External factors also tested the Group’s
approach to governance during the
year, with the continuing impact of the
COVID-19 pandemic on supply chain and
other logistical issues. Russia’s invasion
of Ukraine in February 2022, and the
extensive international sanctions packages
introduced in response, have brought new
challenges for our operations, particularly
in Egypt. The Egyptian economy, reliant
to a significant degree on Russian and
Ukrainian trade and tourism, has suffered
thought the year, with consequences
including high inflation, devaluation of
the Egyptian pound and greatly reduced
availability of US dollars in country. This
has constrained our ability to conduct
normal business in Egypt, evidenced most
clearly by the large unpaid balance for sale
of the Group’s share of production from
El Fayum. Improving this situation, and
the development and implementation of
mitigation strategies, is an important area
of focus for the Board and the executive
team.
Throughout the year, the Board devoted
considerable time to supporting and
constructively challenging the executive
team. The Board received regular detailed
updates from the executive Directors
and other key members of management
and staff during the year and, in pursuit
of the best interests of shareholders,
the non-executive Directors (NEDs)
brought constructive challenge to the
executives’ proposals and strategy,
offering direction and support. Key areas
of focus for the NEDs’ discussions in
2022 were overseeing the farm-out of the
Egypt assets to IPR, the share buyback
programme, succession planning, ESG,
effective implementation of Group strategy,
portfolio management, capital allocation
and oversight of operational, financial
performance and KPIs. The NEDs also
regularly meet without the executive
Directors present.
Board Committees
The Board is assisted in its role by four
permanent committees of the Board:
the Audit and Risk Committee, the ESG
Committee, the Nominations Committee
and the Remuneration Committee.
Reports from these committees follow this
introduction, but I will briefly summarise
some of their key activities in 2022.
The health and safety of the Group’s
workforce remains our number one priority,
and the ESG Committee (see the report
on pages 122 to 124) is committed to
ensuring that the Group operates safely
and responsibly at all times. In 2022, the
JOCs in Vietnam continued to deliver an
exceptional record of safety, reporting
zero LTIs since operational inception,
representing ten production years on TGT
and 13 production years on CNV. In Egypt,
however, the ESG Committee had to
address an LTI and an environmental spill
in 2022. Further details of these incidents
are set out in our Corporate Responsibility
report on page 61. With the oversight of
the ESG Committee, Group personnel are
working with the operator IPR and the JOC
Petrosilah to address the underlying issues
identified in the incident investigation
reports and safety assessments. We look
forward to re-establishing our track record
of zero safety and environmental incidents
across all assets.
In September 2022, following discussion
at previous ESG Committee meetings, the
Company announced our commitment
to achieve Net Zero Scope 1 and Scope
2 GHG emissions from all our assets by
no later than 2050. In further support
of these climate goals, I am particularly
proud, in my capacity as chair of the ESG
Committee, of the establishment of our
innovative Emissions Management Fund.
Under this scheme, Pharos will contribute
$0.25 for each Group barrel sold at an
oil price above $75/bbl to the Fund. The
Fund will be available to support emissions
management projects approved by the
Committee.
During 2022 the Nominations Committee
(see the report on page 125) focused on
reviewing Board composition, succession
planning for key roles throughout the
company, a review of annual Board
evaluation, and annual Director re-
appointments. This included the changes
to the Board announced on 13 January
2022, and which took effect following
completion of the Egyptian farm-out
transaction with IPR in March. These
changes saw Jann Brown assume the role
of CEO as one of two executive Directors
alongside CFO Sue Rivett, while Ed Story
and Dr Mike Watts stepped down as
executive Directors. At the conclusion
the 2022 AGM in May, Rob Gray stepped
down from the Board, having served for
nearly 9 years as Senior Independent
NED and Deputy Chairman. The size of
the Board has thus reduced from nine
Directors (four Executives and five NEDs)
to six (two Executives and four NEDs),
commensurate with the size and profile of
the Group.
The Remuneration Committee’s activities
in 2022 centred on the updated
remuneration structure following
completion of the farm-out transaction with
IPR to reflect the scale of the business.
This included significant reductions in
the base salary for the CEO and CFO.
These salaries have dropped by c.40%
since 2019, with the CEO salary reducing
from c. £660,000 to £420,000 and the
CFO salary decreasing from £450,000 to
£280,000. The Remuneration Committee
has also agreed with the Directors that
there will be no increases in salary or NEDs
fees in 2023, while the salaries for non-
Director UK staff, have increased 10% to
counteract the current inflationary factors
and cost of living crisis. Further details
are set out in the Directors’ Remuneration
Report from pages 134 to 155. In addition,
as the three-year term of the current
Directors’ Remuneration Policy is due to
expire in 2023, we will be submitting a new
Policy to shareholders for approval at the
2023 AGM. The Remuneration Committee
oversaw the Policy revision, which included
an extensive review and consultation
with large shareholders. Following this
consultation process, the Policy submitted
for approval to the 2023 AGM is in largely
similar terms to the current Policy. The
two principal changes proposed to the
Policy are a reduction in the maximum
LTIP awards from 400% to 200% and an
increase the post-cessation of holding
shares to 200% of salary for the full two
years following cessation. The proposed
terms of the updated Policy are set out on
page 135.
Board Priorities for 2023
In 2023 the Board expects to work closely
with senior management to focus on
overseeing the delivery of efficiencies,
controlling costs and making prudent
investments to maximise the value of
our portfolio. Particular priorities are
expected to include the continuation of
the share buyback programme and the
broader strategy to deliver value to our
shareholders, improving our payment
situation in Egypt, seeking to return to
zero safety and environment incidents and
finding the right farm-in partner to fund our
commitment well on Block 125.
In closing, I would like to thank all of our
employees, shareholders, partners, JOCs
and other stakeholders for their continued
support. The Board looks forward to
building on the progress made last year,
supported by the strong foundations of our
culture of governance.
JOHN MARTIN
Non-Executive Chair
110
Pharos Energy Annual Report and Accounts 2022Financial StatementsAdditional InformationStrategic ReportGovernance Report LEADERSHIP & GOVERNANCE
Leadership
& Governance
Board Members
* Independent Non-Executive Directors. ~ Retired from Board in 2022
John Martin*
Geoffrey Green*
Marianne Daryabegui*
Dr Mike Watts~
Non-Executive Chair and Chair
of Nominations Committee and
ESG Committee
Jann Brown
Chief Executive Officer
(from March 2022 following
completion of Egyptian farm-
out transaction, previously
Managing Director), ESG
Committee member and
Nominations Committee
member (from March 2022)
Sue Rivett
Chief Financial Officer and ESG
Committee member
Non-Executive Director and
Senior Independent Director
(from May 2022), Chair of
Remuneration Committee,
Nominations Committee
member (from March 2022),
Audit and Risk Committee
member and ESG Committee
member
Lisa Mitchell *
Non-Executive Director, Chair
of Audit and Risk Committee,
Remuneration Committee
member (from March 2022)
Nominations Committee
member and ESG Committee
member
Non-Executive Director, Audit
and Risk Committee member,
Remuneration Committee
member, Nominations
Committee member and ESG
Committee member
Managing Director and ESG
Committee member (until
March 2022; retired from the
Board and Board committees
following completion of
Egyptian farm-out transaction)
Ed Story~
Rob Gray*~
President and Chief Executive
Officer, Nominations
Committee member and ESG
Committee member (until
March 2022; retired from the
Board and Board committees
following completion of
Egyptian farm-out transaction)
Deputy Chair, Non-Executive
Director and Senior
Independent Director, Audit
and Risk Committee member,
Remuneration Committee
member, Nominations
Committee member and ESG
Committee member (until
May 2022; retired from Board
and Board committees at the
conclusion of the 2022 AGM)
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 31 December 2022, the Board comprised six Directors.
Meeting attendance
During each Director’s respective term of office during 2022
Board meeting
(scheduled
quarterly) x4
Board meeting
(additional) x3
Audit and Risk
Committee
meeting x4
Remuneration
Committee
meeting x3
Nominations
Committee
meeting x4
Environmental, Social
and Governance
Committee meeting x4
Director
John Martin (Chair)*
Jann Brown (appointed
CEO 21 March 2022)
Sue Rivett (CFO)
Geoffrey Green*
Lisa Mitchell *
Marianne Daryabegui(1) *
Ed Story (retired 23
March 2022)(2) (4)
Dr Mike Watts
(retired 23 March 2022)(2)
Rob Gray
(retired 19 May 2022) (3)
KEY
* Independent Directors
Attended as member
Attended as invitee
Not attended
111
Pharos Energy Annual Report and Accounts 2022 LEADERSHIP & GOVERNANCE - CONTINUED
1) Marianne was not in attendance at the December
ESG Committee meeting due to unforeseen family
illness.
2) Ed Story and Dr Mike Watts retired from the Board
following completion of the Egyptian farm-out
transaction with IPR.
3) Rob Gray retired from the Board at the conclusion
of the 2022 AGM.
4) Ed Story recused himself from the March meetings.
In addition to the four scheduled quarterly meetings, the Board met in 2022 on an additional
three occasions to deal with specific business matters which required Board approval. One
of the additional meetings included a Board strategy meeting in October 2022, which was
fully attended by all members of the Board at that time.
Whilst the impact and unpredictability of the COVID-19 situation was still being taken into
account when planning for the 2022 AGM, shareholders were offered the opportunity to
attend in person if they wished to do so. All Directors on the Board at that time attended
the AGM. Shareholders were also invited to submit questions relevant to the business of the
AGM in advance of the meeting and responses were provided by email as appropriate.
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.
Audit and Risk Committee
Remuneration Committee
Nominations Committee
Environmental, Social and
Governance Committee
Principal Committees of the Board
L Mitchell (Chair)
R Gray*
M Daryabegui
G Green
G Green (Chair)
M Daryabegui
R Gray*
L Mitchell
J Martin (Chair)
J Martin (Chair)
E Story**
R Gray*
M Daryabegui
L Mitchell
G Green
J Brown
R Gray*
E Story**
M Watts**
J Brown
M Daryabegui
L Mitchell
G Green
S Rivett
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.
* Retired from Board and all Board committees with effect from the conclusion of the 2022 AGM
** Retired from Board and all Board committees following completion of the Egyptian farm-out transaction with IPR.
112
Pharos Energy Annual Report and Accounts 2022Financial StatementsAdditional InformationStrategic ReportGovernance Report BOARD OF DIRECTORS
Experienced leaders
guiding our future
JOHN MARTIN
Non-Executive Chair
Appointed: June 2018 (Non-Executive Director from June 2018 – March 2020; Non-
Executive Chair from March 2020)
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.
JANN BROWN
Chief Executive Officer
Appointed: November 2017 (Managing Director and Chief Financial Officer from
November 2017 – July 2021; Managing Director from July 2021 – March 2022)
Jann was appointed to the role of Chief Executive Officer with effect from 21 March 2022
following a period as CFO from 2017 to 2021. Jann currently serves as an Independent
Non-Executive Director of RHI Magnesita N.V. and previously served as an Independent
Non-Executive Director and Chair of the Audit Committee of Troy Income & Growth
Trust plc and of John Wood Group P.L.C. She was Chief Financial Officer and Executive
Director of Cairn Energy plc from 2006 to 2014. Jann is also a Past President of the
Institute of Chartered Accountants of Scotland.
SUE RIVETT
Chief Financial Officer
Appointed: July 2021
Sue, previously Group Head of Finance and UK General Manager, has been with the
Company for over seven years. Prior to joining Pharos, Sue held senior finance roles with
Conoco, ARCO British (subsidiary of Atlantic Richfield Company), JKX Oil & Gas plc and
Seven Energy. Sue’s various roles have included heading up full FTSE finance functions
including finance, taxation, treasury, IT, corporate planning and Company Secretary. She
was Head of ARCO British trading arm’s back office and mid office and has considerable
joint venture experience and numerous years M&A experience. Sue is a Fellow of the
Chartered Institute of Management Accountants (“FCMA”) with international experience
and nearly 40 years in the energy business.
113
Pharos Energy Annual Report and Accounts 2022 BOARD OF DIRECTORS - CONTINUED
GEOFFREY GREEN
Non-Executive Director and Senior Independent Director
Appointed: May 2020 (Non-Executive Director from May 2020; Senior Independent
Direct from May 2022)
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. He served on the Board of Vedanta Resources Limited,
(formerly Vedanta Resources plc, a London Stock Exchange listed company) from 2012
to 2021 and was Chair of the Remuneration Committee. Geoffrey was the non-executive
Chair of the Financial Reporting Review Panel, one of the main subsidiary bodies of the
Financial Reporting Council, from 2015 to 2022, and is also a non-executive director of
a Hong Kong based investment fund. He has a degree in law from Cambridge University
and qualified as a solicitor at Ashurst LLP.
LISA MITCHELL
Non-Executive Director
Appointed: April 2020
Lisa is currently the Chief Financial Officer of Orca Energy Group Inc. a TSX-V listed
company. 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 of
San Leon Energy plc and was previously CFO and Executive Director of Lekoil Limited,
the African-focused oil and gas exploration and production company with interests in
Nigeria. Prior to this, 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 Certified Practicing Accountant (FCPA 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.
MARIANNE DARYABEGUI
Non-Executive Director
Appointed: March 2019
Marianne is currently the Chief Financial Officer of Lithium de France, an energy transition
company focused on geothermal energy and lithium extraction. She was Head of Natural
Resources at BNP Paribas and then Managing Director at Natixis in the Energy and
Natural Resources sector. She has extensive experience in corporate transactions and
capital markets and has advised majors, independent E&Ps and national oil companies.
Prior to leading the Oil and Gas Corporate Finance Team in 2006 at BNP Paribas,
Marianne 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.
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2018 UK Corporate Governance
Code (the ‘2018 Code’)
2022 statement of compliance with the 2018 Code
We are committed to the highest standards of corporate governance and compliance with the UK Corporate
Governance Code 2018, which sets out the principles that emphasise the value of good corporate
governance to long-term sustainable success. The Company was in full compliance with the provisions of the
2018 Code throughout the year.
The section below demonstrates our application of the Principles of the 2018 Code.
forward, such as: off-site away days/
in-person meetings monthly to avoid
staff isolation and promote team culture,
learning sessions on technology and
public capital markets, and a discussion
on how best to ask others for info/help/
support when working from home. During
the year, John Martin, as Non-Executive
Chair of the Board and designated
Non-Executive Director responsible for
workforce engagement, carried out in-
person town hall meetings, during which
staff were invited to share their feedback
and views about the Company without
the presence of any Executive Directors to
provide an open, honest and safe space
for all employees to express any concerns
they might have. Feedback from these
sessions were then taken into account
and communicated back to the Board and
Executive Directors as suggestions for
improvements.
Additionally, there have been other forms
of engagement including extending
participation in the Company’s share
schemes, participation for all in the
bonus scheme and other feedback
channels, including through the Group’s
Whistleblowing Policy and access to a
dedicated, anonymous and confidential
ethics hotline.
Board Leadership and Company
Purpose
Purpose and Culture
At Pharos, our purpose is to provide
energy to support the development and
prosperity of the countries, communities
and families wherever we work, in line
with recognised social and environmental
practices. We have a focused strategy of
delivering long-term, sustainable value for
all our stakeholders though regular cash
returns and organic growth that, together
with a strong corporate culture, help us
fulfil our purpose.
It has been important to the Board to
preserve and enhance the strong and
resilient culture of our workforce. It is built
on our guiding principles of openness,
safety and care, and mutual trust and
respect. The Board monitors adherence
to these principles through a number of
different engagements, both formal and
informal, ensuring that they are evidenced
in behaviours not simply as words on a
page.
Stakeholder engagement
Colleague engagement
The Board understand that the strategy
and long-term success of the Group is
dependent on a strong culture and set of
values that is clear and guide everything
we do. Our approach is driven by the
strength, skills and imagination of our
people, and our shared purpose to make
a positive impact. The way we work and
do business is based on five guiding
principles which we call the Pharos Way:
Safety & Care, Energy & Challenge,
Openness & Integrity, Empowerment
& Accountability, and Pragmatism &
Focus. They are reinforced by our Code
of Conduct and Business Ethics. The
115
Board has responsibility for assessing
and monitoring the culture of the Group
and ensuring that the Group’s policies
and practices are aligned with this. There
are a number of ways in which the Board
monitor and assess the culture, which is
detailed in our colleague engagements
below.
The Board placed great importance
on the level of engagement with senior
management and other colleagues.
The Board remains passionate about
workforce engagement and fostering a
genuine dialogue between the Company
and staff. All staff are kept informed about
important business developments in the
Company and have channels through
which they can ask questions and provide
input. The now well practised route of
using video calls facilitates more frequent
engagement across our offices worldwide
and the reorganisation of the Group has
instituted a flatter organisational structure,
allowing for shorter lines of management
and more direct, accessible channels of
communication with leadership.
The Executive Directors receive regular
updates on colleague engagement to
understand any complaints or troubles
from the hybrid work environment. At
the beginning and end of each calendar
year, every employee is encouraged to
set their own personal and professional
development objectives and appraisal for
the upcoming year, and to discuss this
with their line managers who can provide
any additional support where needed
and to remediate any troubles that each
employees might face. Additionally, Jann
Brown, the Company’s CEO, held virtual
and in person one-to-one meetings with
employees in the UK, Vietnam and Egypt
to understand their concerns over the past
years, from which feedbacks from these
sessions have resulted in several solutions
being proposed and implemented going
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Shareholder engagement
The Board as a whole has responsibility for
ensuring that a satisfactory dialogue with
shareholders takes place. The Executive
Directors 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
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. Additionally,
a section of the agenda for each regularly
scheduled meeting of the Board are
dedicated to investor and stakeholder
considerations.
In 2022, Pharos had several opportunities
to engage in 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 communications 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. Additionally, the Company also
provide a platform for everyone to access
an analyst research feed via its corporate
website at https://www.pharos.energy/
investors/analyst-research/. This allowed
for a wider audience of private and retail
shareholder to freely access to analyst
research notes about the Company. Also
in 2022, the Company engaged with online
platform Investor Meet Company to host
online meetings with a Q&A session in
April and September to allow the wider
public a free platform to raise questions
directly to the Executive Directors.
Most notably, during our Strategy Day
held in London in October 2022, the
Board had presentations and inputs
from a number of key external parties,
including shareholders and advisers. The
results of our Strategy Day were then
communicated to key investors as part of
our overarching objective of maintaining
open and constructive two-way dialogues
with our stakeholders. During the year, the
Executive Directors and investor relations
colleagues met and engaged with c.20
different institutional investors, family
offices, media journalists and analysts in
c.30 meetings.
The NEDs are each responsible for taking
sufficient steps to understand shareholder
views, including any issues or concerns.
This includes being available to major
institutional shareholders and responding
to requests for additional communication
with the Chair or other NEDs.
Additionally, both before and after the
formal proceedings of each AGM, and
subject to any applicable travel or public
gathering restrictions, all Directors and
senior management, including the Chairs
of the Audit and Risk, Remuneration
and Nominations Committees, make
themselves available to 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, suppliers, partners and
shareholders, and we engage with them
on a regular basis. Additionally, the
requirements in the Modern Slavery Act are
dealt with through our due diligence and on
boarding processes with suppliers.
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 Contractor
parties contribute a total of $200,000
per year split equally between the two
Concessions to support training and
development in industry.
In recent years, we have structured our
social investment programme to align
more with the United Nations Sustainable
Development Goals (UN SDGs). In
Vietnam, in 2022, in addition to the
training levy mentioned above, a further
$198,600 was invested in 9 community
projects. The JOCs actively inquired and
listened to locals to find out which areas
of the country would need the greatest
assistance in order to ensure that we
were investing in local projects that
would bring the most sustainable positive
impact to the community. For instance,
in H1 2022, the Group provided financial
support for therapy for children with
disabilities at the An Tue Social Assistance
Center – Thua Thien Hue province, with
additional donations towards supporting
the construction of an English teaching lab
for Middle School in Tan Thanh commune,
Kim Son district, Ninh Binh province (UN
SDG 3: Good health & wellbeing and UN
SDG 4: Quality education). In H2 2022,
the Donation Programme helped fund the
renovation of classrooms for a secondary
school in Tien Cau village, Hiep Cuong
commune, Kim Dong district, Hung Yen
province which will bring about lasting
positive impact to the children in the area
for years to come (UN SDG 4 Quality
education and UN SDG 9: Industry,
innovation and infrastructure).
For full details of all the projects the JOCs
have invested in 2022, please see our
Corporate Responsibility report on pages
61 to 107.
Whistleblowing, Ethics and Business
Conduct
Our Whistleblowing Policy and associated
procedures ensure that employees are
protected from possible reprisals when
raising concerns in good faith. In addition
to internal reporting channels, we have a
dedicated, anonymous and 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 EthicsPoint
hotline in 2022.
Additionally, our Anti-Bribery and
Corruption (‘ABC’) Policy and Code of
Business Conduct and Ethics have been
followed rigorously in 2022. In H2 2022,
the Group’s Risk Manager hosted a virtual
sessions on Anti-Bribery and Corruption
for the global workforce to reiterate
the importance for every employee to
understand the Code of Business Conduct
and Ethics and to place it at the forefront of
our engagement with suppliers, vendors,
partners, and public officials. It is also a
requirement for all employees and the
Board to complete and successfully pass
their ABC and Criminal Finance E-Learning
modules every year to ensure we hold
the Company to the highest standard of
business conduct.
The year also saw the Russian invasion
of Ukraine in February 2022 and the
introduction of an unprecedented suite of
international sanctions and export controls
in response to Russia’s aggression. The
Group’s own response to the situation,
and the prospect of a protracted conflict,
included the establishment of dedicated
cross-functional Pharos working group in
March 2022 and the adoption of a new
Group Sanctions Policy in May 2022. At
an operational level, the Group continues
to work with the JOCs on contingency
planning and mitigation.
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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 committees
of the Board, including 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 Executive Directors’ 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. The
CEO leads the Executive Directors 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
Executive Directors’ 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
As of December 2022, the Board
comprised six Directors, being the Chair,
the two Executive Directors and three
independent Non-Executive Directors.
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 Environmental, Social and
Governance (ESG) Committee -
responsible for defining the Group’s
strategy related to ESG matters.
• 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 Remuneration Committee
– responsible for the design,
development and implementation of the
Directors’ Remuneration Policy
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 TORs for each Committee, as
well as the current 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 2022, in addition to the four scheduled
quarterly meetings, the Board also met on
an additional three occasions to deal with
specific business matters which required
Board approval. One of the additional
meetings included a Board Strategy Day
meeting in October 2022, which was fully
attended.
Only Committee members are required
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,
Nominations and ESG Committees in
2022.
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 pages
113, 114.
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Diversity and Inclusion
Remuneration
Audit, Risk and Internal Control
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. Our Code of Business Conduct
and Ethics, associated policies and
procedures, and the Pharos 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 70
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 the re-
election resolutions at the 2023 AGM
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 2022 included
consideration of the Company’s leadership
needs within the context of growth,
portfolio diversification and long-term
strategy. The discussions determined
that following the recent changes in
the business the current balance is
appropriate and sufficient to effectively
promote the long-term success of the
Company.
Remuneration principles
The Remuneration Committee is
responsible for the design, development
and implementation of the Directors’
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.
Directors’ Remuneration Policy
Our overarching aim is to operate a
Directors’ 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 applicable law, we are required
to review and propose to shareholders the
Directors’ Remuneration Policy at least
once every 3 years. As the policy was last
reviewed and proposed at the 2020 AGM,
a revised policy will be put to shareholders
for approval at the 2023 AGM.
Consultation on the revised Directors’
Remuneration Policy commenced in
December 2022, and the policy takes into
account input from shareholders during
that process. The terms of the revised
policy are set out on pages 134 to 155 of
this report.
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.
Significant reporting and accounting
matters
During the first half of 2022, 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 2022
Financial Statements
The Committee met 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 2022, being
key issues which may be subject to
heightened risk of material misstatement.
These key issues are set out below.
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 this
in their Responsibility Statement set out on
pages 156 to 160 of the Directors’ Report.
Viability statement and 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 continuing impact of commodity
price volatility. A further assessment was
also undertaken on the impact of climate
change on commodity prices and a
sensitivity on carbon taxes.
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.
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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 2022 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 the 2022 Financial Statements on
a Going Concern basis.
For more information, please see the
Viability Statement in the Strategic Report
on pages 59 to 60.
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 2022, the Group continued to
carry out comprehensive reviews of the
overall effectiveness of its internal controls
framework and continued to work on
improvements.
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.
119
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, the Committee
recommended and the Board approved
the appointment of KPMG to carry out
various internal audits. No audits were
conducted during 2021 in order to
preserve cash following the impact of
the COVID-19 pandemic but work did
commence in 2022. The Committee
discussed and approved an internal
audit plan which is complementary but
separate to the audit work undertaken by
the Group’s external auditor, Deloitte. The
programme of work for 2022 included
Group Treasury and Corporate Model.
The Treasury Committee 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 Code in
the Corporate Governance Report on
page 115. 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 2022. These will be reviewed
again during 2023.
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 COVID-19 pandemic.
During 2022 we made our commitment to
achieve Net Zero on Scope 1 and Scope 2
GHG emissions across all assets by 2050.
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.
External auditor
Deloitte LLP was originally appointed as
external auditor to the Company in 2002.
The Statutory Auditors and Third Country
Auditors Regulations 2016 (the “2016
Regulations”), amending the Companies
Act 2006, introduced a requirement for
all public interest entities, including listed
companies, to conduct a tender for
external audit services no less frequently
than every 10 years and rotate auditors
no less frequently than every 20 years.
For engagements starting in a financial
year beginning on a date between 17
June 1994 and 17 June 2003, as is the
case with the Company’s engagement of
Deloitte LLP, the last permitted year of the
engagement under the 2016 Regulations
is the last financial year to begin before 17
June 2023.
Accordingly, the financial year
commencing 1 January 2023 is the
final year for which Deloitte LLP can act
as external auditor to the Company. In
view of this, the Committee conducted
a competitive tender process for a
new external auditor during 2022. The
process followed the guidance set out in
the Financial Reporting Council’s paper
entitled “Audit Tenders: Notes on Best
Practice” published in February 2017
(the “FRC Audit Tender Guidance”). The
Company prepared a request for proposal
(RFP) document and, following initial
approaches, prepared a shortlist of audit
firms to whom the RFP document was
sent. Firms receiving the RFP document
Pharos Energy Annual Report and Accounts 2022 2018 UK CORPORATE GOVERNANCE CODE - CONTINUED
were invited to review data relating to
the Group and given an extended period
to ask questions, seek clarifications and
hold a number of meetings or calls with
the Committee, members of the Group’s
management and various teams and
disciplines across the Group’s business in
the UK, Vietnam and Egypt. Following that
period, participating firms were invited to
submit written proposals to the Company
by a specified deadline.
The Committee evaluated the proposals
received from participating firms based
on criteria set out in the RFP document.
Although there was a financial component
to the evaluation, the process extended
to a number of important non-financial
criteria. Non-financial criteria considered
in the evaluation process included the
strength and experience of the proposed
audit team and their understanding of the
oil and gas exploration and production
industry, each firm’s intended approach to
the audit, their ability to build respected
working relationships and the extent to
which they could add value and provide
important insight to the role.
Following this process, and consistent
with the FRC Audit Tender Guidance, the
Committee submitted the proposals to
the Board, with one of those proposals,
from Ernst & Young LLP, being the
Committee’s recommendation. In
early 2023, the Board agreed to adopt
the Committee’s recommendation.
The Company then announced in its
preliminary results statement on 22 March
2023 that it had agreed in principle to
appoint Ernst & Young LLP to succeed
Deloitte LLP as external auditor with effect
from the financial year commencing 1
January 2024. During the financial year
commencing 1 January 2023, Ernst
& Young LLP will “shadow” Deloitte’s
work as external auditor, with a view to
preserving know-how and experience and
encouraging a seamless transition.
Principal and emerging risks
On page 47, we set out our assessment
of the principal risks facing the business.
The Group Risk Management framework
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 Group
Risk Management Policy defines the
specifics of the risk management process,
describes the risk tools (for example, the
preparation and maintenance of a Group
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
Colleague engagement
Shareholder engagement
Local communities, government and employees
Page(s)
6, 14, 16, 115
16, 35, 115
16, 22, 35, 36, 37, 109,
110, 116
15, 16, 22, 27, 35, 36, 37,
62, 67, 77, 78, 116
Conflicts of interests & Ethics hotline
14, 37, 38, 59, 61, 67, 116
Division Of Roles & Responsibilities
Responsibilities of the Board
109, 110, 111, 112
Board composition
Responsibilities & Composition of the Committees
Time commitment
Composition, succession and evaluation
Board composition and succession
Diversity and Inclusion
Annual re-election of Directors
Board effectiveness and evaluation
Remuneration
Remuneration principles
Remuneration policy
Pension & Benefits
112
110, 112
111
117
8, 14, 16, 118
118, 126
118, 126
134, 135
135, 149-155
136, 142, 145, 149, 152,
155
Directors’ shareholdings and share interests
141, 151
Audit, Risk and Internal Control
Significant reporting and accounting matters
Fair, balanced and understandable
128
128
Viability statement and going concern
59, 60, 118, 179
Risk management and internal controls
Internal audit
External auditor
Principal and emerging risks
129-132
132
132, 133
47
120
Pharos Energy Annual Report and Accounts 2022Financial StatementsAdditional InformationStrategic ReportGovernance Report 2018 UK CORPORATE GOVERNANCE CODE - CONTINUED
Changes during the year 2022
Accountability statement page references
Accountability
statements
Report
Business strategy,
purpose, and strategic
objectives
Strategic Report
Directors’ responsibility
statement
Directors’ Report
Page(s)
6-8
160
Auditor’s statement
Independent Auditor’s Report
162-170
Going concern
statement
Financial Review
Directors’ Report
46
159
Viability statement
Risk Management Report
59, 60
Critical judgements and
accounting estimates
Note 4 to the Financial Statements 179, 180
Risk Management Report
48
Risk Management and
Internal Control
Corporate Governance Report
118, 119
Audit and Risk
Committee
Nominations
Committee
Audit and Risk Committee Report
Corporate Governance Report
129
117
Audit and Risk Committee Report
127-133
Corporate Governance Report
117
Nominations Committee Report
125, 126
The Board
Members
Execs
NEDs
Independent
NEDs
6 (from May 2022, previously 9)
2 (from March 2022, previously 4)
4 (from May 2022, previously 5)
John Martin
(Chair, independent
on appointment)
Geoffrey Green
Lisa Mitchell
Marianne Daryabegui
Appointed
Retired
Audit and Risk Committee
Members
Appointed
Retired
Remuneration Committee
Members
Appointed
Retired
Nominations Committee
Members
Appointed
Retired
Environmental, Social and
Governance Committee
Members
Appointed
Retired
0
3
3
0
1
3
1
1
5
2
2
6
0
3
121
Pharos Energy Annual Report and Accounts 2022 ENVIRONMENTAL, SOCIAL AND GOVERNANCE (‘ESG’) COMMITTEE REPORT
Environmental,
Social &
Governance (‘ESG’)
Committee report
Dear shareholders,
Membership and responsibilities
During 2022, the Environmental, Social
and Governance (‘ESG’) Committee
was comprised of myself as Chair, Rob
Gray (retired May 2022), Ed Story, Jann
Brown, Sue Rivett, Mike Watts, Marianne
Daryabegui, Lisa Mitchell and Geoffrey
Green.
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 and
implementing the Group’s strategy
relating to ESG matters;
• Review the policies, programmes,
practices and initiatives of the Group
relating to ESG matters ensuring they
remain effective and up to date;
• Oversee the 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, and in achieving ESG
targets.
2022
attendance
JOHN MARTIN
ESG Committee Chair
Meeting attendance
Committee member
John Martin (Chair)*
Jann Brown
Sue Rivett
Marianne Daryabegui*
Lisa Mitchell *
Geoffrey Green*
Rob Gray
Ed Story
Mike Watts
* Independent Directors
Attended as member
Attended as invitee
Not attended
Note: Marianne was not in attendance
at one meeting due to unforeseen family
illness. Ed Story recused himself from the
meeting.
122
Pharos Energy Annual Report and Accounts 2022Financial StatementsAdditional InformationStrategic ReportGovernance Report ENVIRONMENTAL, SOCIAL AND GOVERNANCE (‘ESG’) COMMITTEE REPORT - CONTINUED
ESG Committee meetings in 2022
The Committee met four times during
2022. These meetings were regularly
scheduled Committee meetings held in
March, May, September and December.
The Committee examines and discusses
at each meeting:
• Review of HSES quarterly performance
reports, which includes review of KPIs
for both safety and environmental
matters, and all HSES plans, policies
and procedures.
• Review of current GHG emissions
(including venting) and main sources of
GHG emitters in Egypt and Vietnam.
• Review and discussion on proposed
carbon-reduction initiatives in Egypt
and Vietnam, as part of the Group’s
Decarbonisation plan.
•
Review of TCFD recommendations,
CDP climate change reporting and
annual Corporate Responsibility (“CR”)
Report.
• Review and discussion on the Group’s
Net Zero commitment and Emissions
Management Fund.
• Review and discussion on the
development of environmental
regulations and COP events.
• Review of procedures in place to
ensure a COVID-safe workplace and
practices.
In addition to members of the Committee,
additional non-committee members, such
as the Group Risk Manager, Reservoir
Engineer, Group Head of Technical,
General Counsel and Investor Relations
Analyst were invited to attend Committee
meetings. Internal ESG & Net Zero working
group meetings were also held separately
from ESG Committee meetings. There was
noted to be buy-in on ESG matters across
the Group.
During 2022, the following additional
areas were discussed at meetings of
the Committee:
March
Review and discussion on:
• Q4 2021 HSES performance report,
including procedures being maintained
to ensure a COVID-safe workplace
• KPIs for both safety and environmental
matters, noting no LTIs in 2021 and a
slight increase in GHG emissions.
• Draft ESG Committee report to be
included in the Annual Report
• Group’s GHG emissions reporting
compared to peer groups
123
• Gas venting, specifically the
methodology used for measuring and
how to address this issue
•
Inventory of social charitable projects
to date
• Vietnam and Egypt’s national power
development plan, noting each
government’s Net Zero commitments
at COP26
• TCFD alignment & reporting
May
Review and discussion on:
• Q1 2022 HSES performance report,
including Process Safety Events (“PSE”)
in Vietnam
• GHG emissions and gas venting, noting
the reasons for increased venting from
TGT
• Progress on decarbonisation plan and
carbon-reduction projects
• TCFD reporting in the Annual Report
September
Review and discussion on:
• H1 2022 HSES performance report,
noting ongoing investigations into third-
party HSE incident in Egypt
• GHG emissions reporting
• Operational control on ESG matters, as
the Group is now non-operator in Egypt
• Proposal of an Emissions Management
Fund, noting its benefits to stakeholders
in the long term and demonstrated
the Group’s commitment to invest in
carbon reduction initiatives
December
Review and discussion on:
• Q3 2022 HSES performance report,
noting one LTI and 1 environmental spill
in Egypt following investigation after
September ESG Committee meeting
• GHG emissions reporting, noting a
decrease in Egypt due to decreased
venting but an increase in Vietnam
due to gas export stopping for
maintenance, resulting in increased
flared gas
• Progress on the Net Zero roadmap
to be published in 2023, noting
engagement with third-party consultant
to assist with development of roadmap
• Progress on potential decarbonisation
projects and technologies in Egypt and
Vietnam
During the year the Committee
focused on the following matters:
COVID-19 precautionary measures
The health, safety and welfare of our
staff, contractors and host communities
across our business remains the highest
priority on the Board agenda. The Group
adhered to the requisite precautionary
procedures and restrictions, in line with
the government directives in Egypt,
Vietnam and the UK. At Petrosilah and
Pharos El Fayum, a vaccination campaign
for all employees in the main offices and
fields started in Q2 2021 and culminated
to 97% of the workforce being double
vaccinated at the end of December 2022.
In Vietnam, 100% of our workforce are
double vaccinated. For the London office,
the Executives continued to monitor
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 are implementing to mitigate its
risks of spread. The group has in place the
following precautions:
• Maintain regular communication with
in-country managers and their HSES
teams;
• Working from home options given;
• Travel guidance / restriction if
appropriate.
Health & Safety
In 2022, the JOCs in Vietnam continue
to deliver an exceptional record of safety,
reporting zero LTIs since operational
inception, representing ten production
years on TGT and 13 production years on
CNV. In Egypt, we regret to report one LTI
and one environmental spill in 2022, details
of which are set out in our Corporate
Responsibility report on page 61, and we
are working with the operator IPR and the
JOC Petrosilah to address the underlying
issues identified behind the safety
measurements and precautions in our
operations in order to return to our track
record of zero safety and environmental
incidents across all assets.
In Vietnam, the JOCs conducted over 200
HSE training sessions and 100 emergency
response drills respectively during 2022
to ensure safety and preparedness remain
a top priority. In Egypt, we continually
reinforce and implement safe working
procedures such as inspection of all
instruments and equipment, obtaining
the requisite permit to work applications,
providing training and awareness sessions
and above all implementing checks to
Pharos Energy Annual Report and Accounts 2022 ENVIRONMENTAL, SOCIAL AND GOVERNANCE (‘ESG’) COMMITTEE REPORT - CONTINUED
Additionally, in 2022, Pharos also pledged
to publish a detailed Net Zero roadmap in
2023. This will include the following:
• A baseline emissions inventory for all
our assets
• Asset-level emission reduction
frameworks
•
Interim targets over the short and
medium term
• Capital expenditure and resourcing to
achieve targets
The Committee recognise that the journey
to Net Zero will not be straightforward,
for Pharos and for the wider industry,
with a stream of new ideas and
solutions emerging to be tested. As new
technologies become established, they
will be reviewed by the ESG Committee
as well as its Working Group and brought
into use where relevant. We are committed
to transparency in our reporting and to
keeping stakeholders updated on our
progress.
JOHN MARTIN
ESG Committee Chair
ensure risks are reduced to acceptable
levels and encourage the immediate use of
stop-cards.
HSES performance of the Group was
reviewed and discussed at every ESG
Committee meetings in 2022. All spillage
incidents during the year were investigated
and lessons learned as appropriate
and actions to prevent recurrence were
implemented.
KPIs
KPIs for both safety and environmental
matters were reviewed and discussed
at all four ESG Committee meetings in
2022. Whilst safety results were excellent
in Vietnam, continuing with our zero
LTI’s since operations began, there were
two safety and environmental incidents
in Egypt which have mean the bonus
outcomes for these elements were zero.
For more details of 2022 safety and
environmental KPIs, please see page 145
of the Directors Remuneration Report.
TCFD
The Company commenced Phase 2 of the
project to bringing our disclosures in line
with the requirements of the Task Force
on Climate-Related Financial Disclosures
(“TCFD”) in Q4 2021, results of which were
concluded in Q1 2022 and can be found
in the Corporate Responsibility Report
on page 79 to 106. As at year end 2022,
Pharos is compliant with 8 out of 11 of
TCFD recommendations, and we will
continue to work on improving our climate-
related reporting and disclosure to align
with all 11 of TCFD recommendations.
CDP
Over the past five years, the Company
have participated in the CDP Climate
Change Questionnaire. In 2022, we have
maintained our score of (C), originally
awarded in 2019 and which is also the
industry average. Most notably, 2022
marks the first year that the Company got
graded for their water usage disclosure in
the Water Security Questionnaire, which
was also rewarded a score of (C).
Both Questionnaires were completed
through collaborative efforts across
multiple disciplines and functions within
the Group and after thorough discussions
within the ESG working group, with
oversight and approval from the ESG
Committee before submission
Social
In recent years, we have structured our
social investment programme to align
more with the United Nations Sustainable
Development Goals (UN SDGs).
Pharos works closely with our local
partners and joint ventures in order to
make sure that our social initiatives in the
region continue to bring more positive
impacts to the region. In 2022, $198,600
was invested in 9 long-term community
projects, and a further $500,000 was
invested in ring-fenced funds for training
to develop future talents in the industry in
Egypt and Vietnam.
For full details of all the projects the JOCs
have invested in 2022, please see our
Corporate Responsibility report on pages
77 to 78.
Net Zero commitment by 2050,
Emissions Management Fund & Net
Zero roadmap
In September 2022, following various
discussions with and approval from the
ESG Committee and Board members,
Pharos announced our commitment to
achieve Net Zero GHG emissions from
all our assets by no later than 2050. Our
Net Zero target includes Scope 1 (direct)
and Scope 2 (indirect) emissions from
all our assets. In addition, our Net Zero
target applies to our existing as well as our
future assets. As we evaluate any potential
development of our business, such as
licence extensions and acquisitions, we will
take this commitment into account in our
decision-making and it will fall under our
Net Zero target. We will look to advance
our Net Zero target date which will depend
on achieving operational efficiencies,
reducing flaring and venting, replacing
the power consumption of our facilities
with less impactful energy sources and
eventually procuring nature-based carbon
offset projects for hard-to-abate, residual
emissions.
This will require investment by Pharos
and its operational partners, which is
why, following approval from the ESG
Committee, the Company also announced
the establishment of an Emissions
Management Fund. For every barrel sold
at an oil price above $75, we will set
aside $0.25 into this Fund. The intended
purpose of the fund is to provide support
for emissions management projects for
Pharos and our operational partners in line
with our climate goals.
124
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NOMINATIONS COMMITTEE REPORT
Nominations
Committee report
Membership
During the year, the Committee comprised John Martin as Chair, the outgoing Chief
Executive Officer Ed Story (retired March 2022), the incoming Chief Executive Officer Jann
Brown (joined March 2022), and the four Independent Non-Executive Directors (‘NEDs’),
Rob Gray (retired May 2022), Marianne Daryabegui, Lisa Mitchell and Geoffrey Green.
The qualifications of each of the Chair and members are set out on pages 113 to 114
Meetings
The Committee conducted its duties through four meetings held during 2022. During the
year the following areas were discussed at the Committee meetings:
Meeting Matter
Review and approval of Nominations Committee report for inclusion in the
2022 Annual Report and Accounts
JOHN MARTIN
Nominations Committee Chair
Meeting attendance
Q1
Annual review of conflicts of interest register
2022
attendance
Annual Committee Performance Evaluation
Annual Director reappointment
Q2
Q3
Q4
Confirmation of appointment of Senior Independent Director
Board Composition / Ongoing succession planning
Succession planning continued
Committee member
John Martin (Chair)*
Jann Brown
Marianne Daryabegui*
Lisa Mitchell *
Geoffrey Green*
Rob Gray
Ed Story
* Independent Directors
Attended as member
Attended as invitee Not attended
Note: Jann Brown, Mike Watts and Sue
Rivett attended as non-committee members
for the first meeting of the year. Sue attended
meetings in Q1, 2 and 4. Ed Story recused
himself from the meeting. Jann Brown and
Geoffrey Green were appointed to committee
on 15 March 2022.
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.
The Committee has continued to ensure that
Board independence was evident during
2022 and will continue into 2023 taking into
account the Board composition requirements
of the 2018 UK Corporate Governance
Code.
125
As at 31 December 2022, the Board
comprised two Executive Directors and
four NEDs, including the Chair. All of
those NEDs (discounting the Chair, who
was independent on appointment) were
considered independent for the purposes of
the 2018 Code. John Martin remains Chair
of the ESG Committee, and Chair of the
Nominations Committee.
Board refreshment and
succession planning
Board refreshment and succession planning
continue as ongoing processes. In 2022,
the priority was to maintain the independent
component of the Board and to fully comply
with the 2018 Code.
In January 2022 we announced the
appointment of Jann Brown as CEO
effective 21 March 2022 on the completion
of the Egyptian farm-out transaction with
IPR. Jann was previously on the Board as
Managing Director and CFO.
Appointments Process
Board appointments are made through
a formal process led by the Nominations
Committee. In relation to the recruitment
and appointment of NEDs, the Committee
recognises the emphasis placed by the
2018 Code on the engagement of an
external search consultancy of the open
advertising of vacancies.
Independence
All NEDs are independent in full compliance
with the provisions of the 2018 Code.
Although Marianne Daryabegui has served
for a shorter period than 9 years in total in
two phases (October 2013 to 20 October
2016 and March 2019 to present), there
has been some discussion that she should
be regarded as having 8 years of service.
The Board continue to regard Marianne as
independent because of the 30 month gap
between two periods of office and the fact
that her total service will only amount to 7
years.
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 2022 included
consideration of the Company’s leadership
needs within the context of growth, portfolio
diversification and long-term strategy. The
discussions determined that following the
recent changes in the business the current
balance is appropriate and sufficient to
effectively promote the long-term success
of the Company.
The Board’s current balance and
composition are shown on page 111.
Pharos Energy Annual Report and Accounts 2022 NOMINATIONS COMMITTEE REPORT - CONTINUED
Diversity
Our 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.
At present the Board composition scores
highly on gender diversity, with 67% female
representation. The average age of the
Board is 64, which is a little higher than
the average for listed companies, but not
dramatically so. There is no minority ethnic
representation on the Board although, as
noted in this report the Group’s staff as a
whole has significantly more ethnic diversity.
In theory this organisational diversity should,
in the longer term, filter upwards to senior
management and potentially to executive
representative on the Board.
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
At the end of 2022, in line with the UK
Corporate Governance Code, the Board
carried out its annual evaluation of its own
performance and effectiveness and that
of its principal Committees, the Chair and
the individual Directors. In doing so, the
outcomes of last year’s review were also
considered. The Committee Chair led
the process which was facilitated by the
Company Secretary and followed a similar
format to that of prior years. Directors
completed confidential questionnaires
covering the key areas as set out below.
The questions were structured to
encourage full, in-depth responses on each
area of focus.
• Strategy
• Risk
• Shareholder and stakeholder relations
• Succession planning
• The Chair’s effectiveness
• Board effectiveness and operation
• The operation of each of the principal
Board committees
• Board training and development needs
• Any other general matters Directors
wished to raise
The results were reported on an
unattributed basis and discussed by the
Committee, led by the Committee Chair,
then 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.
Following the evaluation process, a number
of areas were identified for ongoing focus in
2023 including:
• Ongoing strategy discussions
• Continued review of risk
• Assets and operations
• Maintaining shareholder engagement
• Future succession planning
• ESG considerations
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.
Ed Story and Dr Mike Watts retired as
Directors following completion of the
farm-out transaction with IPR in March
2022. In addition, Rob Gray did not seek
re-appointment as a Director at the 2022
AGM and retired with effect from the
close of that meeting. The remaining six
Directors retired and offered themselves for
re-election at the 2022 AGM. All Directors
were duly re-elected at the 2022 AGM,
each receiving more than 94% of the proxy
votes submitted in advance of the meeting.
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.
Workforce engagement
In November 2022, in my role as
Independent Non-Executive Director
responsible for workforce engagement
I joined head office staff for a dedicated
offsite staff meeting, at which staff members
were able to discuss matters of interest.
In addition to this meeting I have regularly
attended company functions and remain
approachable to all staff.
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 2022, 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 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
126
Pharos Energy Annual Report and Accounts 2022Financial StatementsAdditional InformationStrategic ReportGovernance Report AUDIT AND RISK COMMITTEE REPORT
LISA MITCHELL
Audit and Risk Committee Chair
2022
attendance
Meeting attendance
Committee member
Lisa Mitchell (Chair) *
Marianne Daryabegui *
Geoffrey Green *
Rob Gray
* Independent Directors
Attended as member
Attended as invitee
Not attended
Note: Jann Brown, Sue Rivett and John
Martin also attended all of the meetings
as non-committee members.
127
Audit and Risk
Committee report
Dear shareholders,
Membership and responsibilities
During 2022, the Audit and Risk
Committee comprised me as Chair,
Marianne Daryabegui and Geoffrey Green.
Rob Gray attended the March and May
Committee’s before stepping down from
the Board at the close of the 2022 AGM
in May.
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 2022
The Committee met four times during
2022. These meetings were the regularly
scheduled Committee meetings held in
March, May, September 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, including updates
on Russian sanctions, a full paper also
goes to the Board.
•
In addition to members of the
Committee, all members of the
Board, the finance management
team, operational management and
the Group’s external auditor, Deloitte,
attended each of the Audit and Risk
Committee meetings.
During 2022, the following additional
areas were discussed at meetings of
the Committee:
March
Update and review of Modern Slavery and
Human Trafficking Statement, HSE Policy,
Social Responsibility Policy, Biodiversity
and Conservation Policy, Human Rights
Policy and Code of Business Conduct and
Ethics
Finance update including the Internal
Controls Report, Reserves Update,
Impairment Analysis, review of the Asset
Held for Sale paper, RBL Refinancing and
Treasury review
Review and approval of 2021 financial
statements, including reviews that they
were fair, balanced and understandable,
reviews of Going Concern and Viability
Statements
Review of 2021 external audit status,
including analyses of findings of the
external audit and key judgemental areas
Pharos Energy Annual Report and Accounts 2022 AUDIT AND RISK COMMITTEE REPORT - CONTINUED
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 mitigations, a
separate report on Russian sanctions was
presented to the full Board
May
Review and update of Internal Controls
Report including Financial review
Internal audit update
Review of the Egyptian Farm out paper
Review of the Russian sanctions paper
and recommendation of new Group
Sanctions Policy
Status update on Treasury activities
including the RBL and hedging status
Review and assessment of Risks and
mitigations
September
Finance update including the Internal
Controls Report, Reserves Update,
Impairment Analysis, review Egyptian farm
out paper, Distributable Reserves position,
internal audit update and insurance review
Review and Approval of 2022 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 Treasury, financing, covenant
compliance monitoring and commodity
hedging with particular attention on the
increasing receivables position in Egypt
and the currency devaluation
Presentation by our 3rd party advisor,
Commodities Trading Corporation on
commodity hedging
Reviewing the response to the FRC on
their question regarding abandonment
disclosures
December
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 160 of the
Directors’ Report.
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 continuing impact of commodity
price volatility. A further assessment was
also undertaken on the impact of climate
change on commodity prices and a
sensitivity on carbon taxes.
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 2022 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 the 2022 Financial Statements on
a Going Concern basis.
Review and update on Internal Controls
and Risk Report including: Finance review
and Treasury update
Review of the Group Forecast 2022 and
2023 Budget and capital allocation
Annual Review and Approval of Terms
of Reference of the Audit and Risk
Committee
Review of 2022 year-end planning
Review and discussion of Significant Risks
particularly around the impact of Climate
Change, impact on Going Concern and
Impairment of assets and the Egyptian
receivables position, currency devaluation
and the IMF approved loan coming into
Egypt
Review of recent developments in
relation to FRC requirements, proposed
developments in relation to external
auditors’ responsibilities, and other related
regulatory and compliance matters
Review the Tax Strategy Statement and
Provision of Non-Audit Services by the
External Auditors
Review the results of the external audit
tender
Financial reporting and significant
accounting issues
During the first half of 2022, 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 2022
Financial Statements
The Committee met 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 2022, being
key issues which may be subject to
heightened risk of material misstatement.
These key issues are set out below.
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Internal controls and risk management
systems
Commodity hedging – treasury
management
The Group actively managed its exposure
to commodity price risk by entering into
an ongoing programme of hedging. The
objectives of the hedging programme are
mainly to comply with the requirements
under the RBL and to protect the Group’s
Reasonable Worst Case Scenario. Pharos
was hedged more than required under the
conditions of the RBL and higher than the
Company would normally commit to in
order to support stress testing for going
concern and the working capital test
required for the prospectus for the Egypt
farm down.
A Treasury Committee, comprising the
Chief Financial Officer as Chair and senior
members of the Group’s finance team,
convene on a very 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 2022, the
hedged positions were out of the money
by $22.5m (2021: $29.7m), the hedge
position having been taken out to satisfy
the 35% minimum Vietnam production
hedge required under the RBL and hedges
to mitigate the impact on Reasonable
Worst Case for Going Concern and the
Working Capital Test for the Egypt farm
down during 2021.
In 2022, 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.
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 2022, the Group continued to
carry out comprehensive reviews of the
overall effectiveness of its internal controls
framework and continued to work on
improvements.
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)
The RBL facility was refinanced in 2021,
providing access to a committed $100m
facility based solely on the Vietnam
assets. As at 31 December 2022 an
amount of $65.0m was drawn (2021:
$78.1m). A further $50m is available on
an uncommitted accordion basis. The
refinanced facility matures in July 2025.
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 203.
The Committee has reviewed
management’s assessments of debt
covenant calculations and is satisfied that
the Group is fully compliant.
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 page 56
are calculated using best practice and
industry evaluation techniques which have
uncertainties in their application.
The Committee reviewed, in conjunction
with management, the results of
independent third party assessments
conducted by ERCE for Vietnam assets
TGT and CNV, and subsequently audited
by the Group’s reserves auditor, RISC
Advisory Pty Ltd (“RISC”).
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 reserves are described in the review of
operations on pages 32 to 34.
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.
Deloitte also engaged their in-house
Reserves Evaluation and Advisory team
in Canada to understand and challenge
management processes in determining
the year end reserves estimates. This
included performing procedures over
the future production forecasts to the
approved budgets and to the reserves
auditors’ CPRs, comparing historical prior
year forecasts and impairment models to
understand variances and reviewing of the
technical reserves revisions in the year.
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KEY JUDGEMENTS AND ESTIMATES IN FINANCIAL REPORTING
Key judgements and estimates
in financial reporting
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
Audit and Risk Committee review
Outcomes
Reviewed the Group’s oil price assumptions
The Group’s short and long commodity price
assumptions were reviewed.and reduced
accordingly
Upstream impairment charges were reviewed
twice during the year
Impairment reversal of assets
Reviewed DD&A estimates, based on reserves
reports, units of production and future
development costs
Management’s assessments of DD&A judged to be
reasonable based on prudent assumptions
Reviewed risks of override of management
controls
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
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
Reviewed exploration costs
Costs held in Vietnam pending future work
programme and costs in Israel impaired due
relinquishment of the blocks
In Egypt, further activities are due to take place
on NBS and El Fayum in 2023, therefore no
impairment triggers have occured
Reviewed at each Committee meeting the status
of all updated estimates
Updated third party estimates and independent
audit completed, with results disclosed in the 2022
Financial Statements
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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
impairment reversals were made on the
two Vietnam fields, and on the El Fayum
Concession in Egypt.
On our CNV field in Vietnam, a pre-tax
impairment reversal of $3.6m has been
reflected in the Income Statement with an
associated deferred tax charge of $1.4m.
As at 31 December 2022, the carrying
amount of the CNV oil and gas producing
property is $76.4m.
On our TGT field in Vietnam, a pre-tax
impairment reversal of $19.7m has been
reflected in the Income Statement with an
associated deferred tax charge of $6.9m.
As at 31 December 2022, the carrying
amount of the TGT oil and gas producing
property is $242.4m.
For our El Fayum concession in Egypt,
an impairment reversal of $3.8m, no tax
applicable, is reflected in the Income
Statement. As at 31 December 2022,
the carrying amount of the El Fayum oil
producing property is $62.5m.
Disposal of Asset Held for Sale (AHFS)
In December 2021, we classified 55% of
the Group’s operated interest in each of
our Egyptian Concessions, El Fayum and
North Beni Suef, as assets classified as
held for sale (Net assets classified as held
for sale as 31 December 2021: $53.5m).
Following the completion of the farm-out
transaction of Egyptian assets to IPR,
the accounting for the assets reflect the
following:
• The economic date of the transaction
was 1 July 2020, with completion on 21
March 2022
• Pharos owned and managed the
business up to completion
• On completion, an adjustment to
compensate for net cash flows since
the economic date has been adjusted
for in the level of carry to be provided
by IPR to Pharos
•
In the financial statements, for the
period post completion, Pharos 45%
share of field costs – capex, opex and
G&A – are accounted for as incurred by
Pharos, although all such costs are paid
by IPR and set off against the carry
• All revenues earned are paid direct to
Pharos
The firm consideration was received in two
tranches, $2.0m in September 2021 and
$3.0m on 30 March 2022.
The carry of $36.3m is disproportionate
funding contribution from IPR adjusted
for working capital and interim period
adjustments from the effective economic
date of 1 July 2020 and completion date.
The carry decreases every month against
the cash calls received from IPR. The
total amount utilised as at 31 December
2022 amounts to $15.4m, which has
been disclosed in “Consideration received
on farm out of Egyptian assets” in the
cash flow as part of investing activities
(combined with $3.0m firm consideration
received on 30 March 2022). No cash
outflow is required until we utilise the
whole amount.
The Group is entitled to contingent
consideration depending on the average
Brent Price each year from 2022 to the
end of 2025 (with floor and cap at $62/
bbl and c.$90/bbl respectively). The
contingent consideration is calculated
yearly and is capped at a maximum total
payment of $20.0m. As at 31 December
2022, the contingent consideration
amounts to $13.9m ($5.0m current and
$8.9m non-current). Testing of sensitivity
for a $5/bbl reduction in long term oil price
used would result in $1.3m decrease in
contingent consideration to $12.6m.
El Fayum Concession Third
Amendment
On 19 January 2022, the Third
Amendment to the El Fayum Concession
Agreement was signed by His Excellency
Eng. Tarek El Molla (Minister of Petroleum
& Mineral Resources of the Arab Republic
of Egypt), EGPC and the Company.
Signature of the Third Amendment was a
key Condition Precedent for the transfer
of a 55% participating interest (and
operatorship) in the El Fayum and North
Beni Suef Concessions to IPR Lake Qarun.
Under the terms, the cost recovery
percentage increased from 30% to
40% allowing Pharos a significantly
faster recovery of all its past and future
investments. In return, Pharos has agreed
to waive its rights to recover a portion of
the past costs pool ($115m) and reduce its
share of Excess Cost Recovery Petroleum
from 15% to 7.5%. While in full cost
recovery mode, Contractor’s share of
revenue increases from 42.6% to 50.8%
as from November 2020 (corresponding
to additional net revenues to Contractor of
$7.0m to the date of signature).
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”. Please refer to Note
4 (b) to the Financial Statements for more
information on climate change and energy
transition.
At both the half year and year end 2022,
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
3D seismic acquisition on Block 125 in
Vietnam and the forward programme
of work that no impairment had been
triggered. The minor commitment
programme of work in Israel has been
completed in 2022 and the blocks
relinquished, the Group have therefore
impaired the assets. In Egypt, on NBS,
further drilling and 3D activity is due to
take place in 2023 and on El Fayum
the next phase will be to test the well.
Therefore with the forward programme
of work no impairment triggers have
occurred.
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 2022,
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 28 to 34.
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
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Egypt Foreign Currency Risk
In the Egypt business, the recent global
macroeconomic volatility has seen both
a significant devaluation of the Egyptian
Pound and continued restrictions on
outgoing US Dollar transfers by the
Central Bank of Egypt. The Company has
opted not to accept the payment of trade
receivables balance in Egyptian Pounds
unless required for operations. The
progressive devaluation of EGP against
USD means that it is preferable to continue
to hold USD denominated receivables.
As a result, Pharos’ receivables have
increased to $24.2m at 31 December
2022, inclusive of c.$7m catch-up invoice
for improved fiscal terms under the Third
Amendment and stated prior to a risk
factor provision of $1.8m (2021: $7.4m
receivables).
The International Monetary Fund (IMF)
recently announced that its Executive
Board had approved the provision of a $3
billion, 46-month extended fund facility to
Egypt, which the IMF expects to catalyse
additional financing of approximately
$14 billion from Egypt’s international and
regional partners. In addition, Egypt is
seeking access to up to a further $1 billion
from the IMF’s newly created resilience and
sustainability facility to support climate-
related policy goals. Taken together, these
developments are widely anticipated to
improve Egypt’s FX reserves and overall
liquidity in the first half of 2023.
The Company therefore remain optimistic
that outstanding receivables with EGPC
will start to be recovered during 2023.
Internal controls focus for 2022
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, the Committee
recommended and the Board approved
the appointment of KPMG to carry out
various internal audits. No audits were
conducted during 2021 in order to
preserve cash following the impact of
the COVID-19 pandemic but work did
commence in 2022. The Committee
discussed and approved an internal
audit plan which is complementary but
separate to the audit work undertaken by
the Group’s external auditor, Deloitte. The
programme of work for 2022 included
Group Treasury and Corporate Model.
The Treasury Committee 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 Code, in
the Corporate Governance Report on
page 115. 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 2022. These will be reviewed
again during 2023.
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 COVID-19 pandemic. During
2022 we made our commitment to Net
Zero by 2050.
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.
We continue to recognise the ongoing sad
situation in Ukraine. We have no direct
business in the region. We have set up a
working project team who carried out due
diligence checks to assess parts of our
business that might be affected and came
up with mitigating actions.
External auditor
Deloitte LLP was originally appointed as
external auditor to the Company in 2002.
The Statutory Auditors and Third Country
Auditors Regulations 2016 (the “2016
Regulations”), amending the Companies
Act 2006, introduced a requirement for
all public interest entities, including listed
companies, to conduct a tender for
external audit services no less frequently
than every 10 years and rotate auditors
no less frequently than every 20 years.
For engagements starting in a financial
year beginning on a date between 17
June 1994 and 17 June 2003, as is the
case with the Company’s engagement of
Deloitte LLP, the last permitted year of the
engagement under the 2016 Regulations
is the last financial year to begin before 17
June 2023.
Accordingly, the financial year commencing
1 January 2023 is the final year for
which Deloitte LLP can act as external
auditor to the Company. In view of this,
the Committee conducted a competitive
tender process for a new external auditor
during 2022. The process followed the
guidance set out in the Financial Reporting
Council’s paper entitled “Audit Tenders:
Notes on Best Practice” published in
February 2017 (the “FRC Audit Tender
Guidance”). The Company prepared a
request for proposal (RFP) document and,
following initial approaches, prepared a
shortlist of audit firms to whom the RFP
document was sent. Firms receiving the
RFP document were invited to review
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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 Code
and associated guidance.
LISA MITCHELL
Audit and Risk Committee Chair
AUDIT AND RISK COMMITTEE REPORT - CONTINUED
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 2022
were $0.6m and $0.1m respectively. The
Committee approved all non-audit services
provided by the external auditor in 2022.
The principal non-audit fees during 2022
were $0.1m for the interim review.
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.
data relating to the Group and given
an extended period to ask questions,
seek clarifications and hold a number of
meetings or calls with the Committee,
members of the Group’s management and
various teams and disciplines across the
Group’s business in the UK, Vietnam and
Egypt. Following that period, participating
firms were invited to submit written
proposals to the Company by a specified
deadline.
The Committee evaluated the proposals
received from participating firms based
on criteria set out in the RFP document.
Although there was a financial component
to the evaluation, the process extended
to a number of important non-financial
criteria. Non-financial criteria considered
in the evaluation process included the
strength and experience of the proposed
audit team and their understanding of the
oil and gas exploration and production
industry, each firm’s intended approach to
the audit, their ability to build respected
working relationships and the extent to
which they could add value and provide
important insight to the role.
Following this process, and consistent
with the FRC Audit Tender Guidance, the
Committee submitted the proposals to
the Board, with one of those proposals,
from Ernst & Young LLP, being the
Committee’s recommendation. In
early 2023, the Board agreed to adopt
the Committee’s recommendation.
The Company then announced in its
preliminary results statement on 22 March
2023 that it had agreed in principle to
appoint Ernst & Young LLP to succeed
Deloitte LLP as external auditor with effect
from the financial year commencing 1
January 2024. During the financial year
commencing 1 January 2023, Ernst
& Young LLP will “shadow” Deloitte’s
work as external auditor, with a view to
preserving know-how and experience and
encouraging a seamless transition.
In each year, the Committee assesses
the performance of the external auditor
based on their experience, the quality
of their written and oral communication
and input from management, prior to
making any recommendations as to the
re-appointment of the external auditor 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.
The current Deloitte LLP lead partner is
Anthony Matthews, who is compliant with
the rotation requirements and will continue
to be compliant during Deloitte’s final year
as external auditor. Other senior audit staff
are rotated every five to seven years.
133
Pharos Energy Annual Report and Accounts 2022 DIRECTORS’ REMUNERATION COMMITTEE REPORT
Directors’ Remuneration
Committee report
Role of Committee
The Remuneration Committee is
responsible for setting the remuneration
of the Chair and the Executive Directors,
has oversight of pay more generally, and is
responsible for appointing any consultants
it may engage in carrying out its duties.
Dear shareholders,
On behalf of the Board, we are pleased
to present the Directors’ Remuneration
Report for the financial year ended 31
December 2022. 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).
Highlights of Committee actions
in 2022
The year has seen significant progress
with our strategy. Activities undertaken by
the Committee include:
• Board changes. Following completion
of the transaction with IPR, Ed Story
and Mike Watts stepped down from
the Board on 23 March 2022 and
Jann Brown assumed the role of
Chief Executive Officer. Jann’s base
salary was reset to £420,000, which
represented a c.21% reduction on her
previous salary as Managing Director,
reflecting the new size of the business.
• Review of the Directors’ Remuneration
Policy ahead of its proposed renewal at
the 2023 AGM.
How performance was reflected
in the pay of our Executive
Directors
As reported throughout the Strategic
Report, 2022 was a year of significant
change for the business, not least in
managing the completion of the farm-
out of our Egyptian assets. Continued
strong leadership of the Company by
the Executive Directors and other senior
management has meant that once again
we have not had to furlough any staff,
nor have we borrowed any Government
money under any loan schemes.
As part of our commitment to help
employees deal with rising cost of living,
the Company made early interim payments
of c.25% of the bonus potential in October
2022, with the balance paid in December
as usual. Employees will also be supported
with their travel expenses from 2023.
Strategic
We continue to focus our efforts on
driving efficiencies, controlling costs
and making judicious investments to
maximise the value of our portfolio. The
$3m share buyback programme, which
we announced in July, continues as part of
the Company's broader strategy to deliver
value to our shareholders and will continue
during 2023 up to an additional $3m.
Pharos is now in a materially improved
financial position, has an accelerating
programme in Egypt and significant growth
potential in Vietnam. Together, these put
us in a strong position. We were pleased
to be able to reward shareholder patience
with the announcement of a return to a
regular dividend, based on operating cash
flow, with the first payment set for 2023.
GEOFFREY GREEN
Remuneration Committee Chair
2022
attendance
Meeting attendance
Committee member
Geoffrey Green (Chair) *
Marianne Daryabegui *
Lisa Mitchell *
Rob Gray*
* Independent Directors
Attended as member
Attended as invitee
Not attended
Note: Jann Brown, John Martin and Sue
Rivett attended all of the meetings as
non-committee members.
Mike Watts attended one of the
meetings as non-committee member.
Lisa was appointed to the committee
on 15 March 2022.
134
Pharos Energy Annual Report and Accounts 2022Financial StatementsAdditional InformationStrategic ReportGovernance Report DIRECTORS’ REMUNERATION COMMITTEE REPORT - CONTINUED
Operational
On an operational basis, the Company
performed well across a broad range of
metrics. Production levels in both Vietnam
and Egypt were in line with guidance.
Multi-well development drilling in El Fayum
continues in 2023 under the operatorship
of IPR, with nine wells planned for the year
ahead.
Financial performance was strong,
with cost control, cash generation and
funding ahead of expectations. Whilst
safety results were excellent in Vietnam,
continuing with our zero LTIs since
operations began, there were two safety
and environmental incidents in Egypt
which have mean the bonus outcomes for
these elements were zero.
Following a robust assessment of the
performance criteria the Committee
determined the formulaic outturn for
bonuses at 66.1% of the maximum
potential. The Committee considered
the wider stakeholder experience and
agreed that the formulaic outcome was
appropriate. As a reminder the Committee
used its discretion to reduce the 2021
bonus outcome by 20% for Executives
but not staff. Bonus outcomes for the
wider workforce also reflect corporate
KPIs achieved as well as their personal
performance. The 2020 LTIP awards,
whose performance criteria is based on
TSR, are due to vest in May 2023 but are
expected to lapse through failure to meet
the required relevant performance target.
Directors’ Remuneration Policy
Our current Directors’ Remuneration Policy
was approved at the 2020 AGM with
92.6% of votes cast in favour. As the three
year term of the current Policy is due to
expire in 2023, we are required to submit
a new Policy to shareholders at the 2023
AGM.
During 2022, the Remuneration
Committee reviewed the current Policy.
The Committee believes that the Policy
remains fit for purpose and continues to
support the business strategy. The current
Policy is well understood by participants
and investors. It is also considered to be
aligned to market practice and already
includes standard corporate governance
best practice features such as pension
alignment and the use of post-cessation
shareholding requirements. We therefore
propose to submit the Policy for renewal
at the 2023 AGM with relatively minor
revisions, following a consultation process.
These are to remove the ability to award
a maximum LTIP award of 400% of salary
“in exceptional circumstances” to reduce
that maximum to 200% and to increase
the post cessation requirement for holding
shares from 200% of salary for one year
and 200% of salary for a further year to
200% of salary for the full two years.
Approach for 2023
Base salaries for the Executive Directors
and Non Executive Directors will be
frozen for 2023. Across the UK employee
population, the average increase for 2023
is 10%.
The current annual bonus and LTIP
maximum awards will remain unchanged.
The annual bonus will continue to be
subject to a scorecard of measures
including safety, financial, operations,
capital structure, sustainability and culture
and governance reflecting the key priorities
of the business and disclosed on a
retrospective basis.
The LTIP measures and targets will be
based on relative TSR (35% weighting),
absolute TSR (20% weighting), cash flow
from operations (15% weighting), ROCE
(15% weighting) and an ESG condition
(15% weighting).
Conclusion
The Remuneration Committee
believes that the remuneration
outcomes for 2022 are a fair
reflection of the context in which
decisions had to be made. We
believe that the continuation of
the current Policy in all material
respects maintains the link
between strategy and incentives,
as well as being closely aligned to
the market.
We look forward to receiving your
support at the upcoming AGM.
GEOFFREY GREEN
Remuneration Committee Chair
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Pharos Energy Annual Report and Accounts 2022
DIRECTORS’ REMUNERATION COMMITTEE REPORT - CONTINUED
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 2022. It also provides comparative figures for 2021:
Fees/salary
£000’s
Benefits
£000’s
Bonus
Cash3
£000’s
Bonus
Deferred3
£000’s
Pension
£000’s
Total
£000’s
Fixed
£000’s
Variable
£000’s
59
389
68
277
45
162
57
80
89
1,226
11
39
12
16
-
-
-
-
2
80
73
294
75
182
-
-
-
-
-
37
147
37
91
-
-
-
-
-
9
58
10
41
-
-
-
-
-
189
927
202
607
45
162
57
80
91
68
447
78
318
45
162
57
80
89
121
480
124
289
-
-
-
-
2
624
312
118
2,360
1,344
1,016
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 received 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 other benefits, and the tax payable thereon, in accordance with HMRC guidance.
1) Executive Director fees and salary of Ed Story is set in US dollars and is reported in GB pounds at the average exchange rate for the period 1 January
2022 to 22 March 2022, reflecting the period he served on the Board.
2) Ed Story and Dr Mike Watts stepped down from the Board on 23 March 2022 following completion of the Egyptian farm-out transaction. At the same
time, Jann Brown was appointed to the role of Chief Executive Officer. Prior to that date, Messrs Story and Watts and Ms Brown had been waiving 50%
of their salary and the reported numbers include such waivers.
3) The total Directors’ bonuses include the following: a) Cash bonus paid in December 2022 of £624k; b) Deferred bonus of £312k granted under the
Deferred Share Bonus Scheme.
* Fees and/or salaries paid to the Directors are in relation to their dates of service as a Director during the year.
Fees/salary
£000’s
Benefits
£000’s
Bonus
Cash4
£000’s
Bonus
Deferred4
£000’s
Pension
£000’s
Total
£000’s
Fixed
£000’s
Variable
£000’s
275
288
288
127
100
126
45
62
62
44
40
53
4
-
-
-
-
-
215
225
225
55
-
-
-
-
-
231
240
240
58
-
-
-
-
-
41
43
43
20
-
-
-
-
-
806
836
849
264
100
126
45
62
62
316
331
331
147
100
126
45
62
62
490
505
518
117
-
-
-
-
-
1,373
141
720
769
147
3,150
1,520
1,630
136
2022
Executive Directors
E Story1,2
J Brown2
M Watts2
S Rivett
Non-Executive Directors
R Gray
J Martin
M Daryabegui
L Mitchell
G Green
Total
2021
Executive Directors
E Story1,2
J Brown2
M Watts2
S Rivett3
Non-Executive Directors
R Gray
J Martin
M Daryabegui
L Mitchell
G Green
Total
Pharos Energy Annual Report and Accounts 2022Financial StatementsAdditional InformationStrategic ReportGovernance Report
DIRECTORS’ REMUNERATION COMMITTEE REPORT - CONTINUED
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) Executive Director fees and salary of Ed Story is set in US dollars and is reported in GB pounds at the annual average exchange rate.
2) Ed Story, Jann Brown and Dr Mike Watts agreed to a reduction of 35% of their salary from 1 August 2020 and a further 15% reduction from 1 April
2021 for the remainder of the year. Non-Executive Directors agreed to a 25% reduction of their fee throughout 2021. The figures above reflect the
reductions in salary and fees.
3) Sue Rivett was appointed to the Board on 1 July 2021.
4) The total Directors’ bonuses include the following: a) Cash bonus paid in December 2021 of £720k; b) Deferred bonus of £358k granted under the
Deferred Share Bonus Scheme; c) Deferred bonus paid on completion of the Egypt farm-out (£274k of which was paid in cash and £137k of which was
granted under the DBSP).
* Fees and/or salaries paid to the Directors are in proportion with their dates of service.
The aggregate emoluments of all Directors during the year was £2.4m (2021: £3.2m).
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 the Group’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 2022 were set prior to the full
impact of the COVID-19 pandemic becoming evident. No subsequent adjustments have been made to the targets.
2022 annual bonus measures and out-turns
Metric
SAFETY AND ENVIRONMENT
Zero LTIs
Link to strategy
Target
• Safety of our people
• Zero LTIs
• Sound oil field
practices
Weight
18%
6%
Performance
Performance
Bonus awarded
6%
0%
Outcome
• Not achieved
• An LTI occurred in Egypt with a 3rd
party rig contractor when rigging
up the mast
• An environmental spill in Egypt due
to an overturned truck
TRIR Target of 0.8
3%
Link to strategy
Target
• Safety of our people
• 0.8
• Sound oil field
practices
Performance
• 0.42 TRIR recorded
Outcome
• Achieved
Zero environmental spills
3%
3%
0%
Link to strategy
Target
Performance
Outcome
• Sound oil field
• Zero environmental spills
• 1 environmental spill recorded in
• Not achieved.
Egypt
practices
• Management of our
carbon footprint
wherever we work
137
Pharos Energy Annual Report and Accounts 2022 DIRECTORS’ REMUNERATION COMMITTEE REPORT - CONTINUED
Metric
Carbon footprint improvements
Weight
6%
Performance
Bonus awarded
3%
Link to strategy
Target
Performance
Outcome
• Management of our
carbon footprint
wherever we work
• Maintain or reduce GHG
emissions against 2021
baseline as this included
venting for the first time
• Implement second stage of
work towards compliance with
the G20 Financial Stability
Board’s Task Force on Climate
-Related Financial Disclosures
(TCFD)
• GHG intensity increased by 9% in
• Not achieved
• Achieved
2022
• Phase 2 TCFD alignment
Transition risks were assessed
over a 5-10 year period under IEA’s
recommended SDS and STEPS
scenarios
Physical risks were assessed
against physical risk datasets
under the three emissions
scenarios over a 5 and 10 year
timeframe.
Continued commitment to disclose
and report in line with TCFD
recommendations.
OPERATIONAL/PORTFOLIO MANAGEMENT
37%
Portfolio management
Link to strategy
Target
6%
Performance
21.6%
2%
Outcome
• Deliver value
through growth
• Seek farm-in partner for 125
• A number of interested parties
• Part Achieved
commitment well
have been reviewing the physical
data
Production
Link to strategy
Target
12.5%
Performance
6.9%
Outcome
• Prudent
• Vietnam production volumes
• Vietnam production outturn was
• Achieved for Vietnam, within
Management in
a low oil price
environment
5,000 – 6,000 boepd
5,418 boepd
guidance
• Egypt production volumes
• Egypt production outturn year was
• Achieved for Egypt, within
1,350 – 1,800 bopd
1,748 bopd
guidance
Secure extension on NBS and drill of wells
6%
2%
Link to strategy
Target
Performance
Outcome
• Continued
• Secure extension on NBS and
• Small extension secured allowing
• Part achieved
drill 2 wells
the drilling to move to 2023
development of
Vietnam assets
Farm Out
6%
Performance
Link to strategy
Target
• Effective portfolio
management
• Execute phase 1 of the farm
down dev drilling - 10 wells
• Phase 1 commenced with 7
development wells drilled
Operational development
Link to strategy
Target
6.5%
Performance
• Continued
• Development drill of 2 wells
• The 3 well development
development of
Vietnam assets
TGT and 1 CNV
programme commenced in H2
2022
4.2%
Outcome
• Part achieved
6.5%
Outcome
• Achieved
138
Pharos Energy Annual Report and Accounts 2022Financial StatementsAdditional InformationStrategic ReportGovernance Report DIRECTORS’ REMUNERATION COMMITTEE REPORT - CONTINUED
Metric
FINANCIAL
Weight
30%
Opex per bbl for each producing asset
5%
Performance
Bonus awarded
25%
0%
Link to strategy
Target
Performance
Outcome
• Control expenditure
• Vietnam cash opex bbl <$15
• Vietnam cash opex bbl $16.03
• Not Achieved for Vietnam
• Egypt cash opex bbl <$16
• Egypt cash opex bbl $17.40
• Not Achieved for Egypt
Overall reduction in cost base
10%
10%
Link to strategy
Target
Performance
Outcome
• Control expenditure
• Maintain cost base reductions
• Full year administrative expenses
• Achieved
• Maintain strong
balance sheet
achieved in 2021
lower by 24%, reflecting
restructuring of the business in
2021, reduction in the Board from
9 to 6 Directors post-Egypt farm-
down and 21% reduction in base
salary of new CEO
• Cash at bank has increased from
$27.1m to $45.3m due to strong
operating performance
Net debt
Link to strategy
Target
15%
Performance
• Net debt/EDITDAX of <2
• Net debt/EDITDAX of 0.23
• Access affordable
sources of funding
• Return to
shareholders
• All Bank Covenants met
• All bank covenants have been met
• Achieved
• Funding plan in place for all
activities covered by cash/
available debt plus headroom
of $20m
• Renewed the NBE facility and
have sufficient headroom for
commitments plus headroom of
$20m
• Achieved
• Funding for commitments in
2022/23
15%
Outcome
• Achieved
GOVERNANCE/LICENCE TO OPERATE
Review of Board structure
15%
5%
Link to strategy
Target
Performance
• Develop talent
throughout our
business
• Streamline Board structure
• Board reduced from 9 to 6
Compliance review
Link to strategy
Target
5%
Performance
• Strong governance
and personal codes
of conduct
• Complete independent review
• Two audits on Treasury and
of key policy compliance
across the Group
Corporate Modelling
13.5%
5%
5%
Outcome
• Achieved
Outcome
• Achieved
139
Pharos Energy Annual Report and Accounts 2022 DIRECTORS’ REMUNERATION COMMITTEE REPORT - CONTINUED
Metric
Social Investment
Weight
5%
Performance
Bonus awarded
3.5%
Link to strategy
Target
Performance
Outcome
• Strong governance
and personal codes
of conduct
• Social investment plan
• In Vietnam, a training levy of
• Part achieved
approved and implemented
$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. 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 2022, in addition to the
aforementioned training levy
funds (which totals to $500,000),
a further $198,600 was invested
in 9 community and charitable
partnerships and investment
projects.
Overall
100%
Total assessment
66.1%
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 2022 was sufficiently recognised in
the formulaic outcome and therefore no discretion was considered necessary.
Executive Directors receive a third of any bonus as awards under the Deferred Share Bonus Plan. This ensures their interests remain
closely aligned with shareholders. For 2022, the total Directors’ bonuses include the following: a) Cash bonus paid in December 2022 of
£624k and b) Deferred bonus of £312k to be granted under the Deferred Share Bonus Scheme.
E Story
M Watts
J Brown
S Rivett
Paid Bonus
£000s
Deferred Bonus
£000s
Total Bonus
£000s
73
75
294
182
37
37
147
91
110
112
441
273
% of max
66.1%
66.1%
66.1%
66.1%
The bonus amounts for Ed Story and Dr Mike Watts are pro-rated to reflect time served as a Director during the period.
LTIP vesting in respect of May 2020 awards
The LTIP awards granted in May 2020, which would have vested in May 2023, are not expected to vest as they are currently not
achieving the threshold level of vesting and are therefore expected to lapse. The table below sets out an overview of Pharos’s relative
TSR performance during that period.
Vesting schedule
Actual expected vesting
25% vesting
100% vesting
0%
In all material respects, the same performance targets apply to awards granted in 2021.
LTIP award grants made in 2022
Performance against comparator group
Median (50th percentile)
Upper Quartile (25th percentile)
Greater than 50th percentile
The LTIP awards are usually made in March. For Jann Brown and Sue Rivett this represented 200% of contractual salary at the time the
award was made. It is anticipated that future grants, including the grants to be made in 2023, will be made following the announcement
of the preliminary 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).
140
Pharos Energy Annual Report and Accounts 2022Financial StatementsAdditional InformationStrategic ReportGovernance Report DIRECTORS’ REMUNERATION COMMITTEE REPORT - CONTINUED
J Brown
S Rivett
Date of grant
No. of shares
Face value of award
Award as % of salary
25 March 2022
25 March 2022
3,049,001
2,032,667
£840,000
£560,000
200%
200%
Face value based on share price at the time of awards were determined on 24 March 2022 (being £0.2755)
The performance measures for the 2022 awards are set out below, with 25% vesting for Threshold rising on a straight-line basis to full
vesting at Maximum:
Metric
TSR – Relative vs bespoke peer group
TSR – Absolute
ESG medium term measures
Cash flow from operations
Return on Capital Employed
Weight
40%
15%
15%
15%
15%
Targets
Median to Upper Quartile ranking
20% to 30% absolute growth
10% to 15% reduction in emissions.
$150m to $200m over the 3 year period
6% to 10% average for the 3 year period
Deferred Share Bonus Plan awards granted in 2022
The DSBP awards were granted in March 2022 in relation to the 2021 annual bonus outcome.
J Brown
S Rivett
E Story
M Watts
Date of grant
25 March 2022
25 March 2022
25 March 2022
25 March 2022
No. of shares
Face value of award
563,157
136,842
560,529
563,157
£155,150
£37,700
£154,426
£155,150
Face value based on share price at the time of awards were determined on 24 March 2022 (being £0.2755)
Directors’ interests as at 31 December 2022
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 2022 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
2022
Beneficially
owned shares as
at the date of this
report
Awards subject
to performance
conditions as
at 31 December
20221,2
Awards subject
to Option Price
120 pence as at
31 December
2022
Awards subject
to service
conditions as at 31
December 20221
Executive
J Brown 3
S Rivett3
Non-Executive
J Martin
M Daryabegui
G Green
L Mitchell2
200%
200%
–
–
–
–
No
No
–
–
–
–
1,841,587
1,894,593
66,293
74,188
6,150,711
3,209,763
–
90,000
563,157
136,842
237,000
36,757
95,000
51,958
237,000
36,757
95,000
51,958
–
–
–
–
–
–
–
–
–
–
–
–
1) Figures include accrued dividend equivalents.
2) These shares are held by Alexander Barblett (husband of Lisa Mitchell), and a closely associated person to Lisa Mitchell.
3) At the date of this report, J Brown and S Rivett are yet to reach the 200% shareholding requirement.
141
Pharos Energy Annual Report and Accounts 2022
DIRECTORS’ REMUNERATION COMMITTEE REPORT - CONTINUED
While the Executive Directors, as potential beneficiaries, are technically deemed to have an interest in all ordinary shares held by the
Company’s 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 2022 other than as set out above and as described
in the notes to the table above.
Share awards outstanding at 31 December 2022
J Brown4,5,6
S Rivet 2,5,6,8
Type of
award7
As at 1 Jan
2022
Granted/
awarded
Adjusted1
Lapsed3
Released4
As at 31 Dec
2022
Date
potentially
vested 4,5
Expiry date
LTIP
LTIP
LTIP
LTIP
DSBP
DSBP
DSBP
LTIP
LTIP
LTIP
LTIP
DSOP
DSOP
DSBP
1,417,797
1,550,855
1,550,855
–
–
–
–
3,049,001
235,469
202,702
–
–
–
563,157
496,229
267,779
909,317
–
–
–
–
2,032,667
25,000
65,000
–
–
–
136,842
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,417,797
–
–
–
–
–
–
496,229
–
–
–
–
–
–
–
–
–
–
–
–
–
1,550,855
1,550,855
3,049,001
12.05.23
12.05.30
06.10.24
06.10.31
25.03.25
25.03.32
235,469
202,702
–
–
03.01.21
09.01.22
–
–
–
–
–
–
–
–
–
–
563,157
25.03.24
25.03.32
–
267,779
909,317
–
–
12.05.23
12.05.30
06.10.24
06.10.31
2,032,667
25.03.25
25.03.32
25,000
65,000
31.05.19
31.05.26
31.05.19
31.05.26
136,842
25.03.24 25.03.32
1) Outstanding awards under the Company’s share schemes were adjusted for dividend equivalents in accordance with plan rules (see Note 31 to the Financial
Statements).
2) LTIP awards granted in 2020 and 2021 vest subject to Pharos’s relative TSR performance against a group of comparator companies and subject to a further
holding requirement. The performance measures for the 2022 LTIP are set out on pages 140 and 141. DSBP awards vest subject to continued service over
a two-year vesting period. S Rivett’s 2020 LTIP award prior to being appointed to the Board is not subject to TSR performance, but is instead based on
continuous employment and effective performance ratings for the vesting period.
3) LTIP awards with a potential vest date of 7 March 2022 did not achieve the performance threshold and lapsed.
4) DSBP Awards granted in 2020 to J Brown were structured as conditional awards.
5) DSBP Awards granted in 2019 and 2022 to J Brown and to S Rivett in 2022 were structured as nil-cost options.
6) LTIP Awards to J Brown and S Rivett were structured as nil cost options.
7) LTIP awards vest at 25% when the threshold is met.
8) DSOP awards have an exercise price of 120 pence and do not have any performance conditions.
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.
As originally announced on 13 January 2022, Ed Story and Dr Mike Watts stepped down from the Board following completion of the
farm-out of the Egyptian assets to IPR in March 2022. Ed Story has remained employed as President of the Vietnam business and
remuneration arrangements have been adjusted to reflect this role.
Dr Mike Watts has continued to work for the Company and be paid base salary (on a pre-waiver level), benefits and pension provision for
his contractual notice period, which expires on 21 March 2023. He remained eligible for a bonus in relation to 2022 for the period actively
worked. The bonus outcome for his period as a director is set out on page 136. He was not eligible for any 2022 LTIP awards and he
will be treated as a good leaver for the purposes of his outstanding LTIP awards, which shall remain subject to the original performance
conditions and time pro-rating. He remains subject to the post-cessation shareholding requirement whereby he 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). The vesting and
release of these awards will be set out in the respective Directors’ Remuneration Report.
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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 2020 LTIP
award. Note that this does not represent the time period against which performance is assessed under the LTIP is assessed in relation to
the performance period ending in May 2023.
200
180
160
140
120
100
80
60
40
20
0
Pharos Energy FTSE All Share Oil & Gas TSR Comparator Group
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
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
2,551
2,959
2,325
1,632
1,716
1,829
1,567
669
894
909
2013
2014
2015
2016
2017
2018
2019
2020
2021
20222
Annual bonus pay-out (% of maximum)
100%
80%
75%
35%
65% 105%
50%
LTIP vesting (% of maximum)
66% 100%
96%
46%
0%
0%
0%
0%
0%
58%
66%
0%
0%
1) The current year average exchange rate for 2022 has been applied to convert US dollars to GB dollars for all periods to ensure consistency between periods.
2) 2022 includes the total remuneration of Ed Story for 1 January 2022 to 22 March 2022, reflecting the period he served on the Board as CEO. Jann Brown’s
total remuneration is then presented for the period 23 March 2023 to 31 December 2022.
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Pharos Energy Annual Report and Accounts 2022 DIRECTORS’ REMUNERATION COMMITTEE REPORT - CONTINUED
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
(2022/2021)3
% change in
salary
(2021/2020)3
% change in
salary
(2020/2019)
% change in
benefits
(2022/2021)
% change in
benefits
(2021/2020)
% change in
benefits
(2020/2019)
E Story2
M Watts2
J Brown
S Rivett4
J Martin
M Daryabegui
R Gray
L Mitchell
G Green
All other employees
N/A
N/A
35.1%
N/A
26.7%
26.7%
N/A
26.7%
40.6%
29.5%
-32.1%
-32.1%
-32.1%
N/A
N/A
-10.0%
-11.2%
N/A
N/A
7.0%
-39.9%
-5.9%
-5.9%
N/A
N/A
5.2%
-16.7%
N/A
N/A
N/A
N/A
-0.8%
N/A
N/A
N/A
N/A
N/A
100.0%
-67.8%
26.4%
5.5%
N/A
N/A
N/A
4.4%
4.5%
3.3%
N/A
N/A
N/A
-100.0%
-31.1%
N/A
N/A
N/A
N/A
% change
in annual
bonus
(2022/2021)
% change
in annual
bonus
(2021/2020)1
% change
inannual
bonus
(2020/2019)
N/A
N/A
100.0%
-100.0%
100.0%
-100.0%
-5.4%
100.0%
-100.0%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
-4.4%
15.5%
-25.8%
10.0%
24.1%
100%
-100.0%
1) Bonuses are normally awarded in respect of the calendar year. No bonuses were awarded in relation to 2020.
2) E Story and M Watts resigned from the Board on 23 March 2022.
3) The figures detailed above reflect the salary reductions that have been taken by the Directors. The Executive Directors took a reduction of 35% of their
salaries for the first quarter of 2021 and then further reduced this by another 15% (to a total reduction of 50%) from 1 April 2021 for the Executive Directors
in office at that date. These reductions stayed in place for the remainder of 2021 and through to 20 March 2022. The Chair, who had reduced his fee by 25%
on assuming the role in March 2020, also took an additional 25% reduction along with the other Non-Executive Directors from 1 May 2021 which continued
through the full year 2021 and up until 20 March 2022.
4) S Rivett was appointed to the Board on 1 July 2021.
Chief Executive Officer’s pay ratio
The Company currently has 17 UK employees and therefore has no statutory requirement to publish a CEO pay ratio. Given the relatively
few employees, the Committee is aware of pay levels and does not feel the need to produce a ratio. 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.
Shareholder Distribution ($m)
0
0
Wages and Salaries ($m)
2022
2021
11.6
14.3
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:
• Jann Brown serves on the boards of Troy Income and Growth Trust and RHI Magnesita, for which she retained associated fees for
2022 in the amounts of £1,538 (2021: £28,625) and €97,977 (2021: €52,566) respectively; and
• Ed Story served on the boards of Vedanta Resources PLC and Essar Exploration and Production Limited Mauritius in 2021, for which
he retained associated fees in the amounts of $35,932 and $23,757 respectively. Ed did not receive any associated fees for the
period 1 January 2022 to 23 March 2022, when he resigned from the Board.
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Implementation for 2023
Base salary
The following table shows the Executive Director base contractual salary levels.
2023 Base salary 000s
2022 Base salary 000s
Increase from 2022 %
J Brown
S Rivett
£420
£280
£420 (reduced on 21 March 2022 from her pre-waiver salary of £535)
£280 (increased on 21 March 2022 from £260)
0%
0%
There will be no salary increases for the Executive Directors for 2023. The average salary increase across the workforce is 10%. Jann
voluntarily invests a third of her after tax salary into buying shares in the Company, subject to share dealing restrictions. Furthermore,
Sue Rivett voluntarily invests an after tax salary equivalent to £20,000 gross pay into buying shares, subject to the same share dealing
restrictions.
Benefits
For 2023, benefits available to Executive Directors will be consistent with those set out in the Directors’ Remuneration Policy to be
approved at the 2023 AGM.
Pension
For 2023, a pension benefit at 15% of salary will be provided to each Executive Director through contributions to the Company’s 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).
Annual bonus
It is intended that annual bonus awards will be considered for Executive Directors in December 2023. 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 2023, and identifies the link from each of these measures to our core strategy of:
2023 KPI’s
Metric
Weight
Performance criteria which will be considered
Safety & environment / Sustainability
27%
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.
• Zero LTIs
• TRIR target
• Zero environment spills
• Crisis response training
• Publication of Net Zero roadmap
• Carbon footprint improvements / GHG emissions lower than baseline
2020
• TCFD compliance
• Social investment plan implemented
Operational & Business Plan
38%
Strategic objectives: to replace produced reserves
and add to the reserve base in a way which value
and/or cashflow accretive.
• Production volumes for all producing assets
• Operational uptime
• Achieve agreed work plan
• Secure licence extensions
• Secure funding partner for 125
Financial & Capital Structure
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.
• Underlying Operating Costs
• All bank covenants met
• Reduce debtor days
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Pharos Energy Annual Report and Accounts 2022 DIRECTORS’ REMUNERATION COMMITTEE REPORT - CONTINUED
Metric
Weight
Performance criteria which will be considered
Culture & Governance
5%
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.
• Training and development
• Key policy compliance
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
The LTIP grant level for 2020 and 2021 was reduced substantially and the Committee will take this and all other relevant circumstances
into account in considering the appropriate grant level for 2023.
The performance conditions for the 2023 awards are expected to be a mixed weighting as follows: of TSR (35%) relative and (20%)
absolute and 15% weighting to each of cash flow from operations, return on capital employed, and emission reduction targets
Metric
TSR – Relative
TSR – Absolute
Achieve 20% growth over the 3 year period, sliding scale to 30% for the full 15%
Weight
Targets
35%
Median to Upper Quartile ranking
20%
20% to 30%
ESG medium term measures (base 2022)
Achieve 10% reduction over a 3 year period, sliding scale to 15% for the full 15%.
15%
10% to 15% reduction in emissions.
Cash flow from operations
Achieve $150m cash flow from operations over the 3 year period, sliding scale to
$200m for the full 15%
15%
$150m to $200m
Return on Capital Employed
Achieve over 6% average per year for the 3 year period, sliding scale to 10% for
the full 15%
15%
6% to 10%
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.
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DIRECTORS’ REMUNERATION COMMITTEE 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:
Fee from 1 January 2023
Fee from 1 January 2022
Chair of the Company
Deputy Chair & Senior Independent Director1,2
Non-Executive Director
Additional fee: Senior Independent Director3
Additional fee: Chair of Audit and Risk Committee
Additional fee: Chair of Remuneration Committee
Additional fee: Workforce Engagement Nominated Director
1) Includes fees for any Committee role
£150,000
–
£60,000
£12,500
£15,000
£15,000
£5,000
£150,000
£120,000
£60,000
-
£15,000
£15,000
£5,000
2) Shows fees for the combined role of Deputy Chair and Senior Independent Director to 19 May 2022 - the role of Deputy Chair was not continued following
Rob Gray stepping down from the Board on this date.
3) Geoffrey Green was appointed to the role of Senior Independent Director on 19 May 2022 and the additional fees for this are shown in the table.
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 2023, benefits available to Non-Executive Directors will be consistent with those set out in the Policy approved at the 2023 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 157)
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 (until 19 May 2022), Marianne Daryabegui, Lisa Mitchell (from 15 March 2022) and Geoffrey Green as
Remuneration Committee Chair.
The Committee received assistance from Jann Brown and Sue Rivett, 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 £23,702 were paid in
2022 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 most recent binding resolution on the Directors’ Remuneration Policy was passed at 2020 AGM. The advisory vote on the Directors’
Remuneration Report was approved at last years’ AGM. The table below shows votes from shareholders on the relevant resolutions:
Directors’ Remuneration Report (2022 AGM)
Directors’ Remuneration Policy (2020 AGM)
Votes
266,253,779
7,810,866
274,064,645
41,368
%
97.15%
2.85%
100.00%
–
Votes
217,778,159
17,354,025
235,132,184
3,773
%
92.62%
7.38%
100.00%
–
Votes in favour
Votes against
Total votes
Votes withheld
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Policy Report
This Remuneration Policy will be effective from the date of the 2023 AGM, subject to shareholder approval at that meeting.
The Policy is intended to apply for a period of three years. 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.
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 considering
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
Risk
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
• The proposed Policy has a clear
• Relevant individual and plan limits
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 current 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
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
Simplicity
Predictability
• 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
• 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
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Policy table for Executive Directors
The table below summarises our Policy for each component of Executive Directors’ Remuneration:
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
Any salary adjustments will normally be in line
with those of the wider workforce.
N/A
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 previous CEO’s
unadjusted salary of $924,000.
Contractual fixed cash amount paid monthly.
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
Performance criteria
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).
N/A
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.
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 which remains
aligned with the wider workforce.
N/A
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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
150% of base salary per annum, including
cash and deferred components at the
discretion of the Committee.
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.
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.
LTIP
Purpose and link to strategy
•
Incentivises and rewards for the Company’s strategic plan of building shareholder value
Operation
Maximum
Performance criteria
Usually 200% of base salary per annum.
Typically a conditional award of shares or a
nil price option is made annually, normally
in March/April, following the year end close
period.
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).
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, or
strategic 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.
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Shareholding guidelines
Purpose and link to strategy
• Further increases alignment between Executive Directors and shareholders.
Operation
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 a two year 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.
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
151
Maximum
N/A
Performance criteria
N/A
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
appropriate, be the subject of consultation
with the Company’s major shareholders.
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.
Pharos Energy Annual Report and Accounts 2022 DIRECTORS’ REMUNERATION COMMITTEE REPORT - CONTINUED
Illustration of Policy
The charts below show the illustration of Policy
Total Fixed Remuneration
Annual Bonus
PSP
Share Price Growth
£3,000
£2,500
£2,000
0
0
0
’
£
£1,500
£1,000
£500
£0
£2,413
17%
£1,993
42%
35%
32%
26%
£1,048
20%
30%
£523
100%
50%
26%
22%
Min
Target
Max
CEO
Max with
growth
£1,586
18%
£1,306
43%
35%
£676
21%
31%
48%
Target
£326
100%
Min
32%
26%
25%
Max
21%
Max with
growth
CFO
Levels of performance
Assumptions
Performance criteria
Fixed pay
All scenarios
• Benefits – £9,000 car allowance received by each Director
• Total fixed pay comprises base salary, benefits and pension
• Base salary – effective as at 1 January 2023
• Pension – 15% of salary, the benefit currently set for all Executive
Directors
Variable pay
Minimum performance
• No payout under the annual bonus and no vesting under the LTIP
Performance in line with
expectations
• 50% of the maximum payout under the annual bonus
(i.e. 75% of salary)
• 25% vesting under the LTIP (i.e. 50% of salary)
Maximum performance
salary)
• 100% of maximum payout under the annual bonus (i.e. 150% of
• 100% of maximum vesting under the LTIP (i.e. 200% of salary)
Maximum performance
with growth
• As above but with 50% share price growth assumed on the LTIP
vesting
152
Pharos Energy Annual Report and Accounts 2022Financial StatementsAdditional InformationStrategic ReportGovernance Report DIRECTORS’ REMUNERATION COMMITTEE REPORT - CONTINUED
• 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
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.
Policy table for Non-Executive Directors
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.
Recruitment 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
Directors’ 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
153
Pharos Energy Annual Report and Accounts 2022 DIRECTORS’ REMUNERATION COMMITTEE REPORT - CONTINUED
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
• Awards will normally lapse in full
(unless otherwise determined by
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)
Deferred
bonus
LTIP and share
option plan
• Death
• Awards will usually vest on the normal
•
Ill-health, injury or
disability
• Redundancy
• Retirement with
agreement of the
employer
• Any other reason
as determined at
the discretion of the
Committee
• Death
•
Ill-health, injury or
disability
• Redundancy
• Retirement with
agreement of the
employer
• Any other reason
as determined at
the discretion of the
Committee
vesting date
• The Committee retains the discretion
to accelerate vesting so that awards
vest as soon as practicable following
cessation
• 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
154
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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.
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.
GEOFFREY GREEN
Remuneration Committee Chair
21 March 2023
Consideration of pay and
employment conditions elsewhere
in Pharos and differences in
Directors’ Remuneration Policy
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 LTIP scheme.
The Committee does not formally consult
with employees when formulating the
Directors’ Remuneration Policy, 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.
155
Pharos Energy Annual Report and Accounts 2022 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 2022.
The following sections of this report are incorporated herein by
reference and form part of this Directors’ report.
Strategic report
Board of Directors
UK Corporate Governance report
ESG Committee report
Nominations Committee report
Audit and Risk Committee report
Directors’ Remuneration report
Financial Statements
Additional Information
Page(s)
2-107
113-114
115-121
122-124
125-126
127-133
134-155
171-202
203-211
Developments during the 2022 reporting period
An indication of the likely future developments in the business of
the Group is included in the Strategic Report on pages 2 to 107.
On 13 January 2022, the Company announced Directorate
Changes as mentioned in Chair’s Introduction to Governance on
pages 109 to 110.
On 19 January 2022, the Third Amendment to the El Fayum
Concession Agreement was signed by His Excellency Eng. Tarek
El Molla (Minister of Petroleum & Mineral Resources of the Arab
Republic of Egypt), EGPC and the Company. Signature of the
Third Amendment was a key Condition Precedent for the transfer
of a 55% participating interest (and operatorship) in the El Fayum
and North Beni Suef Concessions to IPR Lake Qarun. The net
assets of El Fayum and North Beni Suef associated with the 55%
participating interest have been reclassified as assets held for sale
at 31 December 2021.
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 waive its rights to recover a portion of the past costs pool
($115 million) and reduce its share of Excess Cost Recovery
Petroleum from 15% to 7.5%. While in full cost recovery mode,
Contractor’s share of revenue increases from 42.6% to 50.8% as
from November 2020 (corresponding to additional net revenues to
Contractor of $7.0m to the date of signature).
Assuming conditions at 31 December 2021, the discounted
cash flows from the remaining 45% share held and calculated for
impairment purposes would increase from $49.2m to $77.4m.
Dividends
After a period of dividend suspension, in 2023, the Company
plans to recommence regular dividend payments, the first to be
a proposed final dividend for the financial year to 31 December
2022, based on 2022 Operating Cash Flow.
The Board has recommended a final dividend of 1 pence per
Ordinary Share, which amounts to approximately $53.4m and
which, if approved at the 2023 Annual General Meeting (“AGM”),
will be paid on 12 July 2023 to shareholders on the register at the
close of business on 16 June 2023. Total dividends for the year
therefore amount to 1 pence per Ordinary Share.
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 up to the
date of signing this Annual Report, 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 by either party on notice at any time.
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 2023 AGM and,
being eligible, offer themselves for reappointment. Relevant details
of the Directors, which include their Committee memberships, are
set out in the section headed ‘Board of Directors’ on pages 113
to 114.
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 134.
156
Pharos Energy Annual Report and Accounts 2022Financial StatementsAdditional InformationStrategic ReportGovernance Report 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
2023 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 the
recently updated Statement of Principles published by the Pre-
Emption Group in November 2022 (the “Pre-Emption Principles”).
The authority sought for disapplication of pre-emption rights will
be in two parts: (a) 10% of the issued ordinary share capital, which
may be issued on an unrestricted basis; and (b) an additional
10%, which may be used in connection with an acquisition, or a
specified capital investment, in either case announced with the
issue or which has taken place in the preceding 12 months and
is disclosed in the announcement. In addition, both legs of the
disapplication resolution will seek up to a further 2% authority (4%
in total) to disapply pre-emption rights in making ‘follow-on’ offers
to retail investors and existing shareholders who are not allocated
shares as part of the placing. Further information regarding
these resolutions, which are based on the template resolutions
published by the Pre-Emption Group, is set out in the circular to
shareholders containing the notice of the AGM. A resolution will
also be proposed at the 2023 AGM, as is 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.
DIRECTORS’ REPORT - CONTINUED
Table A: Directors holding office during 2022 and up to the
date of signing of this report
Director
John Martin - Chair*
Jann Brown
Chief Executive Officer (following
completion of the transaction
with IPR)
Date of contract
23 August 2021
6 December 2017
Sue Rivett, Chief Financial Officer
21 September 2021
Marianne Daryabegui *
Geoffrey Green*
Lisa Mitchell*
Edward Story
President and Chief Executive Officer
(retired from Board March 2022)
Mike Watts
Managing Director (retired from Board
March 2022)
Rob Gray*
Deputy Chair and Senior Independent
Director (retired from Board May 2022)
15 March 2019
16 April 2020
10 March 2020
14 May 1997
6 December 2017
9 December 2013
* Denotes those determined by the Board to be Independent
Non-Executive Directors as described in the Corporate
Governance report on page 111. The Chair was determined to
be independent on appointment.
Contributions
The Group’s policies prohibit political donations.
AGM
An explanation of the resolutions to be proposed at the 2023
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 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 EBT are not exercised. The Articles
may only be amended by a special resolution of the shareholders.
157
Pharos Energy Annual Report and Accounts 2022 DIRECTORS’ REPORT - CONTINUED
Auditor
A resolution to reappoint Deloitte LLP as the Company’s auditor
will be proposed by the Directors at the 2023 AGM. Deloitte also
provide non-audit services to the Group, and details of the non-
audit services provided in the year to 31 December 2022 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 and
Risk Committee Report on pages 127 to 133.
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 and
the Energy and Carbon Report Regulations 2018, is included in
the Corporate Responsibility report on pages 71 to 76.
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 47 to 60 details
how we manage and mitigate these risks.
Substantial shareholdings
As at the date of this report, 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
As at the date of this report, the Company had been notified, in accordance with Chapter 5 of the Disclosure and Transparency Rules, or
is aware of, the voting rights as a shareholder of the Company shown in Table B of this report.
No of Ordinary Shares held
as % of voting rights1
Nature of holding
Aberforth Partners LLP
Ettore Contini
Blue Albacore Business Ltd
Bradley Radoff 2
Lombard Odier Asset Management (Europe) Limited
Globe Deals Ltd
Chemsa Ltd
Yorktown Energy Partners VII, LP
Ed Story
33,311,989
32,613,577
31,617,359
30,275,000
30,220,530
27,444,382
24,426,925
19,726,495
16,271,613
7.72
7.56
7.32
7.01
7.00
6.36
5.66
4.57
3.77
Direct
Direct and indirect
Direct
Direct
Direct
Direct
Direct
Direct
Direct and indirect
1) As at 21 March 2023, the total voting rights attached to the issued share capital of the Company comprised 440,795,126 Ordinary shares each of £0.05
nominal value, being 431,672,858 Ordinary shares in issue less 9,122,268 Ordinary shares currently held in treasury.
2) As at 31 December 2022: Bradley Radoff held 21,850,000 Shares representing 5.029% of the voting rights in the Company at that time.
During the period between 31 December 2022 and the date of this report, the Company did not receive any notifications under chapter
5 of the Disclosure and Transparency Rules indicating a different whole percentage holding than as at 31 December 2022 other than as
shown in the footnotes to the table above. For further information on Directors’ interests, please see page 141.
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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.
Directors’
Remuneration Report
pages 134 to 155
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.
No such waivers
No such share
allotments
Note 35 page 199
Note 29 page 196
Whistleblowing procedure
The Board has reviewed, and is satisfied with, the Group’s
Whistleblowing Policy and associated procedures, 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 a dedicated,
confidential and anonymous 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.
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 2 to
107 including the Going Concern section of the Chief Financial
Officer’s statement on pages 39 to 46, they continue to adopt the
going concern basis in preparing the accounts.
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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 171 to 202, 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 47 to 60; 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.
SUE RIVETT
Chief Financial Officer
21 March 2023
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Statements
Independent Auditor’s Report
Consolidated Financial Statements
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Balance Sheets
Statements of Changes in Equity
Cash Flow Statements
Notes to the Consolidated Financial Statements
162
171
171
171
172
173
174
175
161
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Pharos Energy Annual Report and Accounts 2022 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PHAROS ENERGY PLC
Report on the audit of the financial statements
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. The
non-audit services provided to the group and parent company
for the year are disclosed in note 10 to the financial statements.
We confirm that we have not provided any non-audit services
prohibited by the FRC’s Ethical Standard 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.
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 2022 and of the group’s profit for the year
then ended;
• the group financial statements have been properly
prepared in accordance with United Kingdom
adopted international accounting standards and
International Financial Reporting Standards (IFRSs)
as issued by the International Standards Board
(IASB);
• the parent company financial statements have
been properly prepared in accordance with
United Kingdom adopted international accounting
standards and as applied in accordance with the
provisions 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 cash flow statement; and
• the related notes 1 to 37.
The financial reporting framework that has been applied in their
preparation is applicable law and United Kingdom adopted
international accounting standards and IFRSs 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 United Kingdom adopted international
accounting standards and as applied in accordance with the
provisions of the Companies Act 2006.
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3. Summary of our audit approach
Key audit matters
The key audit matter that we identified in the current year was:
•
Impairment and impairment reversal of producing oil & gas assets
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 $3.4m which was determined on
the basis of 4% of 3-year average earnings from continuing activities before interest, tax, Depreciation,
Depletion & Amortisation “DD&A”, impairment of Property, Plant & Equipment “PP&E “and intangibles,
exploration other/expenditure and Other/restructuring expense “EBITDAX”.
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, 100% of the group’s revenue and 100% of the group’s profit before
tax from loss making entities.
Significant changes in
our approach
No 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 included:
• 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 and 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 publicly 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
reserve based lending (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 (after
considering hedging arrangements) 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.
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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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 and impairment reversal of producing oil and gas assets
Key audit matter
description
The value of property, plant and equipment relating to the group’s producing oil and gas assets as at
31 December 2022 was $381.3 million (2021: $399.4 million). Impairment and impairment reversal
of producing oil & gas assets is considered a key audit matter due to the significant judgements and
estimates involved in assessing whether any impairment charges or reversals have arisen at year-
end, and in quantifying any such impairment charges or reversals. 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 oil and gas 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.
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 volatility in oil prices in 2022 compared to 2021, Management revised their oil price
assumptions upwards during 2022 compared to the prior year assumptions, as set out in note 16 of
the financial statements. Given the significance of the revision, together with changes to estimates
of oil and gas reserves and the changes in discount rates resulting from the current economic
uncertainty, Management concluded that there were indicators of impairment reversals for all three
of those fields. Management have estimated the recoverable amount of each field, being its Value-in-
Use “VIU”, and compared this to its balance sheet carrying amount.
Management recorded pre-tax impairment reversal of $3.6 million on CNV (2021: $3.8 million), pre-
tax impairment reversal of $19.7 million on TGT (2021: $49.1 million) and pre-tax impairment reversal
of $3.8 million on El Fayum (2021: $1.7 million).
Management’s recoverable amount estimates were based on key assumptions which included:
• oil price forecasts, being $88.3/bbl in 2023, $84.8/bbl in 2024, $79.4/bbl in 2025, $74.5/bbl in
2026 plus inflation of 2% thereafter;
• reserves estimates and production profiles; and,
• post-tax nominal discount rates of 13.3% for TGT and CNV, and 15.9% for El Fayum
For the purpose of Impairment of producing oil & gas assets, management is required under IAS 36
to apply its current “best estimate” of future oil prices.
In relation to reserves estimates and production profiles, 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(b) to the financial statements.
As referenced in note 4(b) 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 127 to 133. The disclosures in note 16 include the sensitivity of the impairment reversals to
changes in key assumptions, including the impact to reach net zero by 2050 (the “Net Zero price
scenario”).
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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
relevant controls related to the valuation of each producing oil and gas asset. We evaluated management’s
assessment of whether or not impairment reversals or charges indicators were present in respect of each
producing oil and gas asset, and thus the completeness of management’s impairment tests.
Where indicators were identified, we assessed the methods and models used for consistency with the
requirements of IAS 36 “Impairment of Assets”.
We evaluated the key assumptions made by management in the measurement of recoverable amounts by
performing the following substantive procedures:
Oil Prices:
We assessed group’s forecast oil price assumptions by:
•
Independently developing a reasonable range of forecasts based on a variety of reputable external
forecasts, peer information and market data, against which we compared the group’s future oil price
assumptions in order to challenge whether they are reasonable;
•
In developing our range, we also considered a certain scenario that was described as focussed on the
risk of climate change which aligns with the goals to limit temperature rises to well below 2°C; and
• We assessed management’s current ‘best estimate’ of future oil prices including consideration of third
party forecasts under scenarios that we interpreted to be consistent with this measurement objective.
Reserve estimates and production profiles:
Through working with our internal oil and gas reserve specialists, 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 external third party
reserve experts;
• Assessed the competence, capability and objectivity of the company’s internal and external third party
reserve experts, through obtaining their relevant professional qualifications and experience;
• Reviewed the external 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;
• Communicated directly with the external third party reserves experts to discuss their scope of work and
assess their methodologies used and outputs;
• Compared the production forecasts used in the impairment tests with management’s approved reserves
and resources estimates;
• Assessed the cash flow forecasts to determine the significant assumptions to which the impairment
outcome was most sensitive;
• Substantively tested the hydrocarbon production and cost forecasts used in the impairment tests,
including challenging the significant assumptions;
• Compared the production and cost forecasts with similar forecasts from the prior year and challenged
significant changes;
• Assessed the reasonableness of the production and cost forecasts relative to each other;
• Performed a retrospective review to check for indications of estimation bias over time; and
• Where relevant, assessed the company’s historical forecasting accuracy and whether the estimates had
been determined and applied on a consistent basis.
Discount rates:
We assessed the Group’s discount rates by working with our internal valuation specialists to develop
independent range estimates using independent third party information for TGT, CNV and El-Fayum and
comparing those assumptions to management’s assumptions.
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 whether the Group’s 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.
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Key observations
Oil Prices
We observed that throughout, the Group’s oil price assumptions sit within our reasonable range,
albeit towards the higher end. Accordingly, we found the Group’s oil price assumptions to be within
our reasonable range, and therefore we determined that the Group’s “best estimate” oil price
assumptions are reasonable.
We also observe that the forecast oil price assumptions aligned with the Paris goals to be lower than
the Group’s oil price assumptions. The disclosures in note 16 to the financial statements includes the
impact of adopting an oil price described as being compliant with achieving the Paris agreement goal
to limit temperature rises to well below 2°C (“Paris 2°C Goal”).
Reserves estimates and production profiles:
We found that the reserves estimates and production profiles used in the impairment tests to have
been appropriately prepared, and found the underlying assumptions we tested to be reasonable.
Discount rates:
The Group’s discount rate used for impairment testing, was materially consistent with our
independent range estimates and therefore considered appropriate.
Other procedures:
We concluded that the impairment reversals 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.
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
$3.4m (2021: $3.2m)
$3m (2021: $2.8m)
Basis for
determining
materiality
Rationale for
the benchmark
applied
4% of the 3-year average of EBITDAX (2021: 4% of
the 3-year average of EBITDAX)
We consider a 3-year average of EBITDAX as the
most relevant benchmark given the volatility in oil
prices, the majority of the group’s oil & gas assets
are now at the producing stage and the group
is in its second full year of operations in Egypt.
This reflects the group’s performance, noting that
EBITDAX is also an input to one of the covenants
under the group’s Reserve Based Lending facility.
Parent company materiality equates to 1.5% of net
assets, which is capped at 90% of group materiality
(2021: 1.5% of net assets capped at 90% of group
materiality)
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.
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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.
Group financial statements
Parent company financial statements
Performance
materiality
Basis and
rationale for
determining
performance
materiality
70% (2021: 70%) of group materiality
70% (2021: 70%) of parent company materiality
In determining 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; and
d) 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 Committee that we would report to the Committee all audit differences in excess of $0.17 million (2021: $0.16
million), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the
Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.
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 100% (2021: 100%) of the group’s total assets,
100% (2021: 100%) of the group’s revenue and 100% (2021:
100%) of the group’s profit before tax.
The Vietnamese component materiality was $2.1 million (2021:
$2.0 million) and the Egyptian component materiality was $1.2
million (2021: $1.1 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.
7.2. Our consideration of the control environment
Reflecting the non-complex controls environment, we did not
plan to take a controls reliance approach over financial or IT
controls in the current year and we therefore adopted a non-
controls reliance approach for our testing. We understood both
the IT and financial control environment, and considered the
design and implementation of controls over key audit matters set
out in section 5.1 above along with revenue and management
override of controls to assist and inform the fully substantive audit
approach adopted. The Group’s consideration of controls is set
out in the section ‘Internal controls and risk management systems’
on page 129 in the Audit, Risk and Internal Control Committee
report of the 2022 Annual Report
167
7.3. Our consideration of climate-related risks
Climate change is considered a principal risk to the Group and
its business by Management. Further details are disclosed in
the Strategic report of the 2022 Annual Report pages 2 to 107.
Through our audit procedures, we:
• Obtained an understanding of management’s process for
considering the impact of climate-related risks and relevant
controls through enquiries performed with the Audit &
Risk committee, enquiries and observations of relevant
documentation with the ESG committee as well as regular
meetings with management;
• To assess the completeness of climate related risks identified
by management, we read the minutes of meeting of the ESG
committee and specifically inquired management of any
climate-related litigations or claims involving the group.
• As disclosed in note 4(b) to the financial statements,
Management identified that the group’s producing oil &
gas properties are short-term in nature are likely to be fully
depreciated within 12 years, during which timeframe it is
expected that global demand for oil will remain robust.
Therefore, due to the relatively short-time frame, Management
concluded that the impact of climate change on the group’s
oil & gas properties depletion, economic useful lives and
decommissioning not to be material. Management further
identified that the impact of climate change on the group’s
Exploration & Evaluation assets is similar to the group’s
producing oil & gas properties, but the potential longevity
of those assets has not yet been determined for further
consideration. Accordingly, the related risk of material
misstatement that we have identified for our audit is the
forecast oil assumptions used in the fair value estimates of
group’s producing oil & gas properties may not appropriately
reflect changes in supply and demand, or policy changes such
as carbon tax/pricing due to climate change and the energy
transition (see the key audit matter in section ‘5.1 Impairment
of producing oil & gas assets’ above).
Pharos Energy Annual Report and Accounts 2022 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PHAROS ENERGY PLC - CONTINUED
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.
In order to address the risk identified, we performed the following
procedures:
• With the involvement of our climate change specialists, we
read the climate change related disclosures presented in
the Strategic Report to consider whether they are materially
consistent with the financial statements and our knowledge
obtained in the audit, including the disclosure of sensitivities
showing the impact on impairment of producing oil & gas
assets included in note 16 of the financial statements. We
also evaluated management’s Task Force on Climate-Related
Disclosures in line with the latest guidance, and;
• We challenged management’s forecast oil price assumptions
to assess whether they are reasonable and present
management’s current ‘best estimate’ in accordance with
IAS 36 (see the key audit matter in section ‘5.1 Impairment of
producing oil & gas assets’ above).
7.4. 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, 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.
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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.
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;
• results of our enquiries of management, the directors and the
audit committee about their own identification and assessment
of the risks of irregularities including those that are specific to
the group’s sector;
•
• 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, valuations, and reserves
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 and impairment reversal 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
frameworks 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, 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 licence and environmental regulations.
169
11.2. Audit response to risks identified
As a result of performing the above, we identified impairment and
impairment reversal 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 committee and risk
committee and in-house 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
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.
Pharos Energy Annual Report and Accounts 2022 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PHAROS ENERGY PLC - CONTINUED
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.
14.2. Directors’ remuneration
Under the Companies Act 2006 we are also required to report if
in our opinion certain disclosures of directors’ remuneration have
not been made or the part of the directors’ remuneration report to
be audited is not in agreement with the accounting records and
returns.
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 (as set out on page 118);
• 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
page 118);
• the directors’ statement on fair, balanced and
understandable (set out on page 118);
• the board’s confirmation that it has carried out a
robust assessment of the emerging and principal
risks (set out on page 119);
• the section of the annual report that describes the
review of effectiveness of risk management and
internal control systems (set out on page 119); and
• the section describing the work of the audit
committee (set out on page 127).
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.
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 committee, we
were appointed by directors on 01 August 2002 to audit the
financial statements for the year ending 31 December 2023 and
subsequent financial periods. The period of total uninterrupted
engagement including previous renewals and reappointments of
the firm is 21 years, covering the years ending 31 December 2002
to 31 December 2022.
15.2. Consistency of the audit report with the
additional report to the audit committee
Our audit opinion is consistent with the additional report to the
audit 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.
As required by the Financial Conduct Authority (FCA) Disclosure
Guidance and Transparency Rule (DTR) 4.1.14R, these financial
statements form part of the European Single Electronic Format
(ESEF) prepared Annual Financial Report filed on the National
Storage Mechanism of the UK FCA in accordance with the ESEF
Regulatory Technical Standard (‘ESEF RTS’). This auditor’s report
provides no assurance over whether the annual financial report
has been prepared using the single electronic format specified in
the ESEF RTS.
ANTHONY MATTHEWS, FCA
(SENIOR STATUTORY AUDITOR)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
21 March 2023
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Consolidated Income Statement
for the year to 31 December 2022
Continuing operations
Revenue
Cost of sales
Gross profit
Administrative expenses
Impairment reversal/(charge) – Intangible assets
Impairment reversal – Property, plant and equipment
Impairment charge – Assets classified as held for sale
Operating profit
Other/restructuring expense
Loss on disposal
Investment revenue
Finance costs
Profit before tax
Income tax charge
Profit/(Loss) for the year
Profit/(Loss) per share (cents)
Basic
Diluted
Notes
2022 $ million
2021 $ million
5, 6
7
6, 15
6, 16
6, 37
8
37
5
9
6
6, 12
30
14
199.1
(116.8)
82.3
(10.0)
0.8
27.1
–
100.2
(0.8)
(6.3)
0.2
(12.7)
80.6
(56.2)
24.4
5.6
5.4
134.1
(114.6)
19.5
(13.2)
(2.2)
54.6
(10.4)
48.3
(3.3)
–
–
(6.4)
38.6
(43.3)
(4.7)
(1.1)
(1.1)
Consolidated Statement of
Comprehensive Income
for the year to 31 December 2022
Profit/(Loss) for the year
Items that may be subsequently reclassified to profit or loss:
Fair value loss arising on hedging instruments during the year
Less: Loss arising on hedging Instruments reclassified to profit or loss
Total comprehensive gain/(loss) for the year
Notes
2022 $ million
2021 $ million
30
25
25
24.4
(4.7)
(18.9)
22.5
28.0
(27.7)
29.7
(2.7)
The above consolidated income statement and consolidated statement of comprehensive income should be read in conjunction with the
accompanying notes.
171
Pharos Energy Annual Report and Accounts 2022 CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Balance Sheets
as at 31 December 2022
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
Assets classified as held for sale
Total assets
Current liabilities
Trade and other payables
Borrowings
Lease liabilities
Tax payable
Liabilities directly associated with assets classified as held for sale
Non-current liabilities
Other payables
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
37
22
24
33
37
22
23
24
33
26
27
27
28
30
Group
Company
2022
$ million
2021
$ million
2022
$ million
2021
$ million
16.5
381.0
0.8
–
–
59.1
457.4
7.2
60.9
2.1
45.3
–
115.5
572.9
(14.0)
(39.6)
(0.3)
(5.2)
–
(59.1)
(0.9)
(92.9)
(34.6)
(0.5)
(54.3)
(183.2)
(242.3)
330.6
34.3
58.0
253.6
(15.3)
330.6
12.4
399.8
–
–
–
48.1
460.3
10.7
28.1
1.5
27.1
62.0
129.4
589.7
(30.6)
(33.3)
–
(5.4)
(8.5)
(77.8)
–
(91.2)
(47.2)
–
(69.1)
(207.5)
(285.3)
304.4
34.9
58.0
250.5
(39.0)
304.4
–
–
–
335.5
23.0
–
358.5
–
0.4
0.1
8.8
–
9.3
–
–
–
278.7
27.4
–
306.1
–
1.4
0.4
5.3
–
7.1
367.8
313.2
(1.9)
–
–
(1.2)
–
(3.1)
–
–
–
–
–
–
(3.1)
364.7
34.3
58.0
199.7
72.7
364.7
(4.3)
–
–
(1.0)
–
(5.3)
–
–
–
–
–
–
(5.3)
307.9
34.9
58.0
202.4
12.6
307.9
The above consolidated balance sheets should be read in conjunction with the accompanying notes.
The profit for the financial year in the accounts of the Company (Co number 3300821) was $60.7m inclusive of dividends from subsidiary
undertakings (2021: $1.9m 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 21 March 2023 and signed on its behalf by:
JOHN MARTIN Chair
SUE RIVETT Director
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CONSOLIDATED FINANCIAL STATEMENTS
Statements of Changes in Equity
for the year to 31 December 2022
Called up
share capital
(see Note 27)
$ million
Share
premium
(see Note 27)
$ million
Other
reserves
(see Note 28)
$ million
Retained
earnings/(deficit)
(see Note 30)
$ million
As at 1 January 2021
Loss for the year
Other comprehensive income
Shares issued
Share-based payments
Notes
30
28
27, 28
28
Transfer relating to share-based payments
28, 30
As at 1 January 2022
Profit for the year
Other comprehensive income
Share buy back
Treasury shares repurchased
Share-based payments
30
28
27, 28
28
28
Transfer relating to share-based payments
28, 30
31.9
55.4
243.0
–
–
3.0
–
–
–
–
2.6
–
–
34.9
58.0
–
–
(0.6)
–
–
–
–
–
–
–
–
–
–
2.0
5.3
2.5
(2.3)
250.5
–
3.6
0.6
(0.6)
1.7
(2.2)
As at 31 December 2022
34.3
58.0
253.6
(36.6)
(4.7)
–
–
–
2.3
(39.0)
24.4
–
(2.9)
–
–
2.2
(15.3)
As at 1 January 2021
Profit for the year
Shares issued
Currency exchange translation differences
Share-based payments
Notes
13, 30
27,28
28,30
28
Transfer relating to share-based payments
28, 30
As at 1 January 2022
Profit for the year
Share buy back
Share-based payments
13, 30
27, 28
28
Transfer relating to share-based payments
28, 30
Called up
share capital
(see Note 27)
$ million
Share
premium
(see Note 27)
$ million
Other
reserves
(see Note 28)
$ million
Retained
earnings/(deficit)
(see Note 30)
$ million
31.9
–
3.0
–
–
–
34.9
–
(0.6)
–
–
55.4
–
2.6
–
–
–
58.0
–
–
–
–
197.6
–
5.3
0.1
2.5
(3.1)
202.4
–
0.6
1.7
(5.0)
199.7
6.9
1.9
–
1.5
–
2.3
12.6
60.7
(2.9)
–
2.3
72.7
As at 31 December 2022
34.3
58.0
The above consolidated statements of changes in equity should be read in conjunction with the accompanying notes.
173
Group
Total
$ million
293.7
(4.7)
2.0
10.9
2.5
–
304.4
24.4
3.6
(2.9)
(0.6)
1.7
–
330.6
Company
Total
$ million
291.8
1.9
10.9
1.6
2.5
(0.8)
307.9
60.7
(2.9)
1.7
(2.7)
364.7
Pharos Energy Annual Report and Accounts 2022
CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Cash Flow Statements
for the year to 31 December 2022
Notes
32
2022
$ million
53.4
Group
2021
$ million
10.8
2022
$ million
(11.6)
Company
2021
$ million
(7.1)
Net cash from (used in) operating activities
Investing activities
Purchase of intangible assets
Purchase of property, plant and equipment
Payment to abandonment fund
18
Consideration in relation to farm out of Egyptian assets1
Assignment fee in relation to farm out of Egyptian assets
Other investment in subsidiary undertakings
Dividends received from subsidiary undertakings
(4.4)
(25.4)
(2.1)
18.4
(0.5)
–
–
(15.2)
(24.4)
(2.2)
2.0
–
–
–
Net cash (used in) from investing activities
(14.0)
(39.8)
Financing activities
Share based payments
Repayment of borrowings
Proceeds from borrowings
Interest paid on borrowings
Lease payments
Net proceeds from issue of share capital
Share buy back
Funding movements with subsidiaries
Net cash (used in) from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of foreign exchange rate changes
24
24
24
33
30
Cash and cash equivalents at end of year
21
(0.4)
(27.1)
16.7
(6.0)
(0.1)
–
(2.9)
–
(19.8)
19.6
27.1
(1.4)
45.3
–
(12.5)
39.9
(6.8)
(0.4)
10.9
–
–
31.1
2.1
24.6
0.4
27.1
–
–
–
–
–
–
19.0
19.0
–
–
–
–
–
–
(2.9)
(1.0)
(3.9)
3.5
5.3
–
8.8
–
–
–
–
–
(8.4)
6.1
(2.3)
–
–
–
–
10.9
–
–
10.9
1.5
3.5
0.3
5.3
1) During the year IPR, acting as operator and agent, was authorised to settle its operating liabilities of $6.6m and investing liabilities of $8.8m against the
consideration due from the associated carry debtor (Note 37) amounting to $15.4m. The Company has disclosed the underlying cash flows as operating,
investing or financing according to their nature on the basis that, as a principal, the entity has the right to the cash inflows and/or the obligation to settle the
liability and ensure clarity of disclosure of the operating cash costs of the business.
The above consolidated cash flow statements should be read in conjunction with the accompanying notes.
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Notes to the Consolidated Financial Statements
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 Company reassesses whether or not it controls an investee
if facts and circumstances indicate that there are changes to one
or more of the elements of control. The results of subsidiaries
acquired or sold are consolidated for the periods from or to the
date on which control passed.
Where necessary, adjustments are made at the Group level to
align the accounting policies of the subsidiaries to the Group’s
accounting policies.
All intragroup assets and liabilities, equity, income, expenses and
cash flows relating to transactions between the members of the
Group are eliminated on consolidation.
e) Assets held for sale
Non-current assets are classified as held-for-sale if it is highly
probable that they will be recovered primarily through sale rather
than through continuing use. This condition is regarded as met
only when the sale is highly probable and the asset is available for
immediate sale in its present condition subject only to terms that
are usual and customary for sales of such assets. Management
must be committed to the sale, which should be expected to
qualify for recognition as a completed sale within one year from
the date of classification as held-for-sale, and actions required
to complete the plan of sale should indicate that it is unlikely that
significant changes to the plan will be made or that the plan will be
withdrawn.
Such assets are measured at the lower of their carrying amount
and fair value less costs to sell. Impairment losses on initial
classification as held for sale and subsequent gains or losses on
remeasurement are recognised in profit and loss.
Once classified as held for sale, intangible assets and property,
plant and equipment are no longer amortised or depreciated.
Investments
f)
Non-current investments in subsidiaries of the Company are
shown at cost less provision for impairment. An impairment loss
is recognised for the amount by which the asset’s carrying amount
exceeds its recoverable amount. The recoverable amount is the
higher of an asset’s fair value less costs of disposal and value in
use. Short-term investments with maturities of three to six months
are classified as liquid investments.
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 Operational Review and CFO’s statement
on pages 28 to 34 and 39 to 46, 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 as issued by the International
Accounting Standard Board (IASB).
The Financial Statements have also been prepared on a going
concern basis of accounting for the reasons set out in the
Directors’ Report on page 160 and in the CFO’s Statement on
page 46.
The Financial Statements have been prepared under the historical
cost basis, except for the valuation of hydrocarbon inventories
(Note 19) and the revaluation of certain financial instruments (Note
25). 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.
• Property, Plant and Equipment: Proceeds before Intended Use
– Amendments to IAS 16
• Onerous Contracts – Cost of Fulfilling a Contract –
Amendments to IAS 37
• Annual Improvements to IFRS Standards 2018-2020
• Reference to the Conceptual Framework – Amendments to
IFRS 3
New standards and interpretations not yet adopted
c)
Certain new accounting standards and interpretations have been
published that are not mandatory for 31 December 2022 year end
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.
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Pharos Energy Annual Report and Accounts 2022 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 lifting 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/restructuring items
Other/restructuring items represent 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.
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 with a
similar economic lives 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/credited 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 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.
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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.
Taxable profit differs from net profit as reported in profit or loss
because it excludes items of income or expense that are taxable
or deductible in other years and it further excludes items that are
never taxable or deductible. 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 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, 33 and
36.
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 2022
and 2021 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 expected credit
losses provision, when required.
Inventories
l)
Inventories, except for inventories of hydrocarbons, are valued at
the lower of cost and net realisable value. Cost is determined on
a weighted average cost basis and comprises direct purchase
costs. Net realisable value is determined by reference to prices
existing at the balance sheet date.
Physical inventories of hydrocarbons are valued at net realisable
value in line with well-established industry practices. 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.
The right-of-use assets comprise the initial measurement of the
corresponding lease liability, lease payments made at or before
the commencement day, less any lease incentives received
and any initial direct costs. They are subsequently measured
at cost less accumulated depreciation and impairment losses.
The lease liability is initially measured at the present value of the
lease payments that are not paid at the commencement date,
discounted by using the rate implicit in the lease. If this rate
cannot be readily determined, the Group uses its incremental
borrowing rate.
The lease liability is presented as a separate line in the
consolidated statement of financial position.
The lease liability is subsequently measured by increasing the
carrying amount to reflect interest on the lease liability (using the
effective interest method) and by reducing the carrying amount to
reflect the lease payments made.
Share-based payments
n)
Equity-settled awards under share-based incentive plans
are measured at fair value at the date of grant. The fair value
determined at the grant date of the equity-settled share-based
payments is expensed on a straight- line basis over the vesting
period, based on the Group’s estimate of the number of equity
instruments that will eventually vest. At each reporting date, the
Group revises its estimate of the number of equity instruments
expected to vest as a result of the effect of non-market-based
vesting conditions. The impact of the revision of the original
estimates, if any, is recognised in profit or loss such that
the cumulative expense reflects the revised estimate, with a
corresponding adjustment to reserves.
For cash-settled share-based payments, a liability is recognised
and 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.
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Other financial assets
Borrowings
The amount booked as abandonment fund is the share of the
fair value of the fund net assets. Cash is contributed into the
abandonment funds for both our Vietnam producing fields
TGT and CNV. These abandonment funds are controlled by
PetroVietnam and, as Pharos retains the rights to the full amount
funded, pending commencement of abandonment operations,
they are treated as other non-current assets.
The abandonment fund is measured at the lower of the amount
of the decommissioning obligation recognised and the Pharos’
share of the fair value of the net assets of the fund available to
contributors.
Loans to subsidiaries
Loans to subsidiaries are recognised at amortised cost, less
expected credit losses provision, when required.
Impairment of financial assets
The Group recognises a loss allowance for expected credit losses
on trade receivables and loans to subsidiaries. The amount of
expected credit losses is updated at each reporting date to reflect
changes in credit risk since initial recognition of the respective
financial instrument.
The expected credit losses on these financial assets are estimated
using the Group’s historical credit loss experience, adjusted
for factors that are specific to the debtors, general economic
conditions and an assessment of both the current as well as the
forecast direction of conditions at the reporting date, including
time value of money where appropriate.
Trade payables
Trade payables are generally stated at amortised cost using the
effective interest rate.
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.
The effective interest method is a method of calculating the
amortised cost of a financial liability and of allocating interest
expense over the relevant period. The effective interest rate is
the rate that exactly discounts estimated future cash payments
(including all fees and transaction costs) through the expected life
of the financial liability to the amortised cost of a financial liability.
The Group derecognises financial liabilities when, and only when,
the Group’s obligations are discharged, cancelled or have expired.
The difference between the carrying amount of the financial
liability derecognised and the consideration paid and payable is
recognised in profit or loss.
When the Group exchanges with the existing lender one debt
instrument into another one with substantially different terms, such
exchange is accounted for as an extinguishment of the original
financial liability and the recognition of a new financial liability.
Similarly, the Group accounts for substantial modification of terms
of an existing liability or part of it as an extinguishment of the
original financial liability and the recognition of a new liability. It is
assumed that the terms are substantially different if the discounted
present value of the cash flows under the new terms, including
any fees paid net of any fees received and discounted using the
original effective interest rate is at least 10 per cent different from
the discounted present value of the remaining cash flows of the
original financial liability. If the modification is not substantial, the
difference between: (1) the carrying amount of the liability before
the modification; and (2) the present value of the cash flows after
modification is recognised in profit or loss as the modification gain
or loss within other gains and losses.
Derivative and hedging instruments
Equity 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 treatment 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 and zero cost
collar) 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 and zero cost collars
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.
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
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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.
Decommissioning provisions
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 47 to 60.
4. Critical judgements and accounting
estimates
a) Critical judgements in applying the Group’s
accounting policies
Provisions for the costs to decommission oil & gas properties are
recognised when the Group has an obligation under the terms
and conditions of the agreements and when a reliable estimate
can be made.
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:
The abandonment security fund is measured at the lower of the
amount of the decommissioning obligation recognised and the
contributor’s share of the fair value of the net assets of the fund
available to contributors.
The provision for the costs of decommissioning oil & gas
properties at the end of their economic lives is estimated based
on technology, future prices, the expected timing of the activity,
and is discounted using the nominal discount rate. The estimates
are regularly reviewed and adjusted as appropriate for new
circumstances.
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 are translated 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.
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 prices, 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 Ukraine war
with increased uncertainties and volatilities on world commodity
markets. 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
Directors’ Report on page 160 and in the CFO’s Statement on
page 46.
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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 pages 32 to 34.
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 32, 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 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, particularly
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 value in use,
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 and the relevant fiscal
terms. Further information relating to the specific assumptions and
uncertainties relevant to impairment tests performed in the year is
discussed in Note 16.
Climate change and the energy transition
In preparing the consolidated financial statements, the Directors
have considered the impact of climate change and the transition
to a low carbon economy, particularly in the context of the risks
identified in the TCFD disclosure on pages 79 to 106.
The Directors have also considered the impact of climate change
in respect of going concern and viability of the Group over the
next three years. 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 but was adjusted upwards
in 2021 and 2022, partly 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 goal to reach Net Zero by 2050 and aligning with
COP26 (the “Net Zero price scenario”). 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 12 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, the impact of climate change will
be taken into consideration when the field is transferred from
exploration to development stage; (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 8-9 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.
The Directors are aware of the ever-changing risks attached
to climate change and will regularly assess these risks against
judgements and estimates made in preparation of the Group’s
financial statements.
5. Total revenue
An analysis of the Group’s revenue is as follows:
2022
$ million
2021
$ million
Oil and gas sales (see Note 6)
Realised losses on commodity hedges
(see Note 6 and Note 25)
Investment revenue
221.6
(22.5)
0.2
199.3
163.8
(29.7)
–
134.1
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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). There are no inter-segment sales. South East Asia and Egypt
form the basis on which the Group reports its segment information.
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)
Impairment reversal/(charge) – Intangibles (see Note 15)2
Impairment reversal – PP&E (see Note 16)
Loss on disposal (see Note 37)
Profit/(loss) before tax1
Tax charge on operations (see Note 12)
Tax charge on impairment reversal (see Note 12)
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)
Impairment charge – Intangibles (see Note 15)
Impairment reversal – PP&E (see Note 16)
Impairment charge – Assets classified as held for sale (see Note 37)
Profit/(loss) before tax1
Tax charge on operations (see Note 12)
Tax charge on impairment reversal (see Note 12)
SE Asia
$ million
Egypt
$ million
Unallocated
$ million
184.8
–
184.8
(51.0)
–
1.0
23.3
–
108.3
(47.9)
(8.3)
36.8
–
36.8
(4.1)
(0.1)
–
3.8
(6.3)
16.9
–
–
–
(22.5)
(22.5)
–
–
(0.2)
–
–
(44.6)
–
–
SE Asia
$ million
Egypt
$ million
Unallocated
$ million
131.0
–
131.0
(43.0)
–
–
52.9
–
98.8
(24.8)
(18.5)
32.8
–
32.8
(8.0)
(0.4)
–
1.7
(10.4)
(10.1)
–
–
–
(29.7)
(29.7)
–
–
(2.2)
–
–
(50.1)
–
–
2022
Group
$ million
221.6
(22.5)
199.1
(55.1)
(0.1)
0.8
27.1
(6.3)
80.6
(47.9)
(8.3)
2021
Group
$ million
163.8
(29.7)
134.1
(51.0)
(0.4)
(2.2)
54.6
(10.4)
38.6
(24.8)
(18.5)
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) Includes $1.0m reversal of impairment of Block 125&126 tax receivable (other receivable – current), offset by $(0.2)m write-off of seismic costs relating to
Israel exploration Zones A and C.
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 $182.5m and $36.8m which arose from the Group’s three
largest customers, who contributed more than 10% to the Group’s oil and gas revenue (2021: $128.3m and $32.8m in South East Asia
and Egypt from the Group’s two largest customers).
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Geographical information
9. Finance costs
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.
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)
2022
$ million
2021
$ million
1.3
6.0
-
4.1
1.3
12.7
0.8
3.8
-
2.4
(0.6)
6.4
Vietnam
Egypt
China
Non-current assets
Vietnam
Egypt
Excludes other assets.
7. Cost of sales
Depreciation, depletion and
amortisation (see Note 16)
Production based taxes
Export duty
Production operating costs
Inventories
2022
$ million
97.1
36.8
87.7
221.6
2022
$ million
332.5
65.8
398.3
2021
$ million
131.0
32.8
-
163.8
2021
$ million
360.8
51.4
412.2
2022
$ million
2021
$ million
55.1
14.7
3.2
45.6
(1.8)
51.0
10.1
–
53.6
(0.1)
116.8
114.6
8. Other/restructuring expense
Redundancy costs
Premium – lease transfer1
2022
$ million
2021
$ million
0.1
0.7
0.8
3.0
0.3
3.3
1) Relates to the transfer of the London office lease to a third party, at which
point the Company derecognised the right-of-use asset and associated
lease liability. In 2020, $1.2m was transferred to an escrow account held
by a third party (recorded within prepayments). The amount was released
to the income statement over 21 months on the condition the new tenant
paid the rent to the landlord. In 2022, the remaining balance of $0.7m
(2021: $0.3m) was released from the escrow account and paid to the new
tenant.
In 2022, $1.3m relates to the unwinding of discount on the
provisions for decommissioning (2021: $0.8m). 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 8-9 years) in the
removal and decommissioning of the facilities currently in place
(see Note 26).
Following the June and December 2022 redeterminations 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 loss
of $2.6m and amortised cost of $1.5m have been recognised in
profit or loss.
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
2022
$ million
2021
$ million
418
385
Fees payable to the Company’s auditor and their associates
for other services to the Group:
Audit of the Company’s subsidiaries
Audit of the Company’s subsidiaries relating
to the prior year
Total audit fees
Audit related assurance services
– half year review
Other assurance services
Total non-audit fees
100
36
554
127
40
167
101
63
549
130
134
264
The non-audit fees during 2022 included the half year review and
other assurance services associated primarily with agreed upon
procedures relating to Vietnam (2021: associated primarily with
the reporting accountant work in relation to the farm-out of the
Egypt concessions, of which $27,400 are required by UK law
or regulation, and the 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.
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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 page 133.
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.
The charge for the year can be reconciled to the profit per the
income statement as follows:
Profit before tax
2022
$ million
2021
$ million
80.6
38.6
Profit before tax at 50% (2021: 50%)
40.3
19.3
11. Staff costs
The average monthly number of employees of the Group including
Executive Directors was 52 (2021: 74), of which 47 (2021: 69)
were administrative personnel and 5 (2021: 5) were operations
personnel. Their aggregate remuneration comprised:
Effects of:
Non-taxable income
Non-deductible expenses
Tax losses not recognised
2022
$ million
Group
2021
$ million
Adjustments to tax charge in respect of
previous periods
Tax charge for the year
(3.3)
5.6
13.8
(0.2)
56.2
(8.0)
4.5
28.7
(1.2)
43.3
Wages and salaries
Social security costs
Share-based payment expense
(see Note 31)
Other pension costs under money
purchase schemes
Other benefits
8.0
0.8
1.7
0.5
0.6
9.1
0.8
2.7
0.9
0.7
11.6
14.2
In accordance with the Group’s accounting policy $2.4m (2021:
$1.2m) of the Group’s staff costs above have been capitalised,
of which $1.8m (2021: $1.0m) relates to our Vietnam assets and
$0.6m (2021: $0.2m) relates to our Egypt assets.
In 2022, total staff costs were $11.6m (2021: $14.2m) and
includes the costs of head office and Pharos’ subsidiary
employees. Excluding the impact of IFRS 2 share-based payment
expense and bonuses paid to staff, the underlying costs have
fallen 15% year on year - $7.2m (2021: $8.5m).
Redundancy costs of $0.1m (2021: $3.0m) for both the head
office in London and the Egypt office in Cairo are disclosed in
other/restructuring expense in the Income Statement (Note 8).
12. Tax
Current tax charge
Deferred tax credit on operations
(see Note 23)
Deferred tax charge on impairment reversals
(see Note 16 and 23)
Total tax charge
2022
$ million
2021
$ million
54.5
(6.6)
8.3
56.2
37.6
(12.8)
18.5
43.3
The Group’s corporation tax is calculated at 50% (2021: 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 2022 and 2021, both current and
deferred taxation have arisen in overseas jurisdictions only.
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 back of
$(0.5)m in 2022 related to the partial reversal of an impairment of
exploration assets in Vietnam.
Non-taxable income principally relates to Vietnam impairment
reversal of $(3.3)m (2021: $(8.0)m). Non-deductible expenses
primarily relate to Vietnam DD&A charges for costs previously
capitalised, which are non-deductible for Vietnamese tax
purposes of $5.6m (2021: $1.8m). A further $nil (2021: $2.7m)
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 historic 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. For 2021, it
also includes losses arising in Egypt for which no future benefit
can be obtained under the terms of the concession agreement.
During 2022, Egypt concessions recorded a net profit before tax
of $16.9m (profit after tax impact of $8.5m) which has been offset
against tax losses not recognised, as Egypt is in a historic loss
making position. The group did not recognise deferred tax assets
in relation to historical tax losses available to offset future taxable
profits of $28m on the basis that there will be no future benefits
arising from these losses as any taxes in the future will be paid by
EGPC on behalf of the group.
13. Profit/(loss) attributable to
Pharos Energy Plc
The profit for the financial year in the accounts of the Company
was $60.7m inclusive of dividends from subsidiary undertakings
(2021: profit of $1.9m). 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.
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Pharos Energy Annual Report and Accounts 2022 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:
2022
$ million
Group
2021
$ million
Gain/(Loss) for the purposes of basic profit/
(loss) per share
Effect of dilutive potential ordinary shares
– Cash settled share awards and options
Gain/(Loss) for the purposes of diluted
profit/(loss) per share
24.4
(0.3)
24.1
(4.7)
–
(4.7)
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 profit/(loss)
per share
Number of shares
(million)
2022
2021
439.3
437.8
0.9
–
440.2
452.0
In accordance with IAS 33 “Earnings per Share”, the effects of
14.2m antidilutive potential shares have not been included when
calculating dilutive earnings per share for the year ended 31
December 2021, as the Group was loss making.
15. Intangible assets
Exploration and evaluation expenditure
As at 1 January
Additions
Impairment – Intangibles1
Reclassified as assets held for sale (see Note 37)
As at 31 December
2022
$ million
Group
2021
$ million
2022
$ million
Company
2021
$ million
12.4
4.3
(0.2)
–
16.5
1.5
15.2
(2.2)
(2.1)
12.4
–
–
–
–
–
–
–
–
–
–
1) 2022 excludes $1.0m impairment reversal of Block 125&126 tax receivable (other receivable – current) which was dependent on the E&E being developed.
Intangible assets at 2022 year-end comprise the Group’s
exploration and evaluation projects which are pending
determination. Included in the additions is Blocks 125 & 126 in
Vietnam $3.1m (2021: $10.6m), Egypt $1.0m (2021: $3.9m) of
which $0.9m (2021: $0.6m) relates to North Beni Suef, and $0.2m
(2021: $0.7m) for Israel.
of the JV’s intention to relinquish the licences. The bank guarantee
of $2.7m held, as at 31 December 2021, for the Israeli offshore
exploration licenses, was released accordingly. At 31 December
2022, the Group has therefore decided to write off the $0.2m
in Israel as no substantive expenditure has been identified as
indicated in IFRS 6.
During 2022, $0.2m was spent in Israel on geoscience and
geophysical studies (2021: $0.7m). Following completion of the
seismic processing in order to mature prospectivity ahead of a
drilling decision, Capricorn as the operator and along with the
Company and other JV partners, informed the Ministry of Energy
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 was either budgeted or planned in the near future.
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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.
At 31 December 2021, interpretation of the seismic data in relation
to Blocks 125 and 126 in Vietnam was ongoing and the carrying
value of Egypt exploration and evaluation expenditure was to
be reviewed following completion of the farm out of the Egypt
concessions.
At 31 December 2022, on Block 125, the 3D seismic processing
was complete and the ongoing interpretation of the data
resulted in the mapping of a variety of Prospects in the relatively
unexplored deep water basin. A commitment well was planned
for 2023 with an estimated cost of $15m, but the focus on deep
water means that a drillship is needed and the Company has been
unable to source one for 2023. An application has therefore been
submitted for an extension of the license and the Company now
plans to drill a commitment well in 2024. In Egypt, as part of the
planned work programme for 2023, two commitment wells are
expected to be drilled in the El Fayum Concession. In order to
meet a commitment on North Beni Suef, two exploration wells are
expected to be drilled in calendar year 2023.
Whilst ongoing costs for exploration are therefore forecast and
funds available for future exploration, there is insufficient certainty
of full recovery to justify the reversal of the previous impairment
charges in 2020. The accumulated impairment charges against
exploration and evaluation expenditure at 31 December 2022
stands at $25.6m (2021: $25.4m). This will be kept under review
as the exploration activity continues.
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Pharos Energy Annual Report and Accounts 2022 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 2021
Additions
Revision in decommissioning asset
Reclassified as assets held for sale (see Note 37)
As at 1 January 2022
Additions
Revision in decommissioning asset (see Note 26)
As at 31 December 2022
Depreciation
As at 1 January 2021
Charge for the year
Impairment (reversal)
Reclassified as assets held for sale (see Note 37)
As at 1 January 2022
Charge for the year
Impairment (reversal)
As at 31 December 2022
Carrying amount
As at 31 December 2022
As at 31 December 2021
Property, plant and equipment
Right-of-use assets (see Note 33)
As at 31 December 2022
Property, plant and equipment
Right-of-use assets (see Note 33)
As at 31 December 2021
1,208.6
24.6
(1.9)
(139.4)
1,091.9
23.8
(13.9)
1,101.8
773.9
51.0
(54.6)
(77.8)
692.5
55.1
(27.1)
720.5
381.3
399.4
380.5
0.8
381.3
399.4
–
399.4
1.9
0.1
–
(1.1)
0.9
0.2
–
1.1
0.8
0.4
–
(0.7)
0.5
0.1
–
0.6
0.5
0.4
0.5
–
0.5
0.4
–
0.4
1,210.5
24.7
(1.9)
(140.5)
1,092.8
24.0
(13.9)
1,102.9
774.7
51.4
(54.6)
(78.5)
693.0
55.2
(27.1)
721.1
381.8
399.8
381.0
0.8
381.8
399.8
–
399.8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
As a result of previously recognised impairment losses, combined with the ongoing oil price volatility, economic uncertainty leading to
an increase in inflation and discount rates, 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 value in use 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.
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Summary of Impairments - Oil and Gas properties
TGT $m
CNV $m
Egypt $m
Total $m
2022
Pre-tax impairment reversal
Deferred tax charge
Post-tax impairment reversal
Reconciliation of carrying amount:1
As at 1 Jan 2022
Additions
Changes in decommissioning asset2
DD&A
Impairment reversal
As at 31 Dec 2022
2021
Pre-tax impairment reversal
Deferred tax charge
Post-tax impairment reversal
Reconciliation of carrying amount:1
As at 1 Jan 2021
Additions
Reclassified as assets held for sale
Changes in decommissioning asset2
DD&A
Impairment reversal
Sub-total
Reclassified as assets held for sale
As at 31 Dec 2021
1) Egypt carrying value reflects 45% share (2021: 100%).
19.7
(6.9)
12.8
266.0
7.0
(11.1)
(39.2)
19.7
242.4
49.1
(17.1)
32.0
239.3
11.4
–
(1.0)
(32.8)
49.1
266.0
–
266.0
3.6
(1.4)
2.2
84.2
3.2
(2.8)
(11.8)
3.6
76.4
3.8
(1.4)
2.4
91.2
0.3
–
(0.9)
(10.2)
3.8
84.2
–
84.2
3.8
–
3.8
49.2
13.6
–
(4.1)
3.8
62.5
1.7
–
1.7
104.2
12.9
(1.4)
–
(8.0)
1.7
109.4
(60.2)
49.2
27.1
(8.3)
18.8
399.4
23.8
(13.9)
(55.1)
27.1
381.3
54.6
(18.5)
36.1
434.7
24.6
(1.4)
(1.9)
(51.0)
54.6
459.6
(60.2)
399.4
2) Changes in decommissioning asset for TGT is due to changes in discount rate and the field abandonment plan, whereas CNV reflects the change in discount
rate only (2021: change in discount rate only for both TGT and CNV).
Vietnam
The key assumptions to which the fair value measurement is most sensitive are oil price, discount rate and 2P reserves (2021: oil
price, discount rate and 2P reserves). As at 31 December 2022, the fair value of the assets are estimated based on a post-tax nominal
discount rate of 13.3% (2021: 11.4%) and a Brent oil price of $88.3/bbl in 2023, $84.8/bbl in 2024, $79.4/bbl in 2025, $74.5/bbl in
2026 plus inflation of 2.0% thereafter (2021: an oil price of $73.9/bbl in 2022, $70.2/bbl in 2023, $67.8/bbl in 2024, $68.0/bbl in 2025
plus inflation of 2.0% thereafter).
Testing of sensitivity cases indicated that a $5/bbl reduction in long-term oil price used when determining the value in use method would
result in post-tax impairments charge (compare to new NBV) of $11.8m on TGT and $3.7m on CNV. A 1% increase in discount rate
would result in post-tax impairments of $4.0m on TGT and $1.0m on CNV.
We have also run sensitivities utilising the IEA (International Energy Agency) scenarios described as being consistent with achieving the
COP26 agreement goal to reach net zero by 2050 (the “Net Zero price scenario”). The nominal Brent prices used in this scenario were as
follows; $88.3/bbl in 2023, $84.8/bbl in 2024, $79.4/bbl in 2025, $72.7/bbl in 2026, $65.6/bbl in 2027, $58.3/bbl in 2028, $50.7/bbl in
2029 and $42.7/bbl in 2030. Using these prices and an 13.3% discount rate would result in additional post-tax impairments of $13.8m
on TGT and $5.0m on CNV.
The impairment tests for TGT and CNV assume that production ceases in 2029 and 2030 respectively.
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Pharos Energy Annual Report and Accounts 2022 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Egypt
The key assumptions to which the fair value measurement is most sensitive are oil price, discount rate, capital spend and 2P reserves
(2021: oil price, discount rate, capital spend and 2P reserves). As at 31 December 2022, the fair value of the assets are estimated based
on a post-tax nominal discount rate of 15.9% (2021: 14%) and a Brent oil price of $88.3/bbl in 2023, $84.8/bbl in 2024, $79.4/bbl in
2025, $74.5/bbl in 2026 plus inflation of 2.0% thereafter (2021: an oil price of $73.9/bbl in 2022, $70.2/bbl in 2023, $67.8/bbl in 2024,
$68.0/bbl in 2025 plus inflation of 2.0% thereafter).
Testing of sensitivity cases indicated that a $5/bbl reduction in long term oil price used would result in an impairment of $7.8m (compare
to new NBV). A 1% increase in discount rate would result in an impairment charge of $2.8m. We have also run a sensitivity using a
15.9% discount rate and the Net Zero price scenario which would result in an additional impairment of $25.5m.
Other considerations
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
The Company and the Group had investments in the following subsidiary undertakings as at 31 December 2022.
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
Pharos Exploration Limited
Pharos SEA Limited
SOCO Exploration
(Vietnam) Limited
Jersey
Jersey
–
–
Oil and gas development
and production
Oil and gas development
and production
Investment holding
Investment holding
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
UK
USA
Israel
Oil and gas development
and production
Management services
Extraction of crude
petroleum
100
100
100
100
100
100
100
100
100
2,4
2,3
1
1
2,5
2,4
1,6
2
1
e
d
a
a
d
c
d
c
b
Footnotes:
Group investments
1) Investments held directly by Pharos Energy Plc.
2) Investments held indirectly by Pharos Energy Plc.
Joint operations
3) 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.
4) 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.
5) 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.
6) Pharos El Fayum holds a 45% working interest in the El Fayum
Concession and a 45% working interest in the North Beni Suef
Concession. The Field operational base for the El Fayum Concession
is development/production. The remaining 55% working interest in
the El Fayum Concession is held by IPR Lake Qarun Petroleum Co
(“IPR Lake Qarun”), a wholly owned subsidiary of IPR Energy AG. IPR
Lake Qarun is nominally the operator of the El Fayum Concession,
but development and production operations on the Concession
are undertaken through the joint operating company Petrosilah, an
Egyptian joint stock company owned jointly by IPR Lake Qarun, Pharos
El Fayum and the Egyptian state oil and gas company Egyptian General
Petroleum Corporation (EGPC). The North Beni Suef Concession is in
the exploration phase and is operated by IPR Lake Qarun, which holds
the remaining 55% working interest.
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)
e)
c/o The offices of Trident Trust Company (Cayman) Limited, One
Capital Place, P.O. Box 847, Grand Cayman, KY1-1103, Cayman
Islands
c/o Portcullis (Cook Islands) Ltd, Portcullis Chambers, Tutakimoa
Road, Avarua, Rarotonga, Cook Islands
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Divestments:
The following subsidiary undertaking was dissolved during the year:
Pharos Energy NBS
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.
Subsidiary undertakings
As at 1 January
Additions to investments
Impairment reversal
As at 31 December
2022
$ million
278.7
0.6
56.2
335.5
Investments
2021
$ million
268.1
2.7
7.9
278.7
The Directors believe that the carrying value of the investments is supported by their underlying net assets.
At each year end, the carrying value of investments in subsidiaries is compared against recoverable amount determined using the value
in use method. During 2022, the Company recorded a net impairment reversal of $56.2m in investments in subsidiaries in relation to the
underlying net asset values of Vietnam and Egypt operations.
Loans to subsidiary undertakings are unsecured and payable on demand. The carrying value of the loans is compared to liquid assets
held by the subsidiary and an assessment is made on the ability of the entity to settle the liability. For 2022, a loss allowance of $2.3m
was recognised in relation to loans to subsidiary undertakings during the year.
Audit exemptions for subsidiary company
The Group has elected to take advantage of the exemption from audit available under section 479A of the Companies Act 2006
in respect of its wholly owned subsidiary, Pharos Energy Israel Limited (incorporated in England and Wales with company number
12645819), for the year ended 31 December 2022. The exemption is available for qualifying subsidiaries that fulfil a set of conditions.
As a result, statutory financial statements will not be audited for Pharos Energy Israel Limited. In accordance with section 479C of the
Companies Act 2006, the Company will guarantee the liabilities and commitments of Pharos Energy Israel Limited. As at 31 December
2022, the total sum of these liabilities and commitments is $0.1m (2021: $0.8m).
18. Other non-current assets
Amounts falling due after one year:
Abandonment security fund
Contingent consideration on Egypt farm-out (see Note 37)
2022
$ million
Group
2021
$ million
2022
$ million
Company
2021
$ million
50.2
8.9
59.1
48.1
–
48.1
–
–
–
–
–
–
Other non-current assets mainly 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 controlled
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 2022, the Group has contributed $2.1m
(2021: $2.2m). As at 31 December 2022, the Group’s total contribution to the funds was $50.2m (2021: $48.1m).
A further $8.9m (2021: $nil) relates to Egypt and non-current contingent consideration due from farm-out with IPR. The Group is entitled
to contingent consideration depending on the average Brent Price each year from 2022 to the end of 2025 (with floor and cap at $62/bbl
and c.$90/bbl respectively). The contingent consideration is calculated yearly and is capped at a maximum total payment of $20.0m (see
Note 37).
189
Pharos Energy Annual Report and Accounts 2022 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
19. Inventories
Crude oil and condensate
Warehouse stocks and materials
Reclassified as assets held for sale (see Note 37)
2022
$ million
7.2
–
–
7.2
Group
2021
$ million
5.9
11.1
(6.3)
10.7
2022
$ million
Company
2021
$ 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 $nil (2021: $11.1m) all relates to
Egypt.
20. Trade and other receivables
Amounts falling due within one year
Trade receivables
Other receivables
Prepayments and accrued income
Reclassified as assets held for sale (see Note 37)
2022
$ million
Group
2021
$ million
2022
$ million
Company
2021
$ million
33.2
27.0
0.7
–
60.9
23.8
1.0
5.3
(2.0)
28.1
–
–
0.4
–
0.4
–
0.9
0.5
–
1.4
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 2022 are trade receivables of $10.3m
and $22.4m (after risk factor provision of $1.8m) respectively, which arose from the Group’s two largest customers (2021: $16.3m and
$7.1m 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 (2021: nil). In Egypt,
the average credit period on sales is 194 days (2021: 78 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,
99% (2021: 98%) 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 2022, an ECL provision of $1.8m has been
recorded against trade receivables in Egypt due to collection delays caused by the devaluation of EGP and ongoing restrictions on
outgoing USD transfers by the Central Bank of Egypt. At 31 December 2021, it was concluded that the ECL related to trade receivables
was immaterial.
Included in other receivables is $20.9m (2021: $nil) of carry, the remaining balance of disproportionate funding contribution from IPR
following completion of the farm-out transaction of Egyptian assets, as disclosed in Note 37.
Included in prepayments is $nil (2021: $0.9m) held by Sheppard & Wedderburn LLP on a ’quasi escrow’ basis to be released to the
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 2022, cash and cash equivalents was $45.3m (2021: $27.1m). Of this balance, $7.4m (2021: $0.7m) 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.
At 31 December 2021, Pharos held $2.7m cash in relation to bank guarantees for the Israeli offshore exploration licenses. In 2022,
Capricorn, Ratio and Pharos reached agreement to relinquish the Israeli licences, and Capricorn as operator has informed the Israeli
Ministry of Energy of the parties’ intention. The bank guarantees were no longer required and released accordingly.
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Pharos Energy Annual Report and Accounts 2022Additional InformationStrategic ReportFinancial StatementsGovernance Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
22. Trade and other payables
Amounts falling due within one year:
Trade payables
Other payables
Derivative financial instruments (see Note 25)
Accruals and deferred income
Reclassified as liabilities associated with assets held for sale (see Note 37)
Amounts falling due after one year:
Other payables
2022
$ million
Group
2021
$ million
2022
$ million
Company
2021
$ million
–
6.3
1.1
6.6
–
14.0
0.9
0.9
7.9
8.0
6.5
16.7
(8.5)
30.6
–
–
–
1.1
–
0.8
–
1.9
–
–
–
1.2
–
3.1
–
4.3
–
–
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.
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 47 to 60.
Accruals and deferred income include $2.5m (2021: $3.4m) in respect of a royalty provision for Egypt and reflects the amount payable
in the next year. 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.
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 2021
Charge to income (see Note 12)
As at 1 January 2022
Charge to income (see Note 12)
As at 31 December 2022
Accelerated tax
depreciation
$ million
Other temporary
differences
$ million
82.6
5.7
88.3
0.9
89.2
2.9
–
2.9
0.8
3.7
Group
$ million
85.5
5.7
91.2
1.7
92.9
The charge to income includes a deferred tax charge of $8.3m (2021: $18.5m charge) 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 $143.2m (2021: $129.0m). The gross losses have no expiry date.
A UK entity in the Group has entered into commodity swaps designated as cash flow hedges. In accordance with IAS 12, a deferred tax
asset has not been recognised in relation to the hedging losses of $22.5m recorded in the year as it is unlikely that the UK tax group will
generate sufficient taxable profit in the future, against which the deductible temporary differences can be utilised.
191
Pharos Energy Annual Report and Accounts 2022 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
24. Borrowings
Borrowings:
Uncommitted Revolving credit facility
Reserve Based Lending Facility
Less one-off adjustments and amortisation of capitalised borrowing costs
Carrying value of total debt
Current
Non-current
Carrying value of total debt
Maturity - borrowings:
Uncommitted Revolving credit facility
Reserve Based Lending Facility
2022
$ million
Group
2021
$ million
9.2
65.0
-
74.2
39.6
34.6
74.2
6.5
78.1
(4.1)
80.5
33.3
47.2
80.5
less than 1 year
$ million
1-2 years
$ million
2-5 years
$ million
Group
$ million
9.2
30.4
39.6
–
24.6
24.6
–
10.0
10.0
9.2
65.0
74.2
The maturity analysis for borrowings details the Group’s remaining contractual maturity for its borrowings with agreed repayment periods.
The tables have been drawn up based on the undiscounted cash flows of borrowings based on the earliest date on which the Group can
be required to pay. The reserve based lending facility is based on December 2022 redetermination.
Changes in liabilities arising from financing activities:
Carrying value as of 1 January
Proceeds from Uncommitted Revolving credit facility
Proceeds from RBL
Repayments of borrowings
Amortisation of capitalised borrowing costs (see Note 9)
Interest payable and similar fees (see Note 9)
Interest paid during the year
Carrying value as of 31 December
2022
$ million
Credit
facility
6.5
16.7
–
(14.0)
–
0.6
(0.6)
9.2
2022
$ million
2022
$ million
2021
$ million
Total
Borrowings
Total
Borrowings
RBL
74.0
–
–
(13.1)
4.1
5.4
(5.4)
65.0
80.5
16.7
–
(27.1)
4.1
6.0
(6.0)
74.2
See Note 33 for movements in lease liabilities which, together with borrowings, represent the Group’s financing related liabilities.
53.7
18.1
21.8
(12.5)
2.4
3.8
(6.8)
80.5
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Pharos Energy Annual Report and Accounts 2022Additional InformationStrategic ReportFinancial StatementsGovernance Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Reserve Based Lending facility (RBL)
In September 2018, the Group signed a $125m Reserve Based
Lending facility (RBL) secured against the Group’s producing
assets in Vietnam. The RBL had a five-year term and was due to
mature in September 2023. In July 2021, the Group completed
the refinancing of its RBL. The new RBL provides access to up
to a committed US$100m with a further US$50m available on an
uncommitted “accordion” basis, has a four-year term that matures
in July 2025 and bears a per annum interest rate of 4.75% plus
USD LIBOR until July 2023 and then 5.25% plus LIBOR until the
final maturity date.
Extending the tenor of the facility by 22 months in June 2021,
allowed for a re-phasing of the repayment schedule and the
provision of additional funds available for general corporate
purposes. Immediately prior to the refinancing the outstanding
loan balance on the original RBL stood at $56.3m, following the
refinancing this was increased to $78.1m.
As the terms of the refinanced RBL did not result in a substantially
different discounted present value of cash flows from the original
facility (less than 10%), the refinancing of the RBL was considered
as a modification rather than an extinguishment of the original
facility. Accordingly, the refinancing of the RBL was accounted for
as a non-substantial modification and the fees paid to the lenders
together with legal fees, totalling $2.9m, related to the refinancing
will be amortised over the remaining term of the modified liability
along with the remaining unamortised costs associated with the
original facility.
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. For the year 2022, the
principal repayment made amounted to $13.1m (2021: $0.9m).
The $30.4m, categorised as current, is based on the outcome of
the December 2022 RBL redetermination criteria and will likely
change following the June 2023 redetermination.
Discussions are ongoing with the RBL banking group to amend
the reference benchmark interest rate of USD LIBOR to the
Secured Overnight Financing Rate (SOFR). The Group anticipates
finalising this amendment in the first half of 2023.
The RBL is subject to a number of financial covenants, all of which
have been complied with during the 2022 and 2021 reporting
periods.
Uncommitted revolving credit facility - National Bank of
Egypt
Pharos El Fayum signed an uncommitted revolving credit facility
for discounting (with recourse) of up to $18m with the National
Bank of Egypt (UK). In January 2023, another addendum was
signed extending the availability of the facility to 31 March 2024.
This facility has been put in place to mitigate the risk of late
payment of our debtors. Under this arrangement, Pharos is able
to access cash from the facility, of up to 60% of the value of each
El Fayum oil sales invoice, presenting the invoices as evidence to
support its ability to repay the facility. The oil sales invoices remain
due to Pharos and it retains the credit risk. The Group therefore
continues to recognise the receivables in their entirety in its
balance sheet.
Loans are available for up to one year from the date of utilisation
and bear a per annum interest rate of USD LIBOR plus 3.00%
for initial advances and 3.50% for any extensions beyond 180
days from the date of the utilisation. Discussions are ongoing with
193
the National Bank of Egypt to amend the reference benchmark
interest rate of USD LIBOR to the Secured Overnight Financing
Rate (SOFR). The Group anticipates finalising this amendment in
the first half of 2023. The amount repayable under the agreement
at 31 December 2022 was $9.2m (2021: $6.5m) and it is
presented as borrowing under current liabilities. Performance
under the facility agreement is subject to a parent company
guarantee from Pharos Energy plc.
25. Hedge transactions
During 2022, Pharos entered into different commodity (swap
and zero cost collar) hedges to protect the Brent component
of forecast oil sales and to ensure future compliance with its
obligations under the reserve based lending facility (RBL) over
the producing assets in Vietnam. Pharos was hedged more than
required under the conditions of the RBL and higher than the
Company would normally commit to in order to support stress
testing for going concern and the working capital test required for
the prospectus for the Egypt farm down. As a result, the majority
of hedged production volumes (61%) were in H1 2022, leading to
realised losses of $17.3m out of total realised losses of $22.5m for
the year in order to meet these requirements.
The commodity hedges run until December 2023 and are settled
monthly. For 2022, 30% of the Group’s total production was
hedged, securing a minimum price for the hedged volumes of
$67.9/bbl. The Group’s RBL requires the Company to hedge at
least 35% of Vietnam RBL production volumes and the current
hedging programme meets this requirement through to December
2023, leaving 71% of Group production unhedged (2021: cover
was 23% of the Group’s forecast production until December
2022, securing a minimum price for this hedged volume of $68.2
per barrel).
A summary of hedges outstanding as at 31 December 2022 is
presented below, which are all zero cost collar.
Production hedge per quarter
- 000/bbls
Min. Average value of hedge
- $/bbl
Max. Average value of hedge
- $/bbl
1Q23
2Q23
3Q23
4Q23
180
180
180
45
65.33
65.33
63.33
63.33
102.88 102.88 102.23 107.80
Pharos has designated the swaps and zero cost collars 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 2022 a loss of $22.5m was realised
(2021: loss of $29.7m). The outstanding unrealised loss on open
position as at 31 December 2022 amounts to $0.7m (2021: loss
of $4.3m).
The carrying amount of the swaps and zero cost collars 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 2022 was $1.1m (2021: liability position $6.5m).
Pharos Energy Annual Report and Accounts 2022 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
26. Long-term provisions
Decommissioning provision
Royalty provision
Movement in decommissioning
As at 1 January
New provisions and changes in estimates
Unwinding of discount (see Note 9)
As at 31 December
2022
$ million
54.3
–
54.3
Group
2021
$ million
66.9
2.2
69.1
2022
$ million
Company
2021
$ million
–
–
–
2022
$ million
66.9
(13.9)
1.3
54.3
–
–
–
Group
2021
$ million
68.0
(1.9)
0.8
66.9
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 8-9 years) in the removal and
decommissioning of the facilities currently in place. The provision is calculated using an inflation rate of 2.0% (2021: 2.0%) and a
discount rate of 3.8% (2021: 1.5%). The $13.9m decrease in provision in 2022 was driven by the increase in discount rate compared
to prior year and also a revision to the TGT field abandonment plan, partially offset by the increase in abandonment costs relating to the
TGT infill wells drilling programme completed during the year. The $1.9m decrease in provision in 2021 was also driven by an increase
in discount rate compared to prior year, partially offset by the increase in abandonment costs relating to the TGT infill wells drilling
programme completed during the year. No decommissioning obligations exist in Egypt under the terms of the concession agreement.
The royalty provision in 2021 related to a historical arrangement granting a 3% royalty on Pharos’s share of profit oil and excess cost
recovery from El Fayum in Egypt. The balance as at 31 December 2022 of $2.5m falls due for payment in 2023 and has therefore been
disclosed in current trade and other payables in Note 22.
27. Share capital and Share premium
Share capital
Ordinary Shares of £0.05 each
Issued and fully paid
Share capital
As at 1 January
Shares issued
Share buy back
Issued and fully paid
Group and Company
2022
Shares
2021
Shares
441,795,126
451,684,869
2022
$ million
34.3
2021
$ million
34.9
Group and Company
2022
$ million
2021
$ million
Share premium
34.9
–
(0.6)
34.3
31.9
As at 1 January
3.0
Premium arising on issue of equity shares
–
Share issue costs
34.9
As at 31 December
Group and Company
2022
$ million
2021
$ million
58.0
–
–
58.0
55.4
3.4
(0.8)
58.0
As at 31 December 2022, authorised share capital comprised 600 million (2021: 600 million) ordinary shares of £0.05 each with a total nominal
value of £30m (2021: £30m).
In July 2022, in order to deliver increased value to shareholders through share price accretion, the Company initiated a share buyback
programme to purchase $3m (excluding stamp duty and expenses) of the Company's ordinary shares and this programme successfully
completed by year end. A total of 10.3 million shares were bought, at a daily average price of 24.4p.
The Board strongly believes that the Company's shares are still trading at a material discount to their underlying net asset value, despite the
performance across the Group’s asset base, and the Board remains of the view that a continuation of share buybacks is an appropriate means of
returning value to shareholders. Therefore, the Company plans to continue with the share buyback programme in 2023 and has pledged a further
$3m commitment (excluding stamp duty and expenses).
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Pharos Energy Annual Report and Accounts 2022Additional InformationStrategic ReportFinancial StatementsGovernance Report Capital
redemption
reserve
$ million
Merger
reserve
$ million
Own shares
$ million
Hedging
reserve
$ million
Share-based
payments
$ million
Total
$ million
Group
100.3
188.7
(45.3)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
28. Other reserves
As at 1 January 2021
Other comprehensive income
Shares issued
Share-based payments
Transfer relating to share-based payments
As at 1 January 2022
100.3
194.0
Other comprehensive income
Share buy back
Treasury shares repurchased
Share-based payments
Transfer relating to share-based payments
–
0.6
–
–
–
–
–
–
–
–
–
–
–
–
–
5.3
–
–
–
–
–
1.0
(44.3)
–
–
(0.6)
–
2.2
As at 31 December 2022
100.9
194.0
(42.7)
(0.7)
As at 1 January 2021
Shares issued
Currency exchange translation differences
Share-based payments
Transfer relating to share-based payments
As at 1 January 2022
Share buy back
Share-based payments
Transfer relating to share-based payments
Capital
redemption
reserve
$ million
100.3
–
–
–
–
100.3
0.6
–
–
Merger
reserve
$ million
131.8
5.3
–
–
–
Own shares
$ million
(40.3)
–
–
–
–
137.1
(40.3)
–
–
–
–
–
–
As at 31 December 2022
100.9
137.1
(40.3)
(6.3)
2.0
–
–
–
(4.3)
3.6
–
–
–
–
5.6
243.0
–
–
2.5
(3.3)
4.8
–
–
–
1.7
(4.4)
2.1
Share-based
payments
$ million
5.8
–
0.1
2.5
(3.1)
5.3
–
1.7
(5.0)
2.0
2.0
5.3
2.5
(2.3)
250.5
3.6
0.6
(0.6)
1.7
(2.2)
253.6
Company
Total
$ million
197.6
5.3
0.1
2.5
(3.1)
202.4
0.6
1.7
(5.0)
199.7
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 2022 was 9,122,268
(2021: 9,122,268) and 2,126,857 (2021: 1,764,757) respectively. The market price of the shares at 31 December 2022 was £0.2330
(2021: £0.2600). 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 134 to 155.
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.
195
Pharos Energy Annual Report and Accounts 2022 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
29. Distribution to shareholders
The Board have recommended a final dividend of 1.00 pence per share (equivalent to $5.46m at the average rate of exchange for 2022)
subject to approval of the shareholders at the Company’s 2023 AGM. This reflects a return to shareholders of at least 10% of Operating
Cash Flow (OCF), consistent with the revised dividend policy after the Company withdrew dividend payments in 2021 and 2020 due
to ongoing uncertainty in the macro environment. The final dividend will be paid in full on 12 July 2023 in Pounds Sterling to ordinary
shareholders on the register at the close of business on 16 June 2023.
30. Retained (deficit) / earnings
As at 1 January 2021
Loss for the year
Transfer relating to share-based payments
As at 1 January 2022
Profit for the year
Share buy back
Transfer relating to share-based payments
As at 31 December 2022
As at 1 January 2021
Profit for the year
Currency exchange translation differences
Transfer relating to share-based payments
As at 1 January 2022
Profit for the year
Share buy back
Transfer relating to share-based payments
As at 31 December 2022
Retained
(loss)/profit
$ million
Unrealised currency
translation differences
$ million
(41.7)
(4.7)
2.3
(44.1)
24.4
(2.9)
2.2
(20.4)
Retained
(loss)/profit
$ million
230.5
1.9
–
2.3
234.7
60.7
(2.9)
2.3
294.8
5.1
–
–
5.1
–
–
–
5.1
Unrealised currency
translation differences
$ million
(223.6)
–
1.5
–
(222.1)
–
–
–
(222.1)
Group
Total
$ million
(36.6)
(4.7)
2.3
(39.0)
24.4
(2.9)
2.2
(15.3)
Company
Total
$ million
6.9
1.9
1.5
2.3
12.6
60.7
(2.9)
2.3
72.7
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Pharos Energy Annual Report and Accounts 2022Additional InformationStrategic ReportFinancial StatementsGovernance Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
31. Incentive plans
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 134 to 155. The Group recognised total expenses of $1.7m (2021: $2.7m) 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. 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.
392,779 awards were exercised during 2022. 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
Granted
Exercised
Forfeited during the year
As at 31 December
2022
No. of share
awards
2021
No. of share
awards
18,985,754
17,996,007
5,991,668
(392,779)
(6,942,431)
17,642,212
6,220,882
(385,427)
(4,845,708)
18,985,754
Exercisable as at 31 December
–
–
Awards outstanding at the end of the year have a weighted average remaining contractual life of 1.4 (2021: 1.4) years. The weighted
average market price and estimated fair value of the 2022 grants (at grant date) were £0.28 and £0.20, respectively.
The fair value of the LTIPs granted during 2022 has been provided by a Remuneration Consultant, which estimates the Company’s
performance against the targets using a Stochastic and Black Scholes model. The future vesting proportion in 2022 was 72%.
Previously, the fair value of awards at the date of grant had been estimated using Black Scholes model, based on the market price at
date of grant and a nil exercise price. The future vesting proportion in 2021 was 64%.
The main assumptions for the calculation are as follows:
Volatility
Risk free rate of interest
Correlation with comparator group
Other Share Schemes
2022
43.89%
1.51%
n/a
2021
34.46%
1.30%
n/a
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.
197
Pharos Energy Annual Report and Accounts 2022 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
As at 1 January
Granted
Forfeited during the year
Exercised
As at 31 December
Exercisable as at 31 December
2022
No. of share
awards
Weighted average
exercise price
£
2,618,182
2,273,685
(570,967)
(1,434,043)
2,886,857
578,172
0.43
–
–
0.33
0.40
0.41
2021
Weighted average
exercise price
£
0.46
–
–
–
0.43
0.67
No. of share
awards
3,176,395
–
–
(558,213)
2,618,182
1,245,077
The weighted average market price at the date of exercise during 2022 was £0.25 (2021: £0.21). Awards outstanding at the end of the
year have a weighted average remaining contractual life of 6.5 (2021: 6.4) years.
The fair value of the awards granted during 2022 and 2021 have been estimated using Black Scholes model, based on the market price
at date of grant and a nil exercise price. The main assumptions for the calculation are as follows:
Volatility
32. Reconciliation of operating profit/(loss) to operating cash flows
Operating profit/(loss)
Share-based payments
Depletion, depreciation and amortisation
Impairment reversal
Operating cash flows before movements in working capital
(Increase)/decrease in inventories
(Increase)/decrease in receivables1
(Decrease)/increase in payables
Cash generated by (used in) operations
Interest received/(paid)
Other/restructuring expense outflow
Income taxes paid
Net cash from (used in) operating activities
2022
$ million
Group
2021
$ million
100.2
1.3
55.2
(27.9)
128.8
(0.9)
(7.7)
(9.5)
110.7
0.1
(2.7)
(54.7)
53.4
48.3
2.4
51.4
(42.0)
60.1
0.8
(7.2)
(2.2)
51.5
(0.1)
(0.7)
(39.9)
10.8
2022
n/a
2021
n/a
2022
$ million
44.2
1.3
–
(53.9)
(8.4)
–
1.2
(1.8)
(9.0)
0.1
(2.7)
–
(11.6)
Company
2021
$ million
(3.6)
2.4
–
(7.9)
(9.1)
–
0.4
2.2
(6.5)
–
(0.6)
–
(7.1)
1) Includes $1.5m (2021: $0.1m) increase in risk factor provision in respect of Egypt trade receivables.
During the year a total of $4.6m (2021: $8.3m) of trade receivables due from EGPC in Egypt were settled by way of non-cash offset, out
of which $1.0m relates to 3rd Amendment signature bonus (2021: $nil), $1.1m was set against trade payables (2021: $8.3m), $2.0m
Assignment bonus settled on behalf of the Farm out partner, IPR, and $0.5m Group’s share of NBS Concession assignment bonus (see
Note 37).
198
Pharos Energy Annual Report and Accounts 2022Additional InformationStrategic ReportFinancial StatementsGovernance Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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.
34. Capital commitments
At 31 December 2022, the Group had exploration licence
commitments not accrued of approximately $26.6m (2021:
$36.2m).
Lease liability recognised
as at 1 January
New leases
Interest expense (see Note 9)
Principal repayments
Lease liability recognised
as at 31 December
Of which are:
Current lease liabilities
Non-current lease liabilities
Right-of-use assets recognised
as at 1 January
New leases
Depreciation
Right-of-use assets recognised
as at 31 December
Of which are:
Oil & Gas properties
2022
$ million
2021
$ million
–
0.9
–
(0.1)
0.8
0.3
0.5
–
0.9
(0.1)
0.8
0.8
0.4
–
–
(0.4)
–
–
–
0.1
–
(0.1)
–
–
During 2022, Pharos signed a new agreement for rental of gas
generators in Egypt, the agreement is effective from August 2022
to October 2025 and is accounted for as a lease under IFRS 16.
Pharos 45% share of the asset and liability which is applicable
post completion of the Farm out (21 March 2022) has been
recognised accordingly. The lease was measured at the present
value of the lease payments, discounted using the incremental
borrowing rate at the start of the lease, 6.3%.
The following table presents the amounts reported in the income
statement for short-term leases:
Operating lease expenses
by segment
2022
$ million
2021
$ million
SE Asia
Egypt
13.1
1.4
14.5
13.6
2.6
16.2
At 31 December 2022, the Group is committed to its share
of $10.9m for short-term leases of less than 12 months and
accordingly not included in the above. Certain short-term leases
contain discretionary options to extend the lease period. These
future periods are only included in the assessment of the lease
term only after consideration of the economic incentives and if it is
reasonably certain that the option will be exercised.
35. Related party transactions
During the year, the Company recorded a net cost of $0.01m
(2021: net cost of $0.01m) 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 136 to 142.
Short-term employee benefits
Post-employment benefits
Share-based payments
2022
$ million
2021
$ million
3.0
0.1
1.0
4.1
4.5
0.2
3.1
7.8
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.
36. Financial instruments
Financial Risk Management: Objectives and Policies
The main risks arising from the Group’s financial instruments are
commodity price risk, liquidity risk, credit risk, foreign currency
risk and interest rate risk. The Board of Pharos regularly 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 Risk Committee.
The management of these risks is carried out by monitoring of
cash flows, investment and funding requirements using a variety
of techniques. These potential exposures are managed while
ensuring that the Company and the Group have adequate liquidity
at all times in order to meet their immediate cash requirements.
There are no significant concentrations of risks unless otherwise
stated. The Group does not enter into or trade financial
instruments, including derivatives, for speculative purposes.
The primary financial assets and liabilities comprise cash, short-
and medium-term deposits, money market liquidity funds, intra
group loans, trade receivables and other receivables and financial
liabilities held at amortised cost. The Group’s strategy has been
to finance its operations through a mixture of retained profits and
bank borrowings. Other alternatives such as equity issues are
reviewed by the Board, when appropriate.
199
Pharos Energy Annual Report and Accounts 2022 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The maximum credit risk exposure relating to financial assets is
represented by the carrying value as at the balance sheet date.
The Group’s trade receivables in Note 20, although 99% (2021:
98%) concentrated with two customers across both Vietnam and
Egypt producing assets, are predominantly with a major oil & gas
company and the subsidiary of a government regulated entity.
The credit risk is therefore deemed to be negligible, despite the
significant devaluation of the Egyptian Pound against US Dollar
documented in the following section.
Foreign Currency Risk
Pharos manages exposures that arise from non-functional
currency receipts and payments by matching receipts and
payments in the same currency and actively managing the residual
net position. The Group does not hedge any foreign exchange
exposure.
The Group also aims where possible to hold surplus cash, debt
and working capital balances in the functional currency of the
subsidiary, thereby matching the reporting currency and functional
currency of most companies in the Group. This minimises the
impact of foreign exchange movements on the Group’s Balance
Sheet. Oil and gas sales in Vietnam are raised and settled through
a combination of Vietnamese Dong (VND) and US Dollars (USD),
along with associated tax and royalty payments. The Group holds
a number of VND and USD bank accounts that provide a natural
hedge against foreign exchange movements.
In the Egypt business, the recent global macroeconomic volatility
has seen both a significant devaluation of the Egyptian Pound
and continued restrictions on outgoing US Dollar transfers by the
Central Bank of Egypt. The Company has opted not to accept the
payment of trade receivables balance in Egyptian Pounds unless
required for operations. The progressive devaluation of EGP
against USD means that it is preferable to continue to hold USD
denominated receivables. As a result, Pharos’ receivables have
increased to $24.2m at 31 December 2022, inclusive of c.$7m
catch-up invoice for improved fiscal terms and stated prior to a
risk factor provision of $1.8m (2021: $7.4m receivables).
The International Monetary Fund (IMF) recently announced that
its Executive Board had approved the provision of a $3 billion,
46-month extended fund facility to Egypt, which the IMF expects
to catalyse additional financing of approximately $14 billion from
Egypt’s international and regional partners. In addition, Egypt is
seeking access to up to a further $1 billion from the IMF’s newly
created resilience and sustainability facility to support climate-
related policy goals. Taken together, these developments are
widely anticipated to improve Egypt’s FX reserves and overall
liquidity in the first half of 2023. The Company therefore remains
optimistic that outstanding receivables with EGPC will start to be
recovered during 2023.
The Group’s UK head office contributes the majority of
administrative costs which are denominated in GBP. The level
of monetary working capital balances denominated in GBP
is relatively low and therefore the Group’s exposure to foreign
currency changes for all currencies is not considered to be
material.
Commodity Price Risk
Commodity price risk arises principally from the Group’s Vietnam
and Egypt production, which could adversely affect revenue and
debt availability due to changes in commodity prices.
The Group measures commodity price risk through an analysis
of the potential impact of changing commodity prices. Based on
this analysis and considering materiality and the potential business
impact, the Group may choose to hedge.
During 2022, Pharos entered into different commodity (swap and
zero collar) 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 2023 and are settled monthly. Details
of current hedging arrangements and the categorisation of the
swaps in the fair value hierarchy can be found in Note 25.
Transacted derivatives are designated as cash flow hedge
relationships to minimise accounting income statement volatility.
The Group is required to assess the likely effectiveness of any
proposed cash flow hedging relationship and demonstrate that
the hedging relationship is expected to be highly effective prior to
entering into a hedging instrument and at subsequent reporting
dates.
Liquidity Risk
Pharos closely monitors and manages its liquidity risk using both
short- and long-term cash flow projections, supplemented by
debt and equity financing plans and active portfolio management.
Cash forecasts are regularly produced and sensitivities run for
different scenarios including, but not limited to, changes in asset
production profiles and cost schedules.
Details of the Group’s borrowings and debt facilities can be
found in Note 24. The Group is subject to half-yearly forecast
liquidity tests as part of the redetermination process for the RBL
facility agreement. The Group has complied with the liquidity
requirements of this test at all times during the year.
The Group invests cash in a combination of money market
liquidity funds and term deposits with a number of international
and UK financial institutions, ensuring sufficient liquidity to enable
the Group to meet its short and medium-term expenditure
requirements.
Credit Risk
Credit risk arises from cash and cash equivalents, investments
with banks and financial institutions, trade and other receivables
and joint operation receivables.
Customers and joint operation partners are subject to a risk
assessment using publicly available information and credit
reference agencies, with follow-up due diligence and monitoring if
required.
Investment credit risk for investments with banks and other
financial institutions is managed by the Group Treasury function in
accordance with the Board-approved policies of the Group. These
policies limit counterparty exposure, maturity, collateral and take
account of published ratings, market measures and other market
information.
The Company’s policy is to invest with banks or other financial
institutions that, firstly, offer the greatest degree of security in the
view of the Group and, secondly, the most competitive interest
rates. The Board continually re-assesses the Group’s policy and
updates as required.
200
Pharos Energy Annual Report and Accounts 2022Additional InformationStrategic ReportFinancial StatementsGovernance Report The following assets and liabilities were reclassified as held for sale
in relation to the discontinued operation as at 31 December 2021:
2021
$ million
2.1
61.6
(10.4)
51.2
0.4
6.3
2.0
62.0
(8.5)
(8.5)
53.5
2022
$ million
(2.3)
(54.4)
(5.9)
(2.3)
8.3
(56.6)
5.0
36.3
13.9
0.5
55.7
(3.7)
(1.7)
(6.3)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Interest Rate Risk
The replacement of benchmark interest rates such as LIBOR
and other IBORs has been a priority for global regulators. The
Group has closely monitored the market and the output from the
various industry working groups managing the transition to new
benchmark interest rates. This includes announcements made by
LIBOR regulators (including the Financial Conduct Authority (FCA)
and the US Commodity Futures Trading Commission) regarding
the transition away from LIBOR (including GBP LIBOR and USD
LIBOR). In addition, the current global high-inflationary economic
environment means that interest rates could potentially rise in the
short to medium-term, thus increasing the cost of borrowing.
Intangible assets
Property, plant and equipment
– oil and gas properties - NBV
Impairment charge
– Assets classified as held for sale
Property, plant and equipment
– oil and gas properties – after impairment
As at 31 December 2022, Pharos had total borrowings of $74.2m
(2021: $80.5m) as described in Note 24. If interest rates increased
by 100 basis points, assuming the principal loans stayed
constant, the annualised interest payable by the company would
increase by $0.7m (2021: $0.8m) which would translate through
to profits and net assets. The Group’s interest received on cash
and cash equivalents is immaterial.
Property, plant and equipment
– other - NBV
Inventories
Trade and other receivables
Assets classified as held for sale
Trade and other payables
37. Disposal of 55% interest in Egypt
Concessions
In December 2021, the company classified 55% of the Group’s
operated interest in each of our Egyptian Concessions, El Fayum
and North Beni Suef, as Assets classified as held for sale (Net
assets classified as held for sale as 31 December 2021: $53.5m).
An impairment of $10.4m was recognised to bring the value of the
net assets classified as held for sale down to the fair value less
costs to sell calculated as at 31 December 2021.
Following the completion of the farm-out transaction of Egyptian
assets to IPR, the accounting for the assets reflect the following:
Liabilities directly associated with
assets classified as held for sale
Net assets classified as held for sale
Disposal of asset held for sale:
Intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Trade and other payables
The economic date of the transaction was 1 July 2020, with
completion on 21 March 2022.
Disposal of 55% of El Fayum and NBS
Pharos owned and managed the business up to completion. On
completion, an adjustment to compensate for net cash flows
since the economic date has been adjusted for in the level of carry
to be provided by IPR to Pharos.
In the financial statements, for the period post completion, Pharos
45% share of field costs – capex, opex and G&A – are accounted
for as incurred by Pharos, although all such costs are paid by IPR
and set off against the carry.
All revenues earned are paid direct to Pharos.
Firm consideration received - IPR Cash Receipts
Other receivable – Carry
Other receivable - contingent consideration
Other receivable with IPR
Consideration received and to be received
Assignment fees payable to EGPC
Success fees paid on completion
Loss on disposal
201
Pharos Energy Annual Report and Accounts 2022 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The firm consideration was received in two tranches, $2.0m in
September 2021 and $3.0m on 30 March 2022.
The carry of $36.3m is disproportionate funding contribution from
IPR adjusted for working capital and interim period adjustments
from the effective economic date of 1 July 2020 and completion
date.
The carry decreases every month against the cash calls received
from IPR. The total amount utilised as at 31 December 2022
amounts to $15.4m, which has been disclosed in “Consideration
received on farm out of Egyptian assets” in the cash flow as part
of investing activities (combined with $3.0m firm consideration
received on 30 March 2022). No cash outflow is required until we
utilise the whole amount.
The Group is entitled to contingent consideration depending on
the average Brent Price each year from 2022 to the end of 2025
(with floor and cap at $62/bbl and c.$90/bbl respectively). The
contingent consideration is calculated yearly and is capped at a
maximum total payment of $20.0m. As at 31 December 2022, the
contingent consideration amounts to $13.9m ($5.0m current and
$8.9m non-current). Testing of sensitivity for a $5/bbl reduction
in long term oil price used would result in $1.3m decrease in
contingent consideration to $12.6m.
The loss on disposal has increased by $0.5m from the position
stated as at 30 June 2022 in the Company’s interim financial
statements. This is due primarily to a reduction of the amount
classified as the carry element of the consideration from $37.0m
to $36.3m following a change in the best estimate of the
adjustment relating to the interim period between the economic
date of 1 July 2020 and the completion date. The reduction in the
carry is partially offset by an increase in the amount classified as
contingent consideration from $13.6m to $13.9m, reflecting the
Group’s entitlement to the full $5 million of the first tranche of the
contingent consideration payable in respect of average Brent price
during 2022.
As at 31 December 2022, $3.7m relates to the assignment fee
for the sale of 55% of the Group’s operated interest in each of our
Egyptian Concessions, El Fayum and North Beni Suef, to IPR.
$0.5m Group’s share of NBS Concession assignment bonus was
settled against Trade Receivables. Out of the remaining $3.2m,
$2.3m is booked as current other payable and $0.9m as non-
current other payable.
The final consideration is still being finalised between IPR and
Pharos. The financial exposure from finalising the consideration to
Pharos, reflecting the remaining amounts still under discussion, is
considered immaterial to the financial statements.
202
Pharos Energy Annual Report and Accounts 2022Additional InformationStrategic ReportFinancial StatementsGovernance Report NON-IFRS MEASURES
Non-IFRS Measures (Unaudited)
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.
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.
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, trade receivable
risk factor provision 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:
2022
$ million
2021
$ million
116.8
114.6
Depreciation, depletion and amortisation
Production based taxes
Export duty
Inventories
Trade receivable risk factor provision
Other cost of sales
Cash operating costs
(55.1)
(14.7)
(3.2)
1.8
(1.5)
(1.3)
42.8
(51.0)
(10.1)
–
0.1
–
(1.6)
52.0
Depreciation, depletion and amortisation
Production (BOEPD)
DD&A per BOE ($)
2022
$ million
2021
$ million
(55.1)
7,166
21.07
(51.0)
8,878
15.74
DD&A per barrel by segment (2022)
Depreciation, depletion and
amortisation
Production (BOEPD)
DD&A per BOE ($)
Vietnam
$ million
Egypt
$ million
Total
$ million
(51.0)
(4.1)
(55.1)
5,418
25.79
1,748
6.43
7,166
21.07
Net debt
Net debt comprises interest-bearing bank loans, less cash and
cash equivalents.
2022
$ million
2021
$ million
45.3
(74.2)
(28.9)
27.1
(84.6)
(57.5)
Production (BOEPD)
7,166
8,878
Cash and cash equivalents
Borrowings*
Cash operating cost per BOE ($)
16.36
16.05
Net Debt
Cash operating cost per barrel by segment (2022)
* Exclude unamortised capitalised set up costs
Cost of sales
Depreciation, depletion
and amortisation
Production based taxes
Export duty
Inventories
Trade receivable
risk factor provision
Other cost of sales
Cash operating costs
Vietnam
$ million
Egypt
$ million
Total
$ million
99.6
(51.0)
(14.5)
(3.2)
1.6
–
(0.8)
31.7
17.2
(4.1)
(0.2)
–
0.2
(1.5)
(0.5)
11.1
116.8
(55.1)
(14.7)
(3.2)
1.8
(1.5)
(1.3)
42.8
EBITDAX
EBITDAX is earnings from continuing activities before interest, tax,
DD&A, impairment of PP&E and intangibles, exploration other/
expenditure and Other/restructuring expense items in the current
year.
Operating profit
Depreciation, depletion and amortisation
Impairment reversal
EBITDAX
2022
$ million
2021
$ million
100.2
55.2
(27.9)
127.5
48.3
51.4
(42.0)
57.7
Production (BOEPD)
5,418
1,748
7,166
Cash operating cost per BOE ($)
16.03
17.40
16.36
203
Pharos Energy Annual Report and Accounts 2022 NON-IFRS MEASURES - CONTINUED
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
2022
$ million
2021
$ million
(28.9)
127.5
(0.23)
(57.5)
57.7
(1.00)
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
2022
$ million
2021
$ million
74.2
330.6
0.22
84.6
304.4
0.28
* Exclude unamortised capitalised set up costs
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.
2022
$ million
2021
$ million
Net cash from operating activities
53.4
10.8
Weighted number of shares in the year
439,253,641 437,512,648
Operating cash per share
0.12
0.02
204
Pharos Energy Annual Report and Accounts 2022Strategic ReportAdditional InformationGovernance ReportFinancial Statements FIVE YEAR SUMMARY (UNAUDITED)
Five Year Summary (Unaudited)
Year to
31 Dec 2022
$ million
Year to
31 Dec 2021
$ million
Year to
31 Dec 2020
$ million
(Restated)
Year to
31 Dec 2019
$ million
Year to
31 Dec 2018
$ million
221.6
(22.5)
82.3
100.2
24.4
163.8
(29.7)
19.5
48.3
(4.7)
118.3
23.7
18.2
(231.3)
(215.8)
189.9
175.1
(0.2)
61.1
38.0
(24.5)
–
70.5
79.9
27.7
2022
$ million
2021
$ million
2020
$ million
(Restated)
2019
$ million
2018
$ million
457.4
56.4
(183.2)
330.6
92.3
253.6
(15.3)
330.6
460.3
51.6
(207.5)
304.4
92.9
250.5
(39.0)
304.4
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
Year to
31 Dec 2022
$ million
Year to
31 Dec 2021
$ million
Year to
31 Dec 2020
$ million
(Restated)
Year to
31 Dec 2019
$ million
Year to
31 Dec 2018
$ million
53.4
31.9
-
10.8
41.8
-
56.4
41.3
-
72.3
63.4
27.4
54.2
22.4
23.3
Consolidated income statement
Oil and gas revenues
Commodity hedge (losses)/gains
Gross profit
Operating profit/(loss)
Profit/(loss) for the year
Consolidated balance sheet
Non-current assets
Net current assets
Non-current liabilities
Net assets
Share capital
Other reserves
Retained earnings/(deficit)
Total equity
Consolidated cash flow statement
Net cash from operating activities
Capital expenditure
Distributions
205
Pharos Energy Annual Report and Accounts 2022
RESERVES STATISTICS (UNAUDITED)
Reserves Statistics (Unaudited)
Net working interest, MMBOE
Oil and Gas 2P Commercial Reserves1,2
As at 1 January 2022
Production
Revision
Change in working interest5
2P Commercial Reserves as at 31 December 2022
Oil and Gas 2C Contingent Resources1,2
As at 1 January 2022
Revision
Change in working interest5
2C Contingent Resources as at 31 December 2022
TGT
CNV
Vietnam3
Egypt4
Group
10.9
(1.5)
(0.6)
–
8.8
7.6
(0.2)
–
7.4
4.3
(0.5)
(0.4)
–
3.4
3.8
(0.4)
–
3.4
15.2
(2.0)
(1.0)
–
12.2
11.4
(0.6)
–
10.8
37.8
(0.6)
(1.5)
(20.7)
15.0
18.6
0.5
(10.2)
8.9
53.0
(2.6)
(2.5)
(20.7)
27.2
30.0
(0.1)
(10.2)
19.7
Total of 2P Reserves and 2C Contingent Resources
as at 31 December 2022
16.2
6.8
23.0
23.9
46.9
1) Reserves and Contingent Resources are categorised in line with 2018 SPE standards.
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 McDaniel.
5) Pharos Energy net working interest in El Fayum is 45% post completion of farm down transaction to IPR Energy on 21 March 2022
Risks associated with reserves evaluation and estimation uncertainty are discussed in Note 4(b) to the Financial Statements.
206
Pharos Energy Annual Report and Accounts 2022Strategic ReportAdditional InformationGovernance ReportFinancial Statements
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
2022 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 2022.
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 2022 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
The information is reported under the following payment types:
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 2022, 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.
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.
Production entitlements in barrels
Export Duty
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.
207
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.
Pharos Energy Annual Report and Accounts 2022
TRANSPARENCY DISCLOSURE 2022 (UNAUDITED)
Transparency Disclosure 2022 (Unaudited)
Production
entitlements
Production
entitlements
Income
Taxes Royalties Dividends
Bonus
Payments
Licence
fees
Infrastructure
improvement
payments
Total EU
Transparency
Directive
Payroll
Taxes
Export
Duty
With-
holding
Tax
Other
Taxes
Total
UK Regulations
Voluntary Disclosure
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
1,101
110,616
42,251
12,231
Block 9.2
452
30,054
11,295
1,705
Total Vietnam
1,553
140,670
53,546
13,936
Egypt
El Fayum
North Beni Suef
Total Egypt
United Kingdom (UK)
Corporate
Total UK
300
–
300
–
–
United States of America (US)
Corporate
Total US
–
–
28,828
–
28,828
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Pharos Total
1,853
169,498
53,546
13,936
–
–
–
–
–
–
–
–
–
–
–
–
–
–
78
75
153
1,242
725
1,967
–
–
–
–
–
–
–
–
–
–
–
1,967
153
–
–
–
–
–
–
–
–
–
–
–
165,176
43,129
208,305
30,070
725
30,795
–
–
–
–
–
–
–
3,183
–
3,183
504
–
504
2,154
2,154
338
338
–
–
–
–
–
–
–
239,100
2,996
3,183
–
–
–
2
–
2
–
–
–
–
2
–
–
–
–
–
–
–
–
–
–
–
3,183
–
3,183
506
–
506
2,154
2,154
338
338
6,181
Production
entitlements
Production
entitlements
Income
Taxes Royalties Dividends
Bonus
Payments
Licence
fees
Infrastructure
improvement
payments
Total EU
Payroll
Taxes
Export
Duty
With-
holding
Tax
Other
Taxes
Total
UK Regulations
Voluntary Disclosure
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
Country/
Government
Vietnam*
Ho Chi Minh City
Tax Dept
Customs Office
PetroVietnam
E&P Corp
(PVEP)
–
–
–
–
1,553
140,670
53,546
13,936
–
–
–
–
Total Vietnam
1,553
140,670
53,546
13,936
Egypt
Egyptian General
Petroleum
Corporation
(EGPC)
300
28,828
Tax department
–
–
Total Egypt
300
28,828
United Kingdom (UK)
Inland Revenue
Total UK
–
–
United States of America (US)
Internal Revenue
Service
Total US
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Pharos Total
1,853
169,498
53,546
13,936
*
Joint Operating Company Project’s tax payments reported on Pharos Net Working Interest Basis.
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
153
153
1,967
–
1,967
–
–
–
–
–
–
–
–
–
–
–
1,967
153
–
–
–
–
–
–
–
–
–
–
–
–
67,482
–
140,823
208,305
30,795
–
30,795
–
–
–
–
–
–
–
–
–
504
504
2,154
2,154
338
338
–
3,183
–
3,183
–
–
–
–
–
–
–
239,100
2,996
3,183
–
–
–
–
–
2
2
–
–
–
–
2
–
–
–
–
–
–
–
–
–
–
–
–
–
3,183
–
3,183
–
506
506
2,154
2,154
338
338
6,181
208
Pharos Energy Annual Report and Accounts 2022Strategic ReportAdditional InformationGovernance ReportFinancial Statements 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
CDP
Formerly the Carbon Disclosure Project
CEO
Chief Executive Officer
CFO
Chief Financial Officer
CNV
Ca Ngu Vang field located in Block 9-2
CO2
Carbon Dioxide
CO2e
Carbon Dioxide Equivalent
Company or Pharos
Pharos Energy plc
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
Contractor
The party or parties identified as being, or
forming part of, the “CONTRACTOR” as
defined in the El Fayum Concession or,
as the case may be, the North Beni Suef
Concession
CR
Corporate Responsibility
209
D
DD&A
Depreciation, depletion and amortisation
DP Semi-Submersible
Dynamic positioning semi-submersible
drilling rig
E
E&P
Exploration & Production
EBITDAX
Earnings from continuing activities before
interest, tax, DD&A, impairment of PP&E and
intangibles, exploration other/expenditure
and other/restructuring expense items.
EBT
Employee benefit trust
E&E
Exploration and Evaluation
El Fayum or the El Fayum Concession
The concession agreement for petroleum
exploration and exploitation entered into on
15 July 2004 between the Arab Republic
of Egypt, EGPC and Pharos El Fayum in
respect of the El Fayum area, Western
Desert, as amended from time to time
EGP
Egyptian Pound
EGPC
Egyptian General Petroleum Corporation
EU
European Union
F
FFDP
Full Field Development Plan
Financial Statements
The preliminary financial statements of the
Company and the Group for the year ended
31 December 2022
FPSO
Floating, Production, Storage and Offloading
Vessel
FRC
Financial Reporting Council
FY
Full year
G
G&A
General and administration
GDP
Gross domestic product
GHG
Greenhouse gas
Group
Pharos and its direct and indirect subsidiary
undertakings
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
IAS
International Accounting Standards
IFRS
International Financial Reporting Standards
IMF
International Monetary Fund
IOGP
The International Association of Oil & Gas
Producers
IPIECA
The global oil and gas industry association
for environmental and social issues
IPR or IPR Energy Group
The IPR Energy group of companies,
including IPR Lake Qarun and IPR Energy
AG, or such of them as the context may
require
IPR Lake Qarun
IPR Lake Qarun Petroleum Co, an exempted
company with limited liability organised
and existing under the laws of the Cayman
Islands (registration number 379306), a
wholly owned subsidiary of IPR Energy AG
IRR
Internal Rate of Return
J
JOC
Joint Operating Company
JV
Joint venture
K
k
thousands
kbopd
Thousand barrels of oil per day
Km
Kilometre
km2
Square kilometre
L
LTI
Lost Time Injury
LTIF
Lost Time Injury Frequency
LTIP
Long Term Incentive Plan
Pharos Energy Annual Report and Accounts 2022
M
m
million
M&A
Mergers and Acquisitions
McDaniel
McDaniel & Associates Consultants Ltd
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
NAV
Net asset value
NBE
The National Bank of Egypt, the largest
Egyptian commercial bank and owned by the
state of Egypt
NBS, North Beni Suef or the North Beni
Suef Concession
The concession agreement for petroleum
exploration and exploitation entered into
on 24 December 2019 between the Arab
Republic of Egypt, EGPC and Pharos El
Fayum in respect of the North Beni Suef area,
Nile Valley
NPV
Net Present Value
O
OCF
Operating cash flow
OOIP
Original Oil in Place
OPECO Vietnam
OPECO Vietnam Limited
Opex
Operational expenditure
P
PEF
Pharos El Fayum, a wholly owned subsidiary
of the Company holding the Group’s
participating interest in El Fayum and North
Beni Suef
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
PP&E
Property, plant and equipment
Prospect or prospect
An identified trap that may contain
hydrocarbons. A potential hydrocarbon
accumulation may be described as a lead
or prospect depending on the degree of
certainty in that accumulation. A prospect
generally is mature enough to be considered
for drilling
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
SPA
Sales and Purchase Agreement
STOIIP
Stock Tank Oil Initially In Place
T
TOR
Terms of Reference
TCFD
Task Force on Climate-Related Financial
Disclosures established by the G20 Financial
Stability Board
TGT
Te Giac Trang field located in Block 16-1,
Vietnam
TSR
Total shareholder return
TIA
Tie-in Agreement
U
UK
United Kingdom
US
United States of America
W
WHP
Wellhead Platform
WFH
Work from home
WTI
West Texas Intermediate
Y
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
2018 Code
The 2018 UK Corporate Governance Code
of the Financial Reporting Council
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
210
Pharos Energy Annual Report and Accounts 2022Strategic ReportAdditional InformationGovernance ReportFinancial Statements
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 Adviser and
Corporate Brokers:
Jefferies
100 Bishopsgate London, EC2N 4JL
United Kingdom
Peel Hunt
120 London Wall, London EC2Y 5ET
United Kingdom
Financial Calendar
Group results for the year to 31 December
are announced in March. The Annual
General Meeting is held during the second
quarter. Interim Results to 30 June are
announced in September.
Registrar:
RD:IR Limited
9 Bridewell Place, London EC4V 6AW
United Kingdom
Advisers Auditor:
Deloitte LLP
London, United Kingdom
Solicitors:
Shepherd and Wedderburn LLP
1 Exchange Crescent, Conference Square
Edinburgh, EH3 8UL United Kingdom
Bankers:
J.P. Morgan
25 Bank Street, Canary Wharf, London
E14 5JP, 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
211
Pharos Energy Annual Report and Accounts 2022 212
Pharos Energy Annual Report and Accounts 2022Strategic ReportAdditional InformationGovernance ReportFinancial Statements 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