Annual Report
Annual Report
& Accounts
2023
www.pharos.energy
STRATEGIC
Who we are
Pharos at a glance
Where we operate
Our strategy & purpose
Our strategic objectives
Our investment case
− 1. Capital discipline in our DNA
− 2. Unique and complementary assets
− 3. Operational capability
− 4. Diverse & inclusive workforce
Chair’s Statement
Market overview
Chief Executive Offi cer’s Statement
Business model
Key metrics
Operational Review
− Egypt
− Vietnam
− Group Reserves and Contingent Resources
Section 172(1) Statement
Chief Financial Offi cer’s Statement
Risk Management
Principal risks and mitigations
− Viability Statement
Corporate Responsibility Report
− Governing Corporate Responsibility
− Business
− Ethics
− People
− Society
− Environment
Corporate Responsibility Non-Financial Indicators
TCFD Report
GOVERNANCE
Chair’s introduction to Governance
Leadership & Governance
Board of Directors
UK Corporate Governance Code
100
102
104
106
Environmental, Social and Governance (‘ESG’) Committee Report 114
Nominations Committee Report
Audit and Risk Committee Report
Directors’ Remuneration Committee Report
− Annual Report on Remuneration (Audited section)
− Notes to the single fi gure table
− Unaudited Section
Directors’ Report
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 (Unaudited)
Five year summary (Unaudited)
Reserves Statistics (Unaudited)
Report on Payments to Governments (Unaudited)
Transparency Disclosure 2023 (Unaudited)
Glossary of Terms
Company Information
117
120
126
128
129
135
143
149
158
158
158
159
160
161
162
190
192
193
194
195
196
198
3
4
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83
Pharos at a
glance
Page 4
Our strategy
& purpose
Page 7
2
Annual Report and Accounts 2022
Annual Report and Accounts 2023
Pharos Energy
Pharos Energy
Strategic Report
Governance Report
Financial Statements
Additional Information
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 robust cash fl ow and a
resilient balance sheet.
With a registered offi ce in London and listed on the premium segment in 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
1,381 bopd
2023 EGYPT PRODUCTION (NET)
VIETNAM
5,127 boepd
2023 VIETNAM PRODUCTION (NET)
EGYPT
D, P, E
VIETNAM
D, P, E
D: Development P: Production E: Exploration
Pharos Energy
Annual Report and Accounts 2023
3
PHAROS AT A GLANCE
As a business, our ability to
deliver value is key to our robust
stakeholder investment case.
Our distinctive portfolio in the energy
regions of Asia and MENA, together
with a robust and disciplined capital
allocation framework, supports our
strategy of delivering long-term
sustainable growth. We have a range of
opportunities in the portfolio to position
us for a positive future. Our purpose
is to continue to provide energy for
communities around the world and fuel
their lives and businesses.
2023 KEY FIGURES
1997
Listed on London
Stock Exchange
17,839
Acreage km2
13
Oil & Gas fi elds
6
Blocks
36
Global Employees
(2022: 36 employees)
2
Countries
4
Annual Report and Accounts 2023
Pharos Energy
Strategic Report
Governance Report
Financial Statements
Additional Information
2023 GROUP HIGHLIGHTS
Cash operating
costs* ($/boe)
$15.70/boe
(2022: $16.36/boe)
Operating
Cash Flow ($m)
$44.9m
(2022: $53.4m)
Cash & cash
equivalents ($m)
$32.6m
(2022: $45.3m)
O
T
N
R
U
T
E
R
S
R
E
D
L
O
H
E
R
A
H
S
Revenue ($m)
Prior to hedging loss of $0.2m
$168.1m
(2022: $221.6m, prior to
hedging loss of $22.5m)
Share Buybacks
$2.8m
(2022: $3m)
2022 Dividend paid in 2023
(or 1p per share,
paid on 12 July 2023)
$5.6m
(2022: $0m)
Average net
production (boepd)
6,508 boepd
(2022: 7,166 boepd net)
* Read More
Non-IFRS measures on page 190
Pharos Energy
Annual Report and Accounts 2023
5
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
VIETNAM
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, and 1 development lease on the North Beni
Suef (“NBS”) Concession which was awarded in September 2023 and production
started in December 2023. We hold further low-risk low-cost near-term exploration
opportunities in both the El Fayum and NBS Concessions. 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.
1,381bopd*
2023 AVERAGE PRODUCTION (net)
2022: 1,748 bopd*)
* 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. Production numbers are given as 100%
working interest until 21 March 2022 and then 45%
for the remainder of 2022 and entirety of 2023.
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).
5,127boepd
2023 AVERAGE PRODUCTION (net)
(2022: 5,418 boepd)
Block 125
+
+
Block 126
Ho Chi Minh City
Block 16-1 TGT Field
+ +
Block 9-2 CNV Field
D: Development P: Production E: Exploration
6
Annual Report and Accounts 2023Pharos Energy 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 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.
Our Strategy
We are committed to deliver long-term, sustainable value for all our stakeholders through
regular cash returns to shareholders and investment in our assets to generate growth,
underpinned by robust cash flow and a 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 and NBS 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 & 126 and onshore Egypt on both the El Fayum and
NBS Concessions, to unlock longer-term value.
Our Stakeholders
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 guiding principles of
safety and care, energy and challenge, openness and integrity, empowerment and accountability,
and pragmatism and focus.
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.
7
Annual Report and Accounts 2023Pharos Energy Strategic ReportAdditional InformationGovernance ReportFinancial Statements OUR STRATEGIC OBJECTIVES
Our Strategic Objectives
Strong
balance sheet
Complementary
portfolio
Transparency
in sustainability
Mutually
benefi cial
partnerships
Provide energy to support
the development and
prosperity of the countries,
communities and families
wherever we work
Rigorous
approach to
cost control
Operational
effi ciency &
production
growth
Responsible &
fl exible stewards
of capital
Value creation
per share
8
Annual Report and Accounts 2023
Pharos Energy
Strategic Report
Governance Report
Financial Statements
Additional Information
Responsible & fl exible
stewards of capital
Capital discipline and fi nancial 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 consistent
returns to shareholders with investment
in our assets to generate sustainable
value and cash fl ow, while preserving the
resilience of the balance sheet.
Mutually benefi cial
partnerships
The operational successes the Company
has 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 benefi ts. A combination
of long-standing in-country presence
and focus on building relationships with
both host governments and regulatory
authorities has 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 fi nancial stability in
times of uncertainties.
Transparency in
sustainability
Sustainability is a key value in our
business. 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,
and published a Net Zero roadmap in
December 2023 with interim emission
reduction targets and decarbonisation
levers to achieve our climate target. 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
Protecting balance sheet strength is
fundamental to our business model.
Costs and the balance sheet are actively
managed through maintaining positive
operational cash fl ow combined with a
focused approach to capital allocation,
an active hedging programme, a mix of
debt instruments in place, and a modest
gearing level.
OUR STRATEGIC OBJECTIVES - continued
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 fl ow.
Rigorous approach to cost
control
We focus on our cost base wherever we
are. We have kept a rigorous approach
to drive down costs and created a lean
Board and organisational structure
suitable for the future. This positions us
well to thrive throughout the commodity
price cycle.
Operational effi ciency &
production growth
We apply our expertise locally with
operational teams in each region, working
closely with partners and joint operating
companies to achieve operational
effi ciency 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 2023 has established
a fi rm foundation for future growth and
support the 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.
Pharos Energy
Annual Report and Accounts 2023
9
OUR INVESTMENT CASE
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
10
Annual Report and Accounts 2023Pharos Energy Strategic Report
Governance Report
Financial Statements
Additional Information
OUR INVESTMENT CASE – continued
1. Capital discipline in our DNA
We have a culture of prudent fi nancial management, capital allocation
and capital return.
We exhibit capital discipline through a
focus on cost management, a part of our
DNA, which is 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 and long-term growth.
We use our expertise:
To allocate capital to those assets
which offer a combination of cash
fl ow, growth and sustainability
To focus on our cost base
wherever we are
To assess and develop high
grade growth opportunities
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 signifi cant
amounts of capital to shareholders since
2006.
As at year end 2023, we are
proud to have returned $537.6m
to shareholders, through a
combination of dividends, share
buybacks and capital growth.
23 November 2023
Pharos Energy – Corporate presentation 2023
To provide cash returns to
shareholders
TRACK RECORD OF DELIVERING VALUE
Total since
2006 when the first
returns were made
$537.6m
FY
2006
$14m
FY
2012
$33m
FY
2014
$119m
FY
2016
$17.5m
FY
2018
$23.3m
FY
2023
$8.4m
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
FY
2022
$3m
Brent price
($/bbl)
140
105
70
35
RV
RV
RV
RV
RV
0
RV
RV
RV
RV
RV
RV
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
2023
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, special distributions or dividends
c.$530m total shareholder returns
* Shareholder returns include a combination of purchases of own shares, cash returns, and dividends.
Read More
CFO’s Statement on page 40
Pharos Energy
Annual Report and Accounts 2023
11
/ 1
25+ years of experience
in 12 countries
Invest
Monetise
Return
OUR INVESTMENT CASE – continued
2. Unique and complementary assets
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 is an economy with growing energy
needs provided by its domestic oil and
gas sector, which operates within a well-
established regulatory framework.
Following Pharos’ farm-down transaction
and transfer of operatorship over our
Egyptian assets to IPR in 2022, we
delivered good operational performance
in Egypt in 2023, having exploration
successes in both the El Fayum
Concession and North Beni Suef (NBS)
Concession. On El Fayum, the fi rst
exploration commitment well encountered
oil-bearing reservoirs in the Abu Roash
G and Upper Bahariya formations in
1H 2023. On NBS, the fi rst exploration
commitment well (NBS-SW1X) was
declared a commercial discovery after
encountering multiple pay zones in the
Abu Roash G formation and put on
production in December 2023, having
been granted a 20-year development
lease by EGPC in December 2023.
Our strong operational performance in
2023 provides the Group with signifi cant
operational momentum going into 2024.
Nevertheless, the continuing volatility
of the macroeconomic environment in
Egypt means that the Group maintains
our modest and measured approach to
capital allocation and drilling in Egypt with
an eye on the receivables balance. Further
devaluation of EGP against USD during
the year, along with the lack of ability
to convert EGP into USD, means that it
remains preferable to continue holding
USD denominated receivables, other than
where they can be used to fund ongoing
expenditures upon expiry of the carry from
IPR.
EGYPT
Onshore, low cost, in-fi ll
drilling path to grow
production with proven
exploration upside
1,381bopd
NET 2023 PRODUCTION
(2022: 1,748 bopd)
14.4mmboe
2P RESERVES AS AT
YEAR END 2023
(2022: 15 mmboe)
11
DEVELOPMENT LEASES AT
THE EL FAYUM AND NBS
CONCESSIONS
45%
PHAROS WORKING
INTEREST
(2022: 100% working
interest until 21 March 2022
and then 45% for the remainder
of the year)
Read More
Operations Review on page 29
Upcoming catalysts
in 2024
• Continuation of a modest and
measured approach to capital
allocation and drilling in El Fayum and
NBS, with an eye on the receivables
balance
• Focus for this year’s work programme
in El Fayum is low cost recompletions
and waterfl ood
• Development drilling in the NBS SW
fi eld is planned to start in 2H 2024
• Processing and interpretation of
c.130km2 of 3D seismic data on NBS
is underway and expected to be
completed in 2H 2024
12
Annual Report and Accounts 2023
Pharos Energy
Strategic Report
Governance Report
Financial Statements
Additional Information
OUR INVESTMENT CASE – continued
VIETNAM
High net back
producing assets with
further signifi cant
exploration potential
5,127boepd
NET 2023 PRODUCTION
(2022: 5,418 boepd)
9.1mmboe
2P RESERVES AS AT
YEAR END 2023
(2022: 12.2 mmboe)
4
BLOCKS IN VIETNAM
25+
YEARS ACTIVE IN
VIETNAM
The Group’s current producing interests
in Vietnam, the Te Giac Trang (TGT) and
Ca Ngu Vang (CNV) fi elds in the Cuu Long
basin off the southern coast, together, are
amongst Vietnam’s largest oil producers.
On 9 January 2024, the Company
received approval on its TGT Revised Field
Development Plan (“RFDP”), and planning
is underway for a two-well TGT drilling
programme expected to commence in 2H
2024.
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 of
Vietnam. In July 2023, Pharos published
an independent report prepared by
ERCE on Blocks 125 & 126 in Vietnam
which makes estimates of prospective
oil resources with an aggregated gross
unrisked Mean of 13,328 MMstb, covering
those Prospects and Leads already
identifi ed. The report supports Pharos’
internal assessments and paves the way
for further work to develop new Leads and
mature Leads to Prospects. All work done
to date highlights the scale of the potential
in these blocks. Together with the approval
from the Vietnamese Government in June
2023 for the two-year extension of the
Exploration Period of the Blocks 125 &
126 Production Sharing Contract now
extended to November 2025, Pharos is
well placed to bring in a farm-in partner
and complete all necessary work to drill
the fi rst exploration well on this basin
opening play where we see material world-
class frontier exploration potential.
Upcoming catalysts
in 2024
• Planning underway for a two-well
TGT drilling programme, expected to
commence in 2H 2024
• Continued engagement with partners
and in-country regulators to fi nalise
licence extensions for TGT & CNV
• On Block 125, ongoing discussions
with another operator to secure a well
drilling slot in connection with their
proposed multi-well drilling programme
in the region
• Parallel discussions with several
potential farm-in partners for Block
125 are in progress
Pharos Energy
Annual Report and Accounts 2023
13
OUR INVESTMENT CASE – continued
3. Operational capability
Amidst ongoing global uncertainty, Pharos continues to deliver
consistent operational results, thanks to the efforts of our teams, of
our partners and of the local JOCs, who have managed to navigate
the macroeconomic challenges without compromising our operational
capability.
Long operational history
in Asia-MENA
Our history with Vietnam since 1996
has been a success story both for the
company and the country. As at 2023,
Pharos has invested over $1.3 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 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 zero lost time injuries and
zero fatal incidents in our Egyptian assets
in 2023, and 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.
Read More
Corporate Responsibility Report on page 62
14
Annual Report and Accounts 2023Pharos Energy OUR INVESTMENT CASE – continued
4. Diverse & inclusive workforce
Greater diversity and inclusivity brings greater understanding of people.
Led by the 5 Pharos Guiding Principles of ‘Safety and Care’, ‘Energy and
Challenge’ ‘Openness and Integrity’, ‘Empowerment and Capability’,
and ‘Pragmatism and Focus’, we have demonstrated our commitment
to maintaining and building a culture of diversity and inclusion.
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 the sharing of knowledge and new ideas. 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 or 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. As at
year end 2023, the Board has four female directors out of six,
with both executive positions held by women. We recruit talents
from diverse backgrounds across our entire organisation. Most
notably our UK-based staff comprises 17 people from 10 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.
Read More
Corporate Responsibility Report on page 62
15
Annual Report and Accounts 2023Pharos Energy Strategic ReportAdditional InformationGovernance ReportFinancial Statements CHAIR’S STATEMENT
A year of good
performance
2023 has been a year characterised
by good operational and fi nancial
performance across the Group.
JOHN MARTIN
Non-Executive Chair
Throughout the portfolio, the
team’s focus on operational
delivery was evidenced by good
drilling performance in both
Vietnam, with the CNV well
coming in strongly, and in Egypt,
with discoveries on both the El
Fayum and NBS exploration wells.
We have continued to build on
a culture of capital discipline to
deliver material improvement to
the Group’s balance sheet despite
ongoing payment lags in Egypt.
This performance has allowed the
Board to continue our commitment
to sustainable shareholder returns
in 2023, a core component of
the Company’s strategy since its
listing in 1997.
These achievements are a
testament to the hard work,
dedication, and commitment of the
entire Pharos team. I would like to
congratulate all of my colleagues
on a year of good performance
which has positioned Pharos
for a positive and sustainable
future, with strong operational
momentum, a robust capital
structure, and exciting growth
opportunities.
Board changes
Over the past year, I have greatly
appreciated the support of my fellow
Board members and the diverse skillsets
that they bring to the table. Since joining
Pharos in 2019, I have overseen the
reshaping of the Board to ensure we
meet stakeholders’ expectations of an
independent Board that provides high
standards of governance and oversight
to support our long-term strategic
framework. As such, I am delighted that
Bill Higgs has joined the Pharos Board as
an Independent Non-Executive Director.
Bill is a very high-calibre appointment,
bringing a wealth of technical and
commercial experience. His initial focus
will be to maximise value from our exciting
exploration prospects in Vietnam, Blocks
125 & 126.
It is with great sadness that I note the
death of Ed Story in December 2023.
Ed founded the Company in 1991 and
had been pivotal to the Company and
its business from inception, specifi cally
its listing in London in 1997 and its
subsequent foray into a dozen different
countries. Since retiring as CEO in March
2022, Ed had remained active as part
of the Company’s team in Vietnam. His
responsibilities will now pass to Vincent
Duignan, the Group Exploration Manager
& General Manager South East Asia.
Jann Brown has informed the Board of
her intention to retire and step down from
the Board effective 30 April 2024, in a
separate announcement today. The search
for a replacement CEO will commence
shortly and Jann has agreed to stay in
her position as CEO to effect a managed
and smooth transition. I would like to take
this opportunity to thank Jann for her
signifi cant contribution to Pharos over the
years. Jann will be leaving the Company
in a strong position, both fi nancially and
operationally. We wish Jann well in her
retirement.
A diverse and inclusive
culture
Pharos is proud of our small yet diverse
workforce, whose broad range of
backgrounds, ethnicities, skills and
experience help strengthen the Company
for the future. As at year end, I am
pleased to report that the Company has
four female Directors, representing two
thirds of the Board. Most notably, our
UK-based staff comprises 17 people
from 10 different nationalities, of which
women accounted for c.65%. We operate
in a global industry, and it is important to
ensure that we benefi t from the diverse
perspectives that our people bring.
The Board and Management team are
dedicated to creating a safe workplace
for all, in which people are confi dent to
engage and contribute. The opening up
of the world post COVID-19 has allowed
the Board to meet in person and engage
meaningfully with our colleagues across
the world. In June 2023, the Company
16
Annual Report and Accounts 2023
Pharos Energy
Strategic Report
Governance Report
Financial Statements
Additional Information
Outlook
Jann and her team continued to
deliver on the Company’s strategy in
2023 and built on our track record
of sustainable shareholder returns.
Focusing on a clear growth strategy
and disciplined capital management
approach, we will continue to deliver
regular returns to shareholders
whilst growing the value of our
company.
As Chair, I would like to thank the
Pharos team for their commitment
and delivery through the year. I am
also grateful to our host nations
and communities for their continued
trust, our shareholders for their
confi dence, and our partners,
suppliers and advisors for their
support. We have created a portfolio
of assets and set of capabilities
which are unique within our sector,
and the Board looks to the future
with great confi dence in our ability
to deliver growth and value in 2024
and beyond.
JOHN MARTIN
Non-Executive Chair
CHAIR’S STATEMENT - continued
organised an off-site day where colleagues
from Egypt, Vietnam and the UK met
in London to exchange business ideas,
provide feedback and promote team-
building. This is important not only for the
effective functioning of the Board, but also
to develop and empower all employees,
underpinning our commitment to
maintaining high standards of governance.
We recognise that 2023 has seen
signifi cant geopolitical instability,
something that has had far-reaching
impacts on communities and families, the
global economy, and trade. Our thoughts
remain with those who have been affected
by the active confl icts in Ukraine and the
Middle East. We continue to support our
colleagues and contractors during this
diffi cult time, as well as ensuring that
our business can continue to function
unaffected.
Ongoing dialogues with
stakeholders
Pharos’ operational success and
long-standing partnerships, spanning
over 25 years, are built on a culture
of transparency and integrity. Since
joining the Board, Jann and I have
maintained regular dialogues with local
governments, joint-operating partners,
local communities, and shareholders to
ensure the Board is well-informed as the
Company develops its plans for growth.
In November 2023, the Board held a
Strategy Day to focus on where and how
we can offer value to our stakeholders,
with inputs from a number of key parties,
experts and shareholders. The results
of our Strategy Day reinforced our
commitment to pursue a combination of
cash returns per share and reinvestment
to enhance our asset base - a strategy
regularly communicated back to our
stakeholders. In November, Jann and I
also met with the Vietnamese Minister
of Industry and Trade to discuss the
proposed licence extensions on our assets
in country, highlighting the important
benefi ts that these bring, not just to
Pharos but also to Vietnam.
The Board and its management team
will continue to engage in a personal
and meaningful way with our various
stakeholders in 2024 and beyond. We
are grateful to our shareholders whose
support during times of uncertainty
have been crucial to our growth and
transformation throughout the years.
Making a positive difference
Recent events in 2023 have shown
a need for better and more balanced
energy systems worldwide, delivering
energy that is not only lower carbon,
but also reliable and affordable for
developed and emerging nations alike.
The outcomes of COP28 in December
2023 highlighted the importance of
energy and climate security, and I fi rmly
believe that responsible production and
development of oil and gas resources,
especially in economies transitioning from
heavy reliance on coal such as Egypt
and Vietnam, can be a major driver for
economic development and alleviating
energy poverty. Our host governments
understand and appreciate Pharos’ in-
country impact that goes beyond national
revenues from oil and gas production.
In light of our strong relationships, local
governments have encouraged Pharos
to look into opportunities across other
branches of the energy sector in their
countries. We recognise a diverse mix of
energy resources is crucial for long-term
energy security, and we appreciate our
host nations’ trust in us and the long-term
role that we play in their countries’ energy
transition.
While it is clear that there are emerging
opportunities across the energy
sector, our fi rst priority is improving our
emissions footprint by enhancing our own
operational effi ciency. I am proud of the
progress that we have made on our Net
Zero journey. In December 2023, Pharos
published a detailed Net Zero Roadmap
to achieve net zero GHG emissions by
2050. The Net Zero Roadmap, which
was researched and developed by the
Company in close consultation with
specialist advisors and consultants,
models emission reduction pathways
to achieve net zero Scope 1 (direct)
and Scope 2 (indirect) GHG emissions
from all existing and proposed future
assets by 2050 or before. We look to
reduce our emissions over the years and
remain committed to transparency in our
sustainability journey.
Social stewardship is at the heart of
our sustainability journey. In 2023, we
supported a record 22 community
investment projects across Egypt,
Vietnam, and the UK, investing a total
of $247,373 in education, training,
healthcare and infrastructure in our local
communities. Pharos remains committed
to deploying our expertise and capital to
partner with host governments to develop
local capacity, enhance energy security
and unlock value from our host nations'
natural resources in an environmentally
sustainable and socially responsible
manner.
Pharos Energy
Annual Report and Accounts 2023
17
MARKET OVERVIEW
Market overview
Economics and geopolitics
In 2023 energy security remained as a
major global theme. Ongoing geopolitical
instability across sub-Saharan Africa,
conflict in Gaza, and emerging disruption
to trade transiting through the Red
Sea all had substantial impacts on the
global energy market. The global energy
crisis triggered by Russia’s invasion of
Ukraine, prompted many governments
to prioritise domestic energy supply. The
reorganisation of global relationships
and structures that occurred after the
Russia-Ukraine conflict and the COVID-19
continued to persist into 2023. Strained
international relations have contributed to
uncertainty and unpredictability, disrupting
global trade and eroding confidence in the
global market.
Energy and climate change remain to be
politically polarizing issues, with stagnant
progress made on the energy transition
in many regions. The Intergovernmental
Panel on Climate Change of the United
Nations warned in April 2023 that the
effects of climate change will soon
become irreversible.
Brent crude 2012-2023 ($bbl)
Geopolitical risk continues to impact
global economic growth. Although inflation
has come down, interest rates remain
high. With the anticipation of economic
downturns in the US and Europe, and
China experiencing its slowest growth in
years, serious risks to the world economy
persist.
US-China tensions flared in 2023 following
the sighting of a Chinese surveillance
balloon over the U.S., prompting President
Joe Biden to postpone his visit to Beijing,
and subsequent trade restrictions being
imposed. Global attention continues to
focus on military build-up around Taiwan
and the response from the U.S. to any
provocation. The fraught relationship
between the world’s two most powerful
countries remains a key geopolitical risk
going into 2024.
As we look to 2024, we are entering
a super-election year, with elections in
countries including but not limited to, the
US, UK, the EU, Indonesia, India, and a
number of African countries. Elections
can cause volatility in the market as
businesses and investors react to electoral
changes.
Oil price
Oil markets in 2023 witnessed a more
stable pricing environment compared to
the volatility experienced in 2022. The
average Brent crude price for the year
was US$82, an 18.63% decrease from
the average price in 2022. As central
banks ending rate hike campaigns and
OPEC+ applied supply cuts in July and
August, prices rallied and peaked at
US$96.55 in September 2023. However,
oil prices declined towards the end of
the year despite the escalating conflict in
the Middle East, as non-OPEC+ supply
strengthened, coinciding with slowing
global oil demand growth.
Although demand for oil modestly
increased by 2.3mmbbls/d compared
to the previous year according to the
International Energy Agency (IEA) data,
this figure conceals the impact of a further
weakening macroeconomic climate. Over
the course of 2023, the pace of demand
growth outside of China significantly
slowed, averaging around 300 kb/d during
the second half of the year.
l
b
b
$
120
100
80
60
40
20
0
Source: BloombergQ
2014
2015
2016 2017
2018
2019
2020
2021 2022 2023
Global Crude Oil Consumption 2013-2024E
d
p
b
m
m
106
104
102
100
98
96
94
92
90
18
Source: EIA
2014A 2015A 2016A 2017A 2018A 2019A 2020A 2021A 2022A 2023A 2024E
Annual Report and Accounts 2023Pharos Energy Strategic Report
Governance Report
Financial Statements
Additional Information
Vietnam
Vietnam's GDP growth rate slowed to
5.05% this year from an expansion of
8.02% last year, infl uenced by weak
global demand. However, amidst a
global economic slowdown, Vietnam’s
economic performance in 2023 was
positive considering the challenging global
environment. The country demonstrated
a notable recovery from the COVID-19
pandemic with quarter-by-quarter
economic growth in 2023, credited
to a range of policies and measures
implemented by the government to
alleviate market bottlenecks. Foreign
Direct Investment (FDI) increased by 2.7%,
reaching US$23 billion in disbursement,
reaffi rming Vietnam's status as a sought-
after destination for foreign capital.
Looking ahead to 2024, Vietnam’s GDP
growth is estimated to hover around
the 6% mark next year, and the growth
prospect for Vietnam in 2024 is still more
favourable compared to other Southeast
Asian countries. The economy expanded
6.72% in the fi nal quarter of 2023, which
is a good sign for 2024, however, this
projection will largely depend on events
unfolding in other parts of the world.
MARKET OVERVIEW - continued
The average realised crude oil price for
Vietnam was $87.42/bbl (2022: $106.44/
bbl), representing a premium to Brent
of just under $7/bbl on average (2022:
just over $4/bbl). For Egypt, the average
realised crude oil price was $78.18/ bbl
(2022:$96.03/bbl), representing a discount
of over $4/bbl to Brent for the year (2022:
over $5/bbl).
The Board’s strategy to mitigate the
principal risk of commodity price instability
is set out on pages 54 to 59. Our
approach to hedging is partly dictated by
the minimum requirements of our RBL
facility and to protect our Reasonable
Worst Case (RWC), but is otherwise
regularly reviewed to evaluate whether
the benefi t 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 breakeven oil
price, regardless of actual oil prices. Cost
effi ciencies 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 risk of global oil supply disruptions
from the Middle East confl ict remains
heightened at the start of 2024,
particularly for oil fl ows via the Red Sea
and the Suez Canal. In the absence of
signifi cant disruptions to oil fl ows, the
market looks reasonably well supplied in
2024, with global supply growth set to rise
by 1.5 million barrels a day to a new high
of 103.5 million barrels, fuelled by record-
setting output from non-OPEC+ countries
notably US, Brazil, Guyana and Canada.
Looking forward, with geopolitical tensions
and economic uncertainties, the IEA
predicts that the Brent crude oil price will
increase to an estimated US$82.49 per
barrel in 2024.
For more information on the impact of
climate change on the long-term oil prices
and demand, please see page 60 of the
Viability Statement.
Egypt
Egypt continues to experience economic
challenges, facing continuing global
economic and political shocks, along with
domestic bottlenecks seeing economic
growth declining to 4.4% in 2023
(down from 6.6% in the previous year).
Egypt’s challenges are compounded by
geopolitical events, including the confl ict
in Ukraine and Gaza, domestic foreign
exchange shortages and historic infl ation.
However, international organisations
recognise Egypt’s strategic position in the
region.
In December 2023, President Abdul Fattah
al-Sisi won a third six-year term. With the
expectation that infrastructure investment
will continue across the country, the
administration will need to manage
growing public debt and infl ationary costs.
Infl ation continues to have signifi cant
impacts, with double digit rates continuing
from 2022 and accelerating to 37.4% in
August 2023. Food infl ation stands at
71.7%. Across the country, price rises on
subsidised goods have pushed the cost of
living beyond the reach of many citizens.
Egypt is still one of the world’s largest
importers of wheat, and continued to
source supply from Russia. In 2023 Egypt
started shifting towards direct purchases
instead of tenders, after the war in Ukraine
disrupted their purchasing.
Foreign exchange reserves have started
to recover following signifi cant outfl ows
in 2022, the last reported fi gures in
August 2023 noting US$ 42.9bn. The
Egyptian pound has been struggling
against the US dollar (USD), with one
USD selling for c.30.95 Egyptian pounds,
compared to 15.7 Egyptian pounds in
2022. Restrictions placed on outgoing
USD transfers by the Central Bank of
Egypt, along with increasing shortages of
USD, continued to present challenges or
international business operating in Egypt,
with hard currency needed to pay for
foreign goods and a subsequent shortfall
in imports.
It is expected that improvements will
be seen over the medium term with
stabilisation and structural reforms. The
International Monetary Fund projected
real GDP for 2024 to increase by 3.6%.
Egypt’s consumption of wheat is expected
to rise by a further 50,000 tonnes in
2023-2024; to meet this demand imports
are projected to increase by 7%, further
pressurising foreign currency.
Pharos Energy
Annual Report and Accounts 2023
19
MARKET OVERVIEW - continued
E&P Merger & Acquisition activities
Global upstream M&A activity rose signifi cantly in 2023 compared to 2022, reaching a total of c.$182 billion. This increase was in part
driven by activity in the US, following major mergers involving ExxonMobil, Chevron and Occidental Petroleum. M&A activity was not
constrained to North America and the latter part of the year saw ENI and Var Energi purchase Neptune Energy for $4.9 billion, and
Harbour Energy purchase Wintershall Dea for $11.2 billion.
Global E&P M&A Total Transaction Value, ($USDmm)
180.0
160.0
120.0
D
S
U
s
n
o
i
l
l
i
B
80.0
40.0
0
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
Source: S&P Capital IQ
Net Zero
The 2023 United Nations Climate Change
Conference (the Conference of Parties
or COP28) held in Dubai saw intense
scrutiny on the role of fossil fuels in the
future energy mix, the presentation of
the fi rst Global Stocktake measuring
progress against the Paris Agreement
and a number of companies signing an
Oil & Gas Decarbonisation Charter. The
closing agreement, known as the ‘Dubai
Consensus’ was the fi rst agreement with
wording agreed to phase out fossil fuels
alongside increasing renewable energy
and requirements for countries to report
their decarbonisation progress.
The United Nationals Environment
Programme (UNEP) Carbon Emissions
Gap report published in 2023 found
that there has been progress since
the Paris Agreement was signed in
2015. Greenhouse gas emissions in
2030, based on policies in place, were
projected to increase by 16% at the time
of the agreement’s adoption. Today,
the projected increase is 3%. However,
predicted 2030 greenhouse gas emissions
(GHG) still must fall by 28% for the Paris
Agreement 2°C pathway and 42% for the
1.5°C pathway.
The International Energy Agency’s Energy
Outlook also published in 2023 continued
to note that energy security presents
opportunities for the energy transition
whilst Russia’s invasion of Ukraine,
instability in the Middle East could lead to
further disruption to energy markets and
prices. It is likely there will continue to be
an acceleration of countries and industries
committing to further decarbonisation in
the run up to 2030. Pharos continues to
monitor the global energy market to inform
future value and business decisions.
In December 2023, the Company took
the next step in its net zero journey by
publishing a detailed net zero roadmap,
following its commitment in September
2022, to achieve net zero GHG emissions
by 2050. This roadmap has been
researched and developed by specialist
consultants and models emission
reduction pathways to achieve net zero
Scope 1 (direct) and Scope 2 (indirect
emissions). The roadmap reinforces the
Company’s key value of sustainability
within its business strategy. Further details
on our Corporate Responsibility Report
can be found on page 62.
Pharos acknowledges the growing body
of regulation around climate change in
jurisdictions around the world, this stems
from scientifi c insight, raising standards
and increased disclosure requirements. In
2023 we continued to report and disclose
our emissions in accordance with UK
industry requirements and standards. The
Company notes the increasingly globalised
and integrated approach to voluntary
regulation through disclosure, with
companies going ahead of regulation. We
are committed to meeting requirements
including the Taskforce on Climate Related
Financial Disclosures (TCFD). Further
information on this can be found on page
83.
20
Annual Report and Accounts 2023
Pharos Energy
Strategic Report
Governance Report
Financial Statements
Additional Information
CHIEF EXECUTIVE OFFICER’S STATEMENT
Commitment to adding value
Pharos delivered on several fronts in 2023. Throughout the
year, the Board and senior management team maintained a
clear focus on capital discipline to strengthen our fi nancial
position and enhance existing opportunities within our
portfolio.
JANN BROWN
Chief Executive Offi cer
We put the funding of our established dividend programme at the heart of our business model, and it is
through this lens that we assess our capital allocation goals. We are determined to balance regular returns
to shareholders with investment in our assets to generate sustainable growth, and value per share whilst
preserving balance sheet resilience.
Our investment programme in 2023
We have managed the challenges of
payment delays in Egypt, thanks in part
to our carry, but also by strict cost control
and capital discipline. We ended the year
in a strong fi nancial position with net debt
down 77% to $6.6m and cash balances
of $32.6m, from revenues of $168.1m.
A stronger balance sheet provides the
foundation to continue our track record
to deliver shareholder returns, adding
$8.4m this year through a combination of
share buyback programmes and dividend
payments. As at year end 2023, we are
proud to have returned a total of $537.6m
to shareholders.
Our assets are the foundation of our
returns and during the year, we made
progress on a number of opportunities
within the portfolio. In Vietnam, we
continued to deliver a high netback
and stable production during the year.
Production in 2023 from the TGT and
CNV fi elds averaged 5,127 boepd, in
line with guidance, with delivery from the
fi rst CNV lateral well coming in above
expectations in the fi rst half. The approval
of the TGT RFDP from MOIT in January
2024 was the fi nal step towards the
commencement of a two-well TGT drilling
programme, which is expected to start
in the second half of this year. On the
exploration side, the publication of the
independent report prepared by ERCE
on Blocks 125 & 126 further highlights
the world-class scale and potential in
these basin-opening exploration blocks,
confi rming 13,328 MMstb of mean gross
unrisked prospective oil resources. With
the exploration period of the PSC now
extended to November 2025, Pharos
is well placed to source a rig, bring in a
farm-in partner and complete all necessary
work to drill the fi rst exploration well on
this exciting opportunity.
In Egypt, discretionary investment has
been modest, and focused on delivering
a steady performance from El Fayum,
averaging 1,381 bopd, in line with
guidance. We also ensured that our
commitments to host governments were
fulfi lled. Most notably, the Group had
drilling successes on both the El Fayum
and North Beni Suef Concessions. The
NBS-SW1X exploration commitment well
was declared a commercial discovery and
put on production only nine months after
drilling, following the grant of a 20-year
development lease in September 2023.
This was a crucial fi rst step towards
proving up this new reserve base and
adding further barrels to overall Group
reserves and subsequently production.
The reforms recently announced by
the Egyptian government, plus the
international funding packages totalling
together $57 billion, set out the path
for Egypt’s economic recovery and the
restoration of sustainable, inclusive
growth. In the early stages of these
reforms, the JV will maintain a measured
approach to capital allocation and drilling
in Egypt in 2024. However, we recognise
that it is important to be fully prepared
to increase our investment levels once
payments for oil production reach a more
regular pattern.
The health and safety of our workforce
remains our highest priority. We are
committed to operating safely and
responsibly at all times. Pharos continued
to have an excellent safety record during
2023, and I am pleased to highlight that
the Company reported zero LTIs across
the Group. In particular, in Vietnam, this is
an achievement that we have maintained
since 1997 thanks to the JOCs’ consistent
efforts to provide and champion workers’
health, safety, and well-being. We are
careful to maintain this achievement going
into 2024.
Our stable operational performance
in 2023 has laid a solid foundation for
the 2024 work programme to further
develop growth potential in our assets.
Underpinned by a strong balance
sheet and steady production base
across the portfolio, Pharos is in a
good position to execute our strategy
of delivering sustainable value through
a focus on organic and inorganic
growth opportunities, coupled with our
commitment to regular shareholder
returns.
Pharos Energy
Annual Report and Accounts 2023
21
CHIEF EXECUTIVE OFFICER’S STATEMENT - continued
A clear focus on our strategic priorities
1. Regular shareholder returns
2. Cash fl ow protections
3. Diverse opportunity sets
At Pharos, we have a fi rm commitment to
add sustainable shareholder value, and
both the means and discipline to do it.
We established a sustainable shareholder
return framework via share buybacks and
dividends, as part of the return mix that
we can control. Dividends have been a
key part of the Company’s equity story
since its listing and, following approval
at the 2023 AGM, we returned $5.6m
to shareholders via a single dividend for
the 2022 fi nancial year of 1 pence per
share. In December 2023, an interim
dividend of 0.33 pence per share, or
$1.7m equivalent, was paid in January
2024. Our dividend policy is set in a clear
formula, returning no less than 10% of
operating cash fl ow (OCF) and takes into
account volatility in the market such as
movements in commodity prices, tax, and
working capital movements. Today, the
Board have recommended a fi nal dividend
for the 2023 fi nancial year of 0.77 pence
per share which, subject to shareholders’
approval at the Company’s 2024 AGM,
would take the 2023 full year dividend
to 1.10 pence per share, an increase
of 10% on the prior year. In addition,
we announced in December 2023 the
continuation of our share buyback
programme, with a further $3m committed
for 2024. This is another way for Pharos
to return value to shareholders and to
enhance NAV, earnings and dividends per
share to shareholders over time.
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, a
variety of interesting leads and prospects
have been identifi ed on Block 125, a
unique deep-water frontier exploration
opportunity. We are in active parallel
discussions with several parties interested
in farming-in to support the funding of
a commitment well on this Block and
engaging with another operator to secure
a well drilling slot during their multi-
well drilling programme in the region.
In Egypt, the exploration successes in
both the North Beni Suef and El Fayum
Concessions, complemented by the 20-
year development lease on NBS-SW1X,
added signifi cant value to our low-cost
Egyptian asset base and bode well for
future growth.
We keep our assets under review to
ensure that they are delivering the
expected value and will look to monetise
if we can accelerate this. As we maintain
a fi rm handle on our existing portfolio,
we are also considering inorganic
opportunities. We actively look for
opportunities to generate additional value
and cash fl ow for our shareholders. We
have a highly competent and dedicated
team with strong industry relations
to assess these in a disciplined and
systematic manner.
Prudent fi nancial management is a core
part of our corporate DNA. Our focus
on capital discipline through careful cost
management and control has resulted
in material net debt reduction in recent
years. We maintain a balance of hedged
and free-fl oating Group production,
with less than 30% of the Group’s 2024
production hedged at 31 December 2023,
thus providing material exposure to the
oil price. Pharos also operates in two
very different jurisdictions which provides
diversifi cation and resilience in a volatile
world. In particular, we are proud of our
consistent payment record in Vietnam,
with TGT & CNV crude commanding an
impressive premium to Brent of just under
$7/bbl in 2023, a signifi cant improvement
from the prior year’s $4/bbl. This has
been driven by improvements in oil prices
and our three-year sales contract for all
TGT crude oil cargoes with BSR, which
provides benefi ts in delivering into the local
economy and reducing logistical spend as
well as output tax savings. Additionally, to
mitigate the impact of payment issues in
Egypt, we have a working capital facility
with the National Bank of Egypt (UK) to
smooth out payment cycles there. Our
receivables balance has built up in part
due to the benefi t of the carry we have
had over all JV expenditure in Egypt,
leaving us with in-country corporate costs
only, and partly due to our position of
not drawing down the balance in local
currency. With the carry expiring in 1Q
2024, we intend to use this receivables
balance to fund the majority of the
JV expenditure going forward. As our
dividend policy is based on the resilience
of our operating cash fl ow, we maintain a
strict capital control framework to protect
our cash fl ows.
22
Annual Report and Accounts 2023
Pharos Energy
Strategic Report
Governance Report
Financial Statements
Additional Information
CHIEF EXECUTIVE OFFICER’S STATEMENT - continued
Our relationships with
stakeholders
‘The Pharos Way’ drives not only our
attitude towards sustainability and
net zero, but also the way we build
and maintain our relationship with
stakeholders. We were greatly encouraged
by the open and receptive dialogues we
had with key stakeholders during the year.
In January 2023, the Company held a
lunch to engage with analysts, both those
providing research on the Company and
those that do not, to foster relationships
with key fi gures in the industry. During
the year, we have met key individuals
representing regulators and government
in both Egypt and in Vietnam. We also
engage regularly and meaningfully with the
investment community and debt providers
through multiple roadshows, meetings,
live presentations, and Q&A sessions.
We remain actively engaged with our joint
venture partners and regularly participate
in budget reviews, work programme
discussions, and Management Committee
meetings throughout the year. The Board
and management team work hard to
ensure we meaningfully engage with the
whole workforce at various points during
the year, as previously discussed in the
Chair’s Statement.
The supportive relationship that exists
between Pharos and its different groups
of stakeholders is a key building block to
the successful delivery of our strategy,
and we will continue to build on these
collaborative relationships in 2024 and
beyond.
Outlook
Although 2023 brought continued
uncertainties, Pharos rose to
these challenges and delivered
a stabilised asset base set for
growth, a more resilient balance
sheet, well-protected cash
fl ows, and an exciting mix of
opportunities to pursue in 2024.
Finally, the signifi cant change in the
outlook for the Egyptian economy
means that the most turbulent
years look to be behind us. I have
therefore decided that this is the
right time for me to step down and
hand over the baton to someone
who will lead that next phase.
With capital discipline in our DNA,
a clear set of strategic objectives,
a portfolio of complementary
assets, a strong fi nancial
position, a dedicated and diverse
workforce, a committed Board
and bench strength across the
management team, the company
has started 2024 well-positioned
to deliver long-term sustainable
value for all, and my successor will
be chosen to take that to the next
level.
I would like to take this opportunity
to thank all our stakeholders for
their ongoing support and our
employees for their hard work,
commitment and tenacity. I am
confi dent in our ability to execute
our strategy and look forward to
seeing Pharos on a path towards
a new phase of growth and
shareholder returns.
JANN BROWN
Chief Executive Offi cer
Net Zero and our role in the
energy transition
As Pharos explores these opportunities,
we remain focused on the role we play
in the socio-economic development of
our host countries. We believe that oil
and gas companies like Pharos, with
our commitment to producing safely
and responsibly, a wealth of industry
expertise, and a strong balance sheet, will
continue to play an important part in the
energy transition, especially in emerging
economies. In dialogues with our host
governments, we note their recognition
of the importance of our operations
and investments to energy security and
prosperity. We are encouraged to keep
investing in their countries to ensure that
they benefi t from their natural resources as
have many other nations, particularly in the
developed world. This is exactly what we
have done in 2023, having committed to
the domestic sale of 100% of oil and gas
produced from our producing assets in
both Egypt and Vietnam during the year.
The critical role of upstream producers
in the energy supply chain also opens
opportunities to add value through the
integration of other alternative energy
resources, both to improve upstream
effi ciency and for standalone cash
generation.
Pharos strengthened our commitment
to net zero in 2023. We took another
step in maturing our net zero strategy
by publishing our Net Zero Roadmap in
December, which provided further clarity
in our pathway towards our 2050 climate
commitment. The Net Zero Roadmap,
which was researched and developed
by the Company in close consultation
with specialist advisors, established
decarbonisation levers and interim targets
to reduce our 2030 emissions by 15%
against baseline 2021 emission. Additional
information about our decarbonisation
strategy, Emission Management Fund,
and climate governance structure are
included in our Net Zero Roadmap, which
is available to download on our website.
We recognise that the path to net zero
will not be straightforward, as it will take
time to implement certain decarbonisation
technologies and require pragmatism
from our local partners, governments,
and other stakeholders. Nevertheless, we
are committed to our climate goals and
will navigate our net zero journey in an
honest and transparent manner, true to
our corporate values of the ‘The Pharos
Way’: Safety & Care, Energy & Challenge,
Openness & Integrity, Empowerment &
Accountability, and Pragmatism & Focus.
Pharos Energy
Annual Report and Accounts 2023
23
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 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
Our capital
• Rigorous approach to cost
• 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 and proven
exploration upside in Egypt
• 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
• World class exploration prospects
and leads in 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
• Local capability training,
local employment & trusted
partnerships
•
In-country economic contribution
and social investment
• Development of discovered
Egyptian resources through
onshore, low cost, in-fill drilling
• Continued development of
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
24
Annual Report and Accounts 2023Pharos Energy 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
strategy and policies.
Read More*
Non-IFRS measures on page 190
2023 Financial Measures
LOW CASH OPERATING COST
$/BOE *
CAPITAL EXPENDITURE CASH
$M (includes abandonment funding)
15.70
2023
2022
2021
26.7
15.70
16.36
16.05
2023
2022
2021
26.7
31.9
41.8
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 $15.70/boe in 2023, a
decrease over 2022, largely due to lower FPSO cost on TGT and,
in Egypt, the continuing devaluation of EGP against USD during the
year.
Outlook
We continue to target improvements in 2024 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 126)
Objective
To achieve returns in excess of cost of capital.
Performance
The 2023 cash capital expenditure was lower than 2022 due to
reduced drilling campaigns. No new development wells were drilled
on TGT, and the new lateral well 2PST1 on CNV, which commenced
in 2022, was completed in February 2023. In Egypt, there were three
new wells on El Fayum and, on NBS, the first exploration well, NBS-
SW1X, started producing in December 2023.
Outlook
The cash capex forecast for 2024 is expected to be c.$32.2m
(c.$27.3m after Egyptian carry by IPR).
Links to strategy
• Deliver value through
growth
•
Investment growth
Associated risks
• Commodity price risk
• Partner alignment risk
25
Annual Report and Accounts 2023Pharos Energy Strategic ReportAdditional InformationGovernance ReportFinancial Statements KEY METRICS - continued
CASH AND CASH EQUIVALENTS
$M
RETURNS TO SHAREHOLDERS
PENCE PER ORDINARY SHARES
32.6
2023
2022
2021
32.6
27.1
45.3
1.10
2023
2022
2021
0
1.10
1.00
Description
Pharos has a history of stable fi nances 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 fi nancial 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 $32.6m, a decrease of 28% on prior
year, mainly driven by lower commodity prices and production
volumes. In addition, cash reserves have been utilised in the
repayment of borrowings, predominantly the RBL, which has
signifi cantly lowered our debt level to $39.2m (2022: $74.2m).
Pharos’ net debt position as of 31 December 2023 was $6.6m
(2022: $28.9m).
Outlook
Capital discipline and fi nancial stability have always been key to the
Company and continue to underpin the business.
Objective
To provide sustainable cash returns to shareholders.
Performance
The Board have recommended a fi nal dividend in respect of the
year ended 31 December 2023 of 0.77 pence per share subject to
approval of the shareholders at the Company’s 2024 AGM. Subject
to this approval, the fi nal dividend will be paid in full on 19 July 2024
in Pounds Sterling to ordinary shareholders on the register at the
close of business on 14 June 2024, with an ex-dividend date of 13
June 2024. This would take the 2023 full year dividend to 1.10 pence
per share, an increase of 10% on the prior year.
Outlook
We are committed to delivering 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
• Return to shareholders
Associated risks
• Commodity price risk
•
Insuffi cient funds to meet
commitments
Links to strategy
• Deliver value through
growth
• Return to shareholders
Associated risks
• Commodity price risk
• Climate change risk
• Sub-optimal capital
allocation risks
26
Annual Report and Accounts 2023
Pharos Energy
Strategic Report
Governance Report
Financial Statements
Additional Information
KEY METRICS - continued
Operational measures
LOST TIME INJURY FREQUENCY (“LTIF”)
PER MILLION MAN-HOURS WORKED
GROUP NET PRODUCTION
BOEPD
0
2023
0
2022
2021
0
6,508
0.42
2023
2022
2021
6,508
7,166
8,878
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 fl ows 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 2023, we are pleased to report that there were zero lost time
injuries and zero fatal incidents across the Group.
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 2023 working interest production was 5,127 boepd net
(2022: 5,418 boepd net) and Egypt 2023 working interest production
was 1,381 bopd net (2022: 1,748 bopd net).
Outlook
Group working interest 2024 production guidance is 5,200 – 6,500
boepd net. Vietnam 2024 production guidance is 3,900 – 5,000
boepd net, and Egypt 2024 production guidance is 1,300 – 1,500
bopd net.
Links to strategy
• Focus on stakeholders
Associated risks
• HSES 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 126)
Pharos Energy
Annual Report and Accounts 2023
27
KEY METRICS - continued
SOCIAL AND ECONOMIC INVESTMENT
$
EMPLOYEES UNDERTAKEN ANTI-BRIBERY
AND CORRUPTION TRAINING %
747,373
2023
2022
2021
100
747,373
698,600
765,000
2023
2022
2021
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 2023, in addition to the aforementioned training levy funds (which
totals to $500,000), a further $247,373 was invested in a total of
22 healthcare, education, infrastructure and community projects. To
enhance our social investment efforts, we have established a Charity
and Community Projects committee responsible for selecting and
allocating funds to worthy causes and projects. More details can be
found in our Corporate Responsibility Report on page 73.
Outlook
Build on previous work, and continuously assess and review where
the most valuable contribution to long-term social projects, both at
the local level and more widely, can be made.
Links to strategy
• Focus on stakeholders
Associated risks
• Commodity price risk
•
Insufficient funds to meet
commitment
• Business conduct and
bribery
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 2023.
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
• Deliver value through
growth
Associated risks
• Partner alignment risk
• Business conduct and
•
Investment growth
bribery
28
Annual Report and Accounts 2023Pharos Energy Strategic Report
Governance Report
Financial Statements
Additional Information
OPERATIONAL REVIEW
Egypt
The Group has a 45% non-operating interest
in two concessions in Egypt - El Fayum and
North Beni Suef.
1,381bopd
2023 Egypt production (net)
11
Development leases in
El Fayum and North Beni Suef
El Fayum (D,P,E)
The El Fayum Concession is located in
the low-cost and highly prolifi c Western
Desert, about 80km south west of Cairo
and close to local energy infrastructure.
North Beni Suef (D,P,E)
The North Beni Suef (NBS) Concession is
also located in the Western Desert, to the
south of the El Fayum Concession. After
declaring commercial discovery in NBS
SW 1X well and fulfi lling the exploration
commitment in NBS Concession,
the company was granted a 20-year
development lease for NBS Concession
from September 2023 with extra fi ve years
extension with bonus payment.
Area E
CAIRO
EGYPT
El Fayum Concession
CAIRO
EGYPT
North Beni Suef Block
D: Development P: Production E: Exploration
Pharos Energy
Annual Report and Accounts 2023
29
OPERATIONAL REVIEW - continued
Egypt Production in 2023
Production for 2023 from the El Fayum
Concession averaged 3,069 bopd gross
and 1,381 bopd net to the Group (2022:
3,128 bopd gross and 1,748 bopd net).
This is in line with the 2023 production
guidance announced in January 2023 of
1,350 – 1,800 bopd net.
Egypt Development and
Operations in 2023
Egypt Exploration in 2023
El Fayum
El Fayum exploration
Three new wells in El Fayum (2 producers
and 1 injector) were put on production
and injection in 2023, in line with pre-drill
expectations.
On El Fayum, there was exploration
success with the fi rst commitment well
in the Abu Roash G and Upper Bahariya
formations in July 2023. The well is set up
for re-entry and testing in 2024.
North Beni Suef
North Beni Suef (NBS) exploration
On NBS, the fi rst exploration commitment
well (NBS-SW1X) was declared a
commercial discovery and put on
production in December 2023. A new
20-year development lease for NBS-SW1X
was awarded by EGPC in September
2023, opening up a new area for
production and development.
Two workover rigs remain on fi eld to
contribute to production through low-
cost well repairs, recompletions, and
deployment of water injection.
On NBS, all technical commitments of
the initial exploration period have been
fulfi lled with 3D seismic survey acquired on
time and on budget in 2H 2023, and the
completion of two exploration commitment
wells. As noted above, in September
2023, NBS-SW1X was declared a
commercial discovery. Production from
the well commenced in December 2023,
following the grant of the fi rst development
lease on the Concession. The second and
fi nal exploration commitment well for the
fi rst phase of the NBS exploration period
(NBS-5X) was drilled in the Abu Roash G
formation at a deeper depth and failed to
encounter oil-bearing sands. The result of
this well does not hinder other mapped
prospects in the Concession.
2024
Work Programme
El Fayum &
North Beni Suef
Egypt production guidance for 2024 is 1,300 – 1,500 bopd net.
Continuation of modest and measured approach to capital allocation and
drilling in El Fayum and NBS, with potential to ramp up activity this year
and beyond in response to the improving economic environment.
Focus for this year’s work programme in El Fayum is low-cost
recompletions and waterfl ood.
Development drilling in the NBS SW fi eld is planned to start in 2H 2024.
Processing and interpretation of c.130km2 of 3D seismic data on NBS is
underway and expected to be completed in 2H 2024.
30
Annual Report and Accounts 2023
Pharos Energy
Strategic Report
Governance Report
Financial Statements
Additional Information
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.
5,127boepd
4
2023 Vietnam production (net)
Blocks in Vietnam
CAMBODIA
VIETNAM
Block 16-1 TGT Field
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 9-2 CNV Field
Block 16-1 TGT Field (D&P)
The TGT Field is located in Block 16-1,
offshore Vietnam in the shallow water
Cuu Long Basin multi-stacked sandstone
reservoirs.
CAMBODIA
NHA TRANG
VIETNAM
Block 125
Block 126
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.
D: Development P: Production E: Exploration
Pharos Energy
Annual Report and Accounts 2023
31
OPERATIONAL REVIEW - continued
Vietnam Production in 2023
Production in 2023 from the TGT and CNV
fields net to the Group’s working interest
averaged 5,127 boepd (2022: 5,418
boepd). This is in line with the production
guidance for Vietnam announced in
January 2023 of 4,700 – 5,700 boepd net.
TGT production averaged 12,341 boepd
gross and 3,661 boepd net to the Group
(2022: 13,784 boepd gross and 4,089
boepd net). CNV production averaged
5,861 boepd gross and 1,466 boepd net
to the Group (2022: 5,317 boepd gross
and 1,329 boepd net).
Vietnam Development and
Operations in 2023
Vietnam Exploration
in 2023
TGT & CNV Fields
Blocks 125 & 126
On Block 16-1 – TGT Field, operational
activities were focused on adding low-cost
production through well intervention and
production optimisation opportunities
(surface and subsurface) in absence of
new wells drilling. The TGT RFDP was
approved by MOIT on 9 January 2024.
On Block 9-2 – CNV Field, the field saw
strong performance from its first new
lateral well, which was delivered on time,
under budget, and put on production in
1Q 2023. The CNV RFDP for additional
drilling was submitted to partners for
approval in 2023, and discussions are
ongoing.
The Company has continued to receive
positive feedback from Petrovietnam and
MOIT on the applications for five-year
extensions to the petroleum contracts for
the TGT and CNV fields.
On Blocks 125 & 126, a two-year PSC
extension was granted by MOIT on 13
June 2023, extending the first exploration
period of the PSC to 8 November 2025.
This approval shows the encouraging
level of support from the Vietnamese
Government and discussions with a
number of interested parties to secure a
farm-in partner are progressing.
An independent CPR for Block 125 was
published on 20 July 2023, confirming a
range of gross unrisked prospective oil
resources of between 1,178 MMstb (1U)
and 29,785 MMstb (3U) with a Mean value
of 13,328 MMstb. The report supports the
Group’s internal assessments and paves
the way for further work to develop new
leads and mature leads to prospects.
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.
2024
Work Programme
TGT & CNV Fields
Vietnam production guidance for 2024 is 3,900 – 5,000 boepd net.
Planning is well-advanced for a two-well TGT drilling programme in
2H 2024.
Continued engagement with partners and regulators to finalise the
five-year licence extensions for TGT and CNV.
Ongoing discussions with another operator to secure a well drilling slot
during their multi-well drilling programme in the region.
Progressing parallel discussions with several potential farm-in partners for
Blocks 125 & 126. Securing a rig slot will positively impact the farm-out
discussions.
Blocks 125 & 126
32
Annual Report and Accounts 2023Pharos Energy 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
TGT
CNV
Vietnam3
El Fayum
NBS
Egypt4
Group
Oil and Gas 2P Commercial Reserves1,2
As at 1 January 2023
Production
Revision
Discoveries
2P Commercial Reserves as at
31 December 2023
Oil and Gas 2C Contingent Resources1,2
As at 1 January 2023
Revision
2C Contingent Resources as at
31 December 2023
Total of 2P Reserves and 2C Contingent
Resources as at 31 December 2023
8.8
(1.3)
(1.2)
-
6.3
7.4
(1.1)
6.3
12.6
3.4
(0.5)
(0.1)
-
2.8
3.4
2.2
5.6
8.4
12.2
(1.8)
(1.3)
-
9.1
10.8
1.1
11.9
21.0
15.0
(0.5)
(0.9)
-
13.6
8.9
0.7
9.6
-
-
-
0.8
0.8
-
-
-
15.0
(0.5)
(0.9)
0.8
14.4
8.9
0.7
9.6
27.2
(2.3)
(2.2)
0.8
23.5
19.7
1.8
21.5
23.2
0.8
24.0
45.0
1) Reserves and Contingent Resources are categorised in line with 2018 SPE/WPC/AAPG/SPEE /SWLA Petroleum Resource Management System.
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.
Vietnam Reserves and Contingent Resources
In accordance with the requirements of its RBL, 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 2023.
Vietnam Reserves Statistics
Net working interest, mmboe
Oil and Gas 2P Commercial Reserves1,2,3
As at 1 January 2023
Production
Revision
2P Commercial Reserves as at 31 December 2023
Oil and Gas 2C Contingent Resources1,2,3
As at 1 January 2023
Revision
2C Contingent Resources as at 31 December 2023
Total of 2P Reserves and 2C Contingent Resources as at 31 December 2023
1) Reserves and Contingent Resources are categorised in line with 2018 SPE/WPC/AAPG/SPEE /SWLA Petroleum Resource Management System.
2) Assumes oil equivalent conversion factor of 6,000 scf/boe.
3) Reserves and Contingent Resources have been independently audited by RISC.
TGT
CNV Total Vietnam
8.8
(1.3)
(1.2)
6.3
7.4
(1.1)
6.3
12.6
3.4
(0.5)
(0.1)
2.8
3.4
2.2
5.6
8.4
12.2
(1.8)
(1.3)
9.1
10.8
1.1
11.9
21.0
33
Annual Report and Accounts 2023Pharos Energy Strategic ReportAdditional InformationGovernance ReportFinancial Statements OPERATIONAL REVIEW - continued
On TGT, 2P reserves were revised downwards due to a 9-month delay in drilling of the two infill wells, lower expected benefit from well
activities as the field becomes more mature and a slow production ramp-up following the annual maintenance shutdown in the last
quarter of the year. 2C contingent resources were revised accordingly.
On CNV, the 2P reserves were largely in line with the previous year. 2C contingent resources were revised upwards due to the inclusion
of one additional lateral side-track well.
In Vietnam, the Group has applied for an extension to the petroleum contracts for the TGT and CNV fields. We expect changes to the
discovered resources upon receiving approval from the government.
Egypt Reserves and Contingent Resources
Egypt Reserves Statistics
Net working interest, mmboe
Oil and Gas 2P Commercial Reserves1,2
As at 1 January 2023
Production
Revision
Discoveries
2P Commercial Reserves as at 31 December 2023
Oil and Gas 2C Contingent Resources1,2
As at 1 January 2023
Revision
2C Contingent Resources as at 31 December 2023
Total of 2P Reserves and 2C Contingent Resources as at 31 December 2023
El Fayum
NBS
Egypt
15.0
(0.5)
(0.9)
-
13.6
8.9
0.7
9.6
23.2
-
-
-
0.8
0.8
-
-
-
0.8
15.0
(0.5)
(0.9)
0.8
14.4
8.9
0.7
9.6
24.0
1) Reserves and Contingent Resources are categorised in line with 2018 SPE/WPC/AAPG/SPEE /SWLA Petroleum Resource Management System.
2) Reserves and Contingent Resources have been independently audited by McDaniel.
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.
North Beni Suef is included in the reserves assessment for the first time, following a successful exploration well and granting of the
Development Lease. Initial reserves are granted based on a limited development of two producer wells offset to the discovery well. The
full development programme will be incorporated following the interpretation of the new 3D seismic acquired during 2023.
Group’s Net Working Interest Reserves and Contingent Resources
TGT Field at 31 December 2023 (mmboe) (net to Group’s working interest)
Reserves2
Oil
Gas1
Total
Contingent Resources2
Oil
Gas1
Total
1P
4.8
0.2
5.0
1C
3.3
0.1
3.4
2P
5.9
0.4
6.3
2C
6.1
0.2
6.3
3P
7.1
0.6
7.7
3C
9.0
0.4
9.4
Sum of Reserves and Contingent Resources3
1P & 1C
2P & 2C
3P & 3C
Oil
Gas1
Total
8.1
0.3
8.4
12.0
0.6
12.6
16.1
1.0
17.1
1) Assumes oil equivalent conversion factor of 6,000 standard cubic feet per barrel of oil equivalent.
2) Reserves and Contingent Resources have been audited independently by RISC.
3) The summation of Reserves and Contingent Resources has been prepared by the Company.
34
Annual Report and Accounts 2023Pharos Energy OPERATIONAL REVIEW - continued
CNV Field at 31 December 2023 (mmboe) (net to Group’s working interest)
Reserves2
Oil
Gas1
Total
Contingent Resources2
Oil
Gas1
Total
1P
1.3
0.8
2.1
1C
1.8
1.1
2.9
2P
1.7
1.1
2.8
2C
3.5
2.1
5.6
3P
2.1
1.3
3.4
3C
5.2
3.2
8.4
Sum of Reserves and Contingent Resources3
1P & 1C
2P & 2C
3P & 3C
Oil
Gas1
Total
3.1
1.9
5.0
5.2
3.2
8.4
7.3
4.5
11.8
1) Assumes oil equivalent conversion factor of 6,000 standard cubic feet per barrel of oil equivalent.
2) Reserves and Contingent Resources have been audited independently by RISC.
3) The summation of Reserves and Contingent Resources has been prepared by the Company.
El Fayum Concession at 31 December 2023 (mmboe) (net to Group’s working interest)
Reserves1
Oil
Contingent Resources1
Oil
Sum of Reserves and Contingent Resources2
Total
1P
6.8
1C
3.6
1P & 1C
10.4
2P
13.6
2C
9.6
2P & 2C
23.2
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.
North Beni Suef Concession at 31 December 2023 (mmboe) (net to Group’s working interest)
Reserves1
Oil
Contingent Resources1
Oil
1P
0.2
1C
-
2P
0.8
2C
-
3P
17.9
3C
19.2
3P & 3C
37.1
3P
0.9
3C
-
Sum of Reserves and Contingent Resources2
Total
1P & 1C
0.2
2P & 2C
0.8
3P & 3C
0.9
1) Reserves and Contingent Resources have been audited independently by McDaniel.
2) The summation of Reserves and Contingent Resources has been prepared by the Company.
35
Annual Report and Accounts 2023Pharos Energy Strategic ReportAdditional InformationGovernance ReportFinancial Statements SECTION 172(1) STATEMENT
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 benefi t of its members
as a whole in relation to all stakeholders
who may be affected by or engaging with
the Company’s activities.
Board meetings and
discussions
The Board has always taken into account
its s.172(1) obligations during the year in
line with current reporting requirements.
Their key decisions have been specifi cally
confi rmed 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 November 2023, 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, ESG experts
and corporate advisers. At all regularly
scheduled 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,
in light of the principal risks to the
Company and its business, see
page 48 of the Risk Management
Report. For more information on
the Strategy Day, see page 17 of
the Chair’s Statement.
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 continued to run a dedicated
Monday weekly meeting to ensure all
colleagues are regularly informed about
important business developments in the
Company and the Group. There are also
regular team, departmental and asset
meetings in smaller groups, allowing
all staff a greater opportunity to share
knowledge and debate issues. These
forums also act as channels through
which employees can ask questions and
contribute to the strategy and function
of the business. We have continued to
make extensive use of video conferencing
facilities during calls and remote meetings
to maintain visibility and connection. We
have also seen an increase in face-to-
face meetings, which many of the team
appreciate as a collaborative environment
for the exchange of ideas, knowledge
and advice. As noted in last year’s
report, the 2022 reorganisation of the
Group instituted a fl atter organisational
structure, and this has resulted in shorter
lines of management and more direct,
accessible channels of communication
with leadership.
36
Annual Report and Accounts 2023
Pharos Energy
SECTION 172(1) - continued
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. Each employee has at
least two meetings with their line manager
during the year, to discuss and agree
the objectives and to review progress
mid-year. Line managers also provide
additional support where needed and
assist the employee in overcoming any
difficulties they might be facing.
Following feedback received in previous
years, in which events such as off-
site away days and in-person monthly
meetings were proposed to avoid staff
isolation and promote team culture, the
Company organised a Group-wide off-site
event in June 2023, where colleagues
from Egypt, Vietnam and UK all met
in London to exchange ideas, provide
feedback and engage in structured
team-building activities. The event
proved very successful, with the sharing
of knowledge and practical experience
having an immediate impact. The off-site
event also resulted in a number of new
staff-led initiatives, including a Group-
wide quarterly video conference and a
commitment to an annual Group-wide off-
site event. The Board believes that these
Group-wide events are important not only
for the effective and efficient functioning of
the Company and the business, but also
for the development, advancement and
wellbeing of the Group’s global workforce.
Throughout the year, during all employee
events, John Martin, as Chair of the Board
and designated Non-Executive Director
responsible for workforce engagement,
made himself available to all employees
and encouraged all staff members to share
their concerns, feedback and views about
the Company. Any feedback was then
taken into account and communicated
to the Board and Executive Directors as
suggestions for improvements.
For more information on the
Board’s engagement with
employees, see page 62 of the 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 organisation has provided robust
evidence of its commitment to ESG in the
sector through its Corporate Responsibility
Report, TCFD Report and ESG Committee
Report. Pharos reports transparently on
various Corporate Responsibility metrics
such as lost time injuries, GHG emissions,
energy consumption, waste produced
and recycled, and freshwater usage in
our Annual Reports. Over the past five
years, the Company have participated
in the CDP (Climate Disclosure Project)
Climate Change Questionnaire and have
maintained our score (C), which is also
the industry average. The Company’s
water usage disclosure in the CDP Water
Security Questionnaire also received a
score of (C). As a Group, we continue
to work to bring our disclosures in line
with the requirements of the TCFD. 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. In
December 2023 the Company published
a Net Zero roadmap, researched and
developed in close consultation with
specialist advisors and consultants and
including interim targets and asset-level
decarbonisation levers towards 2050.
In addition to this, the Company
remains committed to creating value in
a sustainable manner for host countries
and local communities as well as for staff.
During the year we sought to align our
social investment programme with the
United Nations Sustainable Development
Goals (UN SDGs). We worked closely with
our local partners and joint ventures to
ensure that our social initiatives continue
to have a positive impact on the regions
receiving the support and are relevant
to the community. In 2023, a total of
$247,373 was invested in 22 long-term
community projects across all of our
assets, 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 Group’s business relationships
with suppliers, service providers and
vendors 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 the
legal terms of other commitments are also
thoroughly reviewed by the Group General
Counsel and, if necessary, referred to
specialist external counsel.
Our relationships with joint venture
partners, host governments, regulatory
authorities, shareholders and analysts are
the foundation to support the success
of our business. In January 2023, the
Company held an analyst lunch to engage
with media journalists and analysts
to foster open and communicative
relationships with key figures in the
industry. In May 2023, the Executive
Directors met the CEO of EGPC, the
industry regulator and state oil company
in Egypt, and met with both JOC partners
and with MOIT, the regulator in Vietnam,
to discuss the Revised Field Development
Plans and licence extensions for TGT and
CNV. Additionally, during the Strategy
Day held in London in November 2023,
the Board had presentations and inputs
from a number of key parties, including
shareholders, ESG experts and corporate
advisers. In June 2023 and December
2023, the Executives participated in ad-
hoc roadshows with our corporate brokers
in order to engage with a wide group of
existing shareholders and prospective
investors.
We plan to continue to engage in a
personal and meaningful way with our
stakeholders, such as host governments,
suppliers, joint venture partners,
shareholders, and others in the future.
For more information on how the
Company foster relationships with
stakeholders, see page 21 of our
CEO’s Statement and page 106
of our UK Corporate Governance
Code.
37
Annual Report and Accounts 2023Pharos Energy Strategic ReportAdditional InformationGovernance ReportFinancial Statements SECTION 172(1) - continued
In addition, the Company announced
the establishment of an Emissions
Management Fund in September 2022,
refl ecting that, as non-operator, the
Company has no direct control over the
facilities associated with the Group’s
producing assets. From every barrel
net to the Company sold at an oil price
above US$75, this Fund is provided
with US$0.25. In line with the Net Zero
roadmap, this Fund is intended to
provide fi nancial support for emissions
management projects that are otherwise
not economically feasible. As at 31
December 2023 the value of the fund was
c.US$400,000.
The Board regularly monitors the Group’s
business activities, fi nancial positions,
cash fl ows 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,
together with an assessment of other
factors that could affect the Group’s future
performance and position. These factors
include the impact on the community and
environment of the Group’s operations
and any prospective project or investment
decision.
For more information on the
Board’s commitment to ESG and
considerations on the community
and the environment, see pages
114 to 116 for the ESG Committee
Report, pages 16 to 17 for the
Chair’s Statement, and pages
62 to 81 for the Corporate
Responsibility Report.
For more information on Board
oversight on business activities,
fi nancial position and the
environment of the Group’s
operations, see page 48 of the
Risk Management Report.
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 are
reviewed and re-approved by the Board
annually, and all policies and procedures
have been followed rigorously in 2023. The
Code of Business Conduct and Ethics is
placed at forefront of our engagement with
suppliers, vendors, partners, and public
offi cials. It is a requirement for all Group
employees and the Board to complete
and successfully pass their Anti-Bribery
and Corruption and Criminal Finance
E-Learning modules every year to ensure
that the expected standards of business
conduct and the Company’s values are
communicated and recognised across the
organisation. 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
confi dential ethics hotline supported by
EthicsPoint with numbers displayed in our
local offi ces available 24 hours a day all
year round.
The Board recognises that 2023 has
seen signifi cant geopolitical instability,
something that has impacted far reaching
communities and families, the global
economy, communities and trade. The
Group continues to support colleagues
and contractors during this diffi cult time,
as well as ensuring that our business can
continue to function unaffected. At an
operational level, the Group continues
to work with the JOCs on contingency
planning and mitigation in the event
that these confl icts, and any associated
sanctions, have a direct impact on the
Group’s business.
The Board has an obligation and duty
to ensure that the Company behaves
responsibly. The Board delegates
to the management team, including
the Executive Directors, the day-to-
day execution of the business in a
responsible way. The Executive Directors
communicate regularly and openly with
the Board and the other members of the
management team.
In connection with Board deliberation and
decisions, each Board member brings
individual judgement and considerable
experience to decision-making and
carefully assesses the course of action
most likely to promote the success of the
Company. In this context, reference is also
made to the discussion in point a) above
of the Board’s consideration of the likely
long-term consequences of any decision.
For more information on the
Company’s commitment to
maintaining high standards of
business conduct, see pages 48
to 53 for the Risk Management
Report and page 66 of the
Corporate Responsibility Report.
f) The need to act fairly as between
members of the company.
We believe a workforce with a diversity
of experience, nationalities, cultural
backgrounds and gender supports our
business strategy of long-term sustainable
growth. It is crucial to the success of
our business that we retain and develop
the diversity of our workforce and have
diversity and inclusion at the heart of our
recruitment, development and promotion
processes.
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 fulfi l their
potential based on merit and ability. We
remain respectful and accepting in our
relationships with 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.
During the year, recognising the
importance of diversity, equity and
inclusion in the workplace, and drawing
on the feedback from our Group-wide
offsite, the Company undertook an all-staff
survey to encourage open and honest
conversations around this topic within the
organisation. Understandings gained from
this survey provide the basis for future
dialogues and workshops going forward.
For more information on our
commitment to act fairly as
between members of the
company, see page 10 of
the Investment Case, pages
62 to 81 of the Corporate
Responsibility Report,
or visit our website at
www.pharos.energy/
responsibility/policy-statements/
for our Code of Business
Conducts and Ethics, Social
Responsibility policy, and Human
Rights statement.
38
Annual Report and Accounts 2023
Pharos Energy
Strategic Report
Governance Report
Financial Statements
Additional Information
SECTION 172(1) - continued
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 constructively
debated 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 during the year not
mentioned above included but were not limited to:
• Agile and responsible response to continue the
implementation of a fl exible 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, X (formerly known
as Twitter) and LinkedIn, email communications, and
online meetings with Q&A to allow the wider public a
free platform to put questions directly to the Executive
Directors
• Regular liaison with proxy advisory and corporate
governance services on responsible investment, ESG and
the terms of shareholder resolutions
• A section of the agenda for each regularly scheduled
meeting of the Board being dedicated to investor relations
and stakeholder considerations
• Reports from corporate brokers and a fi nancial PR fi rm on
feedback from investors and research analysts
Pharos Energy
Annual Report and Accounts 2023
39
CHIEF FINANCIAL OFFICER’S STATEMENT
Financially strong
I am pleased to report strong
fi nancial performance from our
operations and a strengthening
of our liquidity position, with
net debt down 77% to $6.6m
at the end of the year.
The revenue for Egypt of $18.9m (2022:
$36.8m, which includes an additional
$7m following the improvement in the
fi scal terms with the Third Amendment
to the El Fayum Concession, increasing
cost recovery oil from 30% to 40% from
November 2020) decreased largely
due to lower average realised crude oil
price, down 19% to $78.18/bbl (2022:
$96.03/bbl). On an equivalent basis,
45% working interest for the full year and
after excluding additional revenues from
the Third Amendment, 2022 revenues
were $24.0m. Production fell to 1,381
bopd (2022: 1,748 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
specifi cally to El Fayum. Both are set by
EGPC and combined stayed consistent
at over $4/bbl for the year (2022: over $5/
bbl).
Operating performance
Revenues
Group revenues of $168.1m, prior to
realised hedging loss of $0.2m (2022:
$221.6m prior to realised hedging loss
of $22.5m) were negatively impacted by
a 17% decrease in realised commodity
prices.
Revenues for Vietnam of $149.2m (2022:
$184.8m) decreased year on year as
a result of lower realised prices and a
reduction in sales volumes due to timing
of cargoes. The average realised crude
oil price was $87.42/bbl (2022: $106.44/
bbl), an 18% decrease year on year, and
the premium to Brent was just under
$7/bbl on average (2022: over $4/bbl).
Production was lower at 5,127 boepd
(2022: 5,418 boepd). In October 2023,
the Company and its partners signed a
three year sales contract for all TGT crude
oil cargoes with BSR to cover the period
1 January 2024 to 7 December 2026.
This agreement supports energy security
in-country and eliminates export duty
being paid on cargoes, plus enables the
JOC to recover input VAT. The premium to
Brent will continue to be agreed every six
months, which provides the Group with
signifi cant downside price protection for
production from our largest Vietnam fi eld.
SUE RIVETT
Chief Financial Offi cer
We have returned a 7% yield, or
$8.4m, to shareholders in the form
of dividends and share buybacks
and invested $26.7m in our asset
base, all while paying down $35m
of debt. This is despite a backdrop
of reduced commodity prices and
delays in payment for our Egyptian
sales. In Egypt, we generated
$2.5m of free cash during the year
from a combination of receipts from
our sales, receipt of the contingent
consideration and the carry from
our prior year farm out to IPR.
Our fi nance strategy continues
to support our commitment to
building shareholder value through
organic growth and sustainable
returns to shareholders.
We are in a net cash position as
of today and, as we move out of
the carry period on our Egyptian
concessions, we look forward to
drawing down on our receivables
balance with EGPC to support our
ongoing operations and capital
investment in El Fayum and our
new 20-year development lease at
North Beni Suef.
Today, I am delighted to confi rm
the receipt of $10m in USD of our
outstanding receivables, which
equates to 26.7% of the year end
balance.
40
Annual Report and Accounts 2023
Pharos Energy
Strategic Report
Governance Report
Financial Statements
Additional Information
CHIEF FINANCIAL OFFICER’S STATEMENT - continued
Hedging
For 2023, Pharos entered into zero cost 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 and to provide downside protection to cash fl ows in
the event of commodity price falling. The commodity hedges run until June 2025 and are settled monthly. Our hedging positions for the
year resulted in a small $0.2m realised loss (2022: loss of $22.5m).
During 2023, 36% of the Group’s total oil entitlement production was hedged, securing average fl oor and ceiling prices for the hedged
volumes at $64.5/bbl and $100.8/bbl, respectively. 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 2024, leaving 72% of Group
production unhedged as at 31 December 2023.
Please see below a summary of hedges outstanding as at 31 December 2023, which are all zero cost collar.
Production hedge per quarter – 000/bbls
Min. Average value of hedge - $/bbl
Max. Average value of hedge - $/bbl
1Q24
120
63.00
91.50
2Q24
120
63.00
87.88
3Q24
150
64.40
88.66
4Q24
120
63.00
89.00
1Q25
60
64.00
90.00
2Q25
60
64.00
90.00
Operating costs
DD&A
Group cash operating costs, defi ned
in the Non-IFRS measures section on
page 190, were $37.3m (2022: $42.8m).
Vietnam decreased by 9% from $31.7m to
$28.8m in 2023, the equivalent of $15.39/
bbl (2022: $16.03/bbl). The decrease is
due to lower costs relating to the FPSO
as a result of higher 3rd party production
throughput from the TLJOC, which
decreased the HLJOC’s share of the costs
(TLJOC had 23.2% cost share in 2023
compared to 14.5% in 2022). In addition,
for 1H 2022, there was $3.2m of export
duty paid on TGT oil cargoes, which in
2023, we were not required to pay due to
the oil being sold into the local economy.
Cash operating costs in Egypt were $8.5m
in 2023 (2022: $11.1m), which equates
to $16.86/bbl (2022: $17.40/bbl). The
3% decrease in cash operating costs per
barrel was mainly related to decreases
in transportation and fuel costs per bbl
together with decreases in the fi xed costs
due to the devaluation of EGP against the
USD during the year. Cash operating costs
from 1 January 2022 up to 20 March 2022
were 100% share and from 21 March
2022 included only the Group’s remaining
45% share. On a 100% equivalent basis,
the cash operating costs for 2023 were
$19.2m (2022: $19.3m).
Group DD&A associated with the
producing assets increased marginally
to $55.4m (2022: $55.1m) driven by a
higher depreciating cost base following
December 2022 impairment reversals
taken on both Vietnam and Egypt, partially
offset by the 9% decrease in production
year on year and lower DD&A rates
per barrel from July following the net
impairment charges taken on Vietnam and
Egypt assets in June 2023.
DD&A per bbl is currently $27.25/boe for
Vietnam (2022: $25.79/boe). DD&A per
bbl for Egypt is $8.73/boe for the full year
production entitlement (2022: $6.43/boe).
Administrative expenses
Administrative expenses in 2023 of $9.0m
(2022: $10.0m) were lower than prior year.
After adjusting for the non-cash items
under IFRS2 Share Based Payments
of $0.9m (2022: $1.3m) and project
costs associated with new commercial
opportunities of $0.4m (2022: $nil), the
underlying administrative expense is
$7.7m (2022: $8.7m).
Operating (loss)/profi t
Operating profi t from continuing
operations for the year was $47.3m (2022:
$72.3m) excluding the net impairment
charge of $65.4m (2022: $27.9m net
impairment reversal), refl ecting the
combined impact of a lower commodity
price environment throughout the year and
a decrease in production volumes.
Other/restructuring expenses,
loss on disposal and (loss)/
gain on fair value movement of
fi nancial asset
Other/restructuring expenses for the
year of $0.6m (2022: $0.8m) were due
to changes in the best estimate of the
adjustment relating to the interim period
between the economic date of 1 July 2020
and the completion date of the disposal
of 55% interest in the Egypt concessions.
2022 included restructuring costs for both
the head offi ce in London and the Egypt
offi ce in Cairo ($0.1m). In addition, for
2022, there was a $0.7m charge relating
to the premium on the transfer of the lease
on the London offi ce.
Loss on disposal in 2022 of $6.6m is
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, 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 fl oor 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
20 and Note 37 for further details). From
2023, the variance of the contingent
consideration is booked under (loss)/gain
on fair value movement of fi nancial asset.
The loss on fair value movement of
fi nancial assets for the year of $0.3m
(2022: $0.3m gain) is due to $0.4m
revision of the contingent consideration,
partially offset by $0.1m reduction in
contingent liability (assignment fee).
Pharos Energy
Annual Report and Accounts 2023
41
CHIEF FINANCIAL OFFICER’S STATEMENT - continued
Finance costs
Finance costs decreased to $10.2m (2022: $12.7m), mainly related to a charge of $2.7m following a change in estimated future cash
flows following the December 2023 RBL redetermination and amortisation of capitalised borrowing costs of $(1.4)m (2022: charge
of $2.6m and amortisation of capitalised borrowing costs of $1.5m). There was interest expense payable and similar fees of $6.4m
charged on the RBL and NBE (2022: $6.1m), unwinding of discount on Vietnam decommissioning provisions of $2.0m (2022: $1.3m)
and foreign exchange losses of $0.5m (2022: $1.2m) primarily driven by devaluation of EGP against USD.
2023 $m
111.2
2022 $m
116.8
(55.4)
(10.5)
-
(4.0)
(2.2)
(1.8)
37.3
6,508
15.70
2023 $m
55.4
6,508
23.32
(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
Total $m
111.2
(55.4)
(10.5)
(4.0)
(2.2)
(1.8)
37.3
6,508
15.70
Cash operating cost per barrel*
Cost of sales
Less
Depreciation, depletion and amortisation
Production based taxes
Export duty
Inventories
Trade Receivable risk factor provision
Other cost of sales
Cash operating costs
Production (BOEPD)
Cash operating cost per BOE ($)
DD&A per barrel*
Depreciation, depletion and amortisation
Production (BOEPD)
DD&A per BOE ($)
* Cash operating cost per barrel and DD&A per barrel are alternative performance measures. See page 190.
Cash operating cost per barrel by Segment
Vietnam $m
Egypt Total $m
95.6
(51.0)
(10.4)
(3.9)
-
(1.5)
28.8
5,127
15.39
15.6
(4.4)
(0.1)
(0.1)
(2.2)
(0.3)
8.5
1,381
16.86
Cost of sales
Less
Depreciation, depletion and amortisation
Production based taxes
Inventories
Trade Receivable risk factor provision
Other cost of sales
Cash operating costs
Production (BOEPD)
Cash operating cost per BOE ($)
42
Annual Report and Accounts 2023Pharos Energy CHIEF FINANCIAL OFFICER’S STATEMENT - continued
DD&A per barrel by Segment
Depreciation, depletion and amortisation
Production (BOEPD)
DD&A per BOE ($)
Movements in the Property, Plant and Equipment
As at 1 January
Capital spend
Transfer from intangible assets
Revision in decommissioning assets
Recognition of right-of-use assets
DD&A – Oil and gas properties
DD&A – Other assets
Impairment (charge)/reversal – PP&E
As at 31 December
Property, Plant and Equipment
Right-of-use-Asset (IFRS 16 Impact)
As at 31 December
Vietnam $m
Egypt $m
Total $m
51.0
5,127
27.25
4.4
1,381
8.73
2023 $m
381.8
12.1
2.9
(2.5)
-
(55.4)
(0.2)
(58.9)
279.8
279.3
0.5
279.8
55.4
6,508
23.32
2022 $m
399.8
23.2
-
(13.9)
0.8
(55.1)
(0.1)
27.1
381.8
381.0
0.8
381.8
Taxation
The overall net tax charge of $19.8m (2022: $56.2m) relates to tax charges in Vietnam of $36.0m less the deferred tax credit on net
impairment charges of $16.2m (2022: Vietnam tax charges of $47.9m plus the deferred tax charge on impairment reversal of $8.3m).
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 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 zero cost collars 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 $0.2m (2022: $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.
(Loss)/profit post-tax
The post-tax loss for the year of $48.8m (2022: $24.4m post-tax profit) included $53.8m of disposals, re-measurements and
impairments (2022: $14.9m). Business performance post-tax profit for the year was $5.0m (2022: $39.3m).
Disposals, re-measurements and impairments are comprised of the following:
Financial Statements Impact:
Revenue
Cost of sales
Impairment (charge)/reversal – Intangible assets
Impairment (charge)/reversal – Property, plant
and equipment
Other/restructuring expenses
Loss on disposal
(Loss)/gain on fair value movement of financial asset
Finance costs
Income tax credit/(charge)
Total
2023 $m 2022 $m
(0.2)
(2.2)
(6.5)
(58.9)
(0.6)
-
(0.3)
(1.3)
16.2
(22.5) Realised hedging losses
(1.5) Trade receivable risk factor provision
0.8
27.1
(0.1)
Revision of carry with IPR. In 2022, Egypt restructuring and
release of end of service provision
(6.6) Egypt farm-out
0.3 Revision of contingent consideration in relation to Egypt farm-out
(4.1) Adjustment and amortisation of capitalised borrowing costs
(8.3) Deferred tax on impairment charge/(reversal)
(53.8)
(14.9)
43
Annual Report and Accounts 2023Pharos Energy Strategic ReportAdditional InformationGovernance ReportFinancial Statements Financing activities also included $2.8m
outflow (2022: $2.9m) in relation to the
$3m extension of the share buyback
programme initiated in January 2023
and there was $5.6m outflow (2022: $nil)
following payment of the final dividend
for the 2022 financial year approved by
shareholders at the AGM in May 2023.
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 2023, the total payments to
governments for the Group amounted
to $188.0m (2022: $245.3m), of which
$166.5m or 89% (2022: $211.5m or 86%)
was related to the Vietnam producing
licence areas, of which $110.8m (2022:
$140.7m) was for indirect taxes based
on production entitlement. In Egypt,
payments to government totalled $19.3m
(2022: $31.3m), of which $18.4m (2022:
$28.8m) related to indirect taxes based on
production entitlement.
CHIEF FINANCIAL OFFICER’S STATEMENT - continued
Cash flow
Operating cash flow (before movements
in working capital) was $103.8m (2022:
$128.8m). After tax charges of $44.3m
(2022: $54.7m), restructuring and
exceptional expenses $nil (2022: $2.7m),
working capital adjustments of $15.0m
(2022: $18.1m) and interest received of
$0.4m (2022: $0.1m), the cash generated
from operations was $44.9m (2022:
$53.4m).
Cash generated from operations, after
tax charges, exceptional expenses and
working capital movements, is the basis of
our dividend framework.
Operating cash flow (before movements
in working capital) adjusted for the impact
of the hedging positions of $0.2m loss
(2022: $22.5m loss) gives an underlying
operational performance $104.0m (2022:
$151.3m), which is consistent with the
reduction in commodity prices and the
production decrease year on year.
The increase in receivables was $19.1m
(2022: increase in receivables of $7.7m).
The movement in 2023 is primarily driven
by $11.4m increase from Egypt, due
to EGPC receivables. Since 2Q 2022,
the Group has opted not to accept the
payment of PEF’s receivables balance in
EGP unless required for operations, such
as funding of ongoing expenditures upon
expiry of the carry with IPR. 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.
In the space of two weeks, the Egyptian
Government has: (i) announced a
landmark agreement with ADQ (an Abu
Dhabi sovereign wealth fund), whereby
the latter will invest $35 billion for the
development of the new coastal city of
Ras El Hekma (the first $10 billion of which
were immediately paid to Egypt); (ii) on 6
March 2024, raised all main interest rates
by 600 basis points; signed a significantly
expanded new loan from the IMF ($8
billion, including the original $3 billion
secured in December 2022, which should
facilitate additional $12 billion from other
institutional lenders including the World
Bank and the European Union); and let the
Egyptian pound (EGP) fully float.
It is also widely expected that the flotation
of the EGP will trigger an acceleration in
the Egyptian Government’s privatisation
plan.
The Group is optimistic that its receivables
position with EGPC will improve during
2024, through a combination of payments
in USD and some EGP revenues or
settlements, as needed, to fund our share
of operational expenditure.
There was also an increase in Vietnam
trade receivables of $7.4m (2022:
decrease in receivables of $6.9m) due to
three cargoes being lifted in December
2023. Payments for these cargoes were
received in January 2024.
Capital expenditure on continuing
operations for the year was lower at
$26.7m (2022: $31.9m). On Block 16-1
– TGT Field, no new development wells
were drilled in the year. During 2022, two
development wells were drilled. On Block
9-2 – CNV Field, one development well,
CNV-2PST1, completed in February 2023
and performed strongly, producing in
excess of pre-drill estimates. In El Fayum,
three wells were put on production and
injection in 2023 and, on NBS, the first
exploration commitment well, NBS-SW1X,
was declared a commercial discovery and
put on production in December 2023.
Net cash outflows from financing activities
of $50.1m (2022: $19.8m outflow)
included outflows in relation to the RBL
of $22.4m in June 2023 and $12.6m in
December 2023 (2022: $0.2m in June
2022 and $12.9m in December 2022)
following the half year and year end
redetermination processes. The amount
drawn stood at $30.0m at year end.
The RBL facility, which is secured only
over the Group’s interest in the Vietnam
producing assets, matures in July 2025.
The facility amount is amortised by
$14.2m, every redetermination, from
1 July 2022. The facility amount
decreased to $43.0m from 1 January
2024 and will decrease further to $28.8m
from 1 July 2024. 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. The Debt Service
Reserve Account (DSRA) was put in funds
of $12.5m on the first business day of
2024 to service the principal repayment
due in July 2024 plus interest.
There was no net outflow from NBE
revolving credit facility (2022: $2.7m). This
facility 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 2023 was $9.2m
(2022: $9.2m).
44
Annual Report and Accounts 2023Pharos Energy CHIEF FINANCIAL OFFICER’S STATEMENT - continued
Balance sheet
Intangible assets increased during the period to $18.2m (2022: $16.5m). Additions for the year related to Blocks 125 & 126 in Vietnam
$3.1m (2022: $3.1m), Egypt $8.0m (2022: $1.0m) and $nil (2022: $0.2m) for the Israeli bid round licence fee. The first exploration well
on NBS (NBS-SW1X) was declared a commercial discovery in December 2023 and exploration costs of $2.9m (2022: $nil) relating
to the development lease were transferred to property, plant and equipment. There were total Exploration and evaluation expenditure
impairment charges of $6.5m in the year (2022: $0.2m).
The movements in the Property, Plant and Equipment asset class are shown above.
Impairment (charges)/reversals
As a result of previously recognised impairment losses, combined with the ongoing oil price volatility, economic uncertainty leading to
high inflation globally 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. The recoverable amount is calculated using a discounted cash flow valuation of the 2P
production profile.
Summary of Impairments - Oil and Gas properties
2023
Pre-tax impairment (charge)/credit
Deferred tax credit/(charge)
Post-tax impairment charge
Reconciliation of carrying amount:
As at 1 January 2023
Additions
Transfer from intangible assets
Changes in decommissioning asset1
DD&A
Impairment (charge)/reversal
As at 31 December 2023
2022
Pre-tax impairment reversal
Deferred tax charge
Post-tax impairment reversal
Reconciliation of carrying amount:
As at 1 January 2022
Additions
Changes in decommissioning asset1
DD&A
Impairment reversal
As at 31 December 2022
TGT $m
CNV $m El Fayum $m
NBS $m
Total $m
(46.3)
16.5
(29.8)
242.4
1.3
–
–
(38.8)
(46.3)
158.6
0.3
(0.3)
–
76.4
3.0
–
(2.5)
(12.2)
0.3
65.0
(11.0)
–
(11.0)
62.5
7.6
–
–
(4.4)
(11.0)
54.7
(1.9)
–
(1.9)
–
–
2.9
–
–
(1.9)
1.0
(58.9)
16.2
(42.7)
381.3
11.9
2.9
(2.5)
(55.4)
(58.9)
279.3
TGT $m
CNV $m El Fayum $m
NBS $m
Total $m
19.7
(6.9)
12.8
266.0
7.0
(11.1)
(39.2)
19.7
242.4
3.6
(1.4)
2.2
84.2
3.2
(2.8)
(11.8)
3.6
76.4
3.8
–
3.8
49.2
13.6
–
(4.1)
3.8
62.5
–
–
–
–
–
–
–
–
–
27.1
(8.3)
18.8
399.4
23.8
(13.9)
(55.1)
27.1
381.3
1) Changes in decommissioning asset for TGT is due to a change in discount rate only, whereas CNV reflects the change in field abandonment plan and
discount rate (2022: change in discount rate and the field abandonment plan for TGT; change in discount rate only for CNV)
45
Annual Report and Accounts 2023Pharos Energy Strategic ReportAdditional InformationGovernance ReportFinancial Statements CHIEF FINANCIAL OFFICER’S STATEMENT - continued
Borrowings were $40.5m (2022: $74.2m),
a decrease of $33.7m with $35.0m
related to repayments following the RBL
redeterminations in June and December,
partially offset by $1.3m amortisation of
capitalised borrowing costs and one-off
charges in relation to the redeterminations.
The movement on the NBE revolving
credit facility was $nil for the year, so the
balance on the facility as at 31 December
2023 remained consistent at $9.2m (2022:
$9.2m).
Long-term provisions comprise the
Group’s decommissioning obligations for
the Vietnam fields. The decommissioning
provision decreased from $54.3m at 2022
year end to $53.8m at 31 December 2023
mainly due to a lower CNV obligation
following finalisation of the revised
abandonment plan in April 2023 and an
increase in discount rate from 3.83%
to 3.87% as a result of an increase in
prevailing risk-free market rates. The
amounts set aside into the abandonment
funds total $53.7m (2022: $50.2m). No
decommissioning obligation exists under
the El Fayum Concession.
Own shares
The Pharos Employee Benefit Trust holds
ordinary shares of the Company for the
purposes of satisfying long-term incentive
awards for senior management. At the end
of 2023, the trust held 2,126,857 (2022:
2,126,857), representing 0.49% (2022:
0.48%) of the issued share capital.
In addition, as at 31 December 2023,
the Company held 9,122,268 (2022:
9,122,268) treasury shares, representing
2.11% (2022: 2.06%) of the issued share
capital. All shares purchased under the
on-market buyback programme originally
announced in July 2022 and extended
in January 2023 and December 2023
have been or will be cancelled rather than
retained in treasury.
Share buyback and dividend
framework
Following a period of improved commodity
prices and a strengthening of the Group’s
liquidity position, the Company committed
to shareholder returns in the form of
share buybacks and dividends. The
Company announced the continuation of
a further $3m share buyback programme
in January 2023 (the First Programme
Extension), of which $2.8m had been
incurred by the end of December 2023.
On 6 December 2023, the Company
announced that it intended to continue
the share buyback programme in 2024
through its commitment of a further $3m
(excluding stamp duty and expenses).
This further extension of the programme
commenced following completion of the
First Programme Extension in early 2024.
In September 2022, we announced
a clear sustainable policy for the
recommencement of regular dividend
payments. This policy is to return no
less than 10% of OCF each year in two
tranches
• An interim dividend of 33% of the
previous year’s total dividend, payable
in January of the following year; and
• A final dividend payable in July of the
following year.
A final dividend of 1.00 pence per share,
$5.6m equivalent, was recommended by
the Board in respect of the year ended
31 December 2022. This was approved
by shareholders at the Company’s 2023
AGM in May and paid in full on 12 July
2023 to shareholders on the register at
the close of business on 16 June 2023.
No interim dividend was paid in respect
of the year ended 31 December 2022. On
6 December 2023, an interim dividend of
0.33 pence per share, $1.7m equivalent,
was declared by the Board in respect of
the year ended 31 December 2023 and
paid on 24 January 2024 to shareholders
on the register at the close of business on
22 December 2023.
The Board have recommended a final
dividend in respect of the year ended 31
December 2023 of 0.77 pence per share
subject to approval of the shareholders at
the Company’s 2024 AGM. Subject to this
approval, the final dividend will be paid in
full on 19 July 2024 in Pounds Sterling to
ordinary shareholders on the register at
the close of business on 14 June 2024,
with an ex-dividend date of 13 June 2024.
This would take the 2023 full year dividend
to 1.10 pence per share, an increase of
10% on the prior year.
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 $3.3m at 31 December
2023 (2022: $7.2m), of which $3.1m
related to Vietnam and $0.2m to Egypt.
Trade and other receivables increased
to $62.3m (2022: $60.9m) of which
$19.0m (2022: $11.4m) relates to
Vietnam and $42.7m (2022: $49.0m)
relates to Egypt. For Egypt, the closing
balance includes $4.9m of carry (2022:
$20.9m), 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 $33.4m
from EGPC, after expected credit loss
provision of $4.0m recognised under IFRS
9, 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 (2022: trade receivable from
Egypt $22.4m after risk factor provision of
$1.8m).
Cash and cash equivalents at the end of
the year were $32.6m (2022: $45.3m) and
the decrease was mainly driven by $35.0m
net repayment of borrowings (2022:
$10.4m) and cash flows from operating
activities of $45.3m (2022: $53.4m) as a
result of reduced commodity prices during
the year and lower production.
Trade and other payables were marginally
higher at $14.2m (2022: $14.0m), of
which $7.9m (2022: $6.6m) relates to
Egypt net JV payables in relation to
operations and Stratton royalty obligation.
$2.2m (2022: $4.8m) relates to Vietnam
payables, $nil (2022: $0.5m) net hedging
liability and $4.1m (2022: $1.9m) Head
Office payables, inclusive of $1.7m
interim dividend paid in January 2024.
Tax payables increased to $5.8m (2022:
$5.2m) which is linked to the timing of
cargoes from TGT.
46
Annual Report and Accounts 2023Pharos Energy 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 that could affect the
Group’s future performance and position.
A base case forecast has been considered
that utilises oil prices of $81.5/bbl in 2024
and $79/bbl in 2025. 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 $54.3/
bbl in April 2024 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 April 2024. Both the base case and
RWC take into account effect of hedging
that has already been put in place at 31
December 2023 and subsequent hedges
placed in 2024, now covering 28% for
the full year 2024 and 12% of 1H 2025.
We have therefore secured an average
floor price and ceiling price of c. $63.5/
bbl and c. $89/bbl, respectively, for the
entire hedged volumes. Under the RWC
scenario, we have identified appropriate
mitigating actions, which could look
to defer uncommitted expenditure 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 a low breakeven oil price. In TGT we
have 2 wells planned to be drilled in 2H
2024. The majority of our debt ($30m as
of 31 December 2023) is secured against
the Vietnam producing assets under the
RBL, which will be repaid by July 2025.
In Egypt, we have limited capital
expenditure, low cost recompletions and
waterflood in El-Fayum and development
drilling in NBS in 2H 2024. As of 31
December 2023 $9.2m drawn on an
uncommitted revolving credit facility on the
Egypt revenue invoices.
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
2023 Financial Statements. 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 great deal to look
forward to as we move forward in
2024 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
across our portfolio
• Reducing debt and getting to
a net cash position early in the
year
• Significantly improving
economic situation in Egypt,
which could start to unlock our
receivables position there
Further returns to shareholders
are expected in 2024, with the
announcement in January of an
additional $3m committed to
an extension of the Company’s
ongoing share buyback
programme, and a 10% increase
in full year dividends subject to
approval of the final dividend at the
2024 AGM.
SUE RIVETT
Chief Financial Officer
47
Annual Report and Accounts 2023Pharos Energy Strategic ReportAdditional InformationGovernance ReportFinancial Statements RISK MANAGEMENT
Risk Management Report
Effective risk management is integral to Pharos achieving its corporate
strategy to deliver sustainable value for all stakeholders through the
responsible management of our current portfolio and the careful
selection of growth opportunities, while protecting our personnel,
assets, the communities in which we operate, and our corporate
reputation and values.
Risk Management Framework
at Pharos
Pharos carried out regular and robust risk assessments
to identify and manage its Principal and Emerging risks
during 2023 and continues to monitor closely the Egyptian
economic situation and the global macroeconomic
environment. The Group’s risk management activities during
the year focused on the Egyptian economy, commodity price
uncertainty, and volatility in production levels and reserves.
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.
Control environment
The Group’s control environment is based primarily on its
Code of Business Conduct and Ethics and associated
guidance for implementation. The Code and associated
guidance enshrines a number of fundamental values
to the Group and its business, 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 (BMS).
These documents are distributed to all employees,
followed up with training as required and are available
on the Pharos’ internal intranet system. As part of the
compliance programme, all employees have to undertake
and successfully complete a training assessment at least
once a year covering anti-bribery and corruption laws and
procedures and other financial crimes.
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.
48
MANAGING OUR RISKS
Principal risks in 2023
1.
Inability to repatriate cash earned from Egypt
2. Further devaluation of the Egyptian pound
3. Legal risks – Sanctions related (prolonged war in Ukraine)
4. Climate Change
5. Commodity Price volatility
6. Volatility in Production levels
7. Reserves downgrades
8. Risk of rising inflation and stagflation
9. HSE & Social
10. Partner alignment
11. Sub-optimal capital allocation
12. Political and Regional
13. Cyber security
14. Insufficient funds to meet commitments
Principal and Emerging risks in 2024
1.
Inability to repatriate cash earned from Egypt
2. Further devaluation of the Egyptian pound
3. Legal risks – Sanctions related
4. Climate Change
5. Commodity Price volatility
6. Volatility in Production levels
7. Reserves downgrades
8. Risk of rising inflation and stagflation
9. HSE & Social
10. Partner alignment
11. Sub-optimal capital allocation
12. Political and Regional
13. Cyber security
14. Insufficient funds to meet commitments
Annual Report and Accounts 2023Pharos Energy 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
Reviews & Escalation
Risk identification
and mitigations
Maintain Risk registers
Risk Owners
BOTTOM UP
The Group’s Business Management
System 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.
An unsettled world
challenging the future -
The war in Ukraine and
conflict in the Middle East
Repercussions of the Russian invasion of
Ukraine and ensuing sanctions continue to
reverberate globally and test the resilience
of the international financial system and
rules.
The recent escalation of conflict in the
Middle East, following the surprise attacks
on 7 October 2023 by Islamist militants
in southern Israel and the Israeli military
response to those attacks in Gaza and
elsewhere has increased uncertainty and
volatility on world commodity markets.
The escalation has already had a negative
impact on Egyptian tourism, and a
prolonged conflict or expansion of the
geographical and/or military scope of
conflict is likely to intensify that impact. It
could also result in a severe curtailment
of Suez Canal revenues and a reduction
in the import of Israeli gas. The potential
involvement in the conflict of actors
and groups based outside Israel and
Gaza adds complexity, the risk of wider
contagion and the likelihood of a more
profound effect on the regional economy.
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
49
Annual Report and Accounts 2023Pharos Energy Strategic ReportAdditional InformationGovernance ReportFinancial Statements RISK MANAGEMENT - continued
Serious impacts on the
Egyptian economy
Following a first slowdown in 2020 and
2021, driven by the Covid-19 pandemic,
growth of the Egyptian economy was
picking up significant pace in late 2021
/ early 2022, before being hit by the
repercussions of the Russian-Ukraine war.
Egypt has faced economic and financial
difficulties causing:
• An inability to receive cash revenues in
USD in order to repatriate to the UK
• An inability to convert EGP to USD
• A further devaluation of the Egyptian
pound
From mid-February to early March
2024, the Egyptian Government (i) has
announced a landmark agreement with
ADQ (an Abu Dhabi sovereign wealth
fund), whereby this latter will invest $35
billion for the development of the new
coastal city of Ras El Hekma (the first
$10 billion of which were immediately
paid to Egypt); (ii) signed funding with
different institutional lenders including (a)
a significantly expanded new loan with
the International Monetary Fund (IMF)
($8 billion, including the original $3 billion
secured in December 2022); (b) $8 billion
package of loans, grants and investments
from the European Union; and (c) $6 billion
from the World Bank, over the next three
years; and (iii) let the Egyptian pound
(EGP) with an immediate devaluation
from c.31 to c.49 EGP per USD (later
strengthened to c 46.5), which forthwith
eradicated the parallel foreign exchange
(FX) market.
Pharos considers it preferable to continue
holding USD-denominated receivables and
accept part-payments of its receivables
balance in EGP only when local currency
will be needed for the funding of the
Group’s working interest share of the cost
of operations at the end of the IPR carry
period, expected to occur in the first half
of 2024.
In the event of continued delays in the
payment of its invoices, the Company has
access to its Revolving Credit Facility with
the National Bank of Egypt (UK) (NBE),
which allows it to draw down 60% of the
value of each invoice in USD. The NBE
$18m facility has been extended on the
same terms to 30 May 2025.
50
The conflicts in Ukraine,
the Middle East and
international sanctions
The extensive sanctions and export
controls introduced by the US, EU and
UK on key Russian and Russia-connected
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 2023, and
continuing into 2024, the scope of
international sanctions and controls related
to the Russian invasion has continued
to expand. 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,
originally adopted in May 2022, was
updated and renewed in 2023. The Policy
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.
As noted above, the escalation of conflict
in the Middle East since the attacks in
southern Israel on 7 October 2023 has
materially increased regional political and
economic instability. The Group considers
it is very unlikely that the US or UK will
introduce sanctions against Israel or Israeli
state actors for recent actions in Gaza,
but continues to monitor the situation and,
in particular, diplomatic efforts aimed at a
longer-term ceasefire. The Group is also
monitoring carefully the wider geopolitical
impact and perception of the conflict in
Egypt, in connection with its assets and
operations.
Climate Change risks
The 28th Conference of the Parties
(COP28) to the UN Framework Convention
on Climate Change in Dubai, United Arab
Emirates, ended on 13 December 2023.
The conference operationalised the Loss
and Damage Fund, which was established
by COP27 in 2022. It also concluded the
first global stocktake of climate action
under the Paris Agreement and adopted a
decision calling for accelerated short-term
action and an orderly transition away from
fossil fuels towards climate-neutral energy
systems – the first-ever COP decision to
address fossil fuels.
COP28 saw a landmark agreement
to support vulnerable nations facing
the worst of climate change’s impacts
under the Loss and Damage Fund.
These can include: “the development
of national response plans; addressing
insufficient climate information and
data, and promoting equitable, safe and
dignified human mobility in the form of
displacement, relocation, and migration,
in cases of temporary and permanent loss
and damage”. A geographically diverse
board will be established, and the fund will
be initially managed by the World Bank.
The first pledges from wealthy nations
were made in Dubai to support the fund
and currently total over $650 million.
The global stocktake is a two-year
process to review progress on mitigation,
adaptation and climate finance, and
outline the way forward. The parties
recognise that, by 2030, global
greenhouse gas (GHG) emissions must be
reduced by 43% below 1990 levels to limit
global warming to 1.5 °C, and commit to
accelerating action in this critical decade.
Parties are called upon to contribute to
tripling global renewable energy capacity
and doubling the global rate of energy
efficiency improvements by 2030. They
must accelerate efforts towards net zero
emission energy systems and towards the
phasedown of unabated coal power.
A historic result of COP28 was the
adoption of a fossil fuel phase-out
agreement, which commits the parties
to transition away from fossil fuels in
energy systems, in a just, orderly, and
equitable manner, so as to achieve net-
zero emissions by 2050. The COP28
decision also highlights the importance
of protecting and restoring nature and
ecosystems and enhancing efforts to halt
and reverse deforestation by 2030, and
invites parties to preserve and restore
oceans and coastal ecosystems.
Annual Report and Accounts 2023Pharos Energy 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 60
of our Viability Statement and Note 4 of
the Financial Statements.
Pharos continue to aim to align
our disclosure with the TCFD
recommendations on Governance,
Strategy, Risk Management and Metrics
and Targets.
A detailed analysis was commissioned
with the help of a 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, climate risks, along with other
principal and emerging risks presented on
pages 54 to 59 of the Risk Management
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.
For a full list of our transitional and
physical climate risks, please see pages
88 to 95.
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 – Shared Socio-economic
Pathways (SSPs). The transitional risk
analysis focused on the potential impacts
of different future scenarios on the key
transition risks facing the Group and the
oil and gas sector over the next 5 to 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 better cope
with the uncertainty, speed and extent
of the energy transition. The transition
risk analysis conducted by the TCFD
specialist consultant was assessed under
the International Energy 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 three-year
Viability Statement window under the
recommended IEA’s Net Zero Emissions
scenario. For more information, please see
pages 60 to 61 for the Viability Statement
and page 83 for our TCFD disclosures.
51
Annual Report and Accounts 2023Pharos Energy Strategic ReportAdditional InformationGovernance ReportFinancial Statements RISK MANAGEMENT - continued
Commodity Price risk
Oil markets in 2023 witnessed more stable
pricing environment compared to the
volatility experienced in 2022. However,
oil prices declined towards the end of
the year despite the escalating conflict in
the Middle East, as non-OPEC+ supply
strengthened, coinciding with slowing
global oil demand growth.
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 60 for more details
of how the Group has stress tested its
assets and projected cash flows against
its principal risks.
52
Insurance costs
Energy insurance premiums for the 2023
renewal of the Group’s cover increased
broadly in line with inflation, as was the
case with the 2022 renewal. In some
areas, the cost of the Group’s insurance
premiums in 2023, particularly corporate
cover, actually reduced in real terms. 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. However, there is still capacity
in the market, with evidence of new
entrants replacing those withdrawing
from oil and gas. In last year’s Risk
Management Report it was noted that
the major reinsurer Munich Re, previously
an underwriter of the Group’s oil and
gas package policy, had announced in
October 2022 a major reduction in its
cover for oil and gas assets and projects.
However, a number of the oil and gas
underwriting team migrated to another
Lloyd’s Syndicate member, Probitas 1492,
who took the place of Munich Re as lead
underwriter for the Group’s business
interruption insurance renewal in 2023.
Nonetheless, the Group believes that in
the longer term the trend of oil and gas
businesses suffering reduced access to
the insurance market will continue. This
can be expected to result 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.
Operational Cost risk
Rising operational costs may become
a big risk because they are directly
impacted by the other factors, and
can impact our ability to meet capital
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 and
specialised industry professionals, as
older generations reach retirement age.
As a result, oil and gas has 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.
Annual Report and Accounts 2023Pharos Energy RISK MANAGEMENT - continued
Emerging Risks
Areas of emerging risks will be around
regulatory changes, digital transformation,
risks of social disorder 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, Financial Times, 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 and
Note 36 to the Financial Statements. The
Group’s Risk Management Framework,
policy and associated procedures are
further discussed in the UK Corporate
Governance Report on pages 106 to
113 and in the Audit and Risk Committee
Report on pages 120 to 125, where the
significant issues related to the 2023
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
62 to 81.
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.
53
Annual Report and Accounts 2023Pharos Energy Strategic ReportAdditional InformationGovernance ReportFinancial Statements PRINCIPAL RISKS AND MITIGATIONS
Risk Management
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
during the year
Increase
No Change
Decrease
N
New Risk
Principal risks
Change in
likelihood
Causes
Risk Mitigation
STRATEGIC
1. Insuffi cient
funds to meet
commitments
• Inability to invest
in line with growth
strategy
2. Production
levels below
expectation
• Sub-Optimal well
performance
• Reduced drilling
• 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 infl ation
• Stress testing forecast
• Proactive dialogue with banks and other
providers of capital
• Opportunity screening
• Effective project management and resourcing
• Thorough capital allocation process
Inadequate waterfl ood responses
• Develop a clear wells strategy, focusing
•
•
Incorrect well placements
• Development wells uncommercial
• Poor reservoir models
• Lack of fi nancing for drilling
programme
on 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
54
Annual Report and Accounts 2023
Pharos Energy
Strategic Report
Governance Report
Financial Statements
Additional Information
PRINCIPAL RISKS AND MITIGATIONS - continued
Principal risks
3. Health, Safety,
Environmental
and Social
Risk
• Reputational
• Operational outages
leading to lower
production
Change in
likelihood
Causes
Risk Mitigation
• Health and safety and
•
environmental risks of major
explosions, leaks or spills
• High risk operating conditions
Improve structural and Asset Integrity through
strong operational and maintenance processes
which are critical to preserving a safer
environment
and HSES risks
• Comply with all legislative / regulatory
• Climate change impacts on
the sector, such as extreme
weather, sea level rise and water
availability affecting production
• Gas venting and fl aring hazards
and risks - well blow outs, land /
water contamination
• Non-aligment of HSES practices
with Pharos Corporate standards
with JVs and JOCs
•
Increased disparities and societal
risks in health, technology or
workforce opportunities
frameworks and transitioning to a goal-based
approach focused on improving safety
• Promote a positive health and safety culture
where workers are given proper training and
incentives to work “safe” with a zero tolerance
for non-compliance
• Environmental and Social Impact 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
infl uence them on best work practices
• Maintaining adequate energy insurance for our
assets and operations
Pharos Energy
Annual Report and Accounts 2023
55
PRINCIPAL RISKS AND MITIGATIONS - continued
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
• Net Zero commitment on all assets by 2050,
detailed roadmap published in December 2023
• Emission Management Fund, under which
we 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)
• Global transition to a lower
• Continue alignment with TCFD
carbon intensity economy
recommendations
Increased climate regulation and
disclosure
• Further integrate climate risk management
within Pharos Risk Management Framework
•
•
Increase in carbon taxes /
decarbonisation charges
• Transformational shifts leading to
reduced demand for fossil fuels
• 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
• Reduced access to insurance
market
• Stress test our going concerns under a Net
Zero Emissions price scenario and carbon tax
scenario
• Embed climate change scenarios and evaluate
decisions on key business operations /
directions
• Continuous improvement of GHG emissions
management and get JOCs to support CO2
emissions reduction initiatives
• Annually review, update and renew Group
Climate Change Policy to keep it fit for purpose
and in line with evolving decarbonisation
developments
• Comprehensive insurance cover for
Physical Damage to oil and gas assets and
infrastructure
• Close monitoring of regional 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 cases or studies to support
decarbonisation initiatives
• Geo-political factors and
international conflicts
• Pressure on investors to divest
/ avoid fossil fuel companies /
projects
• Oil commodity Hedging
− Comply with RBL requirements
− Maintain robust processes around treasury,
governance, forecasting, credit and risk
• Close monitoring of business activities, financial
• Lower long-term prices
position cash flows
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 and
earnings degradation
• 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
• Market speculation and trading
• Maintain and cultivate good relationships with
in oil futures
lenders
• Repercussions of the Russian
invasion of Ukraine and Middle
East conflict
Principal risks
4. Climate
Change –
transition and
physical risks
• Commodity price
volatility
• Restrictions of use
of carbon intensive
assets
• Lack of portfolio
diversification
• Accelerating
electrification
• Carbon pricing
• Reduced water
availability
• Increased
temperature and heat
stress
• Storm frequency
FINANCIAL
5. Commodity
Price risk
• Uncertainty on
planning
• Inability to fund work
programme / dividend
56
Annual Report and Accounts 2023Pharos Energy PRINCIPAL RISKS AND MITIGATIONS - continued
Principal risks
6. Rising
operational
costs
• Reduced profits
• Strain on cash flows
• Shortages in skilled
labour
7. Egyptian
economy
• The impact of the war
in Ukraine on Egypt’s
economy is especially
significant
OPERATIONAL
8. 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
• Turmoil in the energy markets
causing sharp price hikes
forecasts
• Focus in discretionary spend
• Sudden unplanned rate
• Secure long-term contracts where appropriate
increases for oil and gas services
without lock-ins
• Explore applying new technological advances,
focus on prevention and early detection
•
Inability to repatriate cash earned
from Egypt
• Further devaluation of the
Egyptian pound
• Pharos have opted not to accept the payment
of our receivables balance in EGP unless
required for operations
• Revolving credit facility with the National Bank
of Egypt (UK) (NBE), which allows us to draw
down 60% of the value of each oil sales invoice
in USD ($18m facility until 30 May 2025, with
further renewals by agreement)
• Accepting payments in EGP, to be reinvested
in field operations as soon as the IPR carry
comes to an end
•
Inaccurate reserves estimate
• Monitor and maintain standards of
• Earlier impairment triggers due to
low commodity price
• Capital constraints jeopardise
planned exploration /
development initiatives
reserves 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
•
Inherent uncertainties in the
evaluation techniques to estimate
the 2P reserves
• On-going evaluation of projects in existing and
potential new areas of interest and pursue
development opportunities
•
Increased DD&A costs
• Lower than expected well
performances and drilling results
• Slower drilling programmes
• 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
57
Annual Report and Accounts 2023Pharos Energy Strategic ReportAdditional InformationGovernance ReportFinancial Statements PRINCIPAL RISKS AND MITIGATIONS - continued
Change in
likelihood
Causes
Risk Mitigation
• FPSO Tie-in Agreement from
• Active Participation in JOC management
other Operator
• Delay in the Field Development
Plans
• Technical disagreement caused
by quality of JV staff, work ethic,
low productivity, competency
issues
• Geological Modelling 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
cyber-attacks increasing
• Heavy reliance on and disruption
to critical business systems
•
Infiltration of spam emails
corrupting our systems
• Critical reliance on remote
working in light of demand for
longer-term hybrid and flexible
working practices, originally
in response to the COVID-19
pandemic
•
IT provider acquired during 2023
– changing provider / individuals
providers, including regular meetings and
other interfaces to raise any issues and review
performance
• Offsite Installation of back-up system and
Business Recovery / Continuity Plan in place
• Enhance our Cloud back-up data and solutions
• Prevention and detection of cyber threats via a
programme of effective continuous monitoring
• Plan for upgrade of IT systems
• 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
• Maintain a competitive remuneration mix re
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 Group-wide offsite events
and quarterly video conferences, employee
surveys and shared feedback
and 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,
resulting in fewer entrants to
the industry to replace retiring
professionals
• High costs of recruiting
experienced workforce
• Weakened corporate culture and
collegiate responsibility due to
remote working
• Restructuring workforce
• Board re-composition and
retirements
Principal risks
9. Partner
Alignment
Risk
Vietnam
• Technical
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
10. Cyber risk
• Major cyber security
breach may result
in loss of key
confidential data
• Unavailability of key
systems
11. Human
Resource
Risk
• Good skilled people
are essential to ensure
success
58
Annual Report and Accounts 2023Pharos Energy PRINCIPAL RISKS AND MITIGATIONS - continued
Principal risks
Change in
likelihood
Causes
Risk Mitigation
REPUTATION
12. Sub-optimal
capital
allocation
• Adverse reaction
from current /
future stakeholders
• Investment
decisions based
on realistic
/ achievable
economic
assumptions
13. Political and
Regional
risk
• Energy sector
exposed to a wide
range of political
developments
which may impact
adversely on
operating costs,
compliance and
taxation
14. Business
Conduct
and Bribery
• Reputational
damage and
exposure to
criminal charges
• Scarcity of capital for investment
• Carry out robust economic analyses based on
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, sanctions on entities
or individuals arising from the
continuing conflict in Ukraine
and other international conflicts)
• Present in countries with
below average score on the
Transparency International
Corruption Index
• Lack of transparent
procurement and investment
policies
•
• Non-compliance with Criminal
Crime Offences (CCO) and/or
UK Bribery Act
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 prices
• 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
• Canvass support in risk management by using both
international and in-country professional advisors
• Engage directly with the relevant authorities on a
regular basis
• Assess country risk profiles, trend analyses and on-
the-ground reports by journalists / academics
• Thoroughly evaluate the risks of operating in specific
areas and assess commercial acceptability
• 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
• Annual renewal of a 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
• Ensure adequate due diligence prior to on-boarding
with a risk based approach, including independent
“Red flags” checks
• Annual training, testing and compliance certifications
by all associated persons
Increase awareness of, and ensure regular training in,
the Group’s Code of Business Conduct and Ethics
and associated guidance and other corporate policies
for all employees and associated persons
• Mandatory Gifts and Hospitality declaration and
• Corruption and human rights
register
issues
• 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
59
Annual Report and Accounts 2023Pharos Energy Strategic ReportAdditional InformationGovernance ReportFinancial Statements PRINCIPAL RISKS AND MITIGATIONS - continued
Viability Statement
How we assess our viability
Our forecast is built on an asset by asset
basis using a bottom up model and is
stress tested by compounding downward
scenarios.
The three-year period selected for testing
covers the Group’s medium term capital
plans and projections, in particular oil
price projections, a fundamental driver of
the groups operating cash flows, where
market consensus data becomes less
reliable for periods further ahead than
three years.
Although individual assets are often
modelled for periods longer than three
years, to reflect the return on investments
being considered over the life of field, the
three-year period has been selected by
the Board as most appropriate for the
group as a whole. It provides management
and the Board with sufficient and realistic
visibility of the future industry environment
whilst capturing the Group’s future
expenditure commitments on its licences,
its near term drilling programmes and Full
Field Development Plans (FFDPs).
In assessing the Group’s viability over
the next three years, it is recognised that
all future assessments are subject to a
level of uncertainty which increases with
time and that future outcomes cannot be
guaranteed.
Key Assumptions
During the three-year period, the working
assumption is that the Group will be
dependent on its cash generating assets
TGT and CNV in Vietnam and El Fayum
and North Beni Suef Concessions 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 $81.5/bbl in 2024, $79.0/bbl in 2025
and $79.2/bbl in 2026. 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 over its Vietnam
producing assets which matures in
July 2025 and has been subject to
amortisation since July 2022. As of
December 2023, the facility amount was
$57.3m, with $30m 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 2023 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 30 May
2025 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.
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 166 of the
Financial Statements.
The Audit & Risk Committee reapproved
in December 2023 that the appropriate
length, which the Viability Statement (VS)
should cover, is three 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 three-
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
three-year base forecast and scenario
testing, as well as our longer term
prospects and position.
Group’s current position
• 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
three-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 three-year
period.
60
Annual Report and Accounts 2023Pharos Energy PRINCIPAL RISKS AND MITIGATIONS - continued
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 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
in 2023 on page 48
Level of Severity Tested
Conclusion
Sustained and sharp drop in oil price
1,4,5
Reduction in production
1,2,6,7,8,10,11,12
Sharp drop in the oil price, down
by a third to $54.3/bbl in April
2024, then rising gradually over a
year till in line with base price
Company remains viable
with mitigating actions
5% drop in production from April
2024 over the period of testing
Company remains viable
with mitigating actions
Unfavourable event leading to lost
production and price shock
1,2,3,4,5,6,7,8,10,11,12
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 three-year
Viability Statement 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
2023 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 three-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 three-year VS period due to
climate change pressures.
To date, there is no official carbon tax
established in either of 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 three-year VS period (please refer to
the TCFD Report on pages 83 to 98 for
more information).
It should be noted that the existing RBL
facility will be repaid within one-and-half
years, falling within the three-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 expenditure
beyond the three-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 the 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 three-year period.
Based on all of these assessments,
including the availability of actions which
could be taken in the event of plausible
negative scenarios occurring, the Directors
confirm that they 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 2026.
61
Annual Report and Accounts 2023Pharos Energy Strategic ReportAdditional InformationGovernance ReportFinancial Statements CORPORATE RESPONSIBILITY REPORT
Corporate Responsibility Report
2023 Performance
Business
100%
EL FAYUM OIL
100%
TGT & CNV OIL
(2022: 100%)
(2022: 100%)
Oil sold domestically in Egypt and Vietnam in 2023, contributing
to host country development goals and access to energy.
Ethics
$188.0m
100%
Taxes and royalties to host governments,
includes host governments share of
production entitlements in 2023
Percentage of staff receiving anti-
bribery and corruption training by
31 December 2023
(2022: $245.3m)
(2022: 100%)
People
0 LTIs
Zero Lost Time Injury events
across Group operations in 2023
c.65%
Female employees at corporate
level in London in 2023
(2022: 1 LTI)
(2022: 65%)
Environment
281
Tonnes CO2e per 1,000 tonnes of
hydrocarbon produced in 2023
2
Oil/chemical spills (quantities greater
than 100 litres) in Egypt in 2023
(2022: 335)
(2022: 1)
Society
$500,000
Combined total training levies in Vietnam
and Egypt for investment in industry capacity
building in 2023
$ 247,373
Community investments supporting
22 social projects in Egypt, Vietnam
and UK in 2023
(2022: $500,000)
(2022: $198,600)
62
Annual Report and Accounts 2023Pharos Energy Strategic Report
Governance Report
Financial Statements
Additional Information
CORPORATE RESPONSIBILITY REPORT - continued
Governing Corporate Responsibility
Our aim is to add value in everything we do through responsible, effi cient and safe energy
production.
We take our role in society very seriously. We are committed to open, transparent communication, and taking a rigorous, conscientious
approach to the environment, our role in society, our business practices and ethics, and how we relate to people. That includes all our
stakeholders: the people who work with us directly and indirectly, those who live where we operate, and the host governments and
authorities that regulate our activities.
Corporate Responsibility governance & management
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
Corporate Responsibility (“CR”) and
Health, Safety, Environmental and Social
Responsibility (“HSES”) policies described
above support our Code.
Our corporate standards, procedures and
guidelines support the policies. Project-
specifi c operational plans, programmes
and procedures set out the specifi c
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.
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
fi nancial 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 is also fully committed to
effective compliance with the 2018 UK
Corporate Governance Code, applicable
to the current fi nancial year of the
Company ending 31 December 2023. The
Board’s objective is to be recognised for
its high standard for governance, with a
considerate and pragmatic approach to its
business.
Corporate Responsibility objectives are
defi ned annually and reviewed quarterly in
relation to: our business, our ethics, our
people, environment and society.
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.
The Group’s Corporate
Responsibility standards,
policies and HSES
Management System
1. Code of Business Conduct
and Ethics
2. Key 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
Traffi cking Policy
Sanctions Policy
Tax Strategy Statement
Non-Audit Services
3. Standards, procedures and
guidance support the policies
See www.pharos.energy/responsibility/
policy-statements/ for the full text of the
current versions of each of these policies.
Pharos Energy
Annual Report and Accounts 2023
63
CORPORATE RESPONSIBILITY REPORT - continued
Climate-related governance
& management
Pharos have a multi-layered governance
structure that aligns our operating model
with our net zero ambition.
The Board takes overall responsibility
for our Net Zero ambition, corporate
responsibility strategy and climate-
related risk and opportunities. Given the
wide-ranging remit of climate-related
matters, Pharos integrated management
responsibilities into various business and
functional areas within the Group, and
climate-related activities are managed
and held accountable by a combination of
different committees:
• The ESG Committee oversees the
Group’s management and compliance
with climate-related reporting and
disclosure requirements, as well as
assists the Board in defi ning and
implementing the Group’s corporate
responsibility strategy.
• 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
policies, standards and management
system for HSES.
• 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 www.pharos.energy/
about-us/governance/committees/.
Progress against our Net Zero ambition,
ESG targets and updates on GHG
performance are reviewed at quarterly
Board and Committee meetings.
Our Chief Executive Offi cer and Chief
Financial Offi cer manage our climate
progress and are responsible for the
delivery of our Net Zero strategy. We set
up a Net Zero Working Group, which
has met monthly since May 2022, with
functional and operational representatives,
that drives progress on our strategy.
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 106 to 113 of our Governance
Report. We listen to their concerns
and feedbacks when determining our
corporate responsibility framework 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 and 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.
In 2023 Pharos has continued to
refer 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 2023 has taken into
account the Voluntary Sustainability
Reporting guidance issued by IPIECA, the
global not-for-profi t 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.
The Group consider ’materiality’ to be the
threshold at which ESG issues become
suffi ciently important to our investors and
other stakeholders. 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.
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Pharos Energy
CORPORATE RESPONSIBILITY REPORT - continued
Stakeholder groups and corporate responsibility topics
Stakeholder group
Local
communities
National and host
governments
Employees and
contractors
How we engage with them and
understand any concerns
Key areas of concern
for stakeholder groups
Environmental and social impact
assessments and grievance mechanisms
at project level
• Community investment
• Effluents and waste management
• Biodiversity
• Transparency
• Payments to governments
• Local capability building
Regular dialogue
• Environmental management and net zero
commitment
• Health and safety
• Promote adherence to local
government’s health and safety
guidelines
• Regular dialogue and grievance
mechanisms
• Keep workforce safe during pandemic or
outbreaks
• Local capacity building
• Contractor management
• Annual feedback sessions with all
• Staff wellbeing
staff members
Shareholders
Regular dialogue
International
community
Responding to inquiries and media
scanning
• Climate risk/energy transition and other
ESG risks
• HSES Health and Safety
• HSES Management System
• Preventing corruption
• Climate risk, energy transition and net zero
commitment
• GHG emissions
• Preventing corruption
• Human rights and Modern Slavery
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Business
Focusing on supply chain impacts. Our objective
is to contribute to 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 and in our TCFD
Report on pages 48 and 83.
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 that oil and gas will
continue to play an essential role in the
global energy mix for the next decade,
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.
Our overall risk management framework
integrates climate-related risks into
business decision by carrying out regular
and robust risk assessment, conducting
deep-dive exercises to gauge risk
appetite, monitoring macroeconomic
environment and regulatory landscape,
and using scenario analyses to stress-test
principal risks on key variables for the
Going Concern and Viability Testing. Our
Net Zero Roadmap, which was published
in December 2023 and sets out interim
targets towards our net zero by 2050
commitment and decarbonisation levers
to reduce our carbon emissions, is a key
part of our climate risk management and
business decision.
We report transparently and have
participated in the CDP (formerly Climate
Disclosure Project) Climate Change
Questionnaire over the past five years.
In 2023, we maintained our score of (C),
originally awarded in 2019. The Company
also 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 75. Our commitment to align
our reporting to TCFD recommended
disclosures are set out on page 83.
Business partners and influence
Relationships with business partners, host governments and local communities where we operate are critical for our business. Our
Code sets out our commitment to doing business honestly and ethically and to complying with all applicable laws and regulations. It
sets out our expectations to take steps to only do business with others who share our values.
Our ability to influence our business partners 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.
Vietnam interests and operations(1)
Degree of
influence
High
Blocks
Country
Pharos
ownership
Pharos
role
2023
field activity
Target HSES
outcome
Blocks 125
& 126
Vietnam 70%
Operator
Approval received for the two-
year extension to the Exploration
Period on Blocks 125 & 126
PSC to 8 November 2025
Full application of
the Pharos HSES
MS
Moderate
Block 16-1
Vietnam 30.5% *
Moderate
Block 9-2
Vietnam 25%
Joint operating partner
(in Hoang Long Joint
Operating Company)
Approval received for the TGT
Revised Field Development Plan
(“RFDP”)
Influence to bring
alignment to the
Pharos HSES MS
Joint operating partner (in
Hoan Vu Joint Operating
Company)
New CNV well (CNV-2PST1)
came in strongly, contributing to
Vietnam field production
Influence to bring
alignment to the
Pharos HSES MS
1) 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%
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Egypt interests and operations(1)
Degree of
influence
Blocks
Country
Pharos
ownership
Pharos
role
2023
field activity
Target HSES
outcome
Moderate
El Fayum
Concession
Egypt
45%
Joint operating
partner (in
Petrosilah)
First exploration commitment well in
El Fayum Concession encountered
oil-bearing reservoirs in the Abu
Roash G and Upper Bahariya
formation
Influence to bring
alignment to the
Pharos HSES MS
Moderate
North
Beni Suef
Concession
Egypt
45%
Joint operating
partner (in
Petrosilah)
First exploration commitment
well (NBS-SW1X) declared a
commercial discovery and put on
production in December 2023
Influence to bring
alignment to the
Pharos HSES MS
1) On 21 March 2022, Pharos completed the farm-down 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.
Key Performance Indicators
KPI
HSES regulatory
non-compliances
Target
2023
2022
2021
Zero
0
0
0
Supply chain management
Contractors are used throughout all aspects of our business. Our Contractor
Management Procedure sets out requirements through all stages from selection through
to management and service delivery.
In HSES critical activities, bridging documents are put in place to ensure Pharos and
contractor alignment with our requirements.
Hours worked in Vietnam and Egypt assets
Percentage of total
Company staff: 724,063
Contractors: 2,862,192
20%
80%
HSES Management System
We undertake a range of activities to
continuously improve our HSES MS
to ensure that the Company’s policy
commitments are applied. We may work in
countries that have different standards and
we review any potential gaps to ensure
adherence to our policies in dialogue with
our business partners. Routine monitoring
is undertaken to assess and improve
performance and periodic audits are
conducted.
HSE trainings and exercises
In Vietnam, the HLHVJOCs continued
HSE induction to new staff, maintained its
HSE Training Matrix such as travel safely
by boat, firefighting and rescue, working
at height and also conducted training for
the 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, land transport,
safety at rig, firefighting, lifesaving rules,
permit to work, hot work hazards and
safety requirements in confined space
entry and working at heights.
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Overall objective
To provide responsible and sustainable development
2023 Objectives
2023 Outcomes
2024 Objectives
Further alignment with Pharos HSES
Management System.
Close any outstanding gaps between
HSES procedures with a focus on land
transport and environmental risks.
Pharos Energy continued to work
towards full implementation of our
HSES Management System across our
business.
Pharos Energy worked closely with IPR
to achieve good alignment between
our respective HSES Management
Systems. Particular emphasis was placed
on contractor management and land
transportation.
Further alignment with Pharos HSES
Management System.
Work closely with partner’s HSES
department to achieve good alignment
between our respective HSES
Management Systems.
Review implementation of updated
HSES Management System across
business functions.
HSES Management System policies and
procedures have been updated and will
be submitted for approval in 1Q 2024.
Review implementation of updated
HSES Management System across
business functions.
Further training on crisis management
and emergency response to be held
in 2023.
Crisis Management Response and
Exercise were held in October 2023 with
all relevant stakeholders. The learnings
are being included in the updated version
of the Group’s Crisis Management Plan.
Further training on crisis management
and emergency response.
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Ethics
Our objective is to conduct our business in an
honest and ethical manner.
100% Employees and relevant contractors have
undertaken anti-bribery and corruption training
by 31 December 2023
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 83 (77 in
2022) out of 180 countries in the 2023
CPI. Egypt is ranked at 108 on the same
CPI (130 in 2022). We recognise that,
with both areas of operation having a
reputation for a lack of transparency and
relatively high risk of corruption, it is vital
that the Group’s policies, procedures
and working practices are fit for purpose.
Pharos maintains internal control systems
to guide and ensure that our ethical
business standards for relationships with
others are achieved. The Audit and Risk
Committee and the Board have carried
out a review of the effectiveness the
Group’s risk management and internal
control systems, see the Audit and Risk
Committee Report page 120. 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 in
local offices available 24 hours a day all
year round. Zero calls were made to the
EthicsPoint hotlines in 2023.
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 2023, the total payments to
governments for the Group amounted
to $188.0m (2022: $245.3m), of which
$166.5m or 89% (2022: $211.5m or 86%)
was related to the Vietnam producing
licence areas, of which $110.8m (2022:
$140.7m) was for indirect taxes based
on production entitlement. In Egypt,
payments to government totalled $19.3m
(2022: $31.3m), of which $18.4m (2022:
$28.8m) related to indirect taxes based on
production entitlement. More information
on payments to host governments can be
found on page 194.
Overall objective
To conduct our business in an honest and ethical manner.
2023 Objectives
2023 Outcomes
2024 Objectives
All personnel to complete the annual
ABC programme including training,
testing and self-declaration statement.
Completed.
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.
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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.
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
2023 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. In
2023, the Company recorded zero LTIs
in Vietnam, an achievement which the
JOCs have maintained since Pharos’
operational inception, representing
more than 10 production years on TGT
and 13 production years on CNV. 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.
We are able to share our practices and
lessons learned with others in the industry
and are contributing to further capacity
building.
In Egypt, no lost time injuries were
recorded in 2023. However, there were
two motor vehicle crashes recorded in
the first quarter, which fortunately did not
result in any injuries. We continuously
work with the operator IPR and the JOC
Petrosilah to address the underlying issues
identified behind the safety measurements
and precautions in our operations.
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
2023
2022
2021
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
Zero
Zero
<0.34
0
0
0
3.59
0
0.30
0.60
3.35
1.28
0.28
0.90
0
0
0
0.75
0.22
0.77
2,535
3.17
2,679
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.
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 2023, 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.
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Safety indicators
(for both Pharos employees
and contractors)
Indicator
2023
Lost Time Injury frequency
rate (“LTI”)
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
0
0
0
0
2
2
9
820
796
5,022
509
2023
114
0
9
Diversity, Equity and Inclusion (D,E&I)
Greater diversity and inclusivity brings
greater understanding of people. Through
our five Guiding Principles of ‘Safety and
Care’, ‘Energy and Challenge’, ‘Openness
and Integrity’, ‘Empowerment and
Capability’ and ‘Pragmatism and Focus’,
we have demonstrated our commitment
to maintaining and building a culture of
diversity and inclusion in meaningful ways.
We work hard to ensure that we consult
and engage with all of our employees.
We value the contribution made by all
employees and strive to have training and
development opportunities for everyone.
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
diversity is valued and 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. During the year, the Company
undertook a Group-wide survey of
staff on questions and perceptions of
diversity, equity and inclusion within the
organisation. The results of this survey are
expected to form the basis for a workshop
for staff during 2024.
Safety
& Care
Energy
& Challenge
Openness &
Integrity
Empowerment &
Accountability
Pragmatism &
Focus
2023 statement of compliance with the Listing Rules on Diversity & Inclusion
The spirit of diversity, inclusion and trust
lies behind everything we do. We are
committed to inclusion and diversity in all
areas of the business.
Board from a minority ethnic background
for positions on the Board, and there
is considerable diversity within the
management team immediately beneath
the Executive Directors.
Throughout the year, the Company
complied with 2 out of 3 targets set by LR
9.8.6R(9) of the FCA’s Listing Rules. As at
31 December 2023, the Company had:
• Four female Directors, representing
two thirds of the Board
• Both Executive Director positions
(Chief Executive Officer and Chief
Financial Officer) held by women
The LR 9.8.6R(9) target with which the
Company did not comply in 2023 related
to ethnic diversity. There is no member
of the Board from a minority ethnic
background. The Company continues
to seek and welcome candidates for the
Diversity, equity 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. Most notably, as
at year-end 2023, our UK-based staff
comprises 17 people from 10 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. We are proud that we are able to
recruit talents from diverse backgrounds
and ethnicities. These principles were
taken into consideration during the
Nominations Committee’s evaluation
and recruitment process for a new
Independent Non-Executive Director with
technical experience, but the Board was in
agreement that Dr Bill Higgs was the best
choice for the role from a very high quality
shortlist. In reaching this decision, the
Board took into account that Dr Higgs is a
qualified geologist with extensive expertise
in all engineering and other technical
and commercial aspects of hydrocarbon
exploration, development and production
acquired over 30 years of global
exploration, development and operations
experience, including more than 10 years
in executive roles for listed independent
exploration and production companies. He
was appointed in January 2024.
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2023 Gender diversity(*)
Male
Female
Non-Executive Directors
2
2
Executive Directors
2
Senior Management
3
1
Other Employees
* Figures correct as at 31 December 2023
and represent the Group’s global workforce
(Egypt, Vietnam, UK), not including
contractors. Gender diversity data is
collected from Pharos’ Human Resources
(“HR”) database, in which employees fi ll in
a questionnaire upon joining the Company.
Gender diversity data is assumed to
be consistent year-on-year, unless the
Company is notifi ed otherwise by the
employee.
15
14
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 fi rst look
to fi ll 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, we contribute to local
capability building. 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.
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.
2023 Objectives
2023 Outcomes
2024 Objectives
Further develop, deliver and refi ne
Head offi ce options of hybrid or home
working, following learnings from
COVID remote working practices.
Established new routine of meetings
in person at the cross-country offi ce
locations. Hybrid working has supported
employee wellbeing and continues to lead
to greater levels of employee productivity.
Building on the strong foundations and
global team culture. Recognising the
value that DE&I brings to our team, we will
commence a global learning programme
tailored on our DE&I survey insights and
ensure DE&I initiatives extend beyond
training into the future.
Develop and deliver company-wide
global team engagement events, uniting
colleagues from Egypt, Vietnam, US and
UK for business review and updates.
Engage with the teams about workplace
wellbeing schemes.
Further embed and develop the
performance appraisal system globally.
Held inaugural all Company offsite
meeting for global team, which was a
huge success, and led to excellent pan-
country relationships and sharing of ideas.
This event was important in promoting
further social investment initiatives such
as the Charity and Community Projects
Committee, and prompting the quarterly
global business updates. It led to the
launch of fi rst DE&I all company survey to
assess how best to continue conversations
in this space.
Successful performance appraisals now
part of the global business routine, where
good performance receives recognition.
Training database established and will be
maintained going forward.
Developing the company’s Employee Value
Proposition (EVP). Recognising the benefi ts
of the employee value proposition (EVP) to
employees and using this as a tool to aid
retention.
Ensure worker health and safety is
maintained to a high standard during
both desk-based and operational
activities.
Safety workshops are routinely held
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.
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Pharos Energy
Strategic Report
Governance Report
Financial Statements
Additional Information
CORPORATE RESPONSIBILITY REPORT - continued
Society
Our Social Responsibility and Human Rights
Policies set our requirements for social
responsibility, community engagement and
human rights.
Human Rights & Modern
Slavery
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 refl ects 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 the prevention of Modern Slavery
and Human Traffi cking is available on
the Company’s website at www.pharos.
energy/responsibility/policy-statements/
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.
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).
In Vietnam, commitment to local sourcing,
employment, training and industry
capacity building has continued in 2023
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.
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 addition to the
training levy mentioned above, a further
$247,373 was invested in a total of 22
healthcare, education, infrastructure and
other community projects across the
Group in 2023. This is thanks to the efforts
of the JOCs and in-country employees
who actively inquired and listened to
locals to fi nd out which areas of the
country 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.
Social and community projects have been
part of Pharos since inception, and we
have always sought to invest sustainably
via the HLHVJOC Charitable Programme
so that the initiatives that we helped set
up stay in place and have lasting impacts
for many generations. To build on this
legacy, in 2H 2023, the Group established
a new Charity and Community Projects
Committee, an outcome accumulated
from positive and open discussion with
the global workforce at the Company’s
offsite day in June 2023, to bring together
employees from all three offi ces in the
UK, Egypt and Vietnam to extend Pharos’
social impacts beyond our host nations.
The Charity and Community Projects
Committee, which includes employees
from multiple business functions and
multiple countries, have met three times
since its formation in June 2023, and
have supported seven different social
projects across three different countries.
The Committee aim to continue its work in
supporting a diverse mix of social causes
in 2024.
Details of social investment projects
supported by the HLHVJOC Charitable
Programme and Pharos’ Charity and
Community Projects Committee can be
found below.
Pharos Energy
Annual Report and Accounts 2023
73
CORPORATE RESPONSIBILITY REPORT - continued
Community projects across the Group in 2023
Total $247,373
UN SDG 1 – No poverty
End poverty in all its forms everywhere
• Living costs support for orphans in Vietnam whose
• Financial support for:
parents passed away due to the COVID-19 pandemic
• Vietnamese Lunar New Year gifts for 108 people from
low-income families in Dan Chu commune, Hung Ha
district, Thai Binh district, Vietnam
• Vietnamese Lunar New Year gifts for 200 people from
low-income families in Hoa Binh province, Vietnam
− House of Grace Orphanage in Thu Duc city, Vietnam
− Linh Quang House of Orphanage in Dong Nai province,
Vietnam
− Low-income families in Ben Nghe ward, Ho Chi Minh city,
Vietnam
UN SDG 2 – Zero hunger
End hunger, achieve food security and improved nutrition and promote sustainable agriculture
• Financial support towards providing school lunches with protein for children in remote highland areas
in Vietnam
UN SDG 3 – Good health and well-being
Ensure healthy lives and promote well-being for all at all ages
• Donation towards the London’s Air Ambulance Charity’s
Up Against Time Appeal to fundraise £15 million to
replace the current air ambulance helicopter fleet by 2024
Disabilities, Victims of Agent Orange/Dioxin (“VAVA”) and
Social Protection of Gio Linh District, Quang Trị Province,
Hung Ha district, and Thai Binh province
• Eye surgery cost support for patients in need from low-
income backgrounds in Vietnam
• Financial support to Association of People with
UN SDG 4 – Quality education
Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all
• University tuition fees and living costs support towards 7 orphans at Amalna City Association in Egypt
• One academic year tuition fees for kindergarten children from low-income backgrounds in Vietnam
• Educational support for students in Banh Trach school, Ba Be, Bac Can
• Financial support to:
− Purchase school supplies for 90 pupils from low-income
− Secondary and high school students at Hanoi School for
backgrounds at Long Buu Love Class in Vietnam
the Hearing-impaired in Vietnam
− An education fund for high-achieving students from low-
− Renovate classrooms for primary school in Tien Cau village,
income backgrounds in Vietnam
− Purchase equipment for Hop Hung Secondary School in
Vietnam
− School facilities and maintenance for Ha Trung primary
school, Thanh Hoa province, Vietnam
Hiep Cuong commune, Kim Dong district, Hung Yen
province, Vietnam
− Construction projects to build education and cultural
centres in Thanh Hoa province
Overall objective
To consult with and contribute into our host communities
2023 Objectives
2023 Outcomes
2024 Objectives
Continuation of the social investment
programme in Vietnam
On target
Social investment programmes in Egypt and
London implemented
On target
Continuation of the social investment
programme in Vietnam
Continuation of the social investment
programme in Egypt and UK
74
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CORPORATE RESPONSIBILITY REPORT - continued
Environment
We recognise the potential impacts of our
business on the environment. Our Health,
Safety and Environment Policy sets out our
commitment to conduct all business activities
in a responsible manner.
In setting the Group’s corporate responsibility priorities, our objective is to protect the
environment and conserve biodiversity.
Net Zero Roadmap & Emissions Management Fund
In December 2023, Pharos published its
Net Zero Roadmap following its formal
commitment in September 2022 to
achieve net zero greenhouse gas (GHG)
emissions by 2050.
The Group has non-controlling equity
stakes in its producing assets and is
predominantly non-operating. As a
result, it has no direct control over the
majority of its emissions inventory but it
can exercise influence through the joint
operating companies (JOCs) in Vietnam
and Egypt in conjunction with the other
JOC partners. The Company will use the
net zero roadmap to continue to engage
with the JOCs, partners and governments
on reducing emissions where possible
through the options identified. To the
extent within its control, the Company
will continue reducing its own emissions
and remain committed to transparency
in reporting and to keeping stakeholders
updated on progress.
In addition, the Company established
an Emissions Management Fund in
September 2022. From every barrel net
to the Group sold at an oil price above
$75 per barrel, a contribution of $0.25
is made to the Fund. The current value
of the Emissions Management Fund
is now c.$400,000. In line with the net
zero roadmap, this Fund is available to
provide financial support for emissions
management projects undertaken directly
by the Group or through the JOCs.
The net zero roadmap, which was
researched and developed by the
Company in close consultation with
specialist advisors and consultants,
models emission reduction pathways to
achieve net zero Scope 1 (direct) and
Scope 2 (indirect) GHG emissions from
all existing and proposed future assets by
2050 or before. Based on this modelling,
the roadmap contains interim targets set
against the Company’s 2021 baseline
year, which have been approved by the
Board.
In order to realise our climate commitment
to achieve Net Zero GHG emissions from
all our future and existing assets by no
later than 2050, Pharos prioritise reducing
emissions by achieving operational
efficiencies, reducing flaring and venting,
replacing the power consumption of
our facilities with lower emission energy
sources and eventually procuring nature-
based carbon offset projects for hard-to-
abate, residual emissions.
More details of our climate strategy,
including interim targets and the
decarbonisation levers at asset-levels,
can be found in our Net Zero Roadmap
published in December 2023 on our
website (https://www.pharos.energy/
media/b55c4sqz/pharos-energy-net-zero-
roadmap-2023_official.pdf).
Greenhouse gas emissions
(“GHG”)
GHGs emissions associated with energy
use and with natural gas flaring and
venting are a key issue for the Group.
In 2023, 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 this
report on page 66, and continue to align
our disclosure with TCFD recommended
disclosures, details of which can be found
in our TCFD Report on page 83.
GHG reported
Pharos reports carbon dioxide (CO2),
methane (CH4), and nitrous oxide (N2O)
combined into carbon dioxide equivalent
(CO2e) based on the gases’ 100-year
Global Warming Potential (GWP). These
three gases are produced through
combustion, although N2O quantities
produced via combustion is relatively
small.
In addition to emissions resulting from
combustion, Pharos is reporting 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.
75
Annual Report and Accounts 2023Pharos Energy Strategic ReportAdditional InformationGovernance ReportFinancial Statements CORPORATE RESPONSIBILITY REPORT - continued
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). Pharos is
not an operator on any of our producing
assets, so we do not have direct control
over our oil and gas production. This is
in the hands of the JOCs, each of which
is staffed by experienced oil and gas
professionals with strong track records
of delivering responsible production.
Certain Pharos personnel are seconded
to senior positions in the JOCs in
Vietnam, providing a degree of influence in
operational planning and execution.
We recognise that Scope 3 value chain
emissions can help companies have
a better and more comprehensive
understanding of their overall emissions
footprints. Value chain emissions have also
seen an increasing amount of focus from
a wide variety of stakeholders. Therefore,
during Q4 2023, Pharos together with our
climate specialist carried out a high-level
materiality assessment across our portfolio
against all 15 categories listed in the GHG
Protocol to understand which categories
are relevant, material and reportable for
Pharos. The materiality assessment took
into account several factors including
the relevance to oil exploration and
production activities, stakeholders’ views,
data completeness and availability, peer
groups’ reporting journeys, and Pharos’
ability to influence the emissions.
In light of this high-level assessment, as
at year-end 2023, we have calculated
emissions from Category 4 – Upstream
Transportation, Category 6 – Business
Travel, and Category 11 – Use of Sold
Product, as defined in the GHG Protocol.
Category 4 and Category 11 are highly-
material categories for Pharos. Further
details can be found in our TCFD Report
under ‘4. Metrics and Targets’ on page 96.
76
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 Scope 1,
2 & 3 GHG 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
six-desk office space in 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 (DESNZ, 2023), EEMS, 2008,
Atmospheric Emissions Calculations, IGES
List of Grid Emission Factors (Takahashi
& Louhisuo, 2022) and Ecometrica,
2011. For the calculation of associated
gas consumed and flared in Vietnam, the
emission factors were calculated based
on the carbon content of gas analysed by
the Vietnam Petroleum Institute in 2024
at the CNV field, and at the gas export
metering skid of TGT in November 2023
for the TGT field. 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) as
well as at the Aboud 1-3 and NBS-SW-1X
well locations.
In 2023, we have again reported our GHG
emissions intensity in tonnes of GHG per
1,000 tonnes of hydrocarbon 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
Annual Report and Accounts 2023Pharos Energy
CORPORATE RESPONSIBILITY REPORT - continued
CORPORATE RESPONSIBILITY REPORT - continued
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 2023. In 2023,
gas fuel and gas flaring in TGT remain the
largest single contributor to Pharos total
emissions. Venting in Egypt represented
over 15 percent of our gross emissions.
The Group’s total CO2e emissions for
2023 are 86,134 tonnes of CO2 equivalent
based on equity share (313,769 tonnes of
CO2 equivalent gross). This corresponds
to a decrease of 18 percent based
on equity share compared to 2022
(approximately 17 percent decrease
gross). This significant year-on-year
reduction in the Group’s GHG emissions
is the result of proactive maintenance and
management of the TGT facilities with
a focus on minimising event flaring and
reducing overall gas flaring volumes.
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 of the 2023 GHG Emissions
Report has been undertaken by RPS
Consulting UK & Ireland using the
principles in BS EN ISO 14064-3:2019
(the Standard) 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’s Egypt
operations is considered to have a
higher risk of uncertainty.
• This is the first year that Pharos has
reported selected categories of scope
3 GHG emissions. As such, it is noted
that the data collection and calculation
process for these emissions sources
is by nature more variable than other,
more established, emissions sources.
• Scope 3, category 11 data from
Pharos’ Egypt operations is
considered to have a higher risk of
uncertainty compared to other scope
3 data.
•
It should be noted that petroleum
companies’ scope 3 GHG inventory
are unique in that the use of the fuel
products produced can contribute to
emissions in other scope 3 categories.
As such, there is by nature a risk of
double counting between scope 3
categories.
• There is inherent variability and
uncertainty associated with the
available methods for calculation of
GHG emissions from activity data;
reported emissions and the verification
statement should be understood in
that context.
The RPS’ 2023 GHG verification report
is unqualified and covers all of our GHG
metrics, including Scope 3 emissions.
Approaches to reducing
emissions
In Vietnam, we continue to manage
gas flaring by carefully monitoring and
optimising the processing facilities in the
TGT FPSO. The focus for the next year
will be on deploying equipment to monitor
combustion efficiency of our flares and 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 increased used of gas generators
at well sites 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.
Annual Environmental Measurements - in
accordance with the requirements of the
Egyptian Environmental Law 4 for year
1994, the Company carried out annual
environmental measurements, and all
environmental measurements resulted in
less than the threshold limit in the law.
Environmental permit non-compliances
- the company achieved zero Legal
Environmental Violation during 2023
and did not obtain any violations from
the Environment Authority in Egypt
in 2023. The Company obtained 3
Environmental Approvals from the Ministry
of Environment during 2023.
77
Annual Report and Accounts 2023Pharos Energy Strategic ReportAdditional InformationGovernance ReportFinancial Statements CORPORATE RESPONSIBILITY REPORT - continued
GHG emissions and activity data
GHG Data - tonnes of CO2 equivalent for 2021 to 2023
Gross GHG emissions (CO2e (t))
Net to Pharos GHG emissions based on Equity Share (CO2e (t))
400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0
377,752
376,626
313,769
107,060
104,919
86,134
2021
2022
2023
Carbon intensity of production (tCO2e per 1,000 tonnes of oil equivalent produced)
Vietnam
Egypt
Overall
458
553
541
289
308
307
335
244
281
600
500
400
300
200
100
0
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.
2021
2022
2023
Greenhouse Gas Emissions Contributors (Total CO2e (t))
for 2023 – Vietnam (Based on total fi eld emissions)
Greenhouse Gas Emissions Contributors (Total CO2e
(t)) for 2023 – Egypt (Based on total fi eld emissions,
including venting)
Gas Flared - TGT
43,098 (19.3%)
Gas Flared - TGT
43,098 (19.3%)
Gas Fuel - TGT
147,347 (66.0%)
Gas Fuel - TGT
147,347 (66.0%)
Marine Gasoil (MGO)
Marine Gasoil (MGO)
17,697 (7.9%)
17,697 (7.9%)
Gas Flared (CNV)
12,392 (5.6%)
Gas Flared (CNV)
12,392 (5.6%)
Diesel
2,525 (1.1%)
Diesel
2,525 (1.1%)
Vietnam
Total CO2e (t)
Egypt
Total CO2e (t)
Venting
Venting
47,611 (52.5%)
47,611 (52.5%)
Diesel
Diesel
15,537 (17.1%)
15,537 (17.1%)
Gas Fuel
19,614 (21.6%)
Gas Fuel
19,614 (21.6%)
Gas Flared
7,463 (8.2%)
Gas Flared
7,463 (8.2%)
Petrol (0.2%)
Petrol (0.2%)
Electricity from
the grid (0.2%)
Electricity from
the grid (0.2%)
In 2023, 17 tonnes of gas were fl ared for every 1,000 tonnes of total hydrocarbon production from Group assets on a net equity share
basis. This is a signifi cant reduction from 35 tonnes in 2022.
78
Annual Report and Accounts 2023
Pharos Energy
Strategic Report
Governance Report
Financial Statements
Additional Information
CORPORATE RESPONSIBILITY REPORT - continued
CORPORATE RESPONSIBILITY REPORT - continued
Venting
Routine venting emissions have been included for the third year in GHG Report in 2023. 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 (53 tCO2e) but for the sake of completeness have been included within the report for 2023.
In 2023, the amount of associated gas used as fuel in gas generators in Egypt was 209 mmscf, which resulted in 19,614 tCO2e (gross).
However, had this associated gas been vented it would have resulted in additional emissions in the order of 63,586 tCO2e, or 20% of
the Group’s total emissions on a gross basis.
The Group’s energy use from grid electricity was 330,552 kWh in 2023 for overseas offi ces in Egypt and Vietnam. In 2022, the Group’s
energy use was 323,492 kWh. Since the middle of July 2021, Pharos has rented a fl exible six-desk offi ce space in London, the
electricity consumption of which is not included in the report.
Effl uents and waste
During 2023, Pharos maintained its record of no spills into the environment in Vietnam. In Egypt, there were two environmental spills as
follows:
Date
Location
Description
Estimated Quantity (bbls)
February 2023
Egypt - El Fayum fi elds to Suez oil
processing company
March 2023
Egypt - El Fayum fi elds to Suez oil
processing company
A crude oil shipping vehicle encountered crude oil on
the desert road, which caused it to lose balance and
overturn, causing damage to the tank and a partial
spill of the oil cargo. No injuries were reported.
During transportation a crude oil shipping vehicle in
the convoy accidentally crashed into another one
from behind, causing a rupture in the valves which
resulted in the loss of the crude oil cargo. No injuries
were reported.
200
392
All spillage incidents during the year were investigated and lessons learned as appropriate and actions to prevent recurrence were
implemented.
Water is extracted along with hydrocarbon reservoir fl uids 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 2023 we generated 6.6 million
cubic metres of produced water. In Vietnam, the produced water is cleaned by separating the hydrocarbon phase before discharging to
the sea in line with national standards.
In Egypt, our produced water is 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 specifi c 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 2023, freshwater consumption for both Vietnam and Egypt amounted to 66,588 cubic
metres. Our use of freshwater has decreased by 6 percent compared to 2022, due to a reduction in drilling activity carried out through
the year.
Pharos Energy
Annual Report and Accounts 2023
79
CORPORATE RESPONSIBILITY REPORT - continued
Tonnes (t) of CO2e equivalent for 2023 Operations
CO2e (t)
CO2e (t) per 1000 tonnes
of hydrocarbon 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)
Vietnam Cuu
Long Basin
(offshore)
Blocks 125 & 126
Seismic exploration
Block 9-2 – Ca Ngu
Vang (CNV) field
Block 16-1 – Te Giac
Trang (TGT) field
Production
Field development
Production
Field development
-
-
310
87,616
2,685
2
0
14,698
3,591
204,867
0
-
-
71
20,029
614
2
0
3,675
898
60,845
0
-
-
-
-
-
-
541
541
-
-
244
-
-
59
-
302
–
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 2023 in the CNV and TGT
fields as well as in El Fayum and North Beni Suef Concessions. Conversion from BOE to TOE is based on the following factor: 1 toe = 7.59 boe for El
Fayum, 1 toe = 8.68 boe for CNV and 1 toe = 7.32 boe for TGT.
Total
313,769
86,134
281
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.
80
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
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.
Annual Report and Accounts 2023Pharos Energy CORPORATE RESPONSIBILITY REPORT - continued
CORPORATE RESPONSIBILITY REPORT - continued
Non-Financial KPIs (HSES)
KPI
Spills to the environment*
* Number of spills reported (quantities greater than 100 litres).
KPI
Solid non-hazardous waste produced (tonnes)
Target - 2023
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
2023
2
2023
100
14
69
5
2022
1
2022
109
15
60
11
2021
3
2021
111
24
48
<1
Overall objective
To protect the environment and conserve biodiversity
2023 Objectives
2023 Outcomes
2024 Objectives
Obtain all necessary environmental
permits for all drilling programmes /
seismic studies.
All necessary permits for our 2023 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.
In progress. Pharos has been reporting
methane emissions from venting following
established industry procedures. In 2023
we introduced mobile gas measurements
in certain areas of El Fayum to improve the
reliability of our reporting.
Several technologies for reduction the
GHG emissions intensity of our assets
have been identified. We are working with
all stakeholders on the best approach to
implement those deemed most suitable.
Produce Net Zero GHG emissions
roadmap.
Completed. Net-zero roadmap published
on 6 December 2023.
Improve methane emissions management
and reporting.
Carry out further feasibility studies on CO2
reduction technologies and implement
those options deemed suitable for our
assets.
Continue alignment with TCFD disclosure
& reporting.
Annual review and update of Net Zero
roadmap.
81
Annual Report and Accounts 2023Pharos Energy Strategic ReportAdditional InformationGovernance ReportFinancial Statements CORPORATE RESPONSIBILITY NON-FINANCIAL INDICATORS
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 Scope 1 & 2 GHG emissions (tCO2e) by equity2
Scope 1 total GHG emissions (tCO2e) by equity
Scope 2 total GHG emissions (tCO2e) by equity
Total Scope 3 GHG emissions (tCO2e) by equity2
Scope 3 GHG emissions (tCO2e) by equity – Business Travel
Scope 3 GHG emissions (tCO2e) by equity – Upstream Transportation
Scope 3 GHG emissions (tCO2e) by equity – Use of Sold Product
GHG intensity by production (tonnes of CO2e per 1,000 tonnes of hydrocarbon 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 MWh1
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 ($)
2023
3.59
0
0
0
0
20223
3.35
0.3
0
0
0.6
20213
3.17
0
0
0
0
86,134
104,919
107,060
86,094
104,881
107,023
40
38
37
747,978
271
1278
746,429
281
17
330,552
236,972
100
69
14
5
2
28
-
-
-
-
335
35
-
-
-
-
308
32
323,492
311,692
247,960
260,111
109
111
60
15
11
1
28
48
24
<1
3
28
66,588
0
70,582
58,525
0
0
247,373
198,600
265,000
1) In line with the UK government’s Streamlined Energy and Carbon Reporting (SECR) policy, energy consumption from fuel combustion
2) 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’ Report is mandatory for reports published after 30th 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.
3) On 21 March 2022 Pharos revenue entitlement in Egypt decreased from 42.6 to 22.86 percent. According to section 5 of the GHG protocol on base year
recalculation following an acquisition, GHG emissions for the years 2022 and 2021 have been recalculated using this entitlement figure.
82
Annual Report and Accounts 2023Pharos Energy
TCFD REPORT
TCFD index table
Recommended disclosures
Status
Disclosure location
Governance
Strategy
Risk
Management
Metrics
& Targets
a) Describe the board’s oversight
of climate-related risks and
opportunities
b) Describe the management’s role
in assessing and managing climate-
related risks and opportunities
a) Describe the climate-related risks
and opportunities the organisation
has identified over the short,
medium and long term
b) Describe the impact of climate-
related risks and opportunities
on the organisation's business,
strategy, and financial planning
c) Describe the resilience of the
organisation's strategy, taking into
consideration different climate
related scenarios, including a 2°C or
lower scenario
a) Describe the organisation’s
processes for identifying and
assessing climate-related risks
b) Describe the organisation’s
processes for managing climate
related risks
c) Describe how processes
for identifying, assessing, and
managing climate-related risks
integrated into the organisation’s
overall risk management
a) Disclose the metrics used by the
organisations to assess climate-
related risks and opportunities
in line with its strategy and risk
management process
b) Disclose Scope 1, Scope 2, and
if appropriate Scope 3 greenhouse
gas (GHG) emissions, and the
related risks
c) Describe the targets used by the
organisation to manage climate
related risks and opportunities and
performance against targets
• Corporate Responsibility Report, page 63
• Chair’s Statement, pages 16-17
• ESG Committee Report, pages 114-116
• Audit and Risk Committee Report, pages 120-125
• Remuneration Committee Report, pages 126-142
• TCFD Report, under 1. Governance, page 85
• Risk Management Report, pages 48-53
• Corporate Responsibility Report, page 63
• Section 172 (1), pages 36-39
• TCFD Report, under 1. Governance, page 85
• Viability Statement, pages 60-61
• Risk Management Report, pages 48-59
• TCFD Report, under 2. Strategy, pages 86-95
• TCFD Report, under 2. Strategy, pages 86-95
• Viability Statement, pages 60-61
• TCFD Report, under 2. Strategy, pages 86-95
• Viability Statement, pages 60-61
• Risk Management Report, pages 48-59
• TCFD Report, under 3. Risk Management, page 96
• Risk Management Report, pages 48-59
• TCFD Report, under 3. Risk Management, page 96
• Viability Statement, pages 60-61
• Risk Management Report, pages 48-59
• TCFD Report, under 3. Risk Management, page 96
• TCFD Report, under 4. Metrics & Targets, pages 95-96
• Corporate Responsibility Non-Financial Indicators, page 82
• TCFD Report, under 4. Metrics & Targets, pages 95-96
• TCFD Report, under 4. Metrics & Targets, pages 95-96
• Remuneration Committee Report, pages 126-142
83
Annual Report and Accounts 2023Pharos Energy Strategic ReportAdditional InformationGovernance ReportFinancial Statements TCFD REPORT - continued
Climate action at Pharos Energy
As an oil and gas company, we support
the need for more consistent and
comparable disclosure around climate-
related risks and opportunities. The
following pages align with 10 out of
11 recommendations issued by the
Task Force on Climate-related Financial
Disclosures (TCFD) and provide greater
insight into our approach to assessing and
managing the fi nancial risks associated
with climate change. We have included
a TCFD index on page 83 as a quick
overview of our TCFD disclosure.
As at year end 2023, Pharos consider
ourselves not to be fully aligned with one
TCFD recommendation: Metrics & Targets
b) Disclose Scope 1, Scope 2 and, if
appropriate, Scope 3 greenhouse gas
emissions and the related risks. For 2023,
the Group discloses its Scope 1 and
Scope 2 greenhouse gas emissions and
three Scope 3 categories, two of which
have high materiality for Pharos. While the
Group conducted materiality assessment
against all 15 Scope 3 categories during
the year as recommended by the TCFD
guidelines, we are not able to report other
relevant categories of Scope 3 emissions
due to limitations of data collection and
methodology. As Pharos is in early stages
of our Scope 3 reporting journey, we
expect our reporting methodology as well
as the availability and reliability of required
data to improve over time, and we intend
to integrate applicable improved data
into our GHG reporting as it becomes
available. We expect to be fully compliant
with Metrics & Targets b) in the next three
years.
Stakeholder
engagement
Gap
analysis
Approach:
• Adopt an integrated approach
• A cyclical process
Reporting &
disclosure
Internal
alignment
Benefi ts:
• Demonstrates awareness of growing importance of
climate-related issues to key stakeholders
• Staying ahead of mandatory disclosure
requirements, focusing on effi ciencies
84
Annual Report and Accounts 2023
Pharos Energy
Strategic Report
Governance Report
Financial Statements
Additional Information
TCFD REPORT - continued
1. GOVERNANCE
Pharos have a multi-layered governance
structure that aligns our operating
model with our climate and corporate
responsibility ambition.
The Board takes overall responsibility for
our Net Zero ambition, climate strategy
and climate-related risk and opportunities.
The Board ensures Pharos maintain a
robust climate risk management and
internal control systems, including
high-level responsibility for setting and
monitoring the company’s GHG emissions
reduction targets and climate ambitions.
The Board has oversight of climate-
related risks and opportunities and
ensures climate-related considerations
are embedded in our decision-making,
including the application of strict fi nancial
discipline, such as our internal carbon
price curves used in going concern and
viability stress test scenarios, across all
business decisions. At the project level,
the assessment of climate-related risks
and opportunities is an integral part of
each exploration & development project.
For example, in developing the Group’s
Net Zero Roadmap in December 2023,
the Board has taken into consideration
how investment in the development of
future business assets may affect our
Net Zero by 2050 ambition and how
the Emission Management Fund can be
utilised in decarbonisation opportunities.
Through the Remuneration Committee,
the Board ensures climate performance,
including GHG emissions performance
against our net zero target of 5%
reduction by 2026 as part of our Net Zero
Roadmap, is embedded in the corporate
KPI.
Pharos has integrated management
responsibilities into various business
and functional areas, to which the Board
delegates the corporate responsibility
monitoring to the following Committees:
• The ESG Committee oversees the
Group’s management and compliance
with climate-related reporting and
disclosure requirements, as well as
assists the Board in defi ning and
implementing the Group’s corporate
responsibility strategy.
• 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. The
ARC monitors the methodologies
used to test the going concern and
viability resilience of our business and
determine potential fi nancial impacts
of the Group’s principal risks, including
climate risk. It also oversees the
adequacy and effectiveness of our
policies, standards and management
system for HSES.
• 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 www.pharos.energy/
about-us/governance/committees/.
Climate-related matters, as well
as progress against our corporate
responsibility performance and Net Zero
ambitions, are reviewed and discussed at
each committees meetings. Information
is then communicated back to the main
Board for consideration when they review
the Group’s strategy at each scheduled
Board meeting. In 2023, the ESG
Committee met four times, and the Audit
& Risk and Remuneration Committees met
three times each.
Below Board and Committee-level,
our Chief Executive Offi cer and Chief
Financial Offi cer manage our climate
progress and are responsible for the
delivery of our Net Zero strategy. To
support the Executives in their delivery, a
Net Zero Working Group was formed in
May 2022, with support from functional
and operational representatives such as
Reservoir Engineer, Investor Relations,
Risk Manager, and Exploration Manager
to drive progress on our strategy. The
Net Zero Working Group reports to the
Executives once every month, who in turn
reports to the relevant Committees and
the Board every quarter.
The Board takes an active approach to
ensure its members are aware of key
climate matters relevant to Pharos and
the broader energy sector. In 2023, the
Board invited an ESG and sustainability
advisor to its Strategy Day meeting in
November to educate Board members on
key issues regarding industry’s expectation
on Net Zero commitment, GHG Scope
1,2,3 disclosures across peers, emerging
climate regulatory trends, and risks and
opportunities for the energy industry in
general and Pharos in particular. The
session was a key avenue for informing
the Executive and Non-Executive
Directors’ consideration of climate-related
matters and Pharos’ Net Zero ambition in
strategic planning and risk management
activities
BOARD OF DIRECTORS
ESG Committee
Audit and Risk Committee
Remuneration Committee
EXECUTIVE DIRECTORS
Net Zero Working Group
Country Managers
Functional &
Operational teams
Pharos Energy
Annual Report and Accounts 2023
85
TCFD REPORT - continued
2. STRATEGY
Our climate strategy
In order to realise our climate commitment
to achieve Net Zero GHG emissions from
all our future and existing assets by no
later than 2050, Pharos prioritise reducing
emissions by 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.
More details of our climate strategy,
including interim targets and the
decarbonisation levers at asset levels,
can be found in our Net Zero Roadmap
published in December 2023 on our
website (https://www.pharos.energy/
media/b55c4sqz/pharos-energy-net-
zero-roadmap-2023_official.pdf). This
Roadmap was researched and developed
by the Company in close consultation
with climate specialist advisors and ESG
consultants.
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 and organic growth while
minimising climate-related impacts on our
long-term business model. Our purpose
is to provide energy security for host
countries in which we operate and help
local government achieve their economic
development goals and prosperity using
oil revenues from our operations.
Our net zero fundamentals
Scope
1&2
Our target covers our
Scope 1 and
2 emissions
All
assets
All our current
assets are included
in the target
All
GHGs
All greenhouse
gases are included
in the target
Future
assets
All future assets
are also covered
by the target
Carbon
removal
For 20-40% that is
hard-to-abate we
remove carbon
Identifying climate-related risks and opportunities
Our business strategy is focused on
generating sustainable value from our
producing and development assets,
including an infrastructure-led exploration
approach to identify new resources near
existing infrastructure. The Board holds an
annual review of our corporate strategy,
which incorporates an assessment of our
current portfolio to inform forward-looking
plans to ensure the business maintains
its resilience and is positioned for growth.
Furthermore, in Q4 2023, Pharos with the
support of a TCFD consultant undertook
a scenario analysis exercise to assess the
impact of these physical and transitional
risks and opportunities on our portfolio.
Based on these scenario analyses,
Pharos then had internal discussions with
our finance and commercial team, risk
manager and reservoir engineer to assess
the materiality of these climate-related
risks based on timeframe, severity and
likelihood rating, details of which can be
found in this report. For example, risks
that have a low likelihood rating are still
deemed to be material if their severity are
considered to be moderate or above in
the short or medium term, and vice versa.
The scenarios helped the Company to
better understand and assess the impact
of possible shifts in the macroeconomic
outlook, technology developments, policy
and legal implications, and the projected
future demand for our products.
Internally, our approach to identifying risk
is consistent with all other principal and
emerging risk, which is through a well-
established Risk Management Framework
and is informed by a wide range of
information sources and regularly reviewed
by relevant risk owners. More information
on the Risk Management Framework
can be found in our Risk Management
Report on pages 48 to 59. In addition to
the above framework, for climate-related
risks, the Company also use scenario
analyses to help us identify and assess the
size, scope and significance of climate-
related risks and opportunities relative to
other risks in the matrix. Our approach
to identifying climate-related risks and
opportunities will continue to evolve as
the depth of understanding grows across
our organisation. We continue to embed
consideration of transition and physical
risk exposure in our business planning and
decision making.
The risk rating for each scenario is based
on Likelihood (L) multiplied by Severity
(S), aggregated across all three time
periods with the following weightings: for
likelihood, short-term (0-3 years) 40%;
medium-term (3-5 years) 30%; long-
86
term (5-10 years) 20%. The weightings
reflect the diminishing level of confidence
associated with longer term projections.
The results of these risk rating and
weighting assessments helped Pharos
identify the impact of these risks and
which area of operations may be affected,
details of which can be found in this
report.
We have aligned our climate-related risks
and opportunities with our cross-industry
metrics and targets in 4. Metrics and
Targets on page 96. For example, the
Emissions Management Fund reflects
the capital available to be invested in
emission reduction projects to mitigate the
impact of transition risks, such as carbon
pricing, and to utilise low-carbon transition
enabling technology opportunities. Risk
of restrictions on use of carbon intensive
assets is considered when we calculate
the anticipated financial impact to the
business. Additionally, our CO2 emissions
performance metrics are directly linked
to the targets in our Net Zero Roadmap.
Emissions reduction incentives are part of
all employees’ and directors’ remuneration
and annual bonus schemes, further
incentivising our emission reduction
efforts.
Annual Report and Accounts 2023Pharos Energy TCFD REPORT - continued
Assessing the impact of transition and physical risks on our business
1) Transition risks & opportunities
The most material transition risks and
opportunities facing Pharos have been
identified through literature review and
discussions with our TCFD consultant
as well as other commercial, risk and
operational Pharos colleagues. The
potential impacts of these transition risks
and opportunities are assessed under
two different emissions scenarios, in the
short-, medium- and long-term (0-3 years,
3-5 years and 5-10 years respectively)
and based on timeframe, severity and
likelihood rating. We consider medium
terms to be 3-5 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. This assessment,
conducted in Q4 2023, has enhanced
the Group’s overall strategic decision-
making process and tests the resilience
of its business strategy against different
possible futures.
The two scenarios considered in this
assessment were:
• Net-Zero Pathway: based on the
IEA’s Net Zero Emissions by 2050
Scenario (NZE), assumes that there
is rapid implementation of policies
that reduce global carbon emissions.
We have chosen this scenario for
this assessment as it aligns with
the objectives of the Paris Climate
Agreement and limits warming to
1.5°C.
• Stated Policies Scenario (STEPS):
we have chosen this scenario as it
provides a more conservative view of
the future compared to NZE, in which
only current and planned policies are
enacted, and fossil fuels play a greater
role in the energy system, and society
more widely, for longer. According to
the IEA, under STEPS, warming is
projected to reach almost 2.5°C by the
end of the century.
For the purposes of these assessments,
the Net-Zero transition pathway (NZE)
assumes a surge in clean energy policies
and investment and that all current net
zero pledges are achieved, following
significant efforts to realise near-term
reductions. At the same time, carbon
prices are introduced in all regions, albeit
at varying levels for different countries
and sectors. As part of governmental
efforts to decarbonise the energy
sector, government policy and industry
initiatives are focusing on CO2 emissions
from production as well as incentivising
alternative low-carbon solutions. By 2030
NZE assumes the share of fossil fuels in
primary energy demand declines from
80% over the last two decades to 62%.
Under NZE, oil and gas prices decline
rapidly to the costs of the marginal project
required to meet falling demand: c.40
USD/barrel for IEA crude oil in 2030,
before declining further to c.20 USD/
barrel in 2050. For STEPS, this scenario
assumes that Electric Vehicles (EVs)
account for around 40% of car sales by
2030 (compared with 15% in 2023) and
that deployment of solar PV doubles by
2030. In the same timeframe, STEPS
assumes the share of fossil fuels in
primary energy demand declines from
80% over the last two decades to 73%.
Global temperature (relative to 1850-1900) in Oc
6
STEPS
NZE
SSP1-2.6
SSP2-4.5
SSP5-8.5
Related to this, there is a slight but steady
decline in oil demand from the late 2020s,
with falling supply from existing fields
keeping pricing relatively steady – by 2030
IEA crude reaches 85 USD/barrel under
STEPS.
We consider our business resilient when it
can endure stress-testing under the IEA’s
Net Zero Emissions by 2050 scenario
while continuing its operations. Key
drivers of the Group’s resilience include
operational stability and the ability to
meet production guidance, as well as
mitigations against the transition and
physical risks outlined below. Of the
scenarios considered in our Transition Risk
Assessment, only the Net Zero Emissions
(NZE) scenario matched the objectives of
the Paris Climate Agreement of limiting
warming to “well below 2°C”. Therefore,
we continue to stress test the going
concern and viability resilience of our
business using the NZE. These sensitivity
analyses are conducted bi-annually and
form a crucial part of our financial planning
process. We believe that the NZE price
curve has already incorporated carbon
tax considerations into its price deck.
Although there are currently no carbon
tax policies in Egypt and Vietnam, our
sensitivity test assumed a carbon tax to
be effective from 2025 at $20/ tonne CO2
gradually increasing to $40/tonne CO2e
at 2030. More information on our Going
Concern and Viability Statement can be
found on pages 60 to 61, and 166 to 167.
We aim to regularly review and enhance
our processes and standards to help
them reflect the potential impacts of
climate change. We continue to maintain a
watching brief as both compliance-based
and voluntary carbon pricing mechanisms
evolve.
Source: IPCC, 2021 and IEA,2023
5
4
3
2
1
0
2000
2010
2020
2030
2040
2050
2060
2070
2080
2090
2100
87
Annual Report and Accounts 2023Pharos Energy Strategic ReportAdditional InformationGovernance ReportFinancial Statements TCFD REPORT - continued
The risks and opportunities are assessed using a system that assigns a rating of the perceived severity and likelihood of occurrence
under the Net-Zero Emissions Pathway and STEPS, with input from Pharos’s internal risk register and risk management framework.
Analysis of the current political context in key regions and key global trends is also used in the assessment. With respect to the energy
transition, and the risk assessment undertaken by Pharos, four global trends have been identified that are pertinent to our areas of
operation, Egypt and Vietnam, helping to inform the analysis and the risk and opportunity ratings in this report:
• Affordability and security will determine approaches to energy transition
• Carbon capture, utilisation and storage (CCUS) and carbon markets increasingly moving to the forefront
• Greater grid investment is required to serve effective renewables power markets
• Developing countries collectively demand greater financial assistance to achieve climate goals
Severity
Severe - E
Major - D
Likelihood
Timeframe
Very unlikely (<15%) -1
Short-term (0-3 years)
Unlikely (15-40%) - 2
Medium-term (3-5 years)
Moderate - C
Medium likelihood (40-60%) - 3
Long-term (5-10 years)
Minor - B
Low - A
Likely (60-85%) - 4
Very likely (>85%) - 5
Transition risks
Risk & description
1. Commodity prices: Oil and gas price volatility
Impact
•
Increased costs due to shifts in supply and demand for resources.
• Potential impact on both assets, Egypt and Vietnam.
Short term: 0
Medium term: 0
Long-term: $39.1m (1)
Short term: D3
Medium term: D4
Long term: D5
Operations, Supply Chain, Manufacturing
• Analyse historical trends in oil and gas prices.
• Evaluate geopolitical factors impacting supply.
• Assess supply chain vulnerabilities in sourcing raw materials.
• Conduct stress testing on cost structures under various price scenarios.
• Oil commodity hedging
• Close monitoring of business activities, financial position cash flows
• Control over procurement costs / effective management of supply chains
• Stress test scenarios and sensitivities via principal compound risk analysis, results of which can be found
in Note 4 on page 166
• Capital discipline with focus on controlling and managing costs
• Discretionary spend actively managed
• Maintain and cultivate good relationships with lenders
Potential financial
impact
Timeframe, Severity
& Likelihood
Business area
impacted
Methodology
Mitigations
88
Annual Report and Accounts 2023Pharos Energy TCFD REPORT - continued
Risk & description
2. Restriction of use of carbon intensive assets:
Countries may place caps on imports / use of carbon intensive fuels and
energy / carbon intensive products (e.g. through EU’s Carbon Border
Adjustment Mechanism)
Impact
• Depreciation of carbon-intensive assets and stranded investments.
• Potential impact on both assets, Egypt and Vietnam.
Potential financial
impact
Timeframe, Severity
& Likelihood
Business area
impacted
Short term: 0
Medium term: $3.4m
Long term: $10.7m (2)
Short term: C3
Medium term: D4
Long term: D5
Upstream Operations, Asset Management, Finance
• Conduct a thorough risk assessment on regulatory changes affecting carbon-intensive assets.
Methodology
• Estimate asset depreciation under different regulatory scenarios.
• Evaluate potential stranded assets through scenario analysis.
• Stress test asset valuations based on evolving environmental regulations.
Mitigations
• Egypt and Vietnam both have plans to increase the proportion of gas, and decrease the proportion of oil,
in the energy mix. Therefore, this risk will have an impact on all of Pharos’ assets.
• However, Pharos believes this risk remains moderately unlikely in the 5 to 10-year timeframe, as it would
take time for Vietnam and Egypt to completely phase out oil and gas. According to S&P, although Vietnam
is one of East Asia’s rare crude suppliers capable of producing more than 300,000 bopd, the country with
a population of close to 100 million has a total refining capacity of around 350,000 bopd, which is only
enough to cover just about half the country’s oil products and chemicals demand.
• Additionally, 100% of our products are sold and consumed locally, which reduces the impact & likelihood
of this risk in the short and medium term.
• Our mitigating actions include managing our carbon footprints through flaring and venting reduction;
exploring decarbonisation technologies to achieve our emission reduction interim targets as detailed in our
Net Zero Roadmap; utilising the Emissions Management Fund; and engaging in regular conversations with
lenders to understand their ESG concerns and requirements.
Risk & description
3. Lack of portfolio diversification:
Transition towards low-carbon economy will see a reduced demand for oil
Impact
•
Increased vulnerability due to concentrated investments.
• Potential impact on both assets, Egypt and Vietnam.
Potential financial
impact
Timeframe, Severity
& Likelihood
Business area
impacted
Methodology
Mitigations
Short term: 0
Medium term: 0
Long term: $39.1m (1)
Short term: C3
Medium term: C4
Long term: D4
Finance, Investment Strategy
• Conduct stress testing on portfolio performance under different market conditions.
• Consider calculating the cost of diversification under opportunities.
• While this risk may have a major impact on the viability of the business, the likelihood of completely
phasing out oil and gas usage in Vietnam and Egypt will have a longer time horizon than 5 to 10 years.
• Additionally, 100% of our products are sold and consumed locally, which reduces the impact & likelihood
of this risk in the short and medium term.
• To mitigate the impact of this risk in the medium to long term, Pharos is exploring options towards
investment in low-carbon technology, as part of our Net Zero Roadmap.
89
Annual Report and Accounts 2023Pharos Energy Strategic ReportAdditional InformationGovernance ReportFinancial Statements TCFD REPORT - continued
Risk & description
4. Accelerating electrification:
of the transport and heating sectors, and advancements in plastic
recycling could result in lower demand for hydrocarbons in the long term
Impact
•
Increased demand for electrification solutions and grid upgrades.
• Potential impact on both assets, Egypt and Vietnam.
Potential financial
impact
Timeframe, Severity
& Likelihood
Business area
impacted
Short term: 0
Medium term: 0
Long-term: $39.1m(1)
Short term: C3
Medium term: C4
Long term: D4
Technology, Energy, Infrastructure
• Analyse market trends in renewable energy and electrification.
Methodology
• Model the costs associated with potential infrastructure upgrades (rig electrification).
• Conduct scenario analysis on electrification adoption rates and technology advancements.
Mitigations
• Similar to our analysis above, Pharos believes this risk remains moderately unlikely in the 5 to 10-year
timeframe.
• Our mitigating actions include managing our carbon footprints through flaring and venting reduction,
exploring decarbonisation technologies to achieve our emission reduction interim targets as detailed in our
Net Zero Roadmap, utilising the Emissions Management Fund, and engaging in regular conversations with
lenders to understand their ESG concerns and requirements.
Risk & description
5. Carbon pricing:
Increased price of carbon through national and international schemes
Impact
• Financial impact due to costs associated with carbon emissions pricing.
• Potential impact on both assets, Egypt and Vietnam.
Potential financial
impact
Timeframe, Severity
& Likelihood
Business area
impacted
Short term: 0
Medium term: $3.4m
Long term: $10.7m(2)
Short term: C1
Medium term: D3
Long term: D4
Operations, Regulatory Compliance, Finance
Methodology
from different scenarios and timeframes.
• Assess current and potential future carbon pricing mechanisms in relevant jurisdictions.
• Utilise commercial models to access potential cost burden of operational emissions, using carbon prices
Mitigations
• Undertake stress testing on financial resilience using different carbon price points.
• Assess potential financial benefits of emission reduction initiatives and participation in carbon credit markets.
• 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 in
Egypt and Vietnam will not be subjected to a carbon price within five 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. Results of this can be found
in Note 4 and Note 16 on pages 166 and 173.
• 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.
• To mitigate the impact of this risk in the medium to long term, Pharos is exploring options towards
investment in low-carbon technology, as part of our Net Zero Roadmap.
Note:
(1) The long-term impact of this risk has been considered as part of our cash flow consideration and is incorporated into our disclosure in the Financial
Statements.
(2) The long-term impact of this risk is calculated based on Pharos production profile and associated increase in carbon tax in the 10-year time frame.
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• SSP5-8.5 = Fossil fueled development.
A scenario with very high greenhouse
gas emissions and a best estimate
temperature rise of 4.7°C by 2100.
This scenario represents the high end
of the future concentration pathways.
Under this scenario, emissions
continue to increase towards the end
of the century, peaking around 2080.
Of the scenarios considered in our
Physical Risk Assessment, the SSP1-2.6
scenario matched the objectives the Paris
Climate Agreement of limiting warming to
“well below 2°C”, but does not limit it to
1.5°C.
2) Physical risks & opportunities
This assessment adopts 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. It assesses current climate
extreme, such as flooding, heat stress and
storms, as well as how long-term shifts
in climate will affect these events. For
physical climate risk, this scenario analysis
helps Pharos understand how climate
impacts may vary by geography, severity
and timing under different emissions
scenarios, and assess the subsequent
implications for its operations, assets and
supply chains. The Company is able to
identify weaknesses, vulnerabilities and
opportunities to help prioritise capital and
resource allocation.
This assessment considers the impacts
of climate change under three Shared
Socio-economic Pathways (SSPs). We
have chosen the below SSPs as they
provide a broad range of temperature
projections, thus allowing us to fully
assess the impact of extreme physical
risks such as heat stress on our business.
• SSP1-2.6 = Sustainable future.
A scenario with low greenhouse
gas emissions and less than 2°C
temperature rise by 2100. This
scenario represents the lower end of
the future concentration pathways.
Under this scenario CO2 emissions
begin to decline after 2020 and reach
net zero by 2100.
• SSP2-4.5 = Middle of the road. A
scenario with intermediate greenhouse
gas emissions with a best estimate
temperature rise of 2.7°C by 2100.
This scenario represents the middle
of the range of future concentration
pathways. Under this scenario, CO2
emissions start to decline around 2045
but do not reach net zero by 2100.
Global temperature (relative to 1850-1900) in Oc
SSP1-2.6
SSP2-4.5
SSP5-8.5
6
5
4
3
2
1
0
2000
2010
2020
2030
2040
2050
2060
2070
2080
2090
2100
91
Annual Report and Accounts 2023Pharos Energy Strategic ReportAdditional InformationGovernance ReportFinancial Statements TCFD REPORT - continued
For Pharos’ Physical Risk assessment, the Company used its TCFD consultant’s climate risk indices as guidance to evaluate and
identify the most material physical climate risks facing our operations in Egypt (El Fayum Concession and North Beni Suef Concession)
and offshore Vietnam (Offshore Vietnam Blocks 125 & 126 and 9-2 CNV & 16-1 TGT Fields). For the purposes of these assessments,
assumptions are made based on the degree to which each country is exposed to a range of chronic and acute climate hazards by
2050, forming a climate hazard index. It is constructed at a resolution of 50km2 and is comprised of two pillars: Acute Climate Hazards
and Chronic Climate Hazards. The Acute Climate Hazards index is comprised of Extreme High Temperatures, Extreme Precipitation
and Heatwave Hazard. The Chronic Climate Hazards Index is comprised of Chronic Change in Temperature, Chronic Change in
Precipitation, Chronic Change in Wind Speed, Temperature Variability and Precipitation Variability.
The assessment can help Pharos on when and where to invest in new ventures, how to allocate resources for resilience building, or to
risk-adjust strategic decision making. The results of assessments helped Pharos identify the signifi cance and impact of each physical
risks and which area of operations might be impacted, which are detailed in the table below.
Physical risks
Risk & description
6. Reduced water availability:
may affect operations where water is crucial for drilling and extraction
• Financial impact due to interruptions or slowdown in oil and gas operations.
Impact
• Higher expenses for securing water from alternative sources.
• Potential impact on Egypt assets.
Potential fi nancial
impact
Negligible
Pathways, Severity
& Likelihood
Short-term: B3
Medium-term: B3
Long-term: B3
Business area
impacted
Operations
• Use historical data on operational disruptions during water scarcity events.
• Estimate production losses and increased downtime based on projections and their fi nancial
consequences.
Methodology
• Assess the fi nancial impact of delayed or halted operations.
• Assess the cost of securing water from alternative sources.
• Estimate transportation costs for bringing water from distant sources.
• Compare these costs with baseline water procurement costs.
Mitigations
• Water availability is unlikely to have a signifi cant impact on Pharos’ operations as the majority of our
production comes from offshore operations in Vietnam, where water availability is not a concern. In Egypt,
Pharos uses high-salinity water for our operations, which is recycled and reused. We do not consider this
a material risk for Pharos.
• Current mitigating actions include monitoring water usage in our operations.
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Risk & description
7. Increased temperatures and heat stress:
affecting both equipment and personnel, potentially affecting safety
and operational effi ciency
• Costs associated with implementing measures to mitigate the impact of heat stress on personnel and
equipment.
Impact
• Financial losses due to potential slowdown or interruptions in operations.
• Potential impact on both assets, Egypt and Vietnam.
Potential fi nancial
impact
Negligible
Pathways, Severity
& Likelihood
Business area
impacted
Short-term: A4
Medium-term: B5
Long-term: B5
Operations, Health and Safety, Finance
• Use risk exposure assessments and health and safety records.
•
Identify and assess potential adaptation measures (e.g. cooling systems, personal protective equipment)
based on physical risk data and projections.
• Estimate the costs of implementing these measures, including installation, maintenance, and training.
Methodology
• Leverage existing data on operational disruptions during periods of increased temperatures.
• Estimate production losses and increased downtime based on historical patterns and their fi nancial
consequences.
• Assess the long-term effects on overall operational effi ciency and competitiveness based on historical
data and projections.
Mitigations
thanks to our operational adaptations, which are already in place.
• While this risk has the potential to impact both of our operations, its impact is considered to be minimal
• Other mitigating actions include health and safety training for the operational team in cases of heat stress.
Pharos Energy
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93
TCFD REPORT - continued
Risk & description
8. Storm frequency:
operations may be impacted from high winds (and waves if offshore)
Impact
•
Increased costs from production losses and downtime, impacting overall operational effi ciency.
• Financial losses due to repair and restoration expenses for damaged infrastructure.
• Potential impact on Vietnam asset.
Potential fi nancial
impact
Pathways, Severity
& Likelihood
Business area
impacted
Short term: $2.48m
Medium term: $2.48m
Long term: $2.48m
Short-term: B3
Medium-term: B4
Long-term: B4
Infrastructure, Operations
• Estimate the cost of repairs for different types of infrastructure based on historical data or engineering
assessments.
• Assess vulnerability and exposure of infrastructure to high winds.
Methodology
• Analyse historical data on operational disruptions during storm events, including downtime and production
losses and shut-down and start-up costs.
• Estimate the fi nancial impact of delayed or halted operations.
• Consider the long-term effects on overall operational effi ciency and competitiveness.
Mitigations
• This risk is likely to impact our operations in Vietnam, particularly during monsoon season. This risk is
unlikely to impact our Egypt operations as our operations are onshore and not near any shores where
large waves or storms may have an impact.
• To mitigate this risk and reduce downtime, our operational teams plan drilling programmes ahead of time
and are mindful of monsoon seasons. Operational adaptations are in place to provide fl exibility in number
of wells drilled and time of drilling to accommodate storm frequencies.
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Climate-related opportunities
Opportunity
Technology:
Reduce carbon intensity of products through production effi ciencies
Impact
• Reduce the potential impact of carbon tax due to reductions in carbon emissions via production
•
Improve the environmental performance of products by enhancing production processes to reduce carbon
intensity.
effi ciencies
• Potential impact on both assets, Egypt and Vietnam.
Potential fi nancial
impact
Business area
impacted
Short term: 0
Medium term: $0.5m
Long term: $1.7m
Research and development, operations
• Conduct a comprehensive analysis of the current production processes.
Methodology
•
•
Identify areas for effi ciency improvements and emissions reduction.
Implement breakthrough technologies and innovative practices to enhance production effi ciency.
• Monitor and assess the impact on carbon intensity through continuous performance measurement.
• Engage in life-cycle assessments to quantify improvements.
Adaptions
• As part of our Net Zero Roadmap, Pharos is exploring several decarbonisation levers to achieve our Net
Zero target by 2050. This includes: reducing and eliminating gas venting, reducing gas fl aring via fl are
stacks installation, process optimisation, gas utilisation, and carbon capture and removal.
Opportunity
Technology:
Low-carbon transition enabling technology.
Impact
corporate responsibility goals.
• Potential impact on both assets, Egypt and Vietnam.
• Strategically invest in fuels and technologies with lower carbon intensity to align with broader company
Potential fi nancial
impact
Short term: $0.4m
Medium term: $2.1m
Long term: $4.4m
Business area
impacted
Strategy
• Assess the current portfolio of fuels and technologies.
•
Identify investment opportunities in less carbon-intensive fuels and technologies.
Methodology
• Develop a comprehensive investment strategy aligned with corporate responsibility goals.
•
Implement investments and monitor their impact on the overall carbon intensity.
• Conduct scenario analysis to evaluate the resilience and potential returns on the investments.
Adaptions
• While many climate-related opportunities and decarbonisation levers are being explored by the Group as
part of our pathways towards Net Zero, as mentioned above, one emission-reduction opportunity already
identifi ed 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 fl are reductions. The
generators reduce CO2 e emission by using the associated gas that otherwise would have been fl ared,
and generate electricity to be used for fi eld operations in Egypt.
Pharos Energy
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95
TCFD REPORT - continued
3. RISK MANAGEMENT
Climate risk is a principal risk for Pharos,
and it is assessed and managed in line
with Pharos’ overall risk management
framework. The framework comprises:
• A risk management process through
which we carry out regular and
robust risk assessment to identify
and manage principal and emerging
risks. The process considers relevant
interconnections within the assets
and across all business functions and
entities.
• Continued monitoring of
macroeconomic environment,
commodity price uncertainties and
production volatilities.
• Management deep-dive exercises
to gauge its risk appetite on the risk
matrix and recalibrate its risk tolerance
to ensure the appropriate mitigating
actions were implemented. Staff
from all functions, entities and asset
locations are invited to participate in
these exercises to contribute to the
risk matrix.
• An effective internal control system,
including Code of Business Conduct
and Ethics and corporate policies
which form part of the Group’s
Business Management System, to
enable risks to be managed in line with
our defined risk appetite.
• The Board of Directors supported by
the Audit and Risk Committee (ARC)
to ensure that the internal control
functions in place are appropriate,
effective and on target. As the Board
believes the Group’s risk matrix is a
living dynamic document, it is agreed
that additional risk-assessment
meetings, aside from the quarterly
scheduled ARC meetings, can be
called if a new emerging risk is
deemed significant. Quarterly risk
reports, conducted by the Group’s
Risk Manager, are submitted to the
Board ahead of every Board meeting.
For more information, please see our Risk
Management Report on pages 48 to 59.
In addition to the above framework, for
climate-related risks, the Company also
uses scenario analyses, conducted by our
TCFD consultant and outlined above, to
help us identify and assess the size, scope
and significance of climate-related risks
and opportunities relative to other risks
in the matrix. The Group also considers
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. Our Climate
Change policy is available on our website
and reviewed annually by the Board,
together with other corporate policies.
We carefully consider the environmental
performance of assets and opportunities
as part of our decision-making process,
underpinned by our Net Zero commitment.
Our approach to climate risk management
is continually developing. How we identify,
manage, assess, mitigate and determine
the impacts of each climate-related risk
and opportunities will vary by type, as
detailed in the transition and physical risks
tables above. We will continue to review
our risk management framework when
determining the materiality of its exposure
to climate-related risks.
4. METRICS & TARGETS
281
Scope 1 & 2 GHG intensity by
production (Tonnes CO2e per
1,000 tonnes of hydrocarbon
produced in 2023)
$39.1m Maximum anticipated financial
impact to the business due to a
transition risk
86,134
Total Scope 1 & 2 GHG
emissions (tCO2e) by equity
$2.48m Maximum anticipated financial
impact to the business due to
a physical risk
Carbon price range per tonne
CO2e from 2025 to 2030 used
in Going Concern and Viability
stress testing, in alignment
with NZE pathway
$4.4m Maximum anticipated financial
benefit to the business due to
adoption of a climate opportunity
$20-$40
$0.25
Of revenue set aside into the
Emission Management Fund for
every barrel net to Pharos sold at an
oil price above $75
27%
Total remuneration weighting linked
to corporate Safety & environment
/ Sustainability target, including
‘Carbon footprints improvement /
GHG emissions lower than baseline
2020’ in 2023 KPI
Zero
Proportion of GHG emissions
subject to carbon pricing
regulations
747,978
Scope 3 total GHG emissions
(tCO2e) by equity
c.$0.4m Total capital accumulated in the Emissions Management Fund as at year end 2023 to
provide support for emissions management projects
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Our GHG emissions in 2023 are recorded
in Scope 1 & 2 CO2e absolute and
intensity, and we report on jointly operated
companies in Egypt and Vietnam. We also
measure total hydrocarbon flared as part
of our Corporate Responsibility Non-
Financial Indicators. Both of these metrics
are directly related to our commitment
to achieve Net Zero emissions across all
assets by 2050.
In addition to GHG emissions, 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 and can be found in the
Corporate Responsibility Report on pages
75 to 82.
In December 2023, Pharos published its
Net Zero Roadmap, which was researched
and developed by the Company in close
consultation with specialist advisors
and consultants and models emission
reduction pathways to achieve net zero
Scope 1 (direct) and Scope 2 (indirect)
GHG emissions from all existing and
proposed future assets by 2050 or before.
Based on this modelling, the roadmap
contains interim targets set against the
Company’s 2021 baseline year, which
have been approved by the Board and
sets out a 5% reduction goal in the short-
term and 15% in the medium-term. We
use GHG percentage reduction against
the 2021 baseline as the main metrics
to identify projects and opportunities
with the most potential to reduce our
environmental impact.
We also monitor the reduction of our
year-on-year emission to make sure we
are on track to achieve Net Zero by 2050
ambition and meet the Remuneration
Committee’s corporate responsibility
targets as part of our annual corporate
KPI.
The Company also uses a number of
other corporate responsibility metrics
for our KPI and LTIP (applicable for all
staff and Board members) such as Lost
Time Injury, environmental spills, diversity
and inclusion, which can be found in
the Directors’ Remuneration Committee
Report on pages 126 to 142.
Our emissions reduction pathway with short and medium term interim targets until 2050
Scope
1 and 2
emissions
2026 target
5% reduction
2030 target
15% reduction
Target reduction pathway
2026
2030
2040
2050
We recognise that Scope 3 value chain emissions can help companies have a better and more comprehensive understanding of their
overall emissions footprints. Therefore, during Q4 2023, Pharos, together with our climate specialist, conducted a high-level materiality
assessment across our portfolio against 15 categories listed in the GHG Protocol to understand which categories are relevant, material
and reportable for Pharos.
A review of peer companies was conducted by our climate specialist to observe and understand trends in reporting of the 15 Scope
3 categories. The group of peer companies were selected with due consideration to their diverse industry representation, comparable
Scope 3 emissions reporting, industry similarity, data availability, and relevance to Pharos Energy’s operational context. Following this,
an evaluation of Pharos’ sustainability reports and our upstream and downstream value chain activities was conducted to identify
all indirect emissions associated with the company’s operations. The 15 Scope 3 emission categories were then reviewed with
consideration given to factors such as relevance to Pharos’ operations, materiality thresholds, and the availability of data within our HSE
reports. The overarching objective of this review was to identify the key categories that hold material significance for Pharos, thereby
ensuring alignment with the IPIECA/API and Greenhouse Gas Protocol (Greenhouse Gas Protocol, 2013; IPIECA, 2016).
97
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Following this review, the 15 Scope 3
categories were organised by materiality
into four groups:
1. High materiality
2. Moderate materiality
3. Potentially moderate materiality
4. Not material to Pharos
In light of this materiality assessment, as
at year-end 2023, we have calculated
emissions from Category 6 – Business
travel, which has moderate materiality
to Pharos and is relatively reliable to
measure, and Category 4 – Upstream
transportation and distribution and
Category 11 – Use of Sold Product,
two categories with high materiality for
Pharos. More information on our Scope 3
emissions can be found in the Corporate
Responsibility Report on page 78 and in
the Corporate Responsibility Non-Financial
Indicators table on page 82.
Activity data pertaining to GHG emissions
in Vietnam and Egypt is reported to
Pharos. Telos NRG assisted with data
collation and GHG emissions calculations.
Verifi cation of the 2023 GHG Emissions
Report has been undertaken by RPS
Consulting UK & Ireland using the
principles in BS EN ISO 14064-3:2019
(the Standard). The RPS’ 2023 GHG
verifi cation report is unqualifi ed and covers
all of our GHG metrics, including Scope 3
emissions.
Like other oil and gas companies, our
emissions targets are not approved by
the Science Based Targets Initiative (SBTi)
due to ongoing development of validation
tools by the organisation for the oil and
gas sector. Nevertheless, we respect
the science and base our decisions on
guidance from widely-used frameworks
such as the Taskforce for Climate-related
Financial Disclosures (TCFD). We consider
our targets to be robust, having been
underpinned by independent analysis
and technical evaluation of our emissions
profi le, which we used to identify
decarbonisation initiatives on our operated
assets. We will not engage in any
memberships that run counter to our net
zero commitments. We will be transparent
about our memberships in the sector
and beyond. We plan to address our
residual, hard to abate emissions (which
is estimated to be around 20-40% of our
total emissions) through carbon capture
and removal.
Approval of the Strategic Report
This report was approved by the Board of Directors on 27 March 2024 and
is signed on its behalf by
JANN BROWN
Chief Executive Offi cer
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Strategic Report
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Additional Information
Governance
Report
Chair’s introduction to Governance
Leadership & Governance
Board of Directors
UK Corporate Governance Code
Environmental, Social and Governance (‘ESG’) Committee Report
Nominations Committee Report
Audit and Risk Committee Report
Directors’ Remuneration Report
− Annual Report on Remuneration (Audited section)
− Notes to the single fi gure table
− Unaudited Section
Directors’ Report
100
102
104
106
114
117
120
126
128
129
135
143
Pharos Energy
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99
CHAIR’S INTRODUCTION TO GOVERNANCE
A strong culture
of governance
JOHN MARTIN
Non-Executive Chair
The role of the Board
The Board is responsible for the
determination of the Group’s strategy and
objectives, the approval of overall fi nancial
budgets and fi nancing agreements,
the monitoring of performance against
these, the oversight of key corporate
relationships with operators and other
joint venture partners, and for corporate
governance more generally.
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 always act with integrity and honesty,
to lead by example and to promote
the Pharos principles of Safety & Care,
Energy & Challenge, Openness & Integrity,
Empowerment & Accountability, and
Pragmatism & Focus. 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
fi nancial and operational performance
against corporate objectives and KPIs.
The Board is committed to ensuring the
Group complies with applicable laws,
regulations, rules and requirements in
all host countries and other relevant
jurisdictions.
Dear Shareholders,
On behalf of the Board, I am pleased to present
the Pharos Corporate Governance Report for
the fi nancial year ended 31 December 2023.
The Company was in full compliance with the
UK Corporate Governance Code throughout
the year.
The authority for implementing Group
strategy, including the taking of decisions
and the making of fi nancial and other
commitments, is delegated by the Board
to the Executive Directors and the senior
management team subject to defi ned
authority limits. 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 fi nancial and non-fi nancial
authorities held by individuals within the
Group.
Overview of 2023
Throughout 2023 we have continued to
build upon our culture of capital discipline
to deliver material improvement to the
Group’s balance sheet, reducing net debt
and achieving strong operational and
fi nancial performance across the Group.
Across the portfolio, the team’s focus
on operational delivery was evidenced
by strong drilling performance in both
Vietnam, with the CNV well coming in
on time, under budget and substantially
contributing to CNV fi eld production,
and Egypt, with discoveries from both
El Fayum’s and NBS’ exploration wells.
The fi rst NBS exploration commitment
well was put on production just nine
months after its commercial discovery,
opening up a new area for production
and development. This has allowed the
Board to continue our commitment to
sustainable shareholder returns, a core
component of Pharos’ strategy since its
inception in 1997.
External factors have posed a series
of challenges for our global operations
during the year and will continue to do so,
with Russia’s invasion of Ukraine and the
extensive international sanctions packages
introduced in response. Combined with
the latest instability in the Levant, and the
interdiction in the Red Sea by the Houthi’s
with the concomitant impact on shipping
through the Suez Canal, these pose a
wider challenge to the Egyptian economy
which has suffered from high infl ation,
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,
continues to be 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 together with its
Committees received regular detailed
updates from the Executive Directors
and other key members of management
and staff during the year. In pursuit of
the best interests of stakeholders, the
Non-Executive Directors (NEDs) brought
constructive challenge to the executives’
proposals and strategy, offering direction
and support as and where appropriate.
Key areas of focus for the NEDs’
discussions in 2023 included effective
implementation of Group strategy,
portfolio management, capital allocation
and oversight of operational, fi nancial
performance and KPIs, the share buyback
programme, corporate responsibility
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CHAIR’S INTRODUCTION TO GOVERNANCE - continued
During 2023, the Nominations Committee
(see the report on page 117) focused on
reviewing Board composition, succession
planning for key roles throughout the
Company, an annual Board evaluation,
annual Director re-appointments, and
the search and recruitment process for
a Non-Executive Director with technical
expertise. The Board was in agreement
that Dr Bill Higgs was an outstanding
candidate and bring a wealth of technical
and commercial experience to the Board.
The appointment of Dr Bill Higgs as a new
independent Non-Executive Director was
announced on 16 January 2024. The size
of the Board has thus increased from six
(two Executives and four NEDs), to seven
(two Executives and fi ve NEDs) which we
consider commensurate with the size and
profi le of the Group.
The Remuneration Committee’s activities
in 2023 centred on the updated
remuneration structure. The Remuneration
Committee approved a 6% increase in
salaries of Executive Directors and the
Board. Apart from this 6% increase in
NEDs’ fees (commencing in 2024) there
were no other increase approved in 2023.
The salaries for non-Director UK staff have
also been increased by 6% to counteract
the continued infl ationary factors and cost
of living challenges. Further details are
set out in the Directors’ Remuneration
Committee Report from pages 126 to 142.
Board Priorities
for 2024
We will build further upon a track
record of consistently meeting
expectations and delivering on our
strategy. Key priorities for 2024
are the continuation of the share
buyback programme, the dividend
policy, seeking to grow value for
our shareholders, improving our
payment situation in Egypt, striving
for zero safety and environmental
incidents and continuing to fi nd the
right farm in partner to fund our
commitment well on Block 125.
Clear organic growth and disciplined
capital management will support us
in our aim to maintain regular returns
to shareholders whilst growing the
value of our Company.
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 fi rm
foundations of robust governance.
JOHN MARTIN
Non-Executive Chair
matters, and publication of the Company’s
Net Zero roadmap. 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 briefl y summarise
some of their key activities in 2023.
The health and safety of the Group’s
workforce remains our number one
priority, and the ESG Committee (see
the report on page 114) is committed to
ensuring that the Group operates safely
and responsibly at all times. In 2023, the
JOCs in Vietnam continued to deliver an
exceptional record of safety, reporting
zero LTIs since operational inception,
representing eleven production years on
TGT and fourteen production years on
CNV. In Egypt, no LTIs were recorded
in 2023. However, the ESG Committee
received reports on two motor vehicle
roll-overs which resulted in the target
for motor vehicle crash and roll-overs
to be exceeded. These roll-overs led to
environmental spills for which the target
maximum was exceeded as a result.
Further details of these incidents are
set out in our Corporate Responsibility
report on pages 70 and 79. With the
oversight of the ESG Committee, Group
personnel are working with the operator
IPR and the JOC Petrosilah to address
the underlying issues identifi ed 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 December 2023, following discussions
at previous ESG Committee meetings,
the Company announced its Net Zero
Roadmap which details the Group’s
emissions profi le, interim reduction
targets, and decarbonisation levers to
achieve our 2050 Net Zero commitment.
I am also particularly proud, in my
capacity as Chair of the ESG Committee,
of the establishment of our Charity and
Community Projects Committee which
reports into the ESG Committee with
regard to social investment initiatives
across the countries where we operate.
Pharos Energy
Annual Report and Accounts 2023
Annual Report and Accounts 2023
101
101
LEADERSHIP & GOVERNANCE
Leadership & Governance
Board Members
* Independent Non-Executive Directors.
John Martin*
Sue Rivett
Lisa Mitchell *
Marianne Daryabegui*
Non-Executive Chair and Chair
of Nominations Committee
and ESG Committee
Chief Financial Officer and
ESG Committee member
Jann Brown
Chief Executive Officer, ESG
Committee member and
Nominations Committee
member)
Geoffrey Green*
Non-Executive Director and
Senior Independent Director,
Chair of Remuneration
Committee, Nominations
Committee member, Audit and
Risk Committee member and
ESG Committee member
Non-Executive Director, Chair
of Audit and Risk Committee,
Remuneration Committee
member, 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
Dr Bill Higgs*
Non-Executive Director and
ESG Committee member
(Appointed on 16 January 2024)
Diversity of Skills, Backgrounds and Experience
The Board places importance on the diversity of gender, experience, knowledge, skills, and professional, educational and cultural
backgrounds. This diversity has brought an international 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 2023, the Board comprised six Directors. As at
27 March 2024, the Board comprised seven Directors.
Meeting attendance
During each Director’s respective term of office in 2023
Board meeting
(scheduled
quarterly) x4
Board meeting
(additional) x3
Audit and Risk
Committee
meeting x3
Remuneration
Committee
meeting x3
Nominations
Committee
meeting x5
Environmental, Social
and Governance
Committee meeting x4
Director
John Martin (Chair)^
Jann Brown (CEO) (1) (2) (3)
Sue Rivett (CFO)
Geoffrey Green^
Lisa Mitchell^
Marianne Daryabegui^
KEY
^ Independent Directors
Attended as member
Attended as invitee
Not attended
In addition to the four scheduled quarterly meetings, the Board met in 2023 on an additional three occasions to deal with specific business
matters which required Board approval. Furthermore the Board attended a corporate strategy meeting in November 2023.
Notes:
1) Jann Brown was not in attendance at the December Board meeting due to extenuating and unforeseen personal circumstances.
2) Jann Brown was unable to attend one Nomination Committee meeting due to the meeting being necessarily arranged at short notice at a time when she was not
available.
3) Jann Brown was unable to attend one ESG Committee meeting due to the meeting being necessarily arranged at short notice at a time when she was not
available due to a meeting with an international business partner previously arranged.
4) Where a Director or Independent Director is unable to attend a particular meeting, full documentation for the meeting is issued to them, their views are sought in
advance and briefings are provided subsequent to the meeting as appropriate.
5) Directors do not attend meetings (or parts of meetings) of the Remuneration Committee when the Committee is deciding matters in relation to such Directors’
Remuneration.
102
Annual Report and Accounts 2023Pharos Energy LEADERSHIP & GOVERNANCE - continued
Management
Board of Directors
Management Committees
Executive leadership team
Further support the Board and comprise the
following key committees:
• Disclosure
• Treasury
• Bid Defence
Responsible for day-to-day management of our
business and operations and for monitoring detailed
performance of all aspects of our business.
Principal Committees of the Board
Audit and Risk Committee
Remuneration Committee
Nominations Committee
L Mitchell (Chair)
G Green (Chair)
M Daryabegui
G Green
M Daryabegui
L Mitchell
J Martin (Chair)
M Daryabegui
L Mitchell
G Green
J Brown
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.
Environmental, Social
and Governance (ESG)
Committee
J Martin (Chair)
M Daryabegui
L Mitchell
G Green
B Higgs *
J Brown
S Rivett
Responsible for defining
the Group’s corporate
responsibility strategy,
review of the Group’s
corporate responsibility
policies, programmes
and initiatives and, more
generally, oversight of the
Group’s management of
corporate responsibility
matters and Net Zero
ambition.
* Dr Bill Higgs was appointed to the
Board and the ESG Committee on
16 January 2024.
103
Annual Report and Accounts 2023Pharos Energy Governance ReportFinancial StatementsStrategic ReportAdditional Information 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 eight 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’ merger and acquisition experience. Sue is a
Fellow of the Chartered Institute of Management Accountants (“FCMA”) with international
experience and nearly 40 years in the energy business.
104
Annual Report and Accounts 2023Pharos Energy BOARD OF DIRECTORS - continued
GEOFFREY GREEN
Non-Executive Director and Senior Independent Director
Appointed: May 2020
Geoffrey has many years of legal and commercial experience in advising major UK listed
companies on corporate and governance issues, mergers and acquisitions and corporate finance.
Geoffrey 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 and Executive Director 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.
DR BILL HIGGS
Non-Executive Director
Appointed: January 2024
Bill has over 30 years of global exploration, development and operations experience, including
more than 10 years in executive roles for listed independent exploration and production
companies. He is a qualified geologist with extensive expertise in all engineering and other
technical and commercial aspects of hydrocarbon exploration, development and production. Most
recently, Bill was Chief Executive Officer of Genel Energy between 2019 and 2022, having served
as Chief Operating Officer from 2017. Preceding his roles at Genel, Bill was Chief Operating Officer
for Ophir Energy plc, responsible for managing the global asset portfolio. Before that he served
as Chief Executive Officer of Mediterranean Oil and Gas, overseeing the successful sale of the
company in 2014. Bill began his industry career at Chevron, spending 23 years across a number
of global roles. Bill is currently serving as Chairman of Chappal Energies Mauritius Limited, a West
Africa-focussed energy company that has recently embarked on building a portfolio of upstream
assets.
105
Annual Report and Accounts 2023Pharos Energy Governance ReportFinancial StatementsStrategic ReportAdditional Information UK CORPORATE GOVERNANCE CODE
2018 UK Corporate
Governance Code (the ‘2018 Code’)
2023 statement of
compliance with the
2018 Code
We are committed to the highest
standards of corporate governance
and to 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 Company also notes the
provisions of the 2024 UK
Corporate Governance Code (the
‘2024 Code’) announced by the
Financial Reporting Council in
January 2024. We have no material
concerns over compliance with the
provisions of the 2024 Code, under
which the majority of provisions will
apply from the Company’s financial
year commencing 1 January 2025.
The remainder of this section of
the Governance Report sets out in
more detail the Company’s practical
application of the Principles of the
2018 Code as set out in the five
sections of the 2018 Code:
• Board Leadership and Company
Purpose;
• Division of Responsibilities;
• Composition, Succession and
Evaluation;
• Remuneration; and
• Audit, Risk and Internal Control
106
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 remains important to the Board to
preserve and enhance the strong and
resilient culture of our workforce. The
Board monitors adherence to these
principles through a number of different
engagements, both formal and informal,
ensuring that they are evidenced in
behaviours and 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 (the Pharos Guiding Principles):
Safety & Care, Energy & Challenge,
Openness & Integrity, Empowerment
& Accountability, and Pragmatism &
Focus. The Pharos Guiding Principles are
reinforced by our Code of Conduct and
Business Ethics and other corporate-level
policies, procedures and guidance. The
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 through
engagement with colleagues in various
forms, as detailed below.
The Board places 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,
resulting in 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. Each employee has at
least two meetings with their line manager
during the year, to discuss and agree
the objectives and to review progress
mid-year. Line managers also provide
additional support where needed and
assist the employee in overcoming any
difficulties they might be facing.
Following feedback received in previous
years, in which events such as off-
site away days and in-person monthly
meetings were proposed to avoid staff
isolation and promote team culture, the
Company organised a Group-wide off-site
event in June 2023, where colleagues
from Egypt, Vietnam and UK all met
in London to exchange ideas, provide
feedback and engage in structured
team-building activities. The event
proved very successful, with the sharing
of knowledge and practical experience
having an immediate impact. The off-site
event also resulted in a number of new
staff-led initiatives, including a Group-
wide quarterly video conference and a
commitment to an annual Group-wide off-
site event. The Board believes that these
Group-wide events are important not only
for the effective and efficient functioning
of the Company and the business, but to
also promote the company culture and the
development, advancement and wellbeing
of the Group’s global workforce.
Annual Report and Accounts 2023Pharos Energy
The NEDs are each responsible for taking
sufficient steps to understand shareholder
views, including any issues or concerns
relating to the management of the
Company. This includes being available
to major institutional shareholders and
responding to requests for additional
communication with the Chair, the Senior
Independent Director or other NEDs.
For instance, in 2023, the Chair and the
Company’s General Counsel engaged
with certain significant shareholders of
the Company to solicit their views on
the effectiveness and composition of
the Board. Those exchanges ultimately
led, following an externally-managed
search process, to the appointment of Dr
Bill Higgs as a new Independent Non-
Executive Director in January 2024. Unlike
the other members of the current Board,
Dr Higgs has a professional background
in geoscience, in addition to many years
of global exploration, development and
operations experience and more than
10 years in executive roles for listed
independent exploration and production
companies. Dr Higgs has been introduced
to a number of key shareholders in his
new role and intends to maintain open
lines of communication.
Additionally, both before and after the
formal proceedings of each AGM of
the Company, all Directors and senior
management, including the Chairs
of the principal Board committees,
make themselves available to answer
shareholder questions and respond to any
specific queries.
UK CORPORATE GOVERNANCE CODE - continued
During the year, John Martin, as Chair of
the Board and designated Non-Executive
Director responsible for workforce
engagement, made himself available to
all employees throughout the year and
encouraged all staff members to share
their concerns, feedback and views about
the Company. Any feedback was then
taken into account and communicated
to the Board and Executive Directors as
suggestions for improvements.
Additionally, there have been other
forms of engagement with the Group’s
global workforce, including extending
participation in the Company’s share
incentive schemes and the corporate
bonus scheme, and providing other
feedback channels, including through
the Group’s Whistleblowing Policy and
access to the dedicated, anonymous and
confidential EthicsPoint hotline.
Shareholder engagement
The Board as a whole has responsibility
for maintaining a satisfactory dialogue with
shareholders. The Executive Directors
are responsible for ensuring on a day-to-
day basis 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 primary responsibility
at management level for investor relations,
but senior management, the Chief
Executive Officer and other members of
the Board are also regularly involved in
conversations with shareholders.
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 is
dedicated to investor and stakeholder
considerations. Investor relations is
also a standing agenda item for weekly
management meetings.
Pharos engaged in open and active
dialogue with its institutional, private and
retail shareholders in several formats
throughout the year. The Company
uses its online presence to post and
disseminate key information promptly to
a wide audience, as a complement to
the use of the normal regulatory news
service. The “Contact” section of the
Company’s website is regularly used by
shareholders and stakeholders for email
communication with the management
team. The official X (formerly known
as Twitter) and LinkedIn accounts of
Pharos continue to be used actively. The
Company uses a communications agency
to provide assistance in the presentation
and 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 www.
pharos.energy/investors/analyst-research/.
This allowed for a wider audience of
private and retail shareholder to freely
access analyst research notes about
the Company. On top of existing analyst
coverage with Peel Hunt and Auctus
Advisors, the Company also partnered
with Progressive Research and Shore
Capital in 2023, both of which produce
regular research notes on the Company
to ensure a wider mix of equity research
and investment opinion are available
to all shareholders. The Company has
continued its policy of regular liaison with a
proxy advisory and corporate governance
services on responsible investment, ESG
and the terms of shareholder resolutions.
Also in 2023, the Company continued its
engagement with online platform Investor
Meet Company to host online meetings
with a Q&A session in March and October,
allowing shareholders and the wider public
a free platform to put questions directly to
the Executive Directors. At the Strategy
Day held in London in November 2023,
the Board received presentations and
inputs from several key external parties,
including corporate brokers, institutional
shareholders and ESG advisers. During
the year, the Executive Directors, senior
management, and investor relations
colleagues also met with over 20 different
institutional investors, family offices,
media journalists and analysts in various
engagements and events, including ad-
hoc investor roadshows, an analyst lunch,
and video conference meetings.
107
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Local communities, governments
and employees
Our goal is to have a responsible and
positive presence in the regions in
which we operate, creating value for
host countries, local communities,
employees, contractors, suppliers,
partners and shareholders. We engage
with all of those stakeholders on a regular
basis. Additionally, we carefully monitor
compliance with the Modern Slavery
Act 2015 in relation to the Group’s
international operations, including through
regular compliance checks and the
requirements our due diligence and on
boarding processes with suppliers, service
companies and other contractors.
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.
During the year we sought to align our
social investment programme with the
United Nations Sustainable Development
Goals (UN SDGs). In 2023, in addition
to the training levy mentioned above,
a further $247,373 was invested in 22
healthcare, education, infrastructure and
other community projects across all three
host countries . The JOCs approached
and consulted with local partners to
determine 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 full details of all the
projects in which Pharos invested during
the year, please see our Corporate
Responsibility report on pages 73 to 74.
In addition, the Company announced
the establishment of an Emissions
Management Fund in September 2022,
reflecting that, as non-operator, the
Company has no direct control over the
facilities associated with the Group’s
producing assets. From every barrel
net to the Company sold at an oil price
above US$75, this Fund is provided
with US$0.25. In line with the Net Zero
roadmap, this Fund is intended to
provide financial support for emissions
management projects that are otherwise
not economically feasible. As at 31
December 2023 the value of the fund was
over US$400,000.
108
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 our local offices
available 24 hours a day all year round.
Zero calls were made to the EthicsPoint
hotline in 2023.
Additionally, our Anti-Bribery and
Corruption (ABC) Policy, Code of Business
Conduct and Ethics and associated
guidance were followed rigorously in
2023. All employees are encouraged to
place these policies at the forefront of
our engagement with suppliers, vendors,
partners, and public officials. It is also a
requirement for all Group employees and
the Board to complete and successfully
pass their ABC and Criminal Finance
E-Learning training every year to ensure
that the expected standards of business
conduct are communicated and
recognised across the organisation.
Pharos is committed to creating a safe
workplace for all. We recognise that
2023 has seen significant geopolitical
instability, something that has impacted
far reaching communities and families,
the global economy, communities and
trade. Our thoughts remain with those
involved, directly or indirectly, in current
international conflicts. We continue to
support colleagues and contractors during
this difficult time, as well as ensuring that
our business can continue to function
unaffected.
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, Nominations and ESG
Committees.
The roles of the Chair and Chief Executive
Officer (CEO) 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 day-to-day management 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.
Annual Report and Accounts 2023Pharos Energy UK CORPORATE GOVERNANCE CODE - continued
Board composition
As at December 2023, the Board
comprised six Directors, being the Chair
(who was independent on appointment),
the two Executive Directors and three
independent Non-Executive Directors. As
noted above, Dr Bill Higgs was appointed
as an additional Non-Executive Director in
January 2024.
Tony Hunter was Company Secretary
throughout the year and his appointment
was approved by the Board as a whole.
Responsibilities and composition
of the Principal Board
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
formal Terms of Reference (TORs), 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 www.pharos.energy/about-us/
governance/committees/.
Time commitment
The Board has four scheduled meetings a
year, with additional meetings scheduled
as required in connection with the efficient
and diligent operation of the business of
the Company.
In 2023, 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 the Board Strategy
Day in November 2023, attended by all
members of the Board, certain other
colleagues and a number of external
stakeholders and advisers.
Only Committee members are required to
attend their respective meetings. Other
Directors are invited to attend meetings
of committees of which they were not
members, where determined to be
appropriate or beneficial. In addition, the
chairs of the principal Board committees
provide an update at each full Board
meeting. The attendance table for the
Committee and Board meetings in 2023
can be found on page 102.
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. A well-established international
executive search firm was engaged during
the year in connection with the search
for a new independent Non-Executive
Director from a technical background.
This process ultimately resulted in the
appointment of Dr Bill Higgs as a Director
on 16 January 2024.
The Directors’ roles are established in
writing and approved by the Board.
Biographical details are provided on pages
104 & 105.
Diversity and Inclusion
We believe in a workforce with a diversity
of experience, nationalities, ethnicities,
cultural backgrounds and gender, to
support our business strategy of long-
term sustainable growth. We are proud
that we are able to recruit talents from
diverse backgrounds and ethnicities. As
at year-end 2023, our UK-based staff
comprises 17 people from 10 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. 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.
During the year, the Company also
undertook a Group-wide survey of
staff on questions and perceptions of
diversity, equity and inclusion within the
organisation. The results of this survey
are expected to form the basis for a
workshop, seminar or similar event for
staff during 2024.
Throughout the year, the Company
complied with 2 out of 3 targets set by LR
9.8.6R(9) of the FCA’s Listing Rules. As at
31 December 2023, the Company had:
• Four female Directors, representing
two thirds of the Board
• Both Executive Director positions
(Chief Executive Officer and Chief
Financial Officer) held by women
The LR 9.8.6R(9) target with which the
Company did not comply in 2023 related
to ethnic diversity. There is no member
of the Board from a minority ethnic
background. The Company continues
to seek and welcome candidates for the
Board from a minority ethnic background
for positions on the Board, and there
is considerable diversity within the
management team immediately beneath
the Executive Directors.
Equality, diversity and inclusion sit at the
heart of our recruitment, development and
promotion processes. These principles
were taken into consideration during the
Nominations Committee’s evaluation
and recruitment process for a new
Independent Non-Executive Director
with technical experience, but the Board
was in agreement that Dr Bill Higgs was
an outstanding candidate and the best
choice for the role from a very high-quality
shortlist. In reaching this decision, the
Board took into account that Dr Higgs is a
qualified geologist with extensive expertise
in all engineering and other technical
and commercial aspects of hydrocarbon
exploration, development and production
acquired over 30 years of global
exploration, development and operations
experience, including more than 10 years
in executive roles for listed independent
exploration and production companies. He
was appointed in January 2024.
For more information on the gender
and ethnic diversity of our corporate
employees and senior management,
please see page 70 of the Corporate
Responsibility report.
109
Annual Report and Accounts 2023Pharos Energy Governance ReportFinancial StatementsStrategic ReportAdditional Information UK CORPORATE GOVERNANCE CODE - continued
Annual re-election of Directors
Remuneration
All Directors annually retire and seek re-
election by shareholders at the Company’s
AGM. In the case of Dr Bill Higgs, he will
seek election by shareholders for the
first time at the 2024 AGM, having been
appointed by the Board since the 2023
AGM. The Nominations Committee makes
its recommendation to the Board on each
election or 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 assessments in 2023 included
consideration of the Company’s leadership
needs within the context of growth,
portfolio diversification and long-term
strategy. Those assessments were
another key factor in the appointment
of Dr Bill Higgs as a new Independent
Non-Executive Director in January 2024,
the culmination of a process intended
to ensure that the current balance of the
Board is appropriate and sufficient to
effectively promote the long-term success
of the Company. As discussed above,
Dr Higgs brings to the Board extensive
upstream technical expertise and
experience to complement the skillset and
disciplines of the other Board members.
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 three years. As the policy was
recently reviewed, updated and approved
at the 2023 AGM, the latest by which a
revised policy will be put to shareholders
for approval is the 2026 AGM. The terms
of the revised policy approved at the 2023
AGM are set out on pages 126 to 142 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,
Long-Term Incentive Plan (LTIP) awards to
the Executive Directors have a two-year
holding period following vesting. This is
intended to emphasise a commitment to
the alignment of Executive Directors with
shareholders and a focus on long term
stewardship.
Audit, Risk and Internal
Control
Financial reporting and significant
accounting matters
During the first half of 2023, the Group’s
accounting policies, in accordance
with best practice, were reviewed by
management and the Audit and Risk
Committee to ensure that they remained
appropriate for the Group’s activities.
Following this review, the Group’s
accounting policies were judged to be fully
up-to-date and there were no significant
changes recommended to the Board by
the Committee.
Significant issues related to the
2023 Financial Statements
The Audit and Risk Committee identified
the significant issues (disclosed in more
detail in the Audit and Risk Report) that
should be taken into consideration in
relation to the Financial Statements for
the year ended 31 December 2023,
being key issues which may be subject to
heightened risk of material misstatement.
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
page 147 of the Directors’ Report.
Going Concern
Management completed their Going
Concern assessment which was
challenged and reviewed by the Audit and
Risk 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.
110
Annual Report and Accounts 2023Pharos Energy UK CORPORATE GOVERNANCE CODE - continued
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 2023 Financial Statements.
Following its review of management’s
Committee paper and in-depth walk
through of assumptions, the Audit and
Risk Committee are satisfied that it is
appropriate to prepare the 2023 Financial
Statements on a Going Concern basis.
For more information, please see the
Viability Statement in the Strategic Report
on pages 60 to 61.
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 Audit and Risk
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 2023, 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 Audit and Risk Committee has been
delegated the responsibility to monitor
and assess the effectiveness of the control
systems operated by management. The
external auditor, Deloitte, also provides
feedback and recommendations on
controls which are brought to the attention
of the Committee.
Internal controls and risk management
issues are discussed in detail and
reviewed for effectiveness at each
Committee meeting, with a report being
provided to the Board for approval.
Internal controls focus for 2023
The Treasury Committee, an executive
committee chaired by the CFO, continued
to meet regularly to review the compliance
of RBL covenants and to also review the
Group’s liquidity, hedging requirements
and investment strategy.
The Audit and Risk Committee reviewed
and approved the related compliance
statements set out in the Risk
Management Report.
The Audit and Risk Committee has also
reviewed and approved the statements
regarding compliance with the 2018
Code, in the Corporate Governance
Report on page 106. 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 References (TORs)
for best practice, which were approved by
the Board in 2023. These will be reviewed
again during 2024.
The Audit and Risk Committee and
the Board have conducted 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. On 6 December 2023,
the Company published the Net Zero
roadmap to achieve net zero greenhouse
gas (GHG) emissions 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 Audit and Risk Committee conducted
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 mitigate 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. It is also a
requirement for all Group employees and
the Board to complete and successfully
pass their ABC and Criminal Finance
E-Learning modules training every year.
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.
Following this process, the Company
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 second half of 2023 and
the early part of 2024, Ernst & Young LLP
“shadowed” Deloitte’s work as external
auditor, with a view to preserving know-
how and experience and encouraging
a seamless transition. Shareholders are
being asked to approve the appointment
of Ernst & Young LLP as external auditor
for the financial year commencing
1 January 2024 at the 2024 AGM.
111
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In each year, the Audit and Risk
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 appointment
or 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 fi ve years.
The current Deloitte LLP lead partner is
Anthony Matthews, who is compliant
with the rotation requirements throughout
Deloitte’s fi nal year as external auditor.
Other senior audit staff are rotated every
fi ve to seven years.
External auditor - non-audit
services
The external auditor is appointed primarily
to carry out the statutory audit and their
continued independence and objectivity
is crucial. In view of their knowledge of
the business, there may be occasions
when the external auditor is best placed to
undertake other services on behalf of the
Group. The Audit and Risk 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 satisfi ed 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 confl ict of
interest. The Company has taken steps
to develop resources and relationships in
order to establish availability of alternate
advisers for fi nancial and other matters.
Principal and emerging risks
On page 48, we set out our assessment of the principal and emerging 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 defi nes the specifi cs 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
Page(s)
Purpose and Culture
Colleague engagement
Shareholder engagement
Local communities, government and employees
Whistleblowing, Ethics and Business Conduct
Division of Roles & Responsibilities
Responsibilities of the Board
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
3, 4, 7, 15, 16, 71, 86, 106
36, 37, 38, 72, 106, 119
17, 36, 37, 39, 107
17, 23, 28, 37, 65, 69,
108, 119
15, 38, 48, 59, 69, 71,
108, 147
100, 101, 103, 108
102, 103, 109
103, 109
102, 109
102, 103, 109
15, 38, 71, 72, 109, 118
110, 119
110, 117, 119, 125
Remuneration
Remuneration principles
Remuneration policy
Pension & Benefi ts
Directors’ shareholdings and share interests
Audit, Risk and Internal Control
Signifi cant reporting and accounting matters
Fair, balanced and understandable
Viability Statement and Going Concern
Risk management and internal controls
Internal audit
External auditor
Principal and emerging risks
110, 126, 127
110, 140, 141
110, 128, 137, 140
110, 134, 142
110, 121
110, 121, 147
47, 60, 61, 110, 121
48-59, 111, 122-125
111, 121, 122, 124
111, 112, 125
48, 54-59, 112
112
Annual Report and Accounts 2023
Pharos Energy
Strategic Report
Governance Report
Financial Statements
Additional Information
UK CORPORATE GOVERNANCE CODE - continued
Accountability statement page references
Changes during the year
Accountability
statements
Report
Strategic objectives
and Business model
Strategic Report
Directors’
responsibility
statement
Directors’ Report
Auditor’s statement
Independent Auditor’s Report
Going concern
CFO Statement
Critical judgements
and accounting
estimates
Note 4 to the Financial
Statements
Viability Statement
Risk Management Report
Risk Management Report
Risk Management
and Internal Control
2018 UK Corporate
Governance Report
Audit and Risk Committee
Report
2018 UK Corporate
Governance Report
Audit and Risk Committee
Report
2018 UK Corporate
Governance Report
Audit, Risk and
Internal Control
Nominations
Committee
Page(s)
8, 24
147
149
47
166
60
48
111, 112
122
110-112
122-125
109, 110
Nominations Committee Report
117
The Board
Members
Execs
NEDs
Independent
NEDs
Appointed
Retired
Audit and Risk Committee
Members
Appointed
Retired
Remuneration Committee
Members
Appointed
Retired
Nominations Committee
Members
Appointed
Retired
Environmental, Social and
Governance Committee
Members
Appointed
Retired
6
2
4
John Martin
(Chair, independent on
appointment)
Geoffrey Green
Lisa Mitchell
Marianne Daryabegui
0
0
3
0
0
3
0
0
5
0
0
6
0
0
Pharos Energy
Annual Report and Accounts 2023
113
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (‘ESG’) COMMITTEE REPORT
2023
attendance
JOHN MARTIN
ESG Committee Chair
Meeting attendance
Committee member
John Martin (Chair) ^
Jann Brown
Sue Rivett
Marianne Daryabegui ^
Lisa Mitchell ^
Geoffrey Green ^
^ Independent Directors
Attended as member
Not attended
Note: Jann Brown was unable to attend
one ESG Committee meeting due to
the meeting being necessarily arranged
at short notice at a time when she was
not available due to a meeting with an
international business partner previously
arranged.
Dear Shareholders,
During 2023, the Environmental, Social and Governance (‘ESG’) Committee was
comprised of myself as Chair, Jann Brown, Sue Rivett, 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 Term of Reference outlining its responsibilities, which
is reviewed and updated as appropriate by the Board on an annual basis. This is
available on our website at www.pharos.energy/about-us/governance/committees/.
Key responsibilities
The Committee is constituted by the
Board to:
• Oversee the Group’s management
and compliance with climate-related
reporting and disclosure requirements,
including applicable rules and
principles of corporate governance,
and applicable industry standards;
• Assist the Board in defi ning and
implementing the Group’s corporate
responsibility strategy;
• Review the policies, programmes,
practices and initiatives of the Group
relating to corporate responsibility
matters, ensuring they remain effective
and up to date;
• 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 corporate responsibility and
Net Zero targets.
ESG Committee meetings
in 2023
The Committee met four times during
2023. These meetings were regularly
scheduled Committee meetings held in
March, May, September and December.
At each meeting, the Committee reviewed
and discussed:
• HSES quarterly performance reports,
which includes review of KPIs for both
safety and environmental matters,
and all HSES plans, policies and
procedures
• GHG emissions in Egypt and Vietnam
• Proposed carbon-reduction initiatives
in Egypt and Vietnam, as part of the
Group’s Net Zero Roadmap
• Emissions Management Fund
• Publication of the Net Zero Roadmap
• TCFD reporting, CDP disclosure and
annual Corporate Responsibility (“CR”)
Report
• Development of environmental
regulations and COP events
• Procedures in place to ensure safe
workplace and practices
• Appointment of a Charity and
Community Projects Committee as a
sub-committee of the ESG Committee
to oversee Group’s social investment
projects
114
Annual Report and Accounts 2023
Pharos Energy
Strategic Report
Governance Report
Financial Statements
Additional Information
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (‘ESG’) COMMITTEE REPORT - continued
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 Net Zero working group meetings
were also held separately from ESG
Committee meetings. There was noted
to be buy-in on corporate responsibility
matters across the Group.
During 2023, the following additional areas
were reviewed and discussed at each
meetings:
March
• 4Q 2022 HSES performance report
• KPIs for both safety and environmental
matters along with emissions levels
and the recent safety event, noting
one LTI and one environmental spill
from Egypt in 2022
• Draft ESG Committee report to be
included in the Annual Report 2022
• Annual Committee performance
evaluation, which was discussed at
the Nominations Committee meeting
held on the same day
May
• 1Q 2023 HSES performance report
• GHG emissions performance, noting
the fl aring in Egypt was being kept in
check
• Development of Net Zero Roadmap,
noting assumptions, scenarios,
projected future emissions, challenges
and considerations going forward
• Scope 3 emissions reporting trend in
the wider oil & gas industry
• Corporate responsibility disclosure
considerations in the overall business
outlook and strategy
• Other lower-carbon energy
opportunities being explored
September
• 2Q 2023 HSES performance report
Notable matters discussed during
the year:
• KPIs for safety and environmental
matters, noting no environmental
incidents across the Group in 2Q
• Development of Net Zero Roadmap,
noting peer groups’ reporting journey,
recommended disclosure approach,
and review frequency once published
• Progress on Scope 3 high-level
assessment
• Proposal to appoint a sub-committee
of the ESG Committee to oversee the
Group’s social investment projects
December
• Establishment of the Charity and
Community Projects Committee,
overseeing the Group’s social
investment projects
• Update on social investment
projects selected by the Charity and
Community Projects Committee
• 3Q 2023 HSES performance
report, noting no LTI and no further
environmental incidents
• GHG emissions performance, noting
the Group remained on course to
meet its targets
• Development of Net Zero Roadmap,
noting feedbacks from the Board at
its Strategy Day meeting in November
2023 and input from the Group’s
technical consultants
• Resolution for the Net Zero Roadmap
to be published on 6 December 2023
• Progress on TCFD reporting & Scope
3
• Commentary on COP28 and its
outcomes
Net Zero Roadmap & Emissions
Management Fund
In December 2023, Pharos published its
Net Zero Roadmap following its formal
commitment in September 2022 to
achieve net zero greenhouse gas (GHG)
emissions by 2050.
The net zero roadmap, which was
researched and developed by the
Company in close consultation with
specialist advisors and consultants,
models emission reduction pathways to
achieve net zero Scope 1 (direct) and
Scope 2 (indirect) GHG emissions from
all existing and proposed future assets by
2050 or before. Based on this modelling,
the roadmap contains interim targets set
against the Company’s 2021 baseline
year, which have been approved by the
Board.
In order to realise our climate commitment
to achieve Net Zero GHG emissions from
all our future and existing assets by no
later than 2050, Pharos prioritise reducing
emissions by achieving operational
effi ciencies, reducing fl aring 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.
More details of our climate strategy,
including interim targets and the
decarbonisation levers at asset-levels,
can be found in our Net Zero Roadmap
published in December 2023 on our
website (www.pharos.energy/media/
b55c4sqz/pharos-energy-net-zero-
roadmap-2023_offi cial.pdf).
The Group has non-controlling equity
stakes in its producing assets and is
non-operating. As a result, it has no direct
control over the majority of its emissions
inventory but it can exercise infl uence
through the joint operating companies in
Vietnam and Egypt in conjunction with the
other JOC partners. The Company will
use the Net Zero Roadmap to continue
to engage with the JOCs, partners and
governments on reducing emissions
where possible through the options
identifi ed. To the extent within its control,
the Company will continue reducing its
own emissions and remain committed to
transparency in reporting and to keeping
stakeholders updated on progress.
Pharos Energy
Annual Report and Accounts 2023
115
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (‘ESG’) COMMITTEE REPORT - continued
Social impacts
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 2023, a total of
$247,373 was invested in 22 social and
community projects in Egypt, Vietnam and
UK, and a further $500,000 was invested
in ring-fenced funds for training to develop
future talents in the industry in Egypt and
Vietnam.
Further details can be found in our
Corporate Responsibility report on pages
62 to 82.
JOHN MARTIN
ESG Committee Chair
KPIs
KPIs for both safety and environmental
matters were reviewed and discussed at
all four ESG Committee meetings in 2023.
Whilst the Group maintained its safety
record of 0 LTI across both Egypt and
Vietnam, the two environmental incidents
in Egypt have resulted in bonus outcomes
for this element to be zero. For more
details of 2023 safety and environmental
KPIs, please see page 129 of the Directors
Remuneration Report.
Task Force on Climate-related
Financial Disclosures
The Company continued to bring our
disclosures in line with the four pillars
of the TCFD in 2023 – Governance,
Strategy, Risk Management, and Metrics &
Targets. Full details of our TCFD disclosure
can be found in our TCFD report on pages
83 to 98. As at year end 2023, Pharos
is compliant with 10 out of 11 of TCFD
recommendations.
CDP
In 2023, the Company continued its
participation in the CDP Climate Change
and Water Security Questionnaire,
successfully maintaining our score of (C)
for both disclosures, which is also the
global average. Both questionnaires were
completed through collaborative efforts
across multiple disciplines and functions
within the Group, with oversight and
approval from the Chief Financial Offi cer
before submission.
In addition, the Company established
an Emissions Management Fund in
September 2022. From every barrel net
to the Group sold at an oil price above
$75 per barrel, a contribution of $0.25
is made to the Fund. The current value
of the Emissions Management Fund
is now c.$400,000. In line with the net
zero roadmap, this Fund is available to
provide fi nancial support for emissions
management projects undertaken directly
by the Group or through the JOCs.
Health & Safety
In 2023, the JOCs in Vietnam continue
to deliver an exceptional record of safety,
reporting zero LTIs since operational
inception, representing more than
10 production years on TGT and 13
production years on CNV. In Egypt, no
lost time injuries were recorded in 2023.
However, there were two motor vehicle
crashes recorded in the fi rst quarter, which
fortunately did not resulted in any injuries.
We continuously work with the operator
IPR and the JOC Petrosilah to address
any underlying issues identifi ed in safety
measurements and precautions in our
operations.
In Vietnam, the JOCs conducted over 200
HSE training sessions and 100 emergency
response drills respectively during 2023
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
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 meeting in 2023. All incidents
during the year were investigated and
lessons learned as appropriate and
actions to prevent recurrence were
implemented.
116
Annual Report and Accounts 2023
Pharos Energy
Strategic Report
Governance Report
Financial Statements
Additional Information
NOMINATIONS COMMITTEE REPORT
JOHN MARTIN
Nominations Committee Chair
Meeting attendance
Committee member
John Martin^ (Chair)
Jann Brown
Marianne Daryabegui^
Lisa Mitchell^
Geoffrey Green^
^ Independent Directors
Attended as member
Not attended
Note: Sue Rivett attended as a non-
committee member for the meetings in
Q1 and Q2 2023.
Jann Brown was unable to attend one
Nomination Committee meeting due to
the meeting being necessarily arranged at
short notice at a time when she was not
available.
Dear Shareholders,
The Committee has continued to ensure that Board independence was preserved
during 2023 and will continue into 2024, taking into account the Board composition
requirements of the 2018 UK Corporate Governance Code. The Committee has
also noted the provisions of the 2024 UK Corporate Governance Code (the ‘2024
Code’) announced by the Financial Reporting Council in January 2024, the majority
of which will come into force for fi nancial years commencing on or after 1 January
2025. The Committee does not anticipate any signifi cant change to its approach to
Board independence and composition when the 2024 Code comes into effect.
Role of the Committee
The Nominations Committee (the ‘Committee’) has responsibility for:
• 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; and
2023
attendance
Establishing an ongoing process for evaluating the Board’s performance and
effectiveness.
Membership
During the year, the Committee comprised John Martin as Chair, the Chief Executive
Offi cer Jann Brown, and the three Independent Non-Executive Directors (‘NEDs’),
Marianne Daryabegui, Lisa Mitchell and Geoffrey Green. Dr Bill Higgs was appointed as
an additional Non-Executive Director in January 2024.
The qualifi cations of each of the Chair and members of the Committee are set out on
page 104.
Meetings
The Committee conducted its duties through fi ve meetings held during 2023. During the
year the following areas were discussed at the Committee meetings:
2023
Matter
Q1
Q2
Q3
Q4
Review and approval of Nominations Committee report for inclusion in the
2022 Annual Report and Accounts
Annual review of Director’s confl icts of interest register
Annual Director reappointment
Annual Committee Performance Evaluation
Discussion on search and potential recruitment of a new Independent
NED from a technical background, including review of a proposed
specifi cation for the role
Update on NED Recruitment
Succession planning
Update on NED Recruitment and recommendation to the Board
Draft Board Evaluation Questionnaire
As at 31 December 2023, 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.
Pharos Energy
Annual Report and Accounts 2023
117
The Board’s current balance and
composition in 2024 are shown on page
102.
Diversity
Our approach to diversity and
inclusiveness is embedded within the
Group’s Human Rights Policy available on
the Company’s website at 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 throughout 2023.
With the appointment of Dr Bill Higgs,
this representation has decreased slightly
to 57% but remains a majority. The
average age of the Board is 65, 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, including the
management team immediately below
the Executive Directors, 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.
NOMINATIONS COMMITTEE REPORT - continued
Board refreshment and
succession planning
Board refreshment and succession
planning continue as ongoing processes.
In 2023, the Committee’s priority was to
maintain the independent component of
the Board and to fully comply with the
2018 Code, whilst also consulting with
key shareholders and other stakeholders
on the skillset and balance of the Board.
In 2023, this consultation, in conjunction
with the annual Board evaluation, resulted
in a decision to commence recruitment
for an additional Independent NED with
technical, expertise, preferably with a
background in geoscience.
The NED recruitment process is
summarised in “Appointments Process”
below. On 16 January 2024 we
announced the appointment of Dr Bill
Higgs as an Independent NED with
immediate effect.
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.
More recently, the Committee oversaw
the search in 2023 for a further NED from
a technical background. In line with the
2018 Code, the Committee engaged
Korn Ferry, an international management
consulting and search firm, in connection
with the process. Other than having been
previously engaged by the Company
in a similar capacity, Korn Ferry has no
connection with the Company or any of
the individual Directors.
The search process was undertaken
in the customary manner, involving an
initial longlist compiled with the benefit
of Korn Ferry’s input and extensive
market knowledge. This longlist was then
narrowed down in phases following further
discussions and evaluation, eventually
being reduced to a shortlist of suitable
candidates that had the opportunity to
meet with all members of the Board and
senior management. Where possible,
these meetings were undertaken face-
to-face rather than by video conference.
The Committee were regularly consulted
throughout the process.
118
From a very high-quality shortlist, the
Committee recommended to the Board
the addition of Dr Bill Higgs as a new
independent NED and, following the
Board’s approval, Dr Higgs was appointed
on 16 January 2024. Dr Higgs is a
qualified geologist with extensive expertise
in engineering and other technical and
commercial aspects of hydrocarbon
exploration, development and production,
acquired over 30 years of global
exploration, development and operations
experience, including more than 10 years
in executive roles for listed independent
exploration and production companies.
The Committee believes Dr Higgs is
an outstanding appointment that will
contribute significant value to the Board
and the business as a whole.
Independence
As at the date of this report, the
Committee and the Board are satisfied
that all of the NEDs ( discounting
the Chair, who was independent on
appointment), are independent. In
reaching this assessment, the Committee
and the Board have taken into account
the considerations described in the 2018
Code.
The Committee notes in particular that
Marianne Daryabegui has served as a
Director for just over eight years in total
in two phases (October 2013 to October
2016 and March 2019 to present). The
Committee and the Board continue to
regard Marianne as independent under
the 2018 Code and believe that her
relevant period of service for the purpose
of assessing independence should be
treated as commencing in March 2019,
because of the 30-month gap between
her two periods of office. The Committee
intends to consult with proxy advisory
firms on this issue during 2024, well in
advance of the 2025 AGM.
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 2023 included
consideration of the Company’s leadership
needs within the context of growth,
portfolio diversification and long-term
strategy. The discussions determined that
the balance is appropriate and sufficient
to effectively promote the long-term
success of the Company but would be
further enhanced through the process
already underway to increase the number
of Independent NEDs, which resulted in
the appointment of Dr Bill Higgs in January
2024.
Annual Report and Accounts 2023Pharos Energy NOMINATIONS COMMITTEE REPORT - continued
Board evaluation
At the end of 2023, 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 Senior Independent Director, and
communicated to the Chair. Following the
evaluation process, a number of areas
were identified for ongoing focus in 2024
including:
• Continued focus on long-term strategy
and implementation of related actions
• Continued enhancement of risk review
processes
• Ongoing shareholder engagement
• Succession planning and talent
development
• 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, considering
the recommendations of the Committee.
The six Directors retired and offered
themselves for re-election at the 2023
AGM. All Directors were duly re-elected
at the 2023 AGM, each receiving more
than 84% 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. In the case of Dr Bill Higgs, he
will seek election by shareholders for the
first time at the 2024 AGM, having been
appointed by the Board since the 2023
AGM. The Committee and the Board both
recommend that shareholders vote in
favour of the election of Dr Higgs.
The Committee formed its
recommendations regarding re-election
following assessments of Board balance,
composition and independence.
Workforce engagement
In his role as Independent Non-Executive
Director responsible for workforce
engagement the Committee Chair joined
global office staff for the first Group-
wide offsite event in June, at which staff
members were able to discuss matters
of interest. In addition to this event, the
Committee Chair has regularly attended
Company functions and meetings at
the London office and other venues and
remains 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 2023, 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 under discussion 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
119
Annual Report and Accounts 2023Pharos Energy Governance ReportFinancial StatementsStrategic ReportAdditional Information
AUDIT AND RISK COMMITTEE REPORT
Dear Shareholders,
I am pleased to present this Audit and Risk Committee
Report for the year ended 31 December 2023,
which sets out the role and work of the Committee
during the year. The Audit and Risk Committee have
focused their work on fi nancial controls, prudent
fi nancial management, including risk management and
mitigation, and other ESG matters.
Membership and
responsibilities
During 2023, the Audit and Risk
Committee comprised me as Chair,
Marianne Daryabegui and Geoffrey Green.
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, www.pharos.energy/about-us/
governance/committees/.
Key responsibilities
• Reviewing key fi nancial, operational
and corporate responsibility risk
management processes;
• Reviewing the effectiveness of internal
control processes and systems,
including IT control platforms;
• Monitoring the integrity of the Financial
Statements of the Group and formal
announcements relating to the Group’s
fi nancial performance;
• Reviewing any signifi cant fi nancial
reporting judgements;
• Reviewing and testing the integrity
of the Group’s Financial Statements
to ensure full compliance with
international fi nancial reporting
standards and requirements;
• Overseeing the planning and
execution of the ongoing external audit
programme including a detailed review
of audit quality and results.
LISA MITCHELL
Non-Executive Director
Meeting attendance
Committee member
Lisa Mitchell (Chair) ^
Marianne Daryabegui ^
Geoffrey Green ^
^ Independent Directors
Attended as member
Not attended
2023
attendance
Note: Sue Rivett and John Martin attended
all of the meetings as non-committee
members.
120
Annual Report and Accounts 2023
Pharos Energy
Strategic Report
Governance Report
Financial Statements
Additional Information
AUDIT AND RISK COMMITTEE REPORT - continued
Audit and Risk Committee
meetings in 2023
The Committee met three times during
2023. These meetings were the regularly
scheduled Committee meetings held in
March, September and December.
The Committee examines and discusses
at each meeting:
• Detailed review of internal controls and
implementation of upgrades
• Review of the 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 fi nance
management team, operational
management and the Group’s external
auditor, Deloitte, attended each of the
Audit and Risk Committee meetings.
During 2023, the following additional
areas were discussed at meetings of the
Committee:
March
• Review an update of the Modern
Slavery and Human Traffi cking
Statement, Climate Change Policy,
HSE Policy, Social Responsibility
Policy, Security Policy, Biodiversity and
Conservation Policy, Human Rights
Policy, Code of Business Conduct and
Ethics, Risk Management Policy, Tax
Strategy Statement and Non-Audit
Services by External Auditors
• Finance update including the Internal
Controls Report, Reserves Update,
Impairment Analysis, review Egyptian
fam-out update paper, Going Concern
and Viability Statement, Treasury and
update on internal audit review on
treasury activities completed by KPMG
• Review and approval of the 2022
Financial Statements, including
reviews that they were fair, balanced
and understandable, reviews of
the Going Concern and Viability
Statements
• Review of 2022 external audit status,
including analyses of fi ndings of the
external audit and key judgemental
areas
• Review and update of the Audit and
Risk Committee governance matters,
with attention to internal controls
processes and systems, and a
detailed review of Risk management
issues and mitigations
September
• Finance update including the Internal
Controls Report, Reserves Update,
Impairment Analysis, Going Concern
and Viability Statement and Treasury
review
• Review and approval of the 2023
Interim Accounts, including a
presentation by the external auditor,
Deloitte, and Audit and Risk
Committee comments
• Update and review of the Delegation
of Authority policy
December
• Finance update including an update
on the Internal Controls Report and
Treasury update
• Review of the Group Forecast
2023 and 2024 Budget and capital
allocation
• Annual Review and Approval of the
Terms of Reference of the Audit and
Risk Committee
• Review of 2023 year-end planning
• KPMG Internal Audit - reviewed
and discussed KPMG’s review of
the Group’s Corporate Cash Flow
Forecast and Valuation Model
During the year, the
Committee focused on the
following matters:
Financial reporting and signifi cant
accounting issues
During the fi rst half of 2023, 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 there were no signifi cant changes
recommended to the Board by the
Committee.
Signifi cant issues related to the
2023 Financial Statements
The Committee identifi ed the signifi cant
issues (disclosed in more detail below)
that should be taken into consideration
in relation to the Financial Statements
for the year ended 31 December 2023,
being key issues which may be subject to
heightened risk of material misstatement.
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
confi rmed this in their Responsibility
Statement set out on page 147 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 fl ow 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 expenditure, as well
as the hedging of production volumes
to mitigate against commodity price
fl uctuations.
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 2023 Financial Statements.
Following its review of management’s
Committee paper and in-depth walk
through of assumptions, the Committee
are satisfi ed that it is appropriate to
prepare the 2023 Financial Statements on
a Going Concern basis.
Pharos Energy
Annual Report and Accounts 2023
121
AUDIT AND RISK COMMITTEE REPORT - continued
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 57
are calculated using best practice and
industry evaluation techniques which have
uncertainties in their application.
The Committee reviewed, in conjunction
with management and Deloitte, the results
of third-party assessments conducted by
ERCE for TGT and internal evaluation for
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
and NBS Concessions in Egypt.
The reserves are described in the review of
operations on pages 33 to 35.
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.
122
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.
A Treasury Committee, comprising the
Chief Financial Officer as Chair and senior
members of the Group’s finance team,
convene on a regular basis to review the
Group’s strategy and the open hedge
positions to ensure that these are still
fit for purpose in light of current market
conditions. For the year end 31 December
2023 a loss of $0.2m was realised (2022:
loss of $22.5m). 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 June 2025.
In 2024, the Group seeks to extend this
coverage further to protect budgetary
cash flow and ensure compliance with 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 2023, 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.
KPMG was appointed to carry out various
internal audits. The programme of work for
2022 included a review of Group Treasury.
For 2023 the Corporate Cash Flow
Forecast and Valuation Model and
Egyptian Joint Venture audit were
completed. KPMG’s reports on Group
Treasury and the Corporate Model were
submitted to the Committee.
Reserve Based Lending Facility
(RBL)
As at 31 December 2023 an amount of
$30.0m was drawn (2022: $65.0m) under
the RBL. The 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 190.
The Committee has reviewed
management’s assessments of debt
covenant calculations and is satisfied that
the Group is fully compliant.
Annual Report and Accounts 2023Pharos Energy AUDIT AND RISK COMMITTEE REPORT - continued
KEY JUDGEMENTS AND ESTIMATES IN FINANCIAL REPORTING
Key judgements and estimates
in financial reporting
Audit and Risk Committee review
Outcomes
Reviewed the Group’s oil price assumptions
Reviewed the Group’s discount rates for
impairment testing
The Group’s short and long commodity price
assumptions were reviewed and reduced
accordingly
The Group’s discount rates were reviewed and
updated accordingly (increased for Egypt and
reduced for Vietnam)
Upstream impairment charges and reversals were
reviewed twice during the year
Impairment 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
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
Reviewed risks of override of management
controls
Reviewed the Group’s guidelines and policy
for compliance with oil reserves disclosure
regulations; including governance and control
Under ISA 240 management override of controls
is presumed significant risk. No breaches were
found
Vietnam:
Costs held in Vietnam pending future work
programme.
Egypt:
• Fayum Batran-1x well, as no further
substantive exploration or evaluation is
planned or budgeted, the asset value has
been fully impaired
• NBS exploration costs were reclassified as
PP&E after first exploration commitment well
(NBS-SW1X) was declared a commercial
discovery and put on production in
December 2023. We received approval from
EGPC in December 2023 for the grant of a
20-year development lease for NBS-SW1X.
Updated third party estimates and independent
audit completed, with results disclosed in the
2023 Financial Statements
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
Reviewed at each Committee meeting the status
of all updated estimates
Exploration and evaluation
assets and impairment
review
The Committee reviewed the Group’s
intangible exploration and evaluation
assets individually in Egypt 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 (c) to the Financial Statements for more
information on climate change and energy
transition.
At both the half year and year end 2023,
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.
In Egypt, as no further substantive
exploration or evaluation is planned or
budgeted for the Fayum Batran-1x well,
the asset value has been fully impaired.
On NBS, the exploration costs (after
writing back the exploration costs
impaired in 2020) were reclassified as
PP&E after first exploration commitment
well (NBS-SW1X) was declared a
commercial discovery and put on
production in December 2023.
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 2023,
the Group’s PP&E oil and gas assets
comprised its two Vietnam producing
licences, TGT and CNV, as well as the El
Fayum and NBS Concessions in Egypt.
These are described in the operations
review on pages 29 to 35.
123
Annual Report and Accounts 2023Pharos Energy Governance ReportFinancial StatementsStrategic ReportAdditional Information AUDIT AND RISK COMMITTEE REPORT - continued
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 be an impairment charge to
reduce the carrying value. The Committee
considered the various assumptions
underpinning the assessment of the
recoverable amount, including underlying
reserves, commodity prices, production
rates and discount rates. Based on the
Group’s approved economic assumptions,
the Committee recommended to the
Board that impairments were made on all
four fields.
On our CNV field in Vietnam, a pre-tax
impairment reversal of $0.3m has been
reflected in the Income Statement with an
associated deferred tax charge of $0.3m.
As at 31 December 2023, the carrying
amount of the CNV oil and gas producing
property is $65.0m.
On our TGT field in Vietnam, a pre-tax
impairment charge of $46.3m has been
reflected in the Income Statement with an
associated deferred tax credit of $16.5m.
As at 31 December 2023, the carrying
amount of the TGT oil and gas producing
property is $158.6m.
For our El Fayum concession in Egypt,
an impairment charge of $11.0m, no
tax applicable, is reflected in the Income
Statement. As at 31 December 2023,
the carrying amount of the El Fayum oil
producing property is $54.7m.
For our NBS concession in Egypt, an
impairment charge of $1.9m, no tax
applicable, is reflected in the Income
Statement. As at 31 December 2023, the
carrying amount of the NBS oil producing
property is $1.0m.
Disposal of 55% interest in
Egypt Concessions
On 21 March 2022 the farm-out
transaction of Egyptian assets was
completed. The firm consideration was
received in two tranches, $2.0m in
September 2021 and $3.0m on 30 March
2022.
The carry of $35.9m 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 2023 amounts to $31.0m
(2022: $15.4m), which has been disclosed
in “Consideration received on farm out of
Egyptian assets” in the cash flow as part
of investing activities. No cash outflow is
124
required until the whole carry amount is
utilised.
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
2023, the contingent consideration
amounts to $8.5m, $3.6m current and
$4.9m non-current (2022: $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 $0.6m
decrease in contingent consideration to
$7.9m.
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.
Egypt Foreign Currency
Risk
In Egypt, 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 $37.4m at 31 December
2023 and stated prior to a risk factor
provision of $4.0m (2022: $24.2m
receivables and stated prior to a risk factor
provision of $1.8m).
From mid-February to early March
2024, the Egyptian Government (i) has
announced a landmark agreement with
ADQ (an Abu Dhabi sovereign wealth
fund), whereby this latter will invest $35
billion for the development of the new
coastal city of Ras El Hekma (the first
$10 billion of which were immediately
paid to Egypt); (ii) signed funding with
different institutional lenders including (a)
a significantly expanded new loan with
the International Monetary Fund (IMF)
($8 billion, including the original $3 billion
secured in December 2022); (b) $8 billion
package of loans, grants and investments
from the European Union and (c) $6 billion
from the World Bank, over the next three
years; and (iii) let the Egyptian pound
(EGP), with an immediate devaluation
from c.31 to c.49 EGP per USD (later
strengthened to c.46.5), which forthwith
eradicated the parallel foreign exchange
(FX) market.
Pharos considers it preferable to continue
holding USD-denominated receivables and
accept part-payments of its receivables
balance in EGP only when local currency
will be needed for the funding of
operations at the end of the IPR carry
period. During 2023, the total amount
collected from EGPC is $5.7m.
Internal controls focus for
2023
The Board approved the appointment of
KPMG to carry out various internal audits.
The work commenced 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
the review of Group Treasury and for
2023 the Corporate Cash Flow Forecast
and Valuation Model and Egyptian Joint
Venture audit.
The Treasury Committee continue to meet
regularly to review compliance of the RBL
covenants and also 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 106. 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 2023. These will be reviewed
again during 2024.
The Audit and Risk Committee and
the Board have conducted a review of
the effectiveness of the Group’s risk
management and internal control systems.
Annual Report and Accounts 2023Pharos Energy AUDIT AND RISK COMMITTEE REPORT - continued
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. On 6 December 2023,
the Company published the Net Zero
roadmap to achieve net zero greenhouse
gas (GHG) emissions 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 conducted 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 mitigate 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.
The escalation of conflict in the Middle
East since the attacks in southern
Israel on 7 October 2023 has materially
increased regional political and economic
instability. The Group considers is very
unlikely that the US or UK will introduce
sanctions against Israel or Israeli state
actors for recent actions in Gaza, but
continues to monitor the situation and
diplomatic efforts aimed at a longer-term
ceasefire. The Group is also monitoring
carefully the wider geopolitical impact
and perception of the conflict in Egypt, in
connection with its assets and operations.
External auditor
Deloitte LLP has been our external
auditors for 20 years. The financial year
commencing 1 January 2023 was the final
year for which Deloitte LLP can act as
external auditor to the Company.
The Committee conducted a competitive
tender process for a new external auditor
during 2022.
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 2023, Ernst
& Young LLP “shadowed” 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 continued
to be compliant during Deloitte’s final year
as external auditor. Other senior audit staff
are rotated every five to seven years.
External auditor – non-audit
services
The external auditor is appointed primarily
to carry out the statutory audit and their
continued independence and objectivity
is crucial. In view of their knowledge of
the business, there may be occasions
when the external auditor is best placed
to undertake other services on behalf of
the Group. The Committee has a policy
which sets out those non-audit services
which the external auditor may provide
and those which are prohibited. Within
that policy, any non-audit service must be
approved by the Committee.
Before approving a non-audit service,
consideration is given to whether the
nature of the service, materiality of the
fees, or the level of reliance to be placed
on it by the Group would create, or appear
to create, a threat to independence.
If it is determined that such a threat
might arise, approval will not be granted
unless the Committee is satisfied that
appropriate safeguards are applied to
ensure independence and that objectivity
is not impaired. The auditor is prohibited
from providing any services which might
result in certain circumstances that have
been deemed to present such a threat,
including auditing their own work, taking
management decisions for the Group or
creating either a mutuality or conflict of
interest. The Company has taken steps
to develop resources and relationships in
order to establish availability of alternate
advisers for financial and other matters.
External audit fees
Total audit and non-audit fees in 2023
were $0.6m and $0.2m respectively.
The Committee approved all non-audit
services provided by the external auditor in
2023. The principal non-audit fees during
2023 were $0.2m 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.
Review of the effectiveness
of the Audit and Risk
Committee
During the year, the Committee has
undergone a comprehensive review of its
effectiveness and results were reported
to the Board. The Committee was
considered by the Board to be operating
effectively and in compliance with the
2018 Code and associated guidance.
LISA MITCHELL
Audit and Risk Committee Chair
125
Annual Report and Accounts 2023Pharos Energy Governance ReportFinancial StatementsStrategic ReportAdditional Information DIRECTORS’ REMUNERATION COMMITTEE REPORT
Dear Shareholders,
On behalf of the Board, we are pleased to present
the Directors’ Remuneration Report for the fi nancial
year ended 31 December 2023. This report has
been prepared in accordance with section 421 of
the Companies Act 2006 and Schedule 8 of the
Large and Medium-sized Companies and Groups
(Accounts and Reports) Regulations 2008 (as
amended).
GEOFFREY GREEN
Remuneration Committee Chair
2023
attendance
Role of the 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.
How performance was
refl ected in the pay of our
Executive Directors
As reported throughout the Strategic
Report, 2023 was a year of good
operational and fi nancial performance
across the Group.
Meeting attendance
Committee member
Geoffrey Green (Chair) ^
Marianne Daryabegui ^
Lisa Mitchell ^
^ Independent Directors
Attended as member
Not attended
Note: Sue Rivett attended all of the
meetings as a non-committee member.
John Martin attended two of the meetings
and Jann Brown attended one of the
meetings as non-committee members.
Highlights of Committee
actions in 2023
The year has seen signifi cant progress
with our strategy. Activities undertaken by
the Committee include:
• Board changes – Following the
annual review of Board composition,
the Committee sought to recruit an
independent NED with technical
experience. Dr Bill Higgs, a qualifi ed
geologist, was recruited to the role
and this was announced in the
January 2024 trading statement
• The Directors’ Remuneration Policy
received approval at the 2023 AGM
with strong support
• Setting robust and stretching
performance targets for the annual
bonus and LTIP
• Monitoring developments in market
practice and reporting regulations
We have continued to build on a culture
of capital discipline to deliver material
improvement to the Group’s balance
sheet, reducing net debt despite ongoing
payment lags in Egypt. We delivered
strong drilling performance in both
Vietnam, with the CNV well coming in
strongly, and in Egypt, with discoveries on
both the El Fayum and NBS exploration
wells. This has allowed the Board to
continue our commitment to sustainable
shareholder returns. In 2023, we
returned $8.4m to shareholders via both
share buyback and dividends. These
achievements are a testament to the hard
work, dedication and commitment of the
entire Pharos team.
As part of our commitment to help
employees deal with the rising cost of
living, the Company made early interim
payments of c.25% of the bonus
potential in September 2023, with the
balance paid in December as usual.
Employees also received support with
their travel expenses, a policy that
was introduced from January 2023.
126
Annual Report and Accounts 2023
Pharos Energy
Strategic Report
Governance Report
Financial Statements
Additional Information
DIRECTORS’ REMUNERATION COMMITTEE REPORT - continued
Conclusion
The Remuneration Committee
believes that the remuneration
outcomes for 2023 are a fair
refl ection of the context in which
decisions had to be made. We
believe that the continuation of the
current Policy, approved at the AGM
in 2023, 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
Approach for 2024
The Directors’ Remuneration Policy was
approved at the 2023 AGM with 84.59%
of votes cast in favour. The Committee
believes that the Policy remains fi t 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.
Base salaries for the Executive Directors
and Non-Executive Directors were
increased by 6% following a salary freeze
in 2023, which followed voluntary pay
reductions during 2021 and into the fi rst
quarter of 2022. Across the UK employee
population, the average increase for 2024
is 6% which follows an increase of 10%
in 2023. The Committee determined
that the salary increase for the Executive
Directors, which is lower than that for the
wider workforce over the last two years, is
appropriate to maintain competitiveness
and is refl ective of performance in the role.
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, operations, fi nancial
and capital structure, sustainability and
governance refl ecting 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 fl ow
from operations (15% weighting), ROCE
(15% weighting) and an ESG condition
(15% weighting).
Strategic
Underpinned by a strengthened balance
sheet and steady production base across
the portfolio, Pharos continue to execute
our strategy of sustainable value creation
through a number of key priorities:
regular shareholder returns, capital
discipline, and focus on organic growth
opportunities. Dividend is a key part of
the Company’s equity story since its
inception, and in 2023, we returned $5.6m
to shareholders via a fi nal dividend for the
2022 fi nancial year of 1p per share. The
original $3m share buyback programme
was supplemented by a further $3m
programme in 2023 which continues as
part of the Company's broader strategy to
deliver value to our shareholders. A further
commitment has been made to continue
this during 2024 up to an additional $3m.
Pharos is in a materially improved fi nancial
position, has stable production from
its asset base with signifi cant growth
potential in Vietnam. Together, these put
us in a strong position. We were pleased
to be able to reward shareholder patience
with the recommencement of regular
dividends, based on operating cash fl ow,
with the fi rst payment paid in July 2023.
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.
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 meant the bonus outcomes
for these elements were zero.
Following a robust assessment of the
performance criteria the Committee
determined the formulaic out-turn for
bonuses at 64.54% of the maximum
potential. The Committee considered
the wider stakeholder experience and
agreed that the formulaic outcome was
appropriate. Bonus outcomes for the
wider workforce also refl ect corporate
KPIs achieved as well as their personal
performance. As noted last year, the 2020
LTIP awards, whose performance criteria
is based on TSR, lapsed in May 2023 due
to failure to meet the required relevant
performance target. There are no awards
due to vest in relation to performance
which has been mainly completed at
31 December 2023, with the next LTIP
awards due to vest in October 2024
refl ecting a delay in granting the awards
originally due to being in a close period.
Pharos Energy
Annual Report and Accounts 2023
127
2023
Executive Directors
J Brown
S Rivett
Non-Executive Directors
J Martin
M Daryabegui
L Mitchell
G Green
Total
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
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 2023.
Fees/Salary
£000’s
Benefits
£000’s
Bonus Cash1
£000’s
Bonus Deferred1
£000’s
Pension
£000’s
Total
£000’s
Fixed
£000’s
Variable
£000’s
420
280
150
60
75
88
35
88
-
-
-
-
271
181
-
-
-
-
136
90
-
-
-
-
63
42
-
-
-
-
925
681
150
60
75
88
483
322
150
60
75
88
442
359
-
-
-
-
1,073
123
452
226
105
1,979
1,178
801
The benefits receivable by Executive Directors include private medical insurance, permanent health insurance, life assurance cover,
critical illness cover, travel, relocation and car benefits. 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. Fees and/or salaries paid to the Directors are in relation to their dates of service as a Director during the year.
1) The total Directors’ bonuses include the following: a) Cash bonus paid in December 2023 of £452k; b) Deferred bonus of £226k granted under the Deferred
Share Bonus Scheme.
Comparative figures for 2022 is provided in the table below:
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
40
143
57
71
79
1,183
11
39
12
16
-
-
-
-
2
80
73
294
75
182
-
-
-
-
-
37
147
37
91
-
-
-
-
-
9
58
10
41
-
-
-
-
-
189
927
202
607
40
143
57
71
81
68
447
78
318
40
143
57
71
79
121
480
124
289
-
-
-
-
2
624
312
118
2,317
1,301
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, Ed Story, Dr Mike Watts and Jann Brown had been waiving 35% of their
salaries for the first quarter of 2021 and then further reduced this by another 15% (to a total reduction of 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.
The aggregate emoluments of all Directors during the year was £2.0m (2022: £2.3m).
128
Annual Report and Accounts 2023Pharos Energy DIRECTORS’ REMUNERATION COMMITTEE REPORT - continued
Notes to the single figure table
Annual bonus
Setting measures
The Company seeks to set challenging, yet achievable, performance measures designed to link pay to performance against its core
strategic objectives.
The performance measures were chosen to ensure that Executive Directors are focused on the near-term objectives that build the long-
term delivery of value to shareholders, which results in a combination of measures being used covering strategic, operational, financial,
business development and sustainability 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.
2023 annual bonus measures and out-turns
Metric
Safety and Environment
Weight
Bonus awarded
15.00%
12.00%
6.00%
6.00%
Target
• Zero LTIs
Performance
• There were no LTIs
Outcome
• Achieved
Target
• 0.8
Performance
• 2 TRIR recorded
Outcome
• Achieved
3.00%
3.00%
Zero LTIs
Link to strategy
• Safety of our people
• Sound oil field practices
TRIR Target of 0.8
Link to strategy
• Safety of our people
• Sound oil field practices
Zero environmental spills
3.00%
0.00%
Link to strategy
Target
Performance
Outcome
• Sound oil field practices
• Zero environmental spills
• 2 environmental spills recorded in
• Not achieved.
• Management of our carbon
footprint wherever we work
Egypt
Crisis Management Training
3.00%
3.00%
Link to strategy
Target
Performance
• Safety of our people
• Carry out a full training exercise
• Training was carried
Outcome
• Achieved
• Sound oil field practices
out during H2
129
Annual Report and Accounts 2023Pharos Energy Governance ReportFinancial StatementsStrategic ReportAdditional Information DIRECTORS’ REMUNERATION COMMITTEE REPORT - continued
Metric
Operational/Business Plan
Weight
Bonus awarded
38.00%
18.04%
Business Plan
12.50%
0.00%
Link to strategy
Target
Performance
Outcome
• Deliver value through growth
• Seek farm-in partner for
125 commitment well
• A number of interested parties
• Not Achieved
have been reviewing the physical
data
Production and operational uptime
13.00%
10.95%
Link to strategy
Target
Performance
Outcome
• Prudent Management
• Vietnam production volumes
• Vietnam production outturn was
• Achieved for
5,000 – 6,000 boepd
5,127 boepd
• Egypt production volumes 1,368
• Egypt production outturn year
– 2,250 bopd
was 1,381 bopd
Vietnam, within
guidance
• Achieved for Egypt,
within guidance
• Safe performance
• Uptime greater than 97% for
Vietnam and 96% for Egypt
• 98% in Vietnam and 96% in
• Achieved
Egypt
Secure licence extensions
7.50%
3.75%
Link to strategy
Target
Performance
• Continued development of
• Secure extension on TGT, CNV
Vietnam assets
and Blocks 125 & 126 in Vietnam
• Extension secured on 125 & 126
allowing additional time to plan
for the exploration well and seek
a farm in partner
• Submitted extensions on
TGT and CNV but still waiting
approvals
Outcome
• Achieved
• Not achieved
• Continued development of Egypt
• Secure licence extension on NBS
assets
in Egypt
• Small extension received on NBS
allowing the second commitment
well to be drilled later in the year
• Achieved
Egypt development plan
5.00%
3.34%
Link to strategy
Target
Performance
• Effective portfolio management
• Complete the study on the Deep
• Study complete
Outcome
• Achieved
in El Fayum
• NBS approved development
• Achieved
• Optimise the development plan in
concession
both El Fayum and NBS
• El Fayum optimised budget plan
was slowed due to the poor
receipts from EGPC
• Not achieved
130
Annual Report and Accounts 2023Pharos Energy DIRECTORS’ REMUNERATION COMMITTEE REPORT - continued
Metric
Financial and capital structure
Weight
Bonus awarded
30.00%
17.50%
Opex per bbl for each producing asset
12.50%
12.50%
Link to strategy
• Control expenditure
Target
Performance
Outcome
• Underlying operating costs < 2022
• Vietnam cash opex bbl $15.39
• Achieved
• Underlying G&A costs < 2022
(2022: $16.03)
• Egypt cash opex bbl $16.86 (2022:
• Achieved
$17.40)
• Full year administrative expenses
lower by 9%, reflecting effective
cost control.
Reduce debtor days in Egypt
12.50%
0.00%
Link to strategy
Target
Performance
• Control expenditure
• Reduce Egypt debtor days to <90
• Maintain strong balance sheet
• Debtor days increased to 534 at
year end (2022: 194 days) due to
collection delays in USD. Pharos
requested not to receive EGP due
to the devaluation of currency and
ongoing restrictions on outgoing
USD transfers by Central Bank
of Egypt. Therefore receivables
balance held in USD. Additionally,
we have been carried by our
partner throughout the full year and
therefore not required any local
currency for funding operations.
Outcome
• Not achieved
Net debt
5.00%
5.00%
Link to strategy
Target
Performance
• Access affordable sources of
• Net debt/EDITDAX of <2, Cash >
• Net debt/EDITDAX of 0.06
Outcome
• Achieved
funding
$10m
• Return to shareholders
• All Bank Covenants met
• All bank covenants have been met
• Achieved
131
Annual Report and Accounts 2023Pharos Energy Governance ReportFinancial StatementsStrategic ReportAdditional Information DIRECTORS’ REMUNERATION COMMITTEE REPORT - continued
Metric
Sustainability & Governance
Weight
Bonus awarded
17.00%
17.00%
Review of Board structure
2.50%
2.50%
Link to strategy
Target
Performance
Outcome
• Develop talent throughout our
• Training and development
• Group programme in place for
• Achieved
business
technical and soft skills
Compliance review
Link to strategy
• Strong governance
2.50%
2.50%
Target
• Complete independent review of
key policy compliance across the
Group
Performance
Outcome
• Two audits on Corporate Modelling
• Achieved
and Egypt
Publication of roadmap, Project on emissions target
reduction and TCFD compliance
9.00%
9.00%
Link to strategy
• Sustainability
Target
Performance
Outcome
Issue roadmap to net zero
• Roadmap published in December
• Achieved
•
•
Identify one project to utilise the
Emissions Fund
• Full compliance with TCFD
2023
• Vietnam project for monitoring
units to reduce emissions from
gas flaring included in 2024
budget
• Scope 1, 2 and 3 emissions
identified and disclosed
in accordance with TCFD
recommendations
• Achieved
• Achieved
Social Investment
3.00%
3.00%
Link to strategy
Target
Performance
• Strong governance and personal
• Social investment plan approved
codes of conduct
and implemented
• Group wide committee formed
and operational with country
champions
Outcome
• Achieved
OVERALL
100%
TOTAL ASSESSMENT
64.54%
132
Annual Report and Accounts 2023Pharos Energy DIRECTORS’ REMUNERATION COMMITTEE REPORT - continued
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 2023 was sufficiently recognised
in the formulaic outcome and therefore no use of 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 2023, the total Directors’ bonuses include the following: a) Cash bonus paid in December 2023 of
£452k and b) Deferred bonus of £226k to be granted under the Deferred Share Bonus Scheme.
J Brown
S Rivett
Paid Bonus
£000s
Deferred Bonus
£000s
Total Bonus
£000s
271
181
136
90
407
271
% of max
64.54%
64.54%
LTIP vesting in respect of performance ended 31 December 2023
There were no awards due to vest for performance that had mainly ended by 31 December 2023. The next LTIP award is due to vest in
October 2024.
LTIP award grants made in 2023
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 2024, 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).
J Brown
S Rivett
Date of grant
No. of shares
Face value of award
Award as % of salary
23 March 2023
23 March 2023
3,733,333
2,488,888
£840,000
£560,000
200%
200%
Face value based on share price at the time of awards were determined on 22 March 2023 (being £0.225)
The performance measures for the 2023 and 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 2023
The DSBP awards were granted in January 2023 in relation to the 2022 annual bonus outcome.
J Brown
S Rivett
Date of grant
13 January 2023
13 January 2023
No. of shares
Face value of award
611,838
379,734
£146,841
£91,136
Face value based on share price at the time of awards were determined on 12 January 2023 (being £0.245)
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DIRECTORS’ REMUNERATION COMMITTEE REPORT - continued
Directors’ interests as at 31 December 2023
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 2023 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
2023
Beneficially
owned shares as
at the date of this
report
Awards subject
to performance
conditions as
at 31 December
20231,2
Awards subject
to Option Price
120 pence as at
31 December
2023
Awards subject
to service
conditions as
at 31 December
20231
Executive
J Brown 3
S Rivett3
Non-Executive
J Martin
M Daryabegui
G Green
L Mitchell2
200%
200%
–
–
–
–
No
No
–
–
–
–
2,183,275
273,848
2,224,680
283,309
8,726,262
5,687,044
–
1,230,419
90,000
540,941
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.
4) Our share price at the close of business on 31st December 2023 was 21.3p and the range of the middle market price during the year was 20.9p to 26p.
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 2023 other than as set out above and as
described in the notes to the table above.
Share awards outstanding at 31 December 2023
Type of
award7
As at 1 Jan
2023
Granted/
awarded
Adjusted1
Lapsed4
Vested3
As at 31 Dec
2023
Date potentially
vested 4,5
Expiry
date
–
1,550,855
J Brown 4,5,6,7
S Rivett 3,5,6,8
LTIP
LTIP
LTIP
LTIP
DSBP
DSBP
LTIP
LTIP
LTIP
LTIP
DSOP
DSOP
DSBP
DSBP
1,550,855
1,550,855
3,049,001
–
–
–
73,153
143,820
–
3,733,333
176,100
563,157
–
–
611,838
267,779
909,317
2,032,667
–
–
–
26,564
28,860
–
42,892
95,880
–
2,488,888
117,400
25,000
65,000
136,842
–
–
–
–
–
6,454
–
379,734
17,911
–
–
–
–
–
–
–
1,624,008
3,192,821
3,909,433
589,721
640,698
–
–
06.10.24
06.10.31
25.03.25
25.03.32
23.03.26
23.03.33
25.03.24
25.03.32
13.01.23
13.01.33
267,779
–
–
–
–
–
–
–
–
–
–
952,209
2,128,547
2,606,288
25,000
65,000
143,296
397,645
06.10.24
06.10.31
25.03.25
25.03.32
23.03.26
23.03.33
31.05.19
31.05.26
31.05.19
31.05.26
25.03.24 25.03.32
13.01.23
13.01.33
–
–
–
–
–
–
–
–
–
–
–
–
–
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 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 and 2023 LTIP are set
out on page 133. DSBP awards vest subject to continued service over a two-
year vesting period.
3) S Rivett’s 2020 LTIP award was made prior to her appointment to the Board
was not subject to TSR performance, but instead based on continuous
employment and effective performance ratings for the vesting period. These
measures were deemed to have been achieved and the award vested in full.
4) J Brown’s 2020 LTIP award with a potential vest date of 12 May 2023 did not
achieve the performance threshold and lapsed.
5) DSBP Awards to J Brown and S Rivett 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.
134
Annual Report and Accounts 2023Pharos Energy DIRECTORS’ REMUNERATION COMMITTEE REPORT - continued
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 TSR comparator group used for the LTIP award.
TOTAL SHAREHOLDER RETURN (TSR)
250
200
150
100
50
0
Pharos Energy FTSE All Share Oil & Gas TSR Comparator Group
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
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)
2,959
2,325
1,632
1,716
1,829
1,567
669
894
909
925
2014
2015
2016
2017
2018
2019
2020
2021
20221
2023
Annual bonus pay-out (% of maximum)
80%
75%
35%
65% 105%
50%
LTIP vesting (% of maximum)
100%
96%
46%
0%
0%
0%
0%
0%
58%
66%
65%
0%
0%
0%
1) 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 2022 to 31 December 2022.
135
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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
(2023/
2022)
% change
in salary
(2022/
2021)3
% change
in salary
(2021/
2020)3
% change
in salary
(2020/
2019)
% change
in benefits
(2023/
2022)
% change
in benefits
(2022/
2021)
% change
in benefits
(2021/
2020)
% change
in benefits
(2020/
2019)
N/A
N/A
N/A
N/A
-32.1%
-39.9%
-32.1%
-5.9%
N/A
N/A
N/A
N/A
-67.8%
26.4%
8.0%
35.1%
-32.1%
-5.9%
-10.3%
-0.8%
5.5%
E Story2
M Watts2
J Brown
S Rivett4
J Martin
1.1%
N/A
4.9%
26.7%
N/A
N/A
N/A
N/A
M Daryabegui
5.3%
26.7%
-10.0%
5.2%
R Gray
L Mitchell
G Green
N/A
N/A
-11.2%
-16.7%
6.3%
26.7%
11.2%
40.6%
N/A
N/A
N/A
N/A
450%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
-100.0%
100.0%
% change
in annual
bonus
(2023/
2022)
% change
in annual
bonus
(2022/
2021)
% change
in annual
bonus
(2021/
2020)1
% change
inannual
bonus
(2020/
2019)1
N/A
N/A
N/A
N/A
100.0%
-100.0%
100.0%
-100.0%
-7.7%
-5.4%
100.0%
-100.0%
-0.7%
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
N/A
N/A
N/A
N/A
N/A
4.4%
4.5%
3.3%
N/A
N/A
N/A
N/A
N/A
N/A
-100.0%
-31.1%
N/A
N/A
N/A
N/A
All other employees
9.9%
29.5%
7.0%
-4.4%
8.1%
15.5%
-25.8%
10.0%
-9.3%
24.1%
100.0%
-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 Distributions ($m)
2.9
Wages and Salaries ($m)
2023
2022
8.4
9.3
11.6
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 board of RHI Magnesita, for which she retained associated fees for 2023 in the amount of £94,700
(2022: £83,456 RHI Magnesita and £1,538 Troy Income and Growth Trust)
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Annual Report and Accounts 2023Pharos Energy DIRECTORS’ REMUNERATION COMMITTEE REPORT - continued
Implementation for 2024
Base salary
The following table shows the Executive Director base contractual salary levels.
J Brown
S Rivett
2024 Base salary 000s
2023 Base salary 000s*
Increase from 2023 %
£455
£297
£420
£280
6%
6%
The salary increases for the Executive Directors for 2024 are aligned with the average inflationary impact salary increase of 6% across
the workforce. 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 2024, benefits available to Executive Directors will be consistent with those set out in the Directors’ Remuneration Policy approved
at the 2023 AGM.
Pension
For 2024, 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 2024. 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 2024, and identifies the link from each of these measures to our core strategy of:
2024 KPI’s
Metric
ESG
Weight
Performance criteria which will be considered
20%
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
• GHG emissions reduction *
Operational & Business Plan
50%
Strategic objectives: to replace produced reserves
and add to the reserve base in a way which is value
and/or cash flow accretive
• DE&I learnings into the Pharos Way guiding principles
• Production volumes for all producing assets
• Secure licence extensions
• Portfolio optimisation
• Secure funding partner for well to be drilled on Block 125
Financial
30%
Strategic objectives: to control expenditure and
access affordable sources of funding in order to
maintain a strong balance sheet with sufficient liquid
resource to fund planned activities.
• Operating Cash Flow
• Underlying Operating Costs
• Reduce debtor days in Egypt
• Renew NBE working capital facility
*Note: The 2024 KPI for GHG emissions reduction is linked to the GHG emissions reduction interim targets in our Net Zero Roadmap, which was
published on December 2023. The Group set a 5% reduction target on all Scope 1 & 2 emissions by 2026. More information can be found at on our
website at https://www.pharos.energy/media/b55c4sqz/pharos-energy-net-zero-roadmap-2023_official.pdf.
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Annual Report and Accounts 2023Pharos Energy Governance ReportFinancial StatementsStrategic ReportAdditional Information DIRECTORS’ REMUNERATION COMMITTEE REPORT - continued
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
When determining the grant level for 2024, the Committee will take into account the share price at the date of grant and all other
relevant circumstances into account. As a reminder the award levels in 2020 and 2021 were substantially reduced.
The performance conditions for the 2024 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.
Non-Executive Director remuneration
Non-Executive Director fees, which have been set within the aggregate limits set out in the Company’s articles of association and
approved by shareholders, are set out in the table below:
Chair of the Company
Non-Executive Director
Additional fee: Senior Independent Director1
Additional fee: Chair of Audit and Risk Committee
Additional fee: Chair of Remuneration Committee
Additional fee: Workforce Engagement Nominated Director
Fee from 1 January 2024
Fee from 1 January 2023
£159,000
£63,600
£13,250
£15,900
£15,900
£5,300
£150,000
£60,000
£12,500
£15,000
£15,000
£5,000
1) 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 2024, 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.
138
Annual Report and Accounts 2023Pharos Energy DIRECTORS’ REMUNERATION COMMITTEE REPORT - continued
Service Contract (reference Table A: Directors Contract on page 144)
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 Marianne Daryabegui, Lisa Mitchell 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 £8,992 were paid in
2023 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 2023 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:
Votes in favour
Votes against
Total votes
Votes withheld
Directors’ Remuneration Report (2023 AGM)
Directors’ Remuneration Policy (2023 AGM)
Votes
200,237,478
36,498,967
236,736,445
58,613
%
84.58%
15.42%
100.00%
–
Votes
200,307,051
36,478,777
236,785,828
9,230
%
84.59%
15.41%
100.00%
–
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.
139
Annual Report and Accounts 2023Pharos Energy Governance ReportFinancial StatementsStrategic ReportAdditional Information DIRECTORS’ REMUNERATION COMMITTEE REPORT - continued
Policy Report (Unaudited)
This Directors’ Remuneration Policy became effective from the date of the 2023 AGM. This section provides a summary of the Policy
approved. The full Policy can be viewed in the 2022 Annual Report on our website at:
www.pharos.energy/investors/results-reports-and-presentations/.
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
Executive Directors receive benefits which may
include (but are not limited to) medical care
and insurance, permanent health insurance,
life assurance cover, critical illness cover, travel
benefits, expatriate benefits, car benefits and
relocation expenses.
Reasonable business related expenses will be
reimbursed (including any tax payable thereon).
Benefits are positioned at an appropriate
market level for the nature and location of the
role. Whilst the actual value of benefits may
vary from year to year based on third party
costs, it is intended that the maximum annual
value will not exceed $250,000 or £200,000,
per Directors’ base currency.
In addition to the above cap, the Company
may contribute to relocation expenses up to
100% of salary.
Performance criteria
N/A
PENSION
Purpose and link to strategy
• To provide retirement benefits consistent with the role
Operation
Maximum
Performance criteria
Pension benefits are delivered through
contributions to Pharos’ money purchase
plan up to relevant plan limits and/or a cash
supplement.
15% of base salary per annum which remains
aligned with the wider workforce.
N/A
140
Annual Report and Accounts 2023Pharos Energy DIRECTORS’ REMUNERATION COMMITTEE REPORT - continued
VARIABLE PAY
Annual bonus
• Purpose and link to strategy
•
Incentives 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 pay-out (negatively or positively) to
ensure it reflects the performance of either the
individual or the Company.
One-third of any bonus pay-out 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
•
Incentives 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.
141
Annual Report and Accounts 2023Pharos Energy Governance ReportFinancial StatementsStrategic ReportAdditional Information DIRECTORS’ REMUNERATION COMMITTEE REPORT - continued
SHAREHOLDING GUIDELINES
Purpose and link to strategy
• Further increases alignment between Executive Directors and shareholders.
Maximum
N/A
Performance criteria
N/A
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
suffi cient holding has been built up.
GEOFFREY GREEN
Remuneration Committee Chair
March 2024
142
Annual Report and Accounts 2023
Pharos Energy
Pharos Energy
Pharos Energy
Pharos Energy
Strategic Report
Governance Report
Financial Statements
Additional Information
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 2023.
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 Code
ESG Committee Report
Nominations Committee Report
Audit and Risk Committee Report
Directors’ Remuneration Committee Report
Financial Statements
Additional Information
Page(s)
3-98
104
106-113
114-116
117-119
120-125
126-142
149-189
190-198
Developments during the 2023 reporting
period
An indication of the likely future developments in the business of
the Group is included in the Strategic Report on pages 3 to 98.
The reporting period saw a continued focus on shareholder
returns, together with progress on the exciting opportunities
within our asset base.
In Vietnam, we delivered ongoing high netback and stable
production during the year. On CNV, there was strong
performance from the fi rst new lateral well, which was delivered
on time, under budget and put on production in 1Q 2023. On
TGT, the Revised Field Development Plan (RFDP) was approved
by MOIT on 9 January 2024, providing the platform for the
two well TGT programme later in the year. The Group and the
HLHVJOC also received initial positive feedback from PVN and
MOIT on fi ve-year extension proposals to the TGT (Block 16-1)
and CNV (Block 9-2) petroleum contracts, including signifi cant
progress on draft documentation relating to the proposed
extensions. In June 2023, the Group also secured a two year
extension to the current phase of the exploration period under the
Block 125&126 PSC. The current phase now runs to November
2025, and discussions continue with a number of interested
parties to secure a farm-in partner before drilling the commitment
exploration well.
In Egypt, the Group had exploration drilling success during the
year on both the North Beni Suef and El Fayum Concessions.
The NBS-SW1X exploration commitment well was declared a
commercial discovery and put on production only nine months
after drilling, following the grant of a 20-year development lease
in September 2023. NBS-SW1X improved our reserve base
and is contributing new barrels to the overall Group production.
Considering the continued macroeconomic uncertainty in Egypt,
the Board intends to maintain a measured approach to capital
allocation and drilling in Egypt in 2024, with an eye on the
receivable balance.
Pharos continued to have an excellent safety record during 2023,
and the Company reported zero LTIs across all Group operations.
In Vietnam, the Group has maintained a record of zero LTIs since
1997.
In June 2023 the Company held a Group-wide off-site event in
London where colleagues from Egypt, Vietnam and UK all met
to exchange ideas, give business updates and promote team
building. This event was important not only for the effective
functioning of the Company, but to also develop the Group’s
global workforce and to underpin the Board’s commitment
to maintaining high standards of governance and promoting
corporate values throughout the organisation.
The Company ended the reporting period with a strong balance
sheet. Cash balances as at 31 December 2023 were $32.6m; net
debt $6.6m (2022: cash balances $45.3m; net debt $28.9m). The
Directors believe that, with the combination of a robust fi nancial
position and a steady production base across the portfolio,
Pharos is in an excellent position to continue its principal strategy
of long-term sustainable value creation and shareholder returns.
Dividends
During 2023, the Company recommenced regular dividend
payments, the fi rst of which was a fi nal dividend for the fi nancial
year to 31 December 2022 of 1 pence per share. This fi nal
dividend totalled $5.6m, was approved by shareholders at the
2023 AGM and paid on 12 July 2023.
In its announcement of the interim fi nancial results for the fi rst
half of 2023 on 13 September 2023, the Company indicated
an additional distribution to shareholders would be considered
within the parameters of the sustainable regular dividend policy
announced in September 2022. Under the policy, Pharos intends
to return to shareholders by way of dividend no less than 10% of
operating cash fl ow each year in two tranches:
• An interim dividend of around 33% of the previous year’s fi nal
dividend, payable in January of the following year; and
• Subject to shareholder approval, a fi nal dividend payable in
July of the following year.
Consistent with the policy, on 6 December 2023 the Board
announced that it had resolved to declare and pay an interim
dividend in relation to the fi nancial year ending 31 December
2023 of 0.33 pence per ordinary share, amounting to $1.7m.
This interim dividend was paid on 24 January 2024. The total cost
of the interim dividend takes into account that the trustee of the
Pharos Employee Benefi t Trust (EBT) waived its right to receive
the dividend in relation to the ordinary shares held in the EBT.
At the forthcoming AGM, the Directors recommend that
shareholders vote in favour of the resolution to declare a
fi nal dividend for the year ended 31 December 2023 of 0.77
pence per ordinary share payable, subject to the approval of
shareholders, on 19 July 2024, to those shareholders on the
Company’s register on 14 June 2024. This will take the total
dividend for 2023, including the interim dividend paid in January
2024, to 1.10 pence per ordinary share. As with the interim
dividend, it is assumed that the trustee of the Pharos EBT will
waive any right to receive the fi nal dividend in relation to the
ordinary shares held in the EBT.
Pharos Energy
Annual Report and Accounts 2023
143
DIRECTORS’ REPORT - continued
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 in office immediately before the
2024 AGM will retire at the meeting 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 104 and 105.
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 126.
Table A: Directors holding office during 2023 and up to the
date of signing of this report
Director
John Martin - Chair*X
Date of appointment
13 March 2020
Jann Brown - Chief Executive Officer
12 November 2017
Sue Rivett - Chief Financial Officer
Marianne Daryabegui *
Geoffrey Green*
Lisa Mitchell*
Dr Bill Higgs*+
1 July 2021
15 March 2019
20 May 2020
1 April 2020
16 January 2024
* Denotes those determined by the Board to be Independent
Non-Executive Directors as described in the UK Corporate
Governance Code Report on pages 106 to 113. The Chair was
determined to be independent on appointment. Geoffrey Green is
the designated Senior Independent Director.
x Date used in table date of appointment as Chair. Originally
appointed as an Independent Non-Executive Director on 7 June
2018.
+ Appointed after the end of the 2023 financial year but included
in the table for information.
Contributions
The Group’s policies prohibit political donations.
AGM
An explanation of the resolutions to be proposed at the 2024
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.
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 and market abuse 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.
144
Annual Report and Accounts 2023Pharos Energy DIRECTORS’ REPORT - continued
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
2024 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 Statement of Principles published by the Pre-Emption
Group in November 2022 (the “Pre-Emption Principles”), as it
was at the previous AGM held in 2023. 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 2024 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. The Directors believe that it is advantageous for the
Company to have this flexibility to make market purchases of its
own shares. As announced on 6 December 2023, the Company
has committed a further up to US$3 million (net of expenses)
to its current on-market share repurchase programme and,
subject to the passing of this resolution, it intends to continue
this programme. As at the date of this report, the total amount
spent by the Company (net of expenses) on the acquisition of
ordinary shares since the original announcement of the initiation of
its share buyback programme in July 2022 is $6.2m. In that time
the Company has repurchased approximately 22 million ordinary
shares under the programme.
Auditor
Following a tender process in 2022 undertaken in accordance
with the Financial Reporting Council’s paper entitled “Audit
Tenders: Notes on Best Practice” published in February 2017,
the Company 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. Deloitte LLP
did not participate in the audit tender process, and has notified
the Company (as required under the 2006 Act), that they will not
be seeking reappointment as the Company’s Auditor at the 2024
AGM. During the second half of 2023 and the early part of 2024,
Ernst & Young LLP have “shadowed” Deloitte’s work as external
auditor for financial year commencing 1 January 2023, with a
view to preserving know-how and experience and encouraging
a seamless transition. A resolution to appoint Ernst & Young LLP
as the Company’s Auditor for the financial year commencing 1
January 2024 will be proposed at the 2024 AGM.
Deloitte have also provided non-audit services to the Group,
and details of the non-audit services provided in the year to
31 December 2023 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 120 to 125.
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 is
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 75 to 82.
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 approves annually, defines the key
tax objectives of the Group and is available on the Company’s
website (www.pharos.energy/responsibility/policy-statements/).
The Group has also adopted and communicated across the
organisation a corporate policy specifically dedicated to measures
against and awareness of tax evasion and the related offence of
facilitation of tax evasion. Staff members receive annual training
on tax evasion and related offences as part of the Group’s regular
business ethics programme.
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 48 to 61 details
how we manage and mitigate these risks.
145
Annual Report and Accounts 2023Pharos Energy Governance ReportFinancial StatementsStrategic ReportAdditional Information DIRECTORS’ REPORT - continued
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
Bradley Radoff2
Aberforth Partners LLP
Ettore Contini
Blue Albacore Business Ltd
Globe Deals Ltd
Chemsa Ltd
Ed Story
No of Ordinary Shares held
as % of voting rights1
68,080,000
37,960,838
32,613,577
31,260,296
27,444,382
24,426,925
16,271,613
as % of
16.161
9.011
7.742
7.421
6.515
5.799
3.863
Nature of holding
Direct
Direct
Direct and indirect
Direct
Direct
Direct
Direct and indirect
1) As at 25 March 2024, the total voting rights attached to the issued share capital of the Company comprised 421,253,197 Ordinary shares each of £0.05
nominal value, being 430,375,465 Ordinary shares in issue less 9,122,268 Ordinary shares currently held in treasury.
2) As at 31 December 2023: Bradley Radoff held 59,767,980 Shares representing 14.13% of the voting rights in the Company at that time.
During the period between 31 December 2023 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 2023 other than as
shown in the footnotes to the table above. For further information on Directors’ interests, please see page 134.
Requirements of the UK Listing Rules
Table C of this report provides references to where the information required by LR 9.8.4R of the Listing Rules is disclosed within this
Annual Report. Where there is no specific reference in Table to a LR 9.8.4R information requirement, that requirement is not applicable
to the Company for the reporting year.
Table C: Listing Rules requirements
LR 9.8.4R requirement
Details of any long-term incentive schemes as required by Listing Rule 9.4.3 R.
Directors’ Remuneration Committee Report
pages 126 to 142
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.
No such waivers
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.
No such share allotments
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.
Note 35 page 187
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.
Note 29 page 183
146
Annual Report and Accounts 2023Pharos Energy 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 158 to 189, 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 as
adopted by the UK 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 48 to 61; 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
27 March 2024
DIRECTORS’ REPORT - continued
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 3 to 98
including the Going Concern section of the CFO’s Statement
on page 47, they continue to adopt the going concern basis in
preparing the accounts.
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 (IFRS) as adopted by the UK. 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.
147
Annual Report and Accounts 2023Pharos Energy Governance ReportFinancial StatementsStrategic ReportAdditional Information Financial
Statements
Independent auditor’s report to the members of Pharos Energy PLC
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
149
158
158
158
159
160
161
162
148
Annual Report and Accounts 2023
Pharos Energy
Strategic Report
Governance Report
Financial Statements
Additional Information
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PHAROS ENERGY PLC
Report on the audit of the
fi nancial statements
Financial
Statements
1. Opinion
In our opinion:
•
the fi nancial statements of Pharos Energy plc (the
‘company’) and its subsidiaries (the ‘group’) give a
true and fair view of the state of the group’s and of the
company’s affairs as at 31 December 2023 and of the
group’s loss for the year then ended;
•
•
•
the group fi nancial 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 Accounting Standards Board (IASB);
the company fi nancial 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 fi nancial statements have been prepared in
accordance with the requirements of the Companies
Act 2006.
2. Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
auditor’s responsibilities for the audit of the fi nancial statements
section of our report.
We are independent of the group and the company in accordance
with the ethical requirements that are relevant to our audit of the
fi nancial 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 fulfi lled our other ethical
responsibilities in accordance with these requirements. The non-
audit services provided to the group and company for the year
are disclosed in note 10 to the fi nancial statements. We confi rm
that we have not provided any non-audit services prohibited by
the FRC’s Ethical Standard to the group or the company.
We believe that the audit evidence we have obtained is suffi cient
and appropriate to provide a basis for our opinion.
3. Summary of our audit approach
We have audited the fi nancial statements which comprise:
Key audit
matters
•
•
•
•
•
•
the consolidated income statement;
the consolidated statement of comprehensive income;
the group and company balance sheets;
the group and company statements of changes in equity;
the group and company cash fl ow statements; and
Materiality
the related notes 1 to 38.
The fi nancial reporting framework that has been applied in the
preparation of the group fi nancial statements is applicable law,
United Kingdom adopted international accounting standards and
IFRSs as issued by the IASB. The fi nancial reporting framework
that has been applied in the preparation of the company fi nancial
statements is applicable law and United Kingdom adopted
international accounting standards and as applied in accordance
with the provisions of the Companies Act 2006.
Scoping
The key audit matter that we identifi ed in
the current year was:
•
Impairment and impairment reversal
of producing oil and gas assets.
The materiality that we used for the group
fi nancial statements was $3.8m 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 charge/
reversal of property, plant & equipment
“PP&E “and intangibles, exploration
expenditure including pre-license costs and
other/restructuring expense “EBITDAX”.
We focused primarily on the group’s key
business units, being Vietnam and Egypt.
These components were subject to full
scope audits and account for 100% of the
group’s total assets, 100% of the group’s
revenues and 100% of the group’s loss
before tax. A full scope audit, which was
performed by the group engagement
team, was additionally carried out on the
company fi nancial information.
Signifi cant
changes in
our approach
There are no signifi cant changes to our
approach.
Pharos Energy
Annual Report and Accounts 2023
149
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PHAROS ENERGY PLC - continued
4. Conclusions relating to going concern
In auditing the fi nancial statements, we have concluded that the
directors’ use of the going concern basis of accounting in the
preparation of the fi nancial statements is appropriate.
Our evaluation of the directors’ assessment of the group’s and
company’s ability to continue to adopt the going concern basis of
accounting included:
• assessed that the forecasts incorporated in the base case
• 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;
model are consistent with the budget approved by the Board;
•
tested the going concern model for mechanical accuracy; and
• 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;
• assessed the reasonableness of the assumptions
incorporated in the base case forecast that address the
uncertain economic environment;
• 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 fi nancial statements;
• assessed and recalculated the impact of the aggregated
downside scenario on the fi nancial covenants included in the
reserve based lending (RBL) facility during the going concern
period;
• assessed whether the disclosures relating to going concern
are appropriate.
Based on the work we have performed, we have not identifi ed
any material uncertainties relating to events or conditions that,
individually or collectively, may cast signifi cant doubt on the
group's and company’s ability to continue as a going concern
for a period of at least twelve months from when the fi nancial
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.
150
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Pharos Energy
Strategic Report
Governance Report
Financial Statements
Additional Information
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PHAROS ENERGY PLC - continued
5. Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most signifi cance in our audit of the fi nancial
statements of the current period and include the most signifi cant assessed risks of material misstatement (whether or not due to fraud)
that we identifi ed. 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 fi nancial statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
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 2023 was $279.3 million (2022: $381.3 million). Management assesses the group’s producing
oil and gas assets for impairment and/or impairment reversal indicators every reporting period. There
are a number of signifi cant judgements and estimates involved in these assessments, and in quantifying
any impairment charge or reversal. We therefore consider this to be a key audit matter. 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 two producing assets in Egypt, being El Fayum and North Beni Suef (‘NBS’), for indicators
of impairment. There have been various developments in the period. These include a downwards
technical revision of El Fayum reserves compared to prior year, NBS reserves were recognised for the
fi rst-time following commencement of production in December 2023, a downwards technical revision
of TGT reserves and an upward revision of CNV production profi le as set out in note 16 of the fi nancial
statements. Given the revisions, together with the changes to oil price assumptions and discount rates
resulting from the current economic uncertainty, management concluded that there were indicators of
impairment for TGT, El Fayum and NBS and an indicator of impairment reversal for CNV. Management
have estimated the recoverable amount of each producing asset, being its value-in-use “VIU”, and
compared this to its balance sheet carrying amount. Management recorded pre-tax impairment reversal
of $0.3 million on CNV (2022: $3.6 million), a pre-tax impairment charge of $46.3 million on TGT (2022
impairment reversal: $19.7 million), a pre-tax impairment charge of $11 million on El Fayum (2022
impairment reversal: $3.8 million) and a pre-tax impairment charge of $1.9m on NBS (2022: $nil).
Management’s recoverable amount estimates were based on key assumptions which included:
• oil price forecasts;
•
reserves estimates and production profi les; and
• nominal discount rates
In relation to reserves estimates and production profi les, 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 defi nitions for each of the CNV, TGT, NBS and El Fayum
fi elds. Management have explained the scope of work of the third-party experts and their fi ndings in the
operations review on page 33, as well as highlighting oil and gas reserves as a key source of estimation
uncertainty in note 4(b) to the fi nancial statements.
As referenced in note 4(b) of the fi nancial 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 fi nancial
statements and in the Report of the Audit & Risk Committee on pages 120 to 125. The disclosures in
note 16 include the sensitivity of the impairment and impairment reversals to changes in key assumptions,
including the impact to reach net zero emissions by 2050 (the “Net Zero price scenario”).
Pharos Energy
Annual Report and Accounts 2023
151
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PHAROS ENERGY PLC - continued
How the scope
of our audit
responded to the
key audit matter
For the TGT, CNV, NBS 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 or impairment reversal 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 procedures:
Oil price forecasts:
Through working with our valuation specialists, we:
•
Independently developed 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; and
• We assessed management’s current ‘best estimate’ of forecast oil prices including consideration of
third-party forecasts under scenarios that we interpreted to be consistent with this measurement
objective; and
• We have assessed the reasonableness of management’s oil price assumptions described as being
compliant with achieving the Paris agreement goal to limit temperature rises to well below 1.5°C
(“Paris Goal”)
Reserve estimates and production profiles:
Through working with our oil and gas reserve specialists, we:
• Gained an understanding of the process used by management to derive their reserves estimates and
associated production profiles and how they provide information to, and interact with, their external
third party reserve experts;
• Assessed the competence, capability and objectivity of the group’s external third party reserve experts
• Reviewed the external third party experts’ reports on group’s reserves estimates and evaluated
whether these estimates were used consistently 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;
• Compared the production forecasts with similar forecasts from the prior year and assessed significant
changes;
• Assessed the reasonableness of the production and cost forecasts relative to each other; and
• Where relevant, performed a retrospective review and assessed the group’s historical forecasting
accuracy and whether the estimates had been determined and applied on a consistent basis without
bias.
Nominal discount rates:
We assessed the group’s discount rates by working with our internal valuation specialists developing
independent range estimates for TGT, CNV, El Fayum and NBS and comparing those estimates to
management’s assumptions.
Other procedures:
• We assessed management’s other assumptions using our knowledge of the group and industry and
by comparing management’s budgeted and forecast performance.
• By working with our internal valuation specialists, 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 the appropriateness of management’s presentation and disclosures relating to
impairment and impairment reversal and associated estimation uncertainty.
152
Annual Report and Accounts 2023Pharos Energy INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PHAROS ENERGY PLC - continued
Key observations
Oil price forecasts
For the purpose of group’s producing oil and gas assets impairment and/or impairment reversal tests,
management is required under IAS 36 “Impairment of assets” to apply its current “best estimate” of future
oil prices. We observed that the group’s future oil price assumptions are within our reasonable range.
Accordingly, we determined that the Group’s “best estimate” future 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 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.
Nominal discount rates:
The group’s discount rates used for impairment testing, were both within our country-specific reasonable
ranges.
Other procedures:
We concluded that the impairment and 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
Company financial statements
Materiality
$3.8m (2022: $3.4m)
$3.4m (2022: $3m)
Basis for
determining
materiality
Rationale for
the benchmark
applied
4% of the 3-year average of EBITDAX (2022: 4% of
the 3-year average of EBITDAX)
Company materiality equates to 1.5% of net assets,
which is capped at 90% of group materiality (2022:
1.5% of net assets capped at 90% of group materiality)
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 fourth 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.
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.
EBITDAX (3 year average)
$103m
Group materiality
$3.8m
Group materiality
$3.8m
Component materiality range
$1.9m - $3.1m
Audit Committee reporting threshold
$0.19m
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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PHAROS ENERGY PLC - continued
6.2. Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected
misstatements exceed the materiality for the financial statements as a whole.
Performance
materiality
Basis and
rationale for
determining
performance
materiality
Group financial statements
Company financial statements
70% (2022: 70%) of group materiality
70% (2022: 70%) of 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 & Risk Committee that we would report
to the Committee all audit differences in excess of $0.19m (2022:
$0.17m), as well as differences below that threshold that, in our
view, warranted reporting on qualitative grounds. We also report
to the Audit & Risk Committee on disclosure matters that we
identified when assessing the overall presentation of the financial
statements.
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 identified the key business
units, Vietnam and Egypt, which are accounted for partly in the
local country of operation and partly in London, as significant
components for our audit.
The Vietnamese component, the Egyptian component, 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 $3.1 million (2022:
$2.1 million) and the Egyptian component materiality was $1.9
million (2022: $1.2 million). We also audited the consolidation
of the group’s business units. In both the current and the prior
year, the key audit matter that had the greatest effect on our
audit strategy, as described above, was audited directly by the
group audit team in London. At the group level, as well as the
key audit matter in relation to impairment of producing and oil
assets, we tested the consolidation process, going concern,
decommissioning, borrowings and intercompany. A full scope
audit, which was performed by the group engagement team,
was additionally carried out on the company financial information,
to the materiality set out in section 6. 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 fully substantive
audit approach. We gained an understanding of both the IT and
financial control environment, as well as over the relevant controls
over the key audit matter set out in section 5.1 above, revenue
and journal processing 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 122 in the Audit & Risk Committee report of the
2023 Annual Report.
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 2023 Annual Report pages 3 to 98.
Through our audit procedures, we:
• Obtained an understanding of management’s process for
considering the impact of climate-related risks through enquiries
performed with the Audit & Risk Committee, enquiries and
inspection of relevant documentation with the ESG Committee as
well as regular meetings with management.
• To assess the consistency of climate related risks identified
by management with our understanding of the entity and
risk assessment, we obtained and reviewed management’s
assessment of climate related risks, read the minutes of meeting
of the ESG Committee and specifically inquired of 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 and are likely to be fully depreciated within 10
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 principal risk that we have identified for
our audit is the forecast oil assumptions used in the recoverable
amount assessment of the 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
Impairment of producing oil & gas assets’ above).
154
Annual Report and Accounts 2023Pharos Energy 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 company’s ability to continue
as a going concern, disclosing as applicable, matters related to
going concern and using the going concern basis of accounting
unless the directors either intend to liquidate the group or the
company or to cease operations, or have no realistic alternative
but to do so.
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 evaluated management’s Task Force on Climate-Related
Disclosures in line with the latest guidance, and;
• We evaluated 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 ‘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 sending
detailed instructions to our component audit teams, setting the
scope of the component auditors and assessing the component
auditor’s independence, regular interaction and providing direction
on enquiries made by the component auditors through online
and telephone conversations, performing a remote review of the
underlying work and key audit areas of the component auditors in
Vietnam by a senior member of the group audit team and visiting
the Egypt component team in Cairo.
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.
155
Annual Report and Accounts 2023Pharos Energy Financial StatementsAdditional InformationGovernance ReportStrategic Report INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PHAROS ENERGY PLC - continued
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, climate change
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.
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 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:
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, Listing Rules, pensions
legislation, tax legislation in the UK, Vietnam and Egypt.
•
•
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 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.
In the light of the knowledge and understanding of the
group and the 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.
156
Annual Report and Accounts 2023Pharos Energy Strategic Report
Governance Report
Financial Statements
Additional Information
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 specifi ed for our review.
Based on the work undertaken as part of our audit, we
have concluded that each of the following elements of the
Corporate Governance Statement is materially consistent
with the fi nancial 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 identifi ed set
out on page 110;
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 110;
the directors’ statement on fair, balanced and
understandable set out on page 110;
the board’s confi rmation that it has carried out a robust
assessment of the emerging and principal risks set out
on page 111;
the section of the annual report that describes the review
of effectiveness of risk management and internal control
systems set out on page 111; and
the section describing the work of the audit committee
set out on page 120.
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
company, or returns adequate for our audit have not been
received from branches not visited by us; or
•
the company fi nancial statements are not in agreement with
the accounting records and returns.
We have nothing to report in respect of these matters.
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.
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 the directors on 1 August 2002 to audit the fi nancial
statements of the group for the year ending 31 December 2002
and subsequent fi nancial periods.
The total uninterrupted period of engagement, including previous
renewals and reappointments of the fi rm is 22 years, covering the
years ending 31 December 2002 to 31 December 2023.
This is the last period of our appointment as auditor for the group,
owing to mandatory rotation requirements.
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) 4.1.15R – DTR 4.1.18R,
these fi nancial statements will form part of the Electronic Format
Annual Financial Report fi led on the National Storage Mechanism
of the FCA in accordance with DTR 4.1.15R – DTR 4.1.18R.
This auditor’s report provides no assurance over whether the
Electronic Format Annual Financial Report has been prepared in
compliance with DTR 4.1.15R – DTR 4.1.18R.
ANTHONY MATTHEWS, FCA
(Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
27 March 2024
Pharos Energy
Annual Report and Accounts 2023
157
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Income Statement
for the year to 31 December 2023
Continuing operations
Revenue
Cost of sales
Gross profit
Administrative expenses
Pre-licence costs
Impairment (charge)/reversal – Intangible assets
Impairment (charge)/reversal – Property, plant and equipment
Operating (loss)/profit
Other/restructuring expense
Loss on disposal
(Loss)/gain on fair value movement of financial asset
Investment revenue
Finance costs
(Loss)/profit before tax
Income tax charge
(Loss)/profit for the year
(Loss)/profit per share (cents)
Basic
Diluted
Consolidated Statement of
Comprehensive Income
for the year to 31 December 2023
(Loss)/profit for the year
Items that may be subsequently reclassified to profit or loss:
Fair value gain/(loss) arising on hedging instruments during the year
Less: Loss arising on hedging Instruments reclassified to profit or loss
Total comprehensive (loss)/income for the year
Notes
5, 6
7
6, 15
6, 16
8
37
6, 37
5
9
6
6, 12
30
14
Notes
30
25
25
2023
$ million
2022
$ million
167.9
(111.2)
56.7
(9.0)
(0.4)
(6.5)
(58.9)
(18.1)
(0.6)
–
(0.3)
0.2
(10.2)
(29.0)
(19.8)
(48.8)
(11.4)
(11.4)
199.1
(116.8)
82.3
(10.0)
–
0.8
27.1
100.2
(0.8)
(6.6)
0.3
0.2
(12.7)
80.6
(56.2)
24.4
5.6
5.4
2023
$ million
(48.8)
2022
$ million
24.4
0.6
0.2
(48.0)
(18.9)
22.5
28.0
The above Consolidated Income Statement and Consolidated Statement of Comprehensive Income should be read in conjunction with
the accompanying notes.
158
Annual Report and Accounts 2023Pharos Energy Group
Company
2023
$ million
2022
$ million
2023
$ million
2022
$ million
CONSOLIDATED FINANCIAL STATEMENTS - continued
Balance Sheets
as at 31 December 2023
Non-current assets
Intangible assets
Property, plant and equipment
Right-of-use assets
Investments
Loan to subsidiaries
Other assets
Current assets
Inventories
Trade and other receivables
Tax receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Borrowings
Lease liabilities
Tax payable
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
22
24
33
22
23
24
33
26
27
27
28
30
18.2
279.3
0.5
–
–
58.6
356.6
3.3
62.3
2.2
32.6
100.4
457.0
(14.2)
(29.5)
(0.3)
(5.8)
(49.8)
(0.5)
(68.2)
(11.0)
(0.2)
(53.8)
(133.7)
(183.5)
273.5
33.7
58.0
255.4
(73.6)
273.5
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
The above Consolidated Balance Sheets should be read in conjunction with the accompanying notes.
The loss for the financial year in the accounts of the Company (Co number 3300821) was $(47.0)m inclusive of dividends from
subsidiary undertakings (2022: $60.7m 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 27 March 2024 and signed on its behalf by:
JOHN MARTIN Chairman
SUE RIVETT Director
–
–
–
294.3
16.8
–
311.1
–
0.4
0.2
1.7
2.3
–
–
–
335.5
23.0
–
358.5
–
0.4
0.1
8.8
9.3
313.4
367.8
(4.0)
–
–
(0.9)
(4.9)
–
–
–
-
–
–
(4.9)
308.5
33.7
58.0
200.6
16.2
308.5
(1.9)
–
–
(1.2)
(3.1)
–
–
–
--
–
–
(3.1)
364.7
34.3
58.0
199.7
72.7
364.7
159
Annual Report and Accounts 2023Pharos Energy Financial StatementsAdditional InformationGovernance ReportStrategic Report CONSOLIDATED FINANCIAL STATEMENTS - continued
Statements of Changes in Equity
for the year to 31 December 2023
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
34.9
58.0
250.5
As at 1 January 2022
Profit for the year
Other comprehensive income
Notes
30
28
–
–
Share buy back
27, 28, 30
(0.6)
Treasury shares repurchased
Share-based payments
28
28
Transfer relating to share-based payments
28, 30
–
–
–
–
–
–
–
–
–
–
3.6
0.6
(0.6)
1.7
(2.2)
34.3
58.0
253.6
As at 1 January 2023
Loss for the year
Other comprehensive income
Share buy back
Share-based payments
Distributions to shareholders
Transfer relating to share-based payments
30
28
–
–
27, 28, 30
(0.6)
28
29,30
28, 30
–
–
–
–
–
–
–
–
–
As at 31 December 2023
33.7
58.0
(73.6)
273.5
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
58.0
202.4
As at 1 January 2022
Profit for the year
Share buy back
Share-based payments
Notes
13, 30
27, 28 ,30
28
Transfer relating to share-based payments
28, 30
As at 1 January 2023
Loss for the year
Share buy back
Share-based payments
Distributions to shareholders
Transfer relating to share-based payments
13, 30
27, 28 ,30
28
29 ,30
28, 30
34.9
–
(0.6)
–
–
34.3
–
(0.6)
–
–
–
–
–
–
–
58.0
–
–
–
–
–
As at 31 December 2023
33.7
58.0
The above Consolidated Statements of Changes in Equity should be read in conjunction with the accompanying notes.
160
Group
Total
$ million
304.4
24.4
3.6
(2.9)
(0.6)
1.7
–
330.6
(48.8)
0.8
(2.8)
1.0
(7.3)
–
Company
Total
$ million
307.9
60.7
(2.9)
1.7
(2.7)
364.7
(47.0)
(2.8)
1.0
(7.3)
(0.1)
308.5
(39.0)
24.4
–
(2.9)
–
–
2.2
(15.3)
(48.8)
–
(2.8)
–
(7.3)
0.6
12.6
60.7
(2.9)
–
2.3
72.7
(47.0)
(2.8)
–
(7.3)
0.6
16.2
–
0.8
0.6
1.0
–
(0.6)
255.4
–
0.6
1.7
(5.0)
199.7
–
0.6
1.0
–
(0.7)
200.6
Annual Report and Accounts 2023Pharos Energy
CONSOLIDATED FINANCIAL STATEMENTS - continued
Cash Flow Statements
for the year to 31 December 2023
Net cash from (used in) operating activities
Investing activities
Purchase of intangible assets
Purchase of property, plant and equipment
Payment to abandonment fund
Consideration in relation to farm out of Egyptian assets1
Contingent consideration received in relation to farm out of
Egyptian assets
Assignment fee in relation to farm out of Egyptian assets
Dividends received from subsidiary undertakings
Net cash (used in) from investing activities
Financing activities
Share based payments
Repayment of borrowings
Proceeds from borrowings
Interest paid on borrowings
Lease payments
Share buy back
Dividends paid to shareholders
Funding movements with subsidiaries
Net cash used in financing activities
18
20
20
22
24
24
24
33
30
29
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of foreign exchange rate changes
Cash and cash equivalents at end of year
21
2023
$ million
Group
2022
$ million
2023
$ million
Company
2022
$ million
44.9
53.4
(8.1)
(11.6)
Notes
32
(9.7)
(13.5)
(3.5)
15.6
5.0
(0.5)
–
(6.6)
–
(44.2)
9.2
(6.4)
(0.3)
(2.8)
(5.6)
–
(50.1)
(11.8)
45.3
(0.9)
32.6
(4.4)
(25.4)
(2.1)
18.4
–
(0.5)
–
(14.0)
(0.4)
(27.1)
16.7
(6.0)
(0.1)
(2.9)
–
–
(19.8)
19.6
27.1
(1.4)
45.3
–
–
–
–
–
–
11.4
11.4
–
–
–
–
–
(2.8)
(5.6)
(2.1)
(10.5)
(7.2)
8.8
0.1
1.7
–
–
–
–
–
–
19.0
19.0
–
–
–
–
–
(2.9)
–
(1.0)
(3.9)
3.5
5.3
–
8.8
1) During the year IPR, acting as operator and agent, was authorised to settle its operating liabilities of $3.5m (2022: $6.6m) and investing liabilities of $12.1m
(2022: $8.8m) against the consideration due from the associated carry debtor (Note 20) amounting to $15.6m (2022: $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.
161
Annual Report and Accounts 2023Pharos Energy Financial StatementsAdditional InformationGovernance ReportStrategic Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements
1. General information
Pharos Energy plc is a company limited by shares and
incorporated in England and Wales under the Companies Act.
The address of the registered office is given on the inside back
cover. The nature of the Group’s operations and its principal
activities are set out in Note 6, in the Operations Review and
CFO’s Statement on pages 29 to 35 and pages 40 to 47,
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. Material accounting policies information
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 Note 4.
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
35). 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.
Amendments to IAS 1 Presentation of Financial Statements and
IFRS Practice Statement 2 Making Materiality Judgements—
Disclosure of Accounting Policies:
The Group has adopted the amendments to IAS 1 for the first
time in the current year.
The amendments change the requirements in IAS 1 with regard
to disclosure of accounting policies. The amendments to IAS 1
and IFRS Practice Statement 2 Making Materiality Judgements
(‘four-step materiality process’) provide guidance and examples
to help entities apply materiality judgements to accounting policy
disclosures.
The amendments replace all instances of the term ‘significant
accounting policies’ with ‘material accounting policy information’.
Accounting policy information is material if, when considered
together with other information included in an entity’s financial
statements, it can reasonably be expected to influence decisions
that the primary users of general purpose financial statements
make on the basis of those financial statements. Accounting
policy information may be material because of the nature of
the related transactions, other events or conditions, even if the
amounts are immaterial. However, not all accounting policy
information relating to material transactions, other events or
conditions is itself material.
The amendments have had an impact on the Group’s disclosures
of accounting policies, but not on the measurement, recognition
or presentation of any items in the Group’s financial statements.
The group did not have to change its accounting policies or make
retrospective adjustments as a result of adopting these standards.
•
Insurance Contracts – IFRS 17 (including the June 2020 and
December 2021 Amendments)
• Definition of Accounting Estimates – Amendments to IAS 8
• Deferred Tax related to Assets and Liabilities arising from a
Single Transaction – Amendments to IAS 12
•
International Tax Reform – Pillar Two Model Rules –
Amendments to IAS 12
c) New standards and interpretations not yet
adopted
Certain new accounting standards and interpretations have been
published that are not mandatory for 31 December 2023 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.
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.
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Investments
e)
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.
Interests in joint arrangements
f)
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.
g) Revenue
Revenue represents the fair value of the Group’s share of oil and
gas sold during the year on a liftings basis and is recognised
when the Group satisfies a performance obligation by transferring
oil and gas to a customer. In accordance with the Group’s sales
agreements for oil and gas, the title to oil and gas typically
transfers to a customer at the same time as the customer takes
physical possession of the oil or gas. Typically, at this point in
time, the performance obligations of the Group are fully satisfied.
Investment revenue is accrued on a time basis, by reference
to the principal outstanding and at the effective interest rate
applicable.
h) 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.
i)
Intangible and tangible non-current assets
Oil and gas exploration, evaluation and
development expenditure
The Group adopts the successful efforts method of accounting for
exploration and evaluation costs. Pre-licence costs are expensed
in the period in which they are incurred. All licence acquisition,
exploration and evaluation costs and direct administration costs
are initially capitalised as intangible non-current assets in cost
centres by well (most typically), field or exploration area, as
appropriate. Interest payable is capitalised insofar as it relates to
specific development activities.
These costs are then written off as exploration costs in the
income statement unless commercial reserves have been
established or the determination process has not been completed
and there are no indicators of impairment.
All field development costs are capitalised as property, plant
and equipment. Property, plant and equipment related to
production activities is amortised in accordance with the Group’s
depreciation, depletion and amortisation accounting policy.
Depreciation, depletion and amortisation
Depletion is provided on oil and gas assets in production using
the unit of production method, based on proven and probable
reserves, applied to the sum of the total capitalised exploration,
evaluation and development costs, together with estimated future
development costs at current prices. Oil and gas assets which
have a similar economic life are aggregated for depreciation
purposes.
Impairment of value
Where there has been a change in economic conditions or in
the expected use of a tangible non-current asset that indicates
a possible impairment of an asset, management tests the
recoverability of the net book value of the asset by comparison
with the estimated discounted future net cash flows based on
management’s expectations of future oil prices and future costs.
Any identified impairment is charged/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.
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j) Changes in estimates
The effects of changes in estimates on the unit of production
calculations are accounted for prospectively, from the date of
adoption of the revised estimates, over the estimated remaining
proven and probable reserves.
Inventories
k)
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 practice. Underlifts and
overlifts are valued at market value and are included in accrued
income and prepayments, and accruals and deferred income,
respectively. Changes in hydrocarbon inventories, underlifts and
overlifts are adjusted through cost of sales.
Leases
l)
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.
m) Share-based payments
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
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.
n) 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.
o) 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.
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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 2023 and 2022 no financial assets were classified
at fair value through profit or loss.
Other financial assets
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.
Derivative and hedging instruments
Derivatives are initially recognised at fair value on the date that
a derivative contract is entered into, and they are subsequently
remeasured to their fair value at the end of each reporting period.
The accounting for subsequent changes in fair value depends on
whether the derivative is designated as a hedging instrument and,
if so, the nature of the item being hedged.
At inception of the hedge relationship, the Group documents the
economic relationship between hedging instruments and hedged
items, including whether changes in the cash flows of the hedging
instruments are expected to offset changes in the cash flows
of hedged items. The Group documents its risk management
objective and strategy for undertaking its hedge transactions.
Pharos entered into different commodity (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 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.
Borrowings
Interest-bearing bank loans are recorded at the proceeds
received, net of direct issue costs. Finance charges, including
any direct issue costs, are accounted for on an accrual basis in
the income statement using the effective interest method and are
added to the carrying amount of the instrument to the extent that
they are not settled in the year in which they arise.
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.
Equity instruments
Equity instruments issued by the Company are recorded at the
proceeds received, net of direct issue costs. Equity instruments
repurchased are deducted from equity at cost.
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p) Provisions
A contingent liability is disclosed unless the possibility of an
outflow of resources embodying economic benefits is remote
or the amount of the liability cannot be measured with sufficient
reliability.
Contingent liabilities may develop in a way not initially expected.
Therefore, they are assessed continually to determine whether
an outflow of resources embodying economic benefits has
become probable. If it becomes probable that an outflow of
future economic benefits will be required for an item previously
dealt with as a contingent liability, a provision is recognised in
the financial statements of the period in which the change in
probability occurs.
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event, it is
probable that the Group will be required to settle that obligation
and a reliable estimate can be made of the amount of the
obligation.
The amount recognised as a provision is the best estimate of
the consideration required to settle the present obligation at the
reporting date, taking into account the risks and uncertainties
surrounding the obligation. Where a provision is measured using
the cash flows estimated to settle the present obligation, its
carrying amount is the present value of those cash flows (when
the effect of the time value of money is material).
When some or all of the economic benefits required to settle
a provision are expected to be recovered from a third party, a
receivable is recognised as an asset if it is virtually certain that
reimbursement will be received and the amount of the receivable
can be measured reliably.
Decommissioning provisions:
Provisions for the costs to decommission oil & gas properties
are recognised when the Group has an obligation required by
the terms and conditions of the agreements and when a reliable
estimate can be made.
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 using
existing technology, at future prices, depending on the expected
timing of the activity, and discounted using the nominal discount
rate. Estimates are regularly reviewed and adjusted as appropriate
for new circumstances.
q) Foreign currencies
The individual financial statements of each Group company are
stated in the currency of the primary economic environment
in which it operates (its functional currency). Transactions in
currencies other than the entity’s functional currency (foreign
currency) are recorded at the rate of exchange at the date of the
transaction. Monetary assets and liabilities denominated in foreign
currencies at the balance sheet date are recorded at the rates of
exchange prevailing at that date, or if appropriate, at the forward
contract rate. Any resulting gains and losses are included in net
profit or loss for the period.
For the purpose of presenting consolidated financial statements
the results of entities denominated in currencies other than US
dollars are translated at the daily rate of exchange and their
balance sheets at the rates ruling at the balance sheet date.
Any resulting gains or losses are taken to other comprehensive
income.
r) Pension costs
The contributions payable in the year in respect of pension costs
for defined contribution schemes and other post-retirement
benefits are charged to the income statement. Differences
between contributions payable in the year and contributions
actually paid are shown either as accruals or prepayments in the
balance sheet.
3. Financial risk management
The Board reviews and agrees policies for managing financial
risks that may affect the Group. In certain cases the Board
delegates responsibility for such reviews and policy setting to the
Audit and Risk Committee. The principal financial risks affecting
the Group are discussed in the Risk Management Report on
pages 48 to 59 and in Note 36.
4. Critical judgements and accounting
estimates
a) Critical judgements in applying the Group’s
accounting policies
In the process of applying the Group’s accounting policies
described in Note 2, management has made judgements that
may have a significant effect on the amounts recognised in the
financial statements. These are discussed below:
Oil and gas assets
Note 2(i) 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(i) describes the Group’s policy
regarding reclassification of intangible assets to tangible assets.
Management considers the appropriateness of asset classification
at least annually.
Going concern
The Financial Statements have been prepared on the going
concern basis of accounting. A number of judgements were
taken in concluding that this basis of preparation was appropriate
and that there were no material uncertainties in this regard. These
included applying appropriate estimates of future production and
oil price together with ensuring that the forecasts included all
expenditure that was either committed or expected to be incurred
in relation to estimated production volumes. Consideration was
also given to the potential ongoing impact of the 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. In addition, consideration has also been given
to the ongoing delayed payment of EGPC trade receivables in
Egypt and the macro-economic environment in-country, which
has caused progressive devaluation of EGP currency against
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Annual Report and Accounts 2023Pharos Energy NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
USD. Further details in this area are provided in the Directors’
Report on page 143.
Oil and gas reserves and DD&A
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 that could affect
the Group’s future performance and position.
A base case forecast has been considered that utilises oil prices
of $81.5/bbl in 2024 and $79/bbl in 2025. 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 $54.3/bbl in April
2024 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 April 2024. Both the base case
and RWC take into account effect of hedging that has already
been put in place at 31 December 2023 and subsequent hedges
placed in 2024, now covering c.28% for the full year 2024 and
15% of 1H 2025. We have therefore secured an average floor
price and ceiling price of c. $63.5/bbl and c. $89/bbl, respectively,
for the entire hedged volumes. Under the RWC scenario, we have
identified appropriate mitigating actions, which could look to defer
uncommitted expenditure 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.$34/bbl. In TGT we have 2 wells planned to be drilled in 2H
2024. The majority of our debt of $30m as at 31 December 2023
is secured against the Vietnam assets under the RBL which will
be repaid by July 2025.
In Egypt, we have limited capital expenditure, low cost
recompletions and waterflood in El-Fayum and development
drilling on NBS in 2H 2024. As at 31 December 2023, there is
$9.2m drawn on an Uncommitted Revolving Credit facility on the
Egypt revenue invoices.
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 2023 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.
A reverse stress test has been performed to test for a further
decline in oil price, prior to any mitigating actions, to determine
the level/threshold that would breach covenants or no liquidity
headroom left. The likelihood of Brent price dropping to this
level is consider to be remote and the company can implement
various mitigating actions and strategies to address any potential
challenges.
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:
Note 2(i) sets out the Group’s accounting policy on DD&A.
Proven and probable reserves are estimated using standard
recognised evaluation techniques and are disclosed on page 33.
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 33, 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. For the El Fayum and NBS fields in 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, judgements
are taken over the life of the licence, and as economic conditions
evolve. Such revisions may impact the Group’s future financial
position and results, in particular, in relation to DD&A and
impairment testing of oil and gas property, plant and equipment.
Impairment of producing oil and gas assets
If impairment indicators are identified in relation to a producing
oil and gas field, management is required to carry out an
assessment in accordance with IAS 36 ‘Impairment of Assets’
by comparing 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 are discussed in Note 16.
c) 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 83 to 98. 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, 2022
and 2023, 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”). The Company’s 2023 oil price forecast is
higher due to the IEA (‘International Energy Agency’) raising its
net zero price from $35 to $42 per barrel by 2030, and from $24
to $25 per barrel by 2050. 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
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Annual Report and Accounts 2023Pharos Energy Financial StatementsAdditional InformationGovernance ReportStrategic Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
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 11 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 7-8 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:
Oil and gas sales (see Note 6)
Realised losses on commodity hedges
(see Note 6 and Note 25)
Investment revenue
2023
$ million
2022
$ million
168.1
(0.2)
0.2
168.1
221.6
(22.5)
0.2
199.3
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)
Pre-licence costs
Impairment charge – Intangible assets (see Note 15)
Impairment charge - PP&E (see Note 16)
Loss on fair value movement of financial asset (see Note 37)
Profit/(loss) before tax1
Tax charge on operations (see Note 12)
Tax credit on impairment charge (see Note 12)
SE Asia
$ million
Egypt
$ million
Unallocated
$ million
149.2
–
149.2
(51.0)
–
–
–
(46.0)
–
5.6
(36.0)
16.2
18.9
–
18.9
(4.4)
(0.2)
(0.4)
(6.5)
(12.9)
(0.3)
(18.4)
–
–
–
(0.2)
(0.2)
–
–
–
–
–
–
(16.2)
–
–
2023
Group
$ million
168.1
(0.2)
167.9
(55.4)
(0.2)
(0.4)
(6.5)
(58.9)
(0.3)
(29.0)
(36.0)
16.2
168
Annual Report and Accounts 2023Pharos Energy NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
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) - Intangible assets2
Impairment reversal - PP&E (see Note 16)
Loss on disposal (see Note 37)
Gain on fair value movement of financial asset (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
(6.6)
0.3
16.9
–
–
–
(22.5)
(22.5)
–
–
(0.2)
–
–
–
(44.6)
–
–
2022
Group
$ million
221.6
(22.5)
199.1
(55.1)
(0.1)
0.8
27.1
(6.6)
0.3
80.6
(47.9)
(8.3)
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 (see Note 15).
The accounting policies of the reportable segments are the same
as the Group’s accounting policies as described in Note 2.
7. Cost of sales
Included in revenues arising from South East Asia and Egypt
are revenues of $149.2m and $18.9m which arose from the
Group’s two largest customers, who contributed more than 10%
to the Group’s oil and gas revenue (2022: $182.5m and $36.8m
in South East Asia and Egypt from the Group’s three largest
customers).
Geographical information
The Group’s oil and gas revenue and non-current assets
(excluding other receivables) by geographical location are
separately detailed below where they exceed 10% of total
revenue or non-current assets, respectively:
Depreciation, depletion and
amortisation (see Note 16)
Production based taxes
Export duty
Production operating costs
Inventories
2023
$ million
2022
$ million
55.4
10.5
–
41.3
4.0
55.1
14.7
3.2
45.6
(1.8)
111.2
116.8
8. Other/restructuring expense
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.
Redundancy costs
Other
Premium – lease transfer
2023
$ million
2022
$ million
–
0.6
–
0.6
0.1
–
0.7
0.8
Vietnam
Egypt
China
Non-current assets
Vietnam
Egypt
Excludes other assets.
2023
$ million
2022
$ million
149.2
18.9
–
168.1
2023
$ million
240.4
57.6
298.0
97.1
36.8
87.7
221.6
2022
$ million
332.5
65.8
398.3
In 2023, other expenses of $0.6m were due to changes in the
best estimate of the adjustment relating to the interim period
between the economic date of 1 July 2020 and the completion
date of the disposal of 55% interest in the Egypt concessions.
In 2022, $0.7m 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 was released from the escrow account and
paid to the new tenant.
169
Annual Report and Accounts 2023Pharos Energy Financial StatementsAdditional InformationGovernance ReportStrategic Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
9. Finance costs
2023
$ million
2022
$ million
Unwinding of discount on provisions
(see Note 26)
Interest expense payable and similar fees
(see Note 24)
RBL modification charge and amortisation
of capitalised borrowing costs (see Note 24)
Net foreign exchange losses
2.0
6.4
1.3
0.5
1.3
6.0
4.1
1.3
10.2
12.7
In 2023, $2.0m relates to the unwinding of discount on the
provisions for decommissioning (2022: $1.3m). 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 7-8 years) in the
removal and decommissioning of the facilities currently in place
(see Note 26).
Following the June and December 2023 redeterminations and the
$35.0m repayment of principal in relation to the Group’s reserve
based lending facility, there was a change in estimated future
cash flows. As a result, a charge of $2.7m (2022: $2.6m) was
recognised in profit and loss, offset by an amortisation adjustment
of $(1.4)m (2022: amortised cost of $1.5m).
10. Auditor’s remuneration
The analysis of the auditor’s remuneration is as follows:
11. Staff costs
The average monthly number of employees of the Group including
Executive Directors was 38 (2022: 52), of which 34 (2022: 47)
were administrative personnel and 4 (2022: 5) were operations
personnel. Their aggregate remuneration comprised:
Wages and salaries
Social security costs
Share-based payment expense
(see Note 31)
Other pension costs under money
purchase schemes
Other benefits
2023
$ million
Group
2022
$ million
6.1
0.6
1.3
0.5
0.7
9.2
8.0
0.8
1.7
0.5
0.6
11.6
In accordance with the Group’s accounting policy $3.3m (2022:
$2.4m) of the Group’s staff costs above have been capitalised,
of which $2.5m (2022: $1.8m) relates to our Vietnam assets and
$0.8m (2022: $0.6m) relates to our Egypt assets.
In 2023, total staff costs were $9.2m (2022: $11.6m) 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 19%
year on year - $5.8m (2022: $7.2m).
Fees payable to the Company’s auditor
and their associates for the audit of the
Company’s annual accounts
2023
$000s
2022
$000s
In 2022, redundancy costs of $0.1m, for both the head office in
London and the Egypt office in Cairo, were disclosed in other/
restructuring expense in the Income Statement (see Note 8).
574
418
12. Tax
Current tax charge
Deferred tax credit on operations
(see Note 23)
Deferred tax (credit)/charge on impairment
(see Note 16 and 23)
Total tax charge
2023
$ million
2022
$ million
44.5
(8.5)
(16.2)
19.8
54.5
(6.6)
8.3
56.2
The Group’s corporation tax is calculated at 50% (2022: 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 2023 and 2022, both current and
deferred taxation have arisen in overseas jurisdictions only.
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
11
–
585
141
37
178
100
36
554
127
40
167
The non-audit fees during 2023 included the half year review and
other assurance services associated primarily with agreed upon
procedures relating to Vietnam (2022: half year review and other
assurance services associated primarily with 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.
Details of the Company’s policy on the use of auditors for non-
audit services are set out in the Audit and Risk Committee Report
on pages 120 to 125.
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.
170
Annual Report and Accounts 2023Pharos Energy NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
The charge for the year can be reconciled to the (loss)/profit per
the income statement as follows:
13. (Loss)/profit attributable to Pharos
Energy Plc
(Loss)/Profit before tax
2023
$ million
2022
$ million
(29.0)
80.6
The loss for the financial year in the accounts of the Company
was $(47.0)m inclusive of dividends from subsidiary undertakings
(2022: profit of $60.7m). 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.
14. Earnings per share
The calculation of the basic and diluted earnings per share is
based on the following data:
(Loss)/Gain for the purposes of basic profit/
(loss) per share
Effect of dilutive potential ordinary shares –
Cash settled share awards and options
(Loss)/Gain for the purposes of diluted
profit/(loss) per share
Weighted average number of ordinary
shares
Effect of dilutive potential ordinary shares –
Share awards and options
Weighted average number of ordinary
shares for the purpose of diluted profit/(loss)
per share
2023
$ million
(48.8)
–
(48.8)
Group
2022
$ million
24.4
(0.3)
24.1
Number of shares
(million)
2023
2022
427.2
439.3
–
0.9
427.2
440.2
In accordance with IAS 33 “Earnings per Share”, the effects of
2.9m antidilutive potential shares have not been included when
calculating dilutive earnings per share for the year ended 31
December 2023, as the Group was loss making.
(Loss)/Profit before tax at 50% (2022: 50%)
(14.5)
40.3
Effects of:
Non-taxable income
Non-deductible expenses
Tax losses not recognised
Adjustments to tax charge in respect of
previous periods
Tax charge for the year
–
18.0
16.5
(0.2)
19.8
(3.3)
5.6
13.8
(0.2)
56.2
The prevailing tax rate in Vietnam, where the Group produces oil
and gas, is 50%. The tax charge in future periods may also be
affected by the factors in the reconciliation above.
In 2022, non-taxable income relates to Vietnam impairment
reversal of $(3.3)m. Non-deductible expenses primarily relate
to Vietnam impairment charges of $6.8m and Vietnam DD&A
charges for costs previously capitalised, which are non-deductible
for Vietnamese tax purposes of $10.4m (2022: $5.6m). A further
$0.8m (2022: $nil) 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 2023, 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 $18m 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.
171
Annual Report and Accounts 2023Pharos Energy Financial StatementsAdditional InformationGovernance ReportStrategic Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
15. Intangible assets
Exploration and evaluation expenditure
As at 1 January
Additions
Transfer to property, plant and equipment
Impairment – Intangibles1
As at 31 December
2023
$ million
Group
2022
$ million
2023
$ million
Company
2022
$ million
16.5
11.1
(2.9)
(6.5)
18.2
12.4
4.3
–
(0.2)
16.5
–
–
–
–
–
–
–
–
–
–
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 2023 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 (2022: $3.1m) and Egypt $8.0m (2022: $1.0m), of which $6.7m (2022: $0.9m)
relates to North Beni Suef.
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. 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 ($2.4m share post-farm out) were written off in the income statement
in accordance with the Group’s accounting policy on oil and gas exploration and evaluation expenditure.
During 2023, approval was received from the Vietnamese Government in June for the two-year extension to Phase One of the
Exploration Period under Blocks 125 & 126 PSC to 8 November 2025. On 20 July 2023, the Company published an independent
assessment by ERCE for Block 125, which confi rmed a range of gross unrisked prospective oil resources of between 1,178 MMstb (1U)
and 29,785 MMstb (3U) with a Mean value of 13,328 MMstb for the Prospects in the North West area of Block 125 currently covered
fully or partially by 3D seismic. These resources do not include Leads already identifi ed in Blocks 125 & 126 but not yet covered by 3D
seismic. Work is ongoing to progress well planning and discussions are ongoing to secure a partner ahead of drilling the commitment
well in 2025. Whilst ongoing costs for exploration are therefore forecast and funds available for future exploration, there is insuffi cient
certainty of full recovery to justify the reversal of the previous impairment charges in 2020. The accumulated impairment charges against
Vietnam exploration and evaluation expenditure at 31 December 2023 therefore remain at $17.9m (2022: $17.9m).
In Egypt, as part of the planned work programme for 2023, an exploration well was drilled on El Fayum in July 2023. It was the fi rst
commitment well in the Abu Roash G and Upper Bahariya formations and the well is set-up for re-entry and testing in 2024. During
2023, as no further substantive exploration or evaluation is planned or budgeted for the El Fayum Batran-1X well drilled in 2021, the
asset of $1.6m has been impaired in full.
On NBS, the fi rst exploration commitment well (NBS-SW1X) was declared a commercial discovery in September 2023 and put on
production in December 2023. As a result, exploration costs of $2.9m relating to the development lease were reclassifi ed to property,
plant and equipment. A further dry-hole well of $0.8m (NBS-SW5X) was impaired in full, leaving $4.1m (post-2020 impairment charge of
$1.2m) in exploration and evaluation expenditure. No substantive expenditure is budgeted or planned in the future in relation to the NBS
exploration acreage and the remaining balance of $4.1m has been fully impaired.
The accumulated impairment charges against Egypt exploration and evaluation expenditure at 31 December 2023 stand at $8.9m
(2022: $2.4m).
172
Annual Report and Accounts 2023
Pharos Energy
Strategic Report
Governance Report
Financial Statements
Additional Information
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
16. Property, plant and equipment and right-of-use assets
Cost
As at 1 January 2022
Additions
Revision in decommissioning asset (see Note 26)
As at 1 January 2023
Additions
Transfer from intangible assets
Revision in decommissioning asset (see Note 26)
As at 31 December 2023
Depreciation
As at 1 January 2022
Charge for the year
Impairment (reversal)
As at 1 January 2023
Charge for the year
Impairment charge
As at 31 December 2023
Carrying amount
As at 31 December 2023
As at 31 December 2022
Property, plant and equipment
Right-of-use assets (see Note 33)
As at 31 December 2023
Property, plant and equipment
Right-of-use assets (see Note 33)
As at 31 December 2022
Group
Company
Oil and gas
properties
$ million
Other
$ million
Total
$ million
Other
$ million
1,091.9
23.8
(13.9)
1,101.8
11.9
2.9
(2.5)
0.9
0.2
–
1.1
0.2
–
–
1,092.8
24.0
(13.9)
1,102.9
12.1
2.9
(2.5)
1,114.1
1.3
1,115.4
692.5
55.1
(27.1)
720.5
55.4
58.9
834.8
279.3
381.3
278.8
0.5
279.3
380.5
0.8
381.3
0.5
0.1
–
0.6
0.2
–
0.8
0.5
0.5
0.5
–
0.5
0.5
–
0.5
693.0
55.2
(27.1)
721.1
55.6
58.9
835.6
279.8
381.8
279.3
0.5
279.8
381.0
0.8
381.8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
As a result of previously recognised impairment losses, combined with the ongoing oil price volatility, economic uncertainty leading to
high infl ation globally 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. The recoverable amount is calculated using a discounted cash fl ow valuation of the 2P
production profi le.
Pharos Energy
Annual Report and Accounts 2023
173
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
Summary of Impairments - Oil and Gas properties
TGT
$m
CNV
$m
El Fayum
$m
NBS
$m
Total
$m
2023
Pre-tax impairment (charge)/credit
Deferred tax credit/(charge)
Post-tax impairment charge
Reconciliation of carrying amount:
As at 1 January 2023
Additions
Transfer from intangible assets
Changes in decommissioning asset1
DD&A
Impairment (charge)/reversal
As at 31 December 2023
2022
Pre-tax impairment reversal
Deferred tax charge
Post-tax impairment reversal
Reconciliation of carrying amount:
As at 1 January 2022
Additions
Changes in decommissioning asset1
DD&A
Impairment reversal
As at 31 December 2022
(46.3)
16.5
(29.8)
242.4
1.3
–
–
(38.8)
(46.3)
158.6
19.7
(6.9)
12.8
266.0
7.0
(11.1)
(39.2)
19.7
242.4
0.3
(0.3)
–
76.4
3.0
–
(2.5)
(12.2)
0.3
65.0
3.6
(1.4)
2.2
84.2
3.2
(2.8)
(11.8)
3.6
76.4
(11.0)
–
(11.0)
62.5
7.6
–
–
(4.4)
(11.0)
54.7
3.8
–
3.8
49.2
13.6
–
(4.1)
3.8
62.5
(1.9)
–
(1.9)
–
–
2.9
–
–
(1.9)
1.0
–
–
–
–
–
–
–
–
–
(58.9)
16.2
(42.7)
381.3
11.9
2.9
(2.5)
(55.4)
(58.9)
279.3
27.1
(8.3)
18.8
399.4
23.8
(13.9)
(55.1)
27.1
381.3
1) Changes in decommissioning asset for CNV is due to revision of field abandonment plan and discount rate, whereas TGT reflects an immaterial change in
discount rate only (2022: 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).
Vietnam
The key assumptions to which the recoverable amount is most sensitive are oil price, discount rate and 2P reserves (2022: oil price,
discount rate and 2P reserves). In 2023, for TGT, there was a downwards technical revision of 2P reserves and the production profile
compared to prior year. For CNV, there was upwards revision of the production profile following strong performance from the new
lateral well. As at 31 December 2023, the fair value of the assets are estimated based on a post-tax nominal discount rate of 12.6%
(2022: 13.3%) and a Brent oil price of $81.5/bbl in 2024, $79.0/bbl in 2025, $79.2/bbl in 2026, $76.3/bbl in 2027 plus inflation of
2.0% thereafter (2022: an 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).
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 (compared to new NBV) of $15.1m on TGT and $3.1m on CNV. A 1% increase in discount rate
would result in post-tax impairments of $2.4m on TGT and $0.8m 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; $81.5/bbl in 2024, $79.0/bbl in 2025, $79.2/bbl in 2026, $72.2/bbl in 2027, $64.8/bbl in 2028, $57.2/bbl in 2029, $49.2/bbl
in 2030 and $49.2/bbl in 2031. Using these prices and a 12.6% discount rate would result in additional post-tax impairments of $10.3m
on TGT and $4.0m on CNV.
The impairment tests for TGT and CNV assume that production ceases in 2029 and 2030 respectively, assuming the licences are
extended by at least three years reflecting past practice and a commercial assessment (and consistent with the reserves estimates
independently audited by RISC Advisory Pty Ltd.) that it is highly probable given the economic circumstances and current discussions.
The current negotiations over terms are for a longer duration than that assumed and would be expected to improve the value in use
calculated.
174
Annual Report and Accounts 2023Pharos Energy Strategic Report
Governance Report
Financial Statements
Additional Information
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
Egypt
The key assumptions to which the recoverable amount is most sensitive are oil price, discount rate, capital spend and 2P reserves
(2022: oil price, discount rate, capital spend and 2P reserves). In 2023, there was a downwards technical revision of El Fayum
2P reserves and production profi le compared to prior year and NBS 2P reserves were recognised for the fi rst time following
commencement of production in December 2023. As at 31 December 2023, the fair value of the assets are estimated based on a
post-tax nominal discount rate of 18.0% (2022: 15.9%) and a Brent oil price of $81.5/bbl in 2024, $79.0/bbl in 2025, $79.2/bbl in 2026,
$76.3/bbl in 2027 plus infl ation of 2.0% thereafter (2022: an oil price of $88.3/bbl in 2023, $84.8/bbl in 2024, $79.4/bbl in 2025, $74.5/
bbl in 2026 plus infl ation 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 impairment charges (compared to new NBV) of $7.1m for El Fayum and $0.9m for NBS. A 1% increase in discount rate would
result in impairment charges of $2.1m on El Fayum and $0.1m on NBS. We have also run a sensitivity using 18.0% discount rate and
the Net Zero price scenario which would result in an additional impairment of $23.5m on El Fayum and $1.0m on NBS.
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 profi le and the consequential effect on the expenditure required to both develop and extract the
reserves.
Other fi xed assets comprise offi ce fi xtures and fi ttings 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 2023.
Country
of incorporation
Country
of operation
Principal activity
Percentage
holding
Footnotes
Registered
address
OPECO Vietnam Limited
Cook Islands
Vietnam
SOCO Vietnam Limited
Cayman Islands
Vietnam
Oil and gas development and
production
Oil and gas development and
production
Pharos Exploration Limited
Pharos SEA Limited
Jersey
Jersey
–
–
Investment holding
Investment holding
SOCO Exploration (Vietnam)
Limited
Cayman Islands
Vietnam
Oil and gas exploration
OPECO, Inc
USA
–
Investment holding
Pharos El Fayum
Cayman Islands
Egypt
SOCO Management Services, Inc. USA
Pharos Energy Israel Limited
UK
USA
Israel
Oil and gas exploration,
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
Pharos Energy
Annual Report and Accounts 2023
175
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
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 development/production phase following first production in December
2023 and is operated by IPR Lake Qarun, which holds the remaining 55% working interest. Following a successful first exploration well on the North
Beni Suef Concession in 2023, the first development lease on the Concession was awarded in September 2023. Production from the Concession
started in December 2023. A new joint operating company, Petro Beni Suef, has been constituted in connection with the development and production
operations on the North Beni Suef Concession.
Registered addresses
a)
b)
47 Esplanade, St Helier, Jersey, JE1 0BD, Channel Islands
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
Divestments:
No subsidiary undertakings were dissolved during the year.
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 (charge)/reversal
As at 31 December
2023
$ million
335.5
7.9
(49.1)
294.3
Investments
2022
$ million
278.7
0.6
56.2
335.5
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
net present value of future cash flows which are estimated based on utilising discounted cash flow analyses and other reasonable
supportable assumptions for the producing assets held by each subsidiary including working capital values held. During 2023, the
Company recorded a net impairment charge of $(49.1)m in investments in subsidiaries in relation to the underlying net asset values of
Vietnam and Egypt operations (2022: 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 2023, a loss allowance of $0.3m
was recognised in relation to loans to subsidiary undertakings during the year (2022: $2.3m loss).
176
Annual Report and Accounts 2023Pharos Energy NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
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 2023. 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
2023, there are no liabilities and commitments outstanding (2022: $0.1m).
18. Other non-current assets
Amounts falling due after one year:
Abandonment security fund
Contingent consideration on Egypt farm-out (see Note 20)
2023
$ million
Group
2022
$ million
2023
$ million
Company
2022
$ million
53.7
4.9
58.6
50.2
8.9
59.1
–
–
–
–
–
–
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 2023, the Group has
contributed $3.5m (2022: $2.1m). As at 31 December 2023, the Group’s total contribution to the funds was $53.7m (2022: $50.2m).
A further $4.9m (2022: $8.9m) relates to Egypt and non-current contingent consideration due from the 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 20).
19. Inventories
Crude oil and condensate
2023
$ million
3.3
3.3
Group
2022
$ million
7.2
7.2
2023
$ million
–
–
Company
2022
$ 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).
20. Trade and other receivables
Amounts falling due within one year
Trade receivables
Other receivables
Prepayments and accrued income
Derivative financial instruments (see Note 25)
2023
$ million
Group
2022
$ million
2023
$ million
Company
2022
$ million
50.8
9.5
1.9
0.1
62.3
33.2
27.0
0.7
–
60.9
–
–
0.4
–
0.4
–
–
0.4
–
0.4
177
Annual Report and Accounts 2023Pharos Energy Financial StatementsAdditional InformationGovernance ReportStrategic Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
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 2023 are trade receivables of $17.4m
and $33.4m (after risk factor provision of $4.0m) respectively, which arose from the Group’s two largest customers (2022: $10.3m and
$22.4m, after risk factor provision of $1.8m, 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 (2022: nil). In Egypt,
the average credit period on sales is 597 days (2022: 194 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, 100% (2022: 99%) 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 2023, an ECL provision of
$4.0m (2022: $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.
Included in other receivables is $4.9m (2022: $20.9m) of carry, the remaining balance of disproportionate funding contribution from IPR
following completion of the farm-out transaction of Egyptian assets. The carry decreases every month against the cash calls received
from IPR. The total amount utilised as at 31 December 2023 amounts to $31.0m (2022: $15.4m). The movement during 2023 was
$15.6m, which has been disclosed in “Consideration in relation to farm out of Egyptian assets” in the cash flow as part of investing
activities. 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.
A further $3.6m included in other receivables relates to current contingent consideration due from the farm-out with IPR. As at 31
December 2023, total contingent consideration receivable amounts to $8.5m, $3.6m in current trade and other receivables and $4.9m
in other non-current other assets (2022: $13.9m, $5.0m in current trade and other receivables and $8.9m in non-current other assets).
Testing of sensitivity for a $5/bbl reduction in long term oil price used would result in $0.6m decrease in contingent consideration to
$7.9m. 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. On 1 June 2023, contingent consideration of $5.0m in respect of average Brent price during 2022
was received from IPR, assignment bonus of $0.5m settled to EGPC upon receipt of contingent consideration.
21. Cash and cash equivalents
As at 31 December 2023, cash and cash equivalents was $32.6m (2022: $45.3m). Of this balance, $1.2m (2022: $7.4m) were in
Money Market Funds that are valued at quoted prices of the funds in the active markets for the financial instruments.
22. Trade and other payables
Amounts falling due within one year:
Other payables
Derivative financial instruments (see Note 25)
Accruals and deferred income
Amounts falling due after one year:
Other payables
2023
$ million
Group
2022
$ million
2023
$ million
Company
2022
$ million
11.3
–
2.9
14.2
0.5
0.5
6.3
1.1
6.6
14.0
0.9
0.9
3.5
–
0.5
4.0
–
–
1.1
–
0.8
1.9
–
–
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 48 to 59.
178
Annual Report and Accounts 2023Pharos Energy NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
As at 31 December 2023, $0.8m (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. $0.3m is booked as current other payable and $0.5m as
non-current other payable. Following receipt of contingent consideration amounting to $5.0m an assignment bonus of $0.5m was offset
against trade receivables from EGPC.
Accruals and deferred income include $0.4m (2022: $2.5m) 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 2022
Charge to income (see Note 12)
As at 1 January 2023
Credit to income (see Note 12)
As at 31 December 2023
Accelerated tax
depreciation
$ million
Other temporary
differences
$ million
88.3
0.9
89.2
(22.8)
66.4
2.9
0.8
3.7
(1.9)
1.8
Group
$ million
91.2
1.7
92.9
(24.7)
68.2
The credit to income includes a deferred tax credit of $(16.2)m (2022: $8.3m 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 $155.2m (2022: $143.2m). 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 $0.2m (2022: $22.5m losses) 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.
24. Borrowings
Borrowings:
Uncommitted Revolving credit facility
Reserve Based Lending Facility
RBL modification charge 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
2023
$ million
Group
2022
$ million
9.2
30.0
1.3
40.5
29.5
11.0
40.5
9.2
65.0
-
74.2
39.6
34.6
74.2
less than 1 year
$ million
1-2 years
$ million
Group
$ million
9.2
20.3
29.5
–
11.0
11.0
9.2
31.3
40.5
179
Annual Report and Accounts 2023Pharos Energy Financial StatementsAdditional InformationGovernance ReportStrategic Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
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 2023 redetermination.
Changes in liabilities arising from financing activities:
Carrying value as of 1 January
Proceeds from Uncommitted Revolving credit facility
Repayments of borrowings
RBL modification charge and 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
2023
$ million
Credit
facility
9.2
9.2
(9.2)
-
0.6
(0.6)
9.2
2023
$ million
2023
$ million
2022
$ million
RBL
65.0
-
(35.0)
1.3
5.8
(5.8)
31.3
Total
Borrowings
Total
Borrowings
74.2
9.2
(44.2)
1.3
6.4
(6.4)
40.5
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.
Reserve Based Lending facility (RBL)
In September 2018, the Group signed a $125m Reserve Based Lending facility 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 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 5.25% plus Compound SOFR
plus CAS (Credit Adjustment Spread). Until June 2023 the RBL bore a per annum interest of 4.75% plus USD LIBOR.
The Group accounted for the change to SOFR, from 1 July 2023, using the practical expedient introduced by the Phase 2 amendments,
which allows the Group to change the basis for determining the contractual cash flows prospectively by revising the effective interest
rate (included in Finance costs line “RBL modification charge and amortisation of capitalised borrowing costs”).
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 2023, the principal repayment
made amounted to $35.0m (2022: $13.1m).
The $20.3m, categorised as current, is based on the outcome of the December 2023 RBL redetermination criteria and will likely change
following the June 2024 redetermination.
The RBL is subject to a number of financial covenants, all of which have been complied with during the 2023 and 2022 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 2024, the Group renegotiated the uncommitted revolving credit facility until 30 May 2025. 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. The loan bore 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 until 30 June 2023. From 1 July 2023 the
loan bears a per annum interest rate of Term SOFR plus CAS plus 3.50% for initial advances and 4.00% for any extensions beyond 180
days from the date of the utilisation.
The amount repayable under the agreement at 31 December 2023 was $9.2m (2022: $9.2m) 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.
180
Annual Report and Accounts 2023Pharos Energy NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
25. Hedge transactions
During 2023, Pharos entered into zero cost 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 June 2025 and are settled monthly. For 2023, 36% of the Group’s total production was hedged,
securing average floor and ceiling prices for the hedged volumes at $64.5/bbl and $100.8/bbl, respectively. 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 2024, leaving 72% of Group production unhedged as at 31 December 2023 (2022: 30% of the Group’s total
production was hedged, securing a minimum price for these hedged volumes of $67.9 per barrel).
A summary of hedges outstanding as at 31 December 2023 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
1Q24
120
63.00
91.50
2Q24
120
63.00
87.88
3Q24
150
64.40
88.66
4Q24
120
63.00
89.00
1Q25
60
64.00
90.00
2Q25
60
64.00
90.00
Pharos has designated the 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 2023, a loss of $0.2m was realised (2022: loss of $22.5m). The
outstanding unrealised gain on open position as at 31 December 2023 amounts to $0.1m (2022: loss of $0.7m).
The carrying amount of the 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 receivable position as of December 2023 was $0.1m (2022:
liability position $1.1m).
26. Long-term provisions
Decommissioning provision
Movement in decommissioning
As at 1 January
New provisions and changes in estimates
Unwinding of discount (see Note 9)
As at 31 December
2023
$ million
53.8
53.8
Group
2022
$ million
54.3
54.3
2023
$ million
–
–
2023
$ million
54.3
(2.5)
2.0
53.8
Company
2022
$ million
–
–
Group
2022
$ million
66.9
(13.9)
1.3
54.3
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 7-8 years) in the removal and
decommissioning of the facilities currently in place. The provision is calculated using an inflation rate of 2.0% (2022: 2.0%) and a
discount rate of 3.9% (2022: 3.8%). The $2.5m decrease in provision in 2023 was driven by a revision to the CNV field abandonment
plan, which was formally agreed by all partners in April 2023. The $13.9m decrease in provision in 2022 was driven by the increase
in discount rate compared to prior year (from 1.5% in 2021 to 3.8% in 2022) 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.
181
Annual Report and Accounts 2023Pharos Energy Financial StatementsAdditional InformationGovernance ReportStrategic Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
27. Share capital and Share premium
Share capital
Ordinary Shares of £0.05 each
Issued and fully paid
As at 1 January
Share buy back
Issued and fully paid
Share premium
As at 1 January and 31 December
Group and Company
2023
Shares
2022
Shares
432,026,943
441,795,126
2023
$ million
33.7
2022
$ million
34.3
Group and Company
2023
$ million
2022
$ million
34.3
(0.6)
33.7
34.9
(0.6)
34.3
Group and Company
2023
$ million
58.0
2022
$ million
58.0
As at 31 December 2023, authorised share capital comprised 600 million (2022: 600 million) ordinary shares of £0.05 each with a total
nominal value of £30m (2022: £30m).
In January 2023, the Company announced the continuation of a further $3m share buyback programme, the First Programme
Extension, of which $2.8m had been incurred by the end of December 2023. A total of 9.9 million shares were bought, at a daily
average of 22.8p. The Board believes that the Company’s shares are 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 share buybacks is an appropriate
means of returning value to shareholders. The Company therefore intends to continue with the share buyback programme in 2024
by committing a further $3m (excluding stamp duty and expenses). This further extension of the programme (the Second Programme
Extension) is expected to commence following completion of the First Programme Extension.
28. Other reserves
Capital
redemption
reserve
$ million
Merger
reserve
$ million
Own shares
$ million
Hedging
reserve
$ million
Share-based
payments
$ million
Total
$ million
Group
As at 1 January 2022
Other comprehensive income
Share buy back
Treasury shares repurchased
Share-based payments
Transfer relating to share-based payments
100.3
194.0
(44.3)
–
0.6
–
–
–
–
–
–
–
–
–
–
(0.6)
–
2.2
As at 1 January 2023
100.9
194.0
(42.7)
Other comprehensive income
Share buy back
Share-based payments
Transfer relating to share-based payments
–
0.6
–
–
–
–
–
–
As at 31 December 2023
101.5
194.0
–
–
–
0.1
(42.6)
(4.3)
3.6
–
–
–
–
(0.7)
0.8
–
–
–
0.1
4.8
250.5
–
–
–
1.7
(4.4)
2.1
–
–
1.0
(0.7)
2.4
3.6
0.6
(0.6)
1.7
(2.2)
253.6
0.8
0.6
1.0
(0.6)
255.4
182
Annual Report and Accounts 2023Pharos Energy NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
As at 1 January 2022
Shares buy back
Share-based payments
Transfer relating to share-based payments
As at 1 January 2023
Share buy back
Share-based payments
Transfer relating to share-based payments
Capital
redemption
reserve
$ million
100.3
0.6
–
–
100.9
0.6
–
–
Merger
reserve
$ million
137.1
Own shares
$ million
(40.3)
–
–
–
–
–
–
137.1
(40.3)
–
–
–
–
–
–
As at 31 December 2023
101.5
137.1
(40.3)
Company
Total
$ million
202.4
0.6
1.7
(5.0)
199.7
0.6
1.0
(0.7)
200.6
Share-based
payments
$ million
5.3
–
1.7
(5.0)
2.0
–
1.0
(0.7)
2.3
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 Pharos Employee Benefit Trust (‘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 2023 was 9,122,268
(2022: 9,122,268) and 2,126,857 (2022: 2,126,857) respectively. The market price of the shares at 31 December 2023 was £0.2130
(2022: £0.2330). 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 Committee Report on pages 126 to 142.
The trustees purchase shares in the open market which are recognised by the Company within investments and classified as other
reserves by the Group as described above. When award conditions are met, an unconditional transfer of shares is made out of the
Trust to Plan participants. The Group has an obligation to make regular contributions to the Trust to enable it to meet its financing costs.
Rights to dividends on the shares held by the Trust have been waived by the trustees.
29. Distribution to shareholders
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31 December 2022 of 1.00 pence per share, paid in the year
Interim dividend for the year ended 31 December of 2023 of 0.33 pence per share, declared in year
Proposed final dividend for the year ended 31 December 2023 of 0.77 pence per share
2023
$ million
2022
$ million
5.6
1.7
7.3
4.2
–
–
–
–
The proposed final dividend for the year ended 31 December 2023 of 0.77 pence per share takes the 2023 full-year dividend to 1.10
pence per share, in excess of the minimum 10% of Operating Cash Flow (OCF) per the Company’s dividend policy.
The final dividend of 1.00 pence per ordinary share in respect of the year ended 31 December 2022 ($5.6m) was paid on 12 July 2023.
The interim dividend of 0.33 pence per ordinary share was paid on 24 January 2024. The proposed final dividend of 0.77 pence per
ordinary share in respect of the year ended 31 December 2023, subject to approval of shareholders at the Company’s 2024 AGM in
May, is payable on 19 July 2024 to all shareholders on the register at the close of business on 14 June 2024.
183
Annual Report and Accounts 2023Pharos Energy Financial StatementsAdditional InformationGovernance ReportStrategic Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
30. Retained (defi cit) / earnings
As at 1 January 2022
Profi t for the year
Share buy back
Transfer relating to share-based payments
As at 1 January 2023
Loss for the year
Share buy back
Distributions to shareholders
Transfer relating to share-based payments
As at 31 December 2023
As at 1 January 2022
Profi t for the year
Share buy back
Transfer relating to share-based payments
As at 1 January 2023
Loss for the year
Share buy back
Distributions to shareholders
Transfer relating to share-based payments
As at 31 December 2023
Retained
(loss)/profi t
$ million
Unrealised currency
translation differences
$ million
(44.1)
24.4
(2.9)
2.2
(20.4)
(48.8)
(2.8)
(7.3)
0.6
(78.7)
5.1
–
–
–
5.1
–
–
–
–
5.1
Retained
(loss)/profi t
$ million
Unrealised currency
translation differences
$ million
234.7
60.7
(2.9)
2.3
294.8
(47.0)
(2.8)
(7.3)
0.6
238.3
(222.1)
–
–
–
(222.1)
–
–
–
–
(222.1)
Group
Total
$ million
(39.0)
24.4
(2.9)
2.2
(15.3)
(48.8)
(2.8)
(7.3)
0.6
(73.6)
Company
Total
$ million
12.6
60.7
(2.9)
2.3
72.7
(47.0)
(2.8)
(7.3)
0.6
16.2
184
Annual Report and Accounts 2023
Pharos Energy
Strategic Report
Governance Report
Financial Statements
Additional Information
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 Committee Report on pages 126 to 142. The Group recognised total expenses of $1.3m (2022: $1.7m) 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 ten 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.
267,779 awards were exercised during 2023 (2022: 392,779 shares exercised). The Company has no legal or constructive obligation to
repurchase or settle awards in cash. Details of awards outstanding during the year are as follows:
As at 1 January
Adjustments1
Granted
Exercised
Forfeited during the year
As at 31 December
2023
No. of share
awards
17,642,212
882,124
7,347,221
(267,779)
(5,449,945)
20,153,833
2022
No. of share
awards
18,985,754
-
5,991,668
(392,779)
(6,942,431)
17,642,212
Exercisable as at 31 December
–
–
1) In accordance with Share Scheme rules, adjustments were made for the payment of dividends in 2023.
Awards outstanding at the end of the year have a weighted average remaining contractual life of 1.4 years (2022: 1.4 years). The
weighted average market price and estimated fair value of the 2023 grants (at grant date) were £0.23 and £0.17, respectively.
The fair value of the LTIPs granted during 2023 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 2023 was 77% (2022:
72%).
The main assumptions for the calculation are as follows:
Volatility
Risk free rate of interest
Correlation with comparator group
Other Share Schemes
2023
11.94%
3.21%
n/a
2022
43.89%
1.51%
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 ten-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.
Pharos Energy
Annual Report and Accounts 2023
185
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
As at 1 January
Adjustments1
Granted
Forfeited during the year
Exercised
As at 31 December
Exercisable as at 31 December
2023
No. of share
awards
Weighted average
exercise price
£
2,886,857
148,069
1,875,448
(50,000)
–
4,860,374
578,172
0.40
–
–
–
–
0.34
0.41
2022
Weighted average
exercise price
£
0.43
–
–
–
0.33
0.40
0.41
No. of share
awards
2,618,182
–
2,273,685
(570,967)
(1,434,043)
2,886,857
578,172
1) In accordance with Share Scheme rules, adjustments were made for the payment of dividends in 2023.
There were no share options exercised during 2023 (the weighted average market price at the date of exercise during 2022 was £0.25).
Awards outstanding at the end of the year have a weighted average remaining contractual life of 8 years (2022: 6.5 years).
The fair value of the awards granted during 2023 and 2022 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 (loss)/profit
Share-based payments
Depletion, depreciation and amortisation
Impairment charge/(reversal)
Operating cash flows before movements in working capital
Decrease/(increase) in inventories
(Increase)/decrease in receivables1
Increase/(decrease) in payables
Cash generated by (used in) operations
Interest received
Other/restructuring expense outflow
Income taxes paid
Net cash from (used in) operating activities
2023
$ million
Group
2022
$ million
(18.1)
0.9
55.6
65.4
103.8
3.9
(19.1)
0.2
88.8
0.4
–
(44.3)
44.9
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
2023
n/a
2022
n/a
2023
$ million
(58.6)
0.9
–
49.4
(8.3)
–
(0.2)
0.1
(8.4)
0.3
–
–
(8.1)
Company
2022
$ million
44.2
1.3
–
(53.9)
(8.4)
–
1.2
(1.8)
(9.0)
0.1
(2.7)
–
(11.6)
1) Includes $2.2m (2022: $1.5m) increase in risk factor provision in respect of Egypt trade receivables.
During the year a total of $3.2m of trade receivables due from EGPC in Egypt were settled by way of non-cash offset, out of which
$2.2m relates to a second instalment of assignment bonus due to EGPC in relation to the IPR Farm out, $0.5m relates to a bonus due
to EGPC for the NBS development lease and $0.5m relates to training bonuses and fees paid to EGPC for participation in a bid round
process.
During 2022, a total of $4.6m 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, $1.1m was set against trade payables, $2.0m Assignment bonus settled on behalf of the
Farm out partner, IPR, and $0.5m Group’s share of NBS Concession assignment bonus.
186
Annual Report and Accounts 2023Pharos Energy 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.
35. Related party transactions
During 2022, the Company recorded a net cost of $0.01m in
respect of services rendered between Group companies.
Remuneration of key management personnel
Lease liability recognised
as at 1 January
New leases
Interest expense
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
2023
$ million
2022
$ million
0.8
–
–
(0.3)
0.5
0.3
0.2
0.8
–
(0.3)
0.5
–
0.9
–
(0.1)
0.8
0.3
0.5
–
0.9
(0.1)
0.8
0.5
0.8
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
2023
$ million
2022
$ million
SE Asia
Egypt
10.1
1.4
11.5
13.1
1.4
14.5
At 31 December 2023, the Group is committed to its share of
$10.8m (2022: $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.
34. Capital commitments
At 31 December 2023, the Group had exploration licence
commitments not accrued of approximately $26.3m (2022:
$26.6m), out of which $5.1m related to NBS was already incurred
and currently awaiting approval from EGPC.
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 Committee Report on pages 128 to 134.
Short-term employee benefits
Post-employment benefits
Share-based payments
2023
$ million
2022
$ million
2.7
0.1
1.8
4.6
3.0
0.1
1.0
4.1
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, interest rate risk and capital risk management. 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.
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. To
reduce risk from Vietnam production, in 2023 the Company
and its partners signed a three year sales contract for all TGT
oil cargoes with BSR to cover the period 1 January 2024 to 7
December 2026. The premium on Brent for the Term Sales Period
will continue to be agreed every six months, which provides the
Group with significant downside price protection for production
from our largest Vietnam field, and protects margins through
eliminating export duty and additional transportation costs to
overseas customers.
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.
187
Annual Report and Accounts 2023Pharos Energy Financial StatementsAdditional InformationGovernance ReportStrategic Report 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 100% (2022:
99%) 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 default risk is therefore deemed to be low and there is
no history of default, despite the payment delays from EGPC and
significant devaluation of the Egyptian Pound against US Dollar
discussed 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, 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 $33.4m at 31 December 2023, after expected credit loss
provision of $4.0m (2022: $24.2m receivables after credit loss
provision of $1.8m).
Considering the expected significant devaluation, Pharos
considers it preferable to continue holding USD-denominated
receivables and accept part-payments of its receivables balance
in EGP only when local currency will be needed for the funding of
operations at the end of the IPR carry period, which is expected
to end in April 2024. Positive announcements by the Egyptian
Government highlighted in the CFO Statement, combined with
the Company reaching agreement with the operator of the Egypt
concessions, IPR, to pay a significant proportion of post-carry
cash calls in EGP, means that the Group is optimistic that its
receivables position and liquidity will improve significantly during
2024.
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.
During 2023, Pharos entered into different zero cost 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 current commodity hedges
run until June 2025 and are settled monthly. Details of current
hedging arrangements and the categorisation of the instruments
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. This includes funding total shareholder returns
in the form of dividends and share buy backs, which totalled
$8.4m in the year (2022: $2.9m). A further interim dividend of
$1.7m (2022: $nil) was paid in January 2024 and the intention
is to commence a further $3m share buy back programme in
2024. The Group ensures that cash forecasts and sensitivity
analyses are robust to meet these funding requirements. Further
information can be found in Note 27 and Note 29.
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.
188
Annual Report and Accounts 2023Pharos Energy NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
Interest Rate Risk
All revenues earned are paid direct to Pharos.
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). The Company’s principal borrowings, in the form of the
RBL loan and the NBE Uncommitted Revolving Credit facility,
both switched from USD LIBOR to SOFR plus CAS interest rates
from 1 July 2023. In addition, the ongoing global high-inflationary
economic environment means that interest rates could potentially
rise in the short to medium-term, thus increasing the cost of
borrowing.
As at 31 December 2023, Pharos had total borrowings of
$40.5m (2022: $74.2m) 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 $0.9m (2022: $0.8m) which would translate
through to profits and net assets. The Group’s interest received
on cash and cash equivalents is immaterial.
Capital Risk Management
The Group manages its capital to ensure that entities in the Group
will be able to continue as going concerns while maximising the
return to shareholders through the optimisation of the debt and
equity balances. To this extent, following a period of improved
commodity prices, the Group has committed to shareholder
returns in the form of both share buybacks and dividends to
shareholders. The Group’s overall strategy remains unchanged
from 2022.
The capital structure of the Group consists of net debt (cash and
borrowings disclosed in Note 20 and 24, respectively) and equity
(comprising issued share capital, reserves and retained earnings
as disclosed in notes 27 to 28). Management reviews the
capital structure on a semi-annual basis, and most of the capital
expenditure incurred is discretionary. The Group is not subject to
any externally imposed capital requirements and is aiming to be in
a net cash financial position during 2024.
Please see Non-IFRS Measures (Unaudited) for net debt and
gearing ratios as at 31 December 2023 and 31 December 2022.
37. Disposal of 55% interest in Egypt
Concessions and fair value movement
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.
The firm consideration was received in two tranches, $2.0m in
September 2021 and $3.0m on 30 March 2022.
The carry of $35.9m 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.
Disposal of asset held for sale:
Intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Trade and other payables
Disposal of 55% of El Fayum and NBS
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
2022
$ million
(2.3)
(54.4)
(5.9)
(2.3)
8.3
(56.6)
5.0
36.3
13.6
0.5
55.4
(3.7)
(1.7)
(6.6)
$0.4m reduction in the amount classified as the carry element
from $36.3m to $35.9m 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 was
charged to the income statement as part of “Other/restructuring
expense” during 2023.
The fair value movement of $0.3m was charged to the income
statement during 2023. This is due to $0.4m revision of the
contingent consideration, partially offset by $0.1m reduction in
contingent liability (assignment fee). The fair value movement of
$0.3m relating to revision of the contingent consideration and
credited to the income statement during 2022 was reclassified
from “Loss on disposal” to “(Loss)/Gain on fair value movement of
financial asset” to be consistent with 2023 presentation.
38. Subsequent events
EGPC Trade Receivables
On 26 March 2024, following announcements from the Egyptian
government of increased liquidity in-country, the Group received
notification from EGPC that $10.0m will be paid as partial
settlement of outstanding trade receivables following payment
delays through 2023. The funds will clear on 27 March 2024,
according to the swift confirmation received.
189
Annual Report and Accounts 2023Pharos Energy Financial StatementsAdditional InformationGovernance ReportStrategic Report NON-IFRS MEASURES (UNAUDITED)
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, free cash
flow and operating cash per share.
For the RBL covenant compliance, three Non-IFRS measures are
included: Net debt, EBITDAX and Net debt/EBITDAX.
Cash operating costs per barrel
Cash operating costs are defined as cost of sales less DD&A,
production based taxes, movement in inventories and certain
other immaterial cost of sales.
Cash operating costs for the period is then divided by barrels
of oil equivalent produced. This is a useful indicator of cash
operating costs incurred to produce oil and gas from the Group’s
producing assets.
Cost of sales
Less:
2023
$ million
2022
$ million
111.2
116.8
Depreciation, depletion and amortisation
Production based taxes
Export duty
Inventories
Trade receivable risk factor provision
Other cost of sales
Cash operating costs
(55.4)
(10.5)
–
(4.0)
(2.2)
(1.8)
37.3
(55.1)
(14.7)
(3.2)
1.8
(1.5)
(1.3)
42.8
Cash operating cost per barrel by segment
(2023)
Cost of sales
Depreciation, depletion
and amortisation
Production based taxes
Inventories
Trade receivable
risk factor provision
Other cost of sales
Cash operating costs
Vietnam
$ million
Egypt
$ million
Total
$ million
95.6
(51.0)
(10.4)
(3.9)
–
(1.5)
28.8
15.6
(4.4)
(0.1)
(0.1)
(2.2)
(0.3)
8.5
111.2
(55.4)
(10.5)
(4.0)
(2.2)
(1.8)
37.3
Production (BOEPD)
5,127
1,381
6,508
Cash operating cost per BOE ($)
15.39
16.86
15.70
DD&A per barrel
DD&A per barrel is calculated as net book value of oil and gas
assets in production, together with estimated future development
costs over the remaining 2P reserves. This is a useful indicator
of ongoing rates of depreciation and amortisation of the Group’s
producing assets.
Depreciation, depletion and amortisation
Production (BOEPD)
DD&A per BOE ($)
2023
$ million
2022
$ million
(55.4)
6,508
23.32
(55.1)
7,166
21.07
Production (BOEPD)
6,508
7,166
DD&A per barrel by segment (2023)
Cash operating cost per BOE ($)
15.70
16.36
Depreciation, depletion and
amortisation
Production (BOEPD)
DD&A per BOE ($)
Vietnam
$ million
Egypt
$ million
Total
$ million
(51.0)
(4.4)
(55.4)
5,127
27.25
1,381
8.73
6,508
23.32
Net debt
Net debt comprises interest-bearing bank loans, less cash and
cash equivalents.
Cash and cash equivalents
Borrowings*
Net Debt
2023
$ million
2022
$ million
32.6
(39.2)
(6.6)
45.3
(74.2)
(28.9)
* Exclude unamortised capitalised set up costs
190
Annual Report and Accounts 2023Pharos Energy Strategic Report
Governance Report
Financial Statements
Additional Information
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.
2023
$ million
2022
$ million
Net cash from operating activities
44.9
53.4
Weighted number of shares in the year
427,170,044 439,253,641
Operating cash per share
0.11
0.12
NON-IFRS MEASURES (UNAUDITED) - continued
EBITDAX
EBITDAX is earnings from continuing activities before interest,
tax, DD&A, impairment charge/(reversal) of PP&E and intangibles,
exploration expenditure including pre-licence costs and Other/
restructuring expense items in the current year.
Operating (loss)/profi t
Depreciation, depletion and amortisation
Pre-licence costs
Impairment charge/(reversal)
EBITDAX
2023
$ million
2022
$ million
(18.1)
55.6
0.4
65.4
103.3
100.2
55.2
–
(27.9)
127.5
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
2023
$ million
2022
$ million
(6.6)
103.3
(0.06)
(28.9)
127.5
(0.23)
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
2023
$ million
2022
$ million
39.2
273.5
0.14
74.2
330.6
0.22
* Exclude unamortised capitalised set up costs
Free cash fl ow
Free cash fl ow is calculated by subtracting capital cash
expenditure from net cash from operating activities.
Net cash from operating activities
Capital cash expenditure
Free cash fl ow
2023
$ million
2022
$ million
44.9
(26.7)
18.2
53.4
(31.9)
21.5
Pharos Energy
Annual Report and Accounts 2023
191
FIVE YEAR SUMMARY (UNAUDITED)
Five Year Summary (Unaudited)
Consolidated income statement
Oil and gas revenues
Commodity hedge (losses)/gains
Gross profi t
Operating profi t/(loss)
Profi t/(loss) for the year
Consolidated balance sheet
Non-current assets
Net current assets
Non-current liabilities
Net assets
Share capital
Other reserves
Retained earnings/(defi cit)
Total equity
Consolidated cash fl ow statement
Net cash from operating activities
Capital expenditure
Distributions
Year to
31 Dec 2023
$ million
Year to
31 Dec 2022
$ million
Year to
31 Dec 2021
$ million
Year to
31 Dec 2020
$ million
Year to
31 Dec 2019
$ million
168.1
(0.2)
56.7
(18.1)
(48.8)
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
(0.2)
61.1
38.0
(24.5)
2023
$ million
2022
$ million
2021
$ million
2020
$ million
2019
$ million
356.6
50.6
(133.7)
273.5
91.7
255.4
(73.6)
273.5
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
Year to
31 Dec 2023
$ million
Year to
31 Dec 2022
$ million
Year to
31 Dec 2021
$ million
Year to
31 Dec 2020
$ million
Year to
31 Dec 2019
$ million
44.9
26.7
5.6
53.4
31.9
–
10.8
41.8
–
56.4
41.3
--
72.3
63.4
27.4
192
Annual Report and Accounts 2023
Pharos Energy
Strategic Report
Governance Report
Financial Statements
Additional Information
RESERVES STATISTICS (UNAUDITED)
Reserves Statistics (Unaudited)
Net working interest, MMBOE
Oil and Gas 2P Commercial Reserves1,2
As at 1 January 2023
Production
Revision
Discoveries
2P Commercial Reserves as at 31 December 2023
Oil and Gas 2C Contingent Resources1,2
As at 1 January 2023
Revision
2C Contingent Resources as at 31 December 2023
TGT
CNV
Vietnam3 El Fayum
NBS
Egypt4
Group
8.8
(1.3)
(1.2)
–
6.3
7.4
(1.1)
6.3
3.4
(0.5)
(0.1)
–
2.8
3.4
2.2
5.6
12.2
(1.8)
(1.3)
–
9.1
10.8
1.1
11.9
15.0
(0.5)
(0.9)
–
13.6
8.9
0.7
9.6
–
–
–
0.8
0.8
–
–
–
15.0
(0.5)
(0.9)
0.8
14.4
8.9
0.7
9.6
27.2
(2.3)
(2.2)
0.8
23.5
19.7
1.8
21.5
Total of 2P Reserves and 2C Contingent Resources
as at 31 December 2023
12.6
8.4
21.0
23.2
0.8
24.0
45.0
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.
Risks associated with reserves evaluation and estimation uncertainty are discussed in Note 4(b) to the Financial Statements.
Pharos Energy
Annual Report and Accounts 2023
193
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
2023 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 2023.
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 2023 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 $106,941 (£86,000) has not been
disclosed. Where the aggregate payments made in the period for
a project or country are less than $106,941, 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
during the year. Income taxes do not include fines and penalties.
Consumption taxes including value added taxes, personal income
taxes, sales taxes and property taxes are excluded.
Royalties
These represent royalties during the year to governments for the
right to extract oil or gas. The terms of these royalties are set
within the individual Production Sharing Contracts & Agreements
and can vary from project to project within a country. The cash
payment of royalties occurs in the year in which the tax has
arisen.
Dividends
These are dividend payments, other than dividends paid to a
government as an ordinary shareholder of an entity, in lieu of
production entitlements or royalties. For the year ending 31
December 2023, 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.
The information is reported under the following payment types:
Payroll Taxes
Production entitlements in barrels
These are the host government’s total share of production in the
reporting period derived from projects operated by Pharos. This
includes the government’s non-cash royalties as a sovereign
entity or through its participation as an equity or interest holder in
projects within its home country. The figures produced are on a
paid lifting basis valued at realised sale prices.
This represents payroll and employer taxes including PAYE and
national insurance paid by Pharos as a direct employer.
Export Duty
This represents payments made to governments during the year
in relation to the exportation of petroleum products.
Withholding Tax
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
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.
194
Annual Report and Accounts 2023Pharos Energy TRANSPARENCY DISCLOSURE 2023 (UNAUDITED)
Transparency Disclosure 2023 (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
Production
entitlements
Production
entitlements
Income
Taxes Royalties Dividends
Bonus
Payments
Licence
fees
Infrastructure
improvement
payments
Total
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
Block 9-2
883
557
73,971
31,961
8,889
36,814
12,541
2,130
Total Vietnam
1,440
110,785
44,502
11,019
Egypt
El Fayum
North Beni Suef
WES
233
18,228
2
–
150
–
Total Egypt
235
18,378
United Kingdom (UK)
Corporate
Total UK
–
–
United States of America (US)
Corporate
Total US
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Pharos Total
1,675
129,163
44,502
11,019
Country/
Government
Vietnam*
Ho Chi Minh City
Tax Dept
Customs Office
PetroVietnam
E&P Corp
(PVEP)
–
–
–
–
1,440
110,785
44,502
11,019
–
–
–
–
Total Vietnam
1,440
110,785
44,502
11,019
Egypt
Egyptian General
Petroleum
Corporation
(EGPC)
235
18,378
Tax department
–
–
Total Egypt
235
18,378
United Kingdom (UK)
Inland Revenue
Total UK
–
–
United States of America (US)
Internal Revenue
Service
Total US
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Pharos Total
1,675
129,163
44,502
11,019
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
78
75
153
–
495
178
673
–
–
–
–
826
–
–
–
–
–
–
–
–
–
–
–
–
114,899
51,560
166,459
–
–
–
18,228
194
645
178
–
–
19,051
194
–
–
–
–
2,064
2,064
193
193
185,510
2,451
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4
–
–
4
–
–
–
–
4
–
–
–
11
–
–
11
–
–
–
–
–
–
–
209
–
–
209
2,064
2,064
193
193
11
2,466
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
153
153
673
–
673
–
–
–
–
826
–
–
–
–
–
–
–
–
–
–
–
–
55,521
–
110,938
166,459
19,051
–
19,051
–
–
–
–
–
–
–
–
–
194
194
2,064
2,064
193
193
185,510
2,451
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4
4
–
–
–
–
4
–
–
–
–
–
11
11
–
–
–
–
–
–
–
–
–
209
209
2,064
2,064
193
193
11
2,466
195
* Joint Operating Company Project’s tax payments reported on Pharos Net Working Interest Basis.
Annual Report and Accounts 2023Pharos Energy Additional InformationFinancial StatementsGovernance ReportStrategic Report GLOSSARY OF TERMS
Glossary of Terms
CR
Corporate Responsibility
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 expenditure including
pre-licence costs 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 2023
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 Social
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
J
JOC
Joint Operating Company
JV
Joint venture
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
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
196
Annual Report and Accounts 2023Pharos Energy
GLOSSARY OF TERMS - continued
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
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
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
STOIIP
Stock Tank Oil Initially In Place
T
TOR
Terms of Reference
TCFD
Task-Force for Climate-related Financial
Disclosures
TGT
Te Giac Trang field located in Block 16-1
TSR
Total shareholder return
TIA
Tie-in Agreement
U
UK
United Kingdom
US
United States of America
W
WHP
Wellhead Platform
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
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
197
Annual Report and Accounts 2023Pharos Energy Additional InformationFinancial StatementsGovernance ReportStrategic Report
COMPANY INFORMATION
Company Information
Financial Adviser and
Corporate Brokers:
Jefferies
100 Bishopsgate, London, EC2N 4JL
United Kingdom
Peel Hunt
100 Liverpool Street, London, EC2M 2AT
United Kingdom
Registrar:
Equiniti Limited
Aspect House
Spencer Road Lancing, BN99 6DA
United Kingdom
Registered offi ce:
Pharos Energy
27/28 Eastcastle Street, London,
W1W 8DH United Kingdom
Registered in England
T +44 (0)20 7747 2000
Company No. 3300821
www.pharos.energy
Company Secretary
Tony Hunter
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.
Auditors
Deloitte LLP
London, United Kingdom
Bankers:
J.P. Morgan Chase Bank
25 Bank Street, 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
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198
Annual Report and Accounts 2023
Pharos Energy
Strategic Report
Governance Report
Financial Statements
Additional Information
Pharos Energy
Annual Report and Accounts 2023
199
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
www.pharos.energy