Capricorn Energy PLC Annual Report and Accounts 2022

Annual Report

and Accounts 2022

Capricorn Energy PLC

Capricorn is an Egypt-focused energy

producer, with an attractive portfolio of

onshore exploration, development and

production assets in the Western Desert.

Outside Egypt, the Company has selective

exploration interests which it is seeking to

monetise, farm-down or exit.

Capricorn is headquartered in Edinburgh,

Scotland.

Strategic ReportAnnual Report and Accounts 2022 1

Strategic Report

Chair’s Statement 2

Interim CEO’s Review 6

Industry Context 8

TCFD 11

Materiality Review 15

Measuring Our Progress 16

Behaving Responsibly

to the Environment 22

Behaving Responsibly to People 25

Behaving Responsibly to Society 28

Risk Management 31

Viability Statement 32

Principal Risks to the Group

in 2022-2023 33

Stakeholders and S172 Statement 40

Operational and Financial Review 43

Leadership and Governance

Board of Directors 50

Responsible Governance 52

Corporate Governance Statement 54

Audit Committee Report 66

Nomination & Governance

Committee Report 72

Directors’ Remuneration Report 76

Sustainability Committee Report 110

Directors’ Report 112

Financial Statements

Independent Auditors’ Report 118

Group Income Statement 126

Group Statement of

Comprehensive Income 126

Group Balance Sheet 127

Group Statement of Cash Flows 128

Group Statement of Changes

in Equity 129

Section 1 – Basis of Preparation 130

Section 2 – Oil and Gas Assets,

Operations and Other Non-Current

Assets 132

Section 3 – Working Capital,

Financial Instruments and

Long-term Liabilities 140

Section 4 – Income Statement

Analysis 149

Section 5 – Taxation 157

Section 6 – Discontinued Operations

and Business Combination 161

Section 7 – Capital Structure and

Other Disclosures 165

Company Balance Sheet 168

Company Statement of Cash Flows 169

Company Statement of Changes in

Equity 170

Section 8 – Notes to the Company

Financial Statements 171

Additional Information

Licence List 177

Group Reserves and Resources 178

Glossar y 179

TCFD Reporting 180

Company Information 185

Contents

2022 Highlights

Net working interest oil and gas production averaged (boepd)

~34,200

Year-end net Group cash

US$597m

Cash and cash equivalents of US$757m less debt drawn of US$160m.

Net zero target

2040

or earlier in Scope 1 and 2 equity emissions

Egypt oil and gas sales revenue

US$229m

Returned to shareholders in 2022

US$529m

Strategic review launched in February 2023 following

public shareholder campaign and Board changes

Capricorn Energy PLC

Annual Report and Accounts 2022

Chair’s Statement

I was appointed Chair of Capricorn in February 2023, alongside five other new members

of Capricorn’s Board following a public campaign by a number of shareholders. The

overwhelming shareholder vote in favour of the new Board appointments underscored the

expectations for change. Consistent with those expectations, we immediately commenced

a strategy review after appointment. Today, 85 days later, we are pleased to report our initial

findings, which include five areas of decisive strategic action. These include a decision to

make a material return of capital to shareholders; a significant cost reduction as part of

a broader plan to preserve shareholder cash; the curtailment of expensive exploration

activities outside of near field activity in Egypt; plans to improve the Egypt business;

and a drive for a culture change across the Company.

As we take the next actions in our review, I am pleased to announce that Capricorn will

benefit from the leadership of Randy Neely, a highly accomplished industry figure with

extensive experience of successful operations in Egypt, who will join the business as

Chief Executive on 1 June 2023.

Our review of strategy continues, and I look forward to updating shareholders on our medium

to long term findings in the months ahead. I would like to be very clear on our intention in

the near term, and on an ongoing basis, to return all excess capital to our shareholders.

As we look to enact positive change in the business, I am grateful for the support that we

have been given by our new colleagues as we execute our strategy for the benefit of all of

our shareholders.”

Craig van der Laan

Chair

Annual Report and Accounts 2022

Strategic Report

Maximising value for all stakeholders

The past year has seen unprecedented

upheaval and change at Capricorn. A

proposed recommended takeover by

Tullow Oil plc was announced in June 2022

with the recommendation subsequently

withdrawn by the Board in response to

shareholders’ objections. Thereafter, the

Board recommended a reverse takeover of

NewMed Energy (NewMed) which was also

met with vigorous opposition and a public

campaign by a number of shareholders,

including demands for fundamental Board

renewal and the termination of the

NewMed deal. This culminated in the

resignation of all but two members of the

previous Board and overwhelming

shareholder support for the appointment of

six new Board members at an extraordinary

general meeting held on 1 February 2023.

I was elected to the Board and appointed

Chair of Capricorn at that time and am

honoured to serve in this role alongside the

other new members of the Board. We bring

to Capricorn a broad skillset of industry,

shareholder engagement and capital

markets expertise, which is essential for the

Board to deliver against shareholders’ strong

mandate and expectations for change.

The three months since the shareholder

meeting have been a period of extraordinary

energy and renewal and this will continue

as the Board works tirelessly to ensure

Capricorn is managed for all of its diverse

mix of shareholders, with an overriding focus

on shareholder value generation. Since

joining the Board, I have personally met a

wide range of our investors, to ensure the

Board understands shareholders’ concerns

and expectations as we develop our plans for

Capricorn. Almost 75% of Capricorn’s shares

were voted at the February 2023 meeting,

with over 99% of these supporting the

appointment of six new Board members.

Unsurprisingly, the messages from

shareholders have therefore been consistent,

at the heart of which is an expectation for

change and a new approach. This culture

of transparent engagement will continue,

focusing on the acknowledgement of

shareholder concerns and providing clear

explanations for the positions we take.

Immediate priorities

Following the February general meeting,

the Board announced a strategic review

to explore options for Capricorn’s future

direction. Our immediate focus in the

context of this review was to address

the pressing matter of the NewMed

transaction. Having considered the views

of a significant number of shareholders

and their unwillingness to support the

proposed NewMed transaction, as well as

recommendations to vote against the deal

from leading proxy advisory agencies, and

the need for the renewed Board to be able

to consider all available alternative

strategies for Capricorn, the Board advised

shareholders to vote against the NewMed

proposal. At the pending shareholder

meeting, shareholders would have been

asked to consider approving the NewMed

deal, the completion of which remained

subject to a range of conditions from

NewMed, and as such no certainty that

the deal would have been completed on

the then contemplated terms. Shortly

thereafter, the Company and NewMed

mutually agreed on 15 February 2023

the termination with immediate effect

of the business combination agreement,

and therefore the NewMed transaction.

The decision provided the Board with

greater strategic optionality in deciding

Capricorn’s future direction.

We have heard clearly from shareholders

and are pleased to outline five immediate

priorities which have had our focus since

taking office 85 days ago.

1. Return of value

to shareholders

The tax refund in February 2022 from the

Government of India of more than US$1bn

enabled Capricorn to return US$529m of

capital to shareholders in the form of a

tender offer and buyback programme in

2022. As a newly constituted Board, our

first commitment is to outline our plans

to conduct another material distribution

of cash to shareholders within operating

requirements. We have stress tested the

capital requirements of the business,

so we have a clear understanding of how

to manage safely our assets in the current

market environment.

The Board is returning approximately

US$575m via a special dividend of

c.US$450m expected to be paid in May

2023, a further special dividend in Q4

2023 of US$100m dependent upon

certain conditions and a share buyback

of at least US$25m over the next twelve

months. The US$100m special dividend

in Q4 2023 is dependent upon a number

of factors including: addressing our

receivables position in Egypt; the outcome

of conversations with stakeholders in

Egypt around licence extensions and

renegotiation of terms; actual oil and gas

price outcomes for the remainder of 2023;

and the conclusions of our strategic review

as it relates to further cost actions and

future investment in our Egypt business.

The special dividend of approximately

US$$450m, which will be accompanied

by a share consolidation and is subject to

shareholder approval, is expected to be

paid on 23 May as a final cash dividend of

115 pence per share. The consolidation and

special dividend record date is expected to

be 15 May, with dealings in the consolidated

shares (ex-dividend) expected to commence

on 16 May. The Board commits to return to

shareholders all excess cash flow not

required for our go forward core operational

focus both today and on an ongoing basis.

In proposing these returns of value, the

Board has been focused on the need to

ensure Capricorn has sufficient capital and

working capital to operate under a range of

assumptions, in a market which is volatile

and where significant cash receipts are in

some cases beyond our control. Balancing

this is a clear expectation from shareholders

that surplus cash be returned, which is what

we are announcing today.

2. Cost cuts and

cash preservation

On 23 March 2023 we announced a

material cost cutting exercise across

Capricorn. We have commenced an

employee consultation process which

is anticipated to reduce the UK workforce

by ~70% to c.40 people to better reflect the

go forward needs of the business. This will

create a new, leaner organisation to support

the Egypt assets and result in a total global

organisation of c.70 employees. Ongoing

staff costs will be reduced by more than 50%

while still retaining the necessary capability

and headcount to safely and efficiently

achieve our goals. In 2023, there will be

costs associated with this restructuring

which are expected to be offset by in-year

savings, with the full annualised benefit of

the cost reduction to be seen in 2024.

With fewer people, we will require much

less office space and ancillary services.

Capricorn will be moving out of its current

office on Lothian Road, Edinburgh as

planned but will not be moving into the

new offices in Edinburgh which were

outlined in last year’s annual report. The

search for smaller, lower cost alternative

office space in Edinburgh is now underway.

Significantly smaller, low-cost premises will

also be found in London for those limited

activities which need to take place there.

The Board has also reviewed its external

consulting arrangements with a view to

reducing costs and having a fresh start,

ruling a line under the events of the last

12 months and presenting a new face to

the market. We have therefore appointed

Bank of America as corporate broker and

financial adviser to replace four other

banking advisers, and on the

communications side, Camarco.

These cost saving initiatives are expected

to realise identified total gross G&A savings

of at least US$35m, representing a >50%

reduction on 2022 gross G&A. These

savings will be fully realised in 2024.

Opportunities for further savings will

continue to be pursued, with costs to be

aligned to activity on an ongoing basis.

All these initiatives are designed to preserve

cash for the benefit of shareholders, to

meet shareholders’ expectations of

commercial rigour and sound financial

Capricorn Energy PLC

Annual Report and Accounts 2022

Chair’s Statement continued

management, and to ensure surplus cash

is returned to shareholders as it becomes

available. This renewed approach should

in due course assist the Board to gain

shareholder support for the proposed

strategic direction, in whatever form it takes.

3. Ceasing exploration

activities outside of near

field activity in Egypt

We plan to monetise, farm down or exit all

exploration activities that fall outside low

cost, near term, short cycle exploration in

Egypt which has the potential in the near

term to increase Capricorn’s profitability

and value. This applies to all activities in

Mauritania, Suriname, Mexico and the

UK North Sea, where we will look to shortly

conclude the best value outcomes for these

elements of our portfolio. Large-scale,

high-risk exploration in a market that is

transitioning is not a model the new Board

believes a business of Capricorn’s size should

pursue. Following the Q1 drilling of the Yatzil

well in Mexico, Capricorn has no further

international commitment wells outside

Egypt, minimising spend on international

exploration during the rest of 2023, with

no committed spending in 2024 and any

further activity in Mauritania and Suriname

conditional on successfully farming down

our interest, ensuring capital preservation

and flexibility. A process has commenced

for the potential sale of our UK assets.

4. Improve the

Egypt business

The Egypt business contains a diverse

portfolio of oil and gas assets with multiple

reservoir levels, providing significant

opportunities for reserves additions

from drilling and improved recovery, and

production optimisation. Our strategic goal

in Egypt is to work with our joint venture

partners to deliver reserves and production

growth and reliable free cash flow

generation for returns to shareholders. In

the short term, the focus is on stabilising

and growing production, particularly of

liquids, in order to continue to benefit from

today’s high prices, whilst ensuring cost

efficiency. This can be achieved through

rapid development of our recent near field

extension successes in the BED and Sitra

areas, and renewed focus on well selectivity

and rig performance. In particular, we will

look to optimise the investment level to

maximise free cash flows.

The Board is also, in conjunction with our

JV Partner, considering options to improve

the fiscal terms in country, more in line with

other operators and such that our activities

can deliver better economics (which will

benefit us) which will allow us to invest

more (which will benefit Egypt). This would

support the potential unlocking of our

material 82.6mmboe 2C contingent

resources within the Egyptian portfolio.

We will focus on how best to achieve this

opportunity, which if successful has the

potential to double our existing reserves

base.

5. Culture change

The Board recognises the need for a change

in culture, one which scrutinises every

pound spent in the interest of shareholder

value, one which is entrepreneurial and

flexible such that market opportunities can

be taken advantage of quickly, and one

where we listen to our key stakeholders,

not least our owners.

A renewed culture at Capricorn will prioritise:

– Focusing on shareholder value: effective

and rigorous cost control and the

ongoing measurement of returns,

ultimately supporting our ability to

ensure excess capital is returned to

shareholders.

– Building effective and respectful

relationships: we listen, we

communicate openly and we engage

effectively to improve our business and

ensure we respect and deliver for our

key stakeholders, notably in our host

country of Egypt and our shareholders.

– Being transparent and open: we swiftly

acknowledge issues as they arise, deal

with concerns and learn lessons from

things that we get wrong, as well as

get right.

– Empowering people: we are building

a lean, high performing team of people

that will be trusted to deliver, and

enabled to be entrepreneurial in order

to quickly capture opportunities.

The Board recognises that there are a

number of important matters 85 days in

that remain work in progress and are a

focus for action:

– Improving our receivables position

in Egypt.

– Continued engagement with key

stakeholders on Egypt licence extensions

and renewed fiscal terms.

– Seeking to address restricted cash in

Egypt.

– Final conclusions of the strategic review

process and establishing a new

leadership team.

– Delivering additional cost savings to align

costs to activity on an ongoing basis.

We will update the market on these

matters in due course and plan to hold a

Capital Markets Day in Q4 2023.

Appointment of new Chief Executive

I am pleased to confirm that Randy Neely

will join Capricorn as Chief Executive on

1 June. Randy was previously President

and CEO of TransGlobe Energy, an Egypt-

focused production and development

business with operations in the Eastern

and Western Deserts. At TransGlobe

Energy Randy led negotiations which

resulted in an amended, extended and

consolidated Production Sharing Contract

with EGPC in Egypt, and ultimately the

negotiations which led to the merger

between TransGlobe and VAALCO Energy

in October 2022. He has more than 25

years of industry experience in executive

and financial roles, including CFO of Zodiac

Exploration, CFO of Pearl (Blackpearl)

Exploration & Production and CFO of

Trident Exploration. In accordance with

Listing Rule 9.6.15, Capricorn confirms that

there are no further details to be disclosed

pursuant to Listing Rule 9.6.13.

Randy will succeed Chris Cox, Interim Chief

Executive, who will leave the business after

a handover period. On behalf of the Board,

I would like to thank Chris for his significant

contribution to the business since his

appointment.

Medium to longer term strategy

and business model

The Board has publicly stated that the

Strategic Review involves the consideration

of all options.

In the few weeks we have been in office, the

Board’s focus and capacity has been taken

up by the immediate priorities of coming

up to speed on all aspects of Capricorn and

its business, to enable informed decisions

on the return of capital, significantly

reducing exploration activity and spend,

costs, culture and improving the Egypt

business. With an initial trajectory now set

in these areas, we will progress our

evaluation of the future strategic options

available before landing on and announcing

the right course of action. The decisions will

all be anchored in what will deliver most

value to shareholders.

Shareholders should be reassured that

these decisions will be guided by discipline,

returns, our existing producing assets, risk

management, short-cycle capital returns,

exploiting existing oil and gas deposits in

Egypt, reviewing our role as an operator

versus non-operator and how as an

organisation we address the energy

transition and the role we play in it.

Once our medium to long term strategic

thoughts have been formalised, I look

forward to engaging in a discussion with

shareholders as to the options available to

us, including at the Capital Markets Day to

be held in Q4 2023.

Annual Report and Accounts 2022

Strategic Report

Responsible business

Our activities will continue to advocate a

responsible approach to our operations,

stakeholders and communities, and we will

continue to deliver our core operations

efficiently and safely.

I am also pleased with the progress that we

are making on our sustainability agenda.

This has always been present in Capricorn’s

approach, but now more than ever is at the

forefront of our decision-making and the

considerations of our stakeholders. It is also

an important factor both in terms of how

we shape our portfolio and in the way that

we operate.

Our people

In a year of major change and transformation,

I would like to acknowledge the

commitment and drive of colleagues at

Capricorn. Our people have demonstrated

steadfast commitment through a period of

great uncertainty. A number of colleagues

have left or are in the process of leaving

the business following decisions taken to

match organisational size to our activity set.

On behalf of the Board, I would like to

thank all of them for their service.

We will also continue in the coming year

to focus on diversity and inclusion,

recognising that we operate in a global

industry and in many different countries. It

is important to ensure that we benefit from

the diverse perspectives that people bring.

Statement of purpose

As part of the review of strategy post

the arrival of the new Board, a refreshed

statement of purpose is being considered

to ensure it is aligned with the new

strategy. The Company’s purpose will

be anchored in the safe, responsible and

sustainable discovery and production of oil

and gas in Egypt to generate energy for

individuals and organisations, value for

Capricorn’s shareholders and opportunity

for Capricorn’s broader stakeholders

including our host country, our colleagues

and supply chain.

Board Composition

Alongside my own appointment as Chair,

Capricorn announced on 1 February 2023

the appointments of Chris Cox as Interim

Chief Executive, Richard Herbert as senior

independent director and Hesham Mekawi,

Maria Gordon and Tom Pitts as

independent non-executive directors.

On 24 January 2023, Nicoletta Giadrossi,

Simon Thomson, Alison Wood, Luis Araujo

and Peter Kallos resigned from the Board

with immediate effect. James Smith and

Keith Lough resigned from the Board on

1 February 2023.

In the 85 days since appointment, the new

Board members have been greatly assisted

by the two continuing Directors, Catherine

Krajicek and Erik B. Daugbjerg. They have

both provided continuity for the Board and

valuable insight into Capricorn, its people

and its operations. They have also

demonstrated unswerving goodwill

towards the new Directors, against the

backdrop of an extraordinarily difficult

period of change. As announced on

11 April 2023, Catherine and Erik have

both advised that they will not stand for

re-election at the 2023 Annual General

Meeting. On behalf of the whole Board,

I would like to thank them both for their

contribution and support for the Board’s

strategy and initiatives and wish them well.

As a consequence of these changes, the

Board will be seeking to find one or more

new Directors as soon as possible. We will

in particular be focussing on the

appointment of diverse candidates, to

address the current imbalance. These

processes do take some time and it is

important we appoint the right candidates.

We will keep shareholders informed of our

progress and provide a further update at

the annual general meeting.

Strategic Outlook

Looking ahead, we are entering a period of

renewal for Capricorn as we tighten costs,

maintain discipline around capital

preservation and capital allocation, and

foster a strong culture. The Board has a clear

mandate for change from shareholders and

faces high expectations. We will provide

further clarity on Capricorn’s direction as a

business in the months ahead, guided at all

times by the imperative to maximise value

and create opportunity for all our

shareholders, host governments,

communities and people. We as a Board

are confident that we can realise the true

value within Capricorn’s portfolio and bring

about a way forward for the Company that

is in the best interest of all stakeholders.

I look forward to providing you with further

updates as the strategy and its execution

progress.

Craig van der Laan

Chair

Capricorn Energy PLC

Annual Report and Accounts 2022

Interim CEO’s Review

Operationally, the first full year of operations following the acquisition of Shell’s Western Desert

production and exploration portfolio in Egypt was completed. In common with other E&P

businesses in the country, a number of operational challenges impacted the 2022 drilling

programme, but Capricorn continues to see significant potential for production growth,

operating efficiencies and reserves addition through successful exploration and

development activity.

Capricorn further high-graded its exploration portfolio during 2022, reinforcing focus on

lower-cost infrastructure-led opportunities with quicker payback potential, at the same time

as limiting capital allocation to the remaining frontier positions, with no further commitment

wells outside onshore Egypt exploration activity following the drilling of the Yatzil well in

Mexico during Q1 2023, which was committed prior to the new Board being in place.

Capricorn remains committed to its Net Zero by 2040 target, with near term targets of a

15% GHG equity emissions reduction by 2025, and a 30% reduction by 2030. Our producing

assets continue to demonstrate resilience to transition risks of climate change and the ability

to deliver value for shareholders when tested against the International Energy Agency’s

Net Zero scenario, based on the economic assumptions we apply.

Chris Cox

Interim Chief Executive

Annual Report and Accounts 2022

Strategic Report

Operational Outlook

In Egypt, the 2023 drilling programme is expected to deliver >40 wells across the producing

concessions, with the aim of optimising oil recovery in both existing and new discoveries.

Included in this is a near-field extension well programme to improve reserves replacement

and in the event of success, drive towards the higher end of our 2023 production guidance.

The focus remains on liquid rich opportunities in the BED, Sitra, AESW and NEAG Concessions

although we anticipate drilling new wells at the Obaiyed gas condensate field to help

moderate underlying declines.

Chris Cox

Interim Chief Executive

Capricorn Energy PLC 8 Annual Report and Accounts 2022

The global energy crisis of 2022 has

demonstrated the fragility of the world’s,

and in particular Europe’s, energy system

and led to unparalleled energy market

pressures. Persistent underinvestment

in energy supply has exacerbated the

impact of geopolitical tensions.

capture and storage (CCS), as companies

including Capricorn are pursuing in Egypt.

The critical role of upstream producers’ in

the energy supply chain is also creating

opportunities to add value through the

integration of renewable resources, both

to improve upstream efficiency and for

standalone generation, again as is being

pursued in Egypt.

Persistent underinvestment

The 2022 energy crisis has also

demonstrated the key need to invest

further in gas production and

transportation infrastructure, both fixed

and floating. Record levels of global coal

demand reached in late 2022 show that

the potential for gas to enable the

multi-decade transition to lower-emissions

energy cannot be taken for granted.

Investment, particularly in efficient,

relatively low emissions sources in reliable

jurisdictions will have the potential to

generate very material value for

shareholders and stakeholders. However,

achieving the necessary doubling of gas

production that is modelled to be required

to enable a transition to net zero by 2050

will be extremely challenging (source:

ThunderSaid Energy, 3/1/23). A switch

away from Russian gas would see Europe

needing to add liquefied natural gas (LNG)

supplies of up to 100bcm per year by

2030 (source: Platts, Oct 2022 Long-term

gas outlook, Goldman Sachs Research

Aug 2022). Additional capacity is being

sanctioned particularly in the US and

Industry and policy makers have struggled

to react to the energy crisis quickly enough

to ensure sufficient short-term energy

security. Longer-term policy responses are

just now emerging and suggest that while

demand for hydrocarbon-derived energy

looks set to grow in the medium term, the

policy response to the impact to global

energy markets of Russia’s invasion of

Ukraine may yet make 2022 a key

milestone in the acceleration of a

distributed, decarbonised energy system.

Crisis highlights the need to change

energy systems

2022 highlighted the critical challenge of

providing reliable, affordable energy as a

cornerstone of economic stability in very

stark terms. Countries facing spiralling fuel

and food inflation demanded increased

domestic production, wherever short-

cycle investment opportunities were

possible. However, the scale of the issue

and the time required to implement

change in the energy system have been

highlighted very clearly to governments

and consumers. It is also becoming more

widely accepted that companies need to

develop integrated solutions to energy

provision that acknowledge the near-term

necessity of existing sources alongside the

critical need to decarbonise. The most

environmentally responsible of the

existing hydrocarbon resources should be

preferentially produced with a focus on

improving environmental efficiency of

production, including through carbon

Industry Context

A key phase in the

multi-decade transition to

emissions-free energy will

be ensuring that relatively

low-emissions hydrocarbon-

based energy, particularly

from reliable sources of gas,

will be available to reduce

the leverage of unreliable

suppliers.

Annual Report and Accounts 2022 9 Strategic Report

Qatar which will be available later this

decade; however, the availability of

material undeveloped LNG resources

in other reliable jurisdictions is relatively

limited. While the European gas price

will return to the long-run marginal cost

of production, probably set by US LNG

exports, (source: IHS Markit 222 LNG

Breakeven) it seems likely that it will take

at least the next decade to return to this

equilibrium, increasing our mid-term LNG

and gas price outlook.

In the meantime governments should be

incentivising increased production from

reliable players. In Europe, conflicting

messages regarding support for the

upstream industry paired with the political

inevitability of windfall taxes demonstrate

that despite the market pressures, Europe

remains a very uncertain investment

location for the upstream industry.

The longer-term outlook, driven by EU’s

REPOWER initiative and the US’s Inflation

Reduction Act (IRA) mean that the

ultimate consequences of 2022’s

geopolitical fractures may yet prove

positive for the transition to a low-carbon

energy system. These initiatives should

provide unprecedented stimulus for

industry to invest in a decentralised,

decarbonised energy system, supported

by CCS and with hydrogen as an energy

transport and storage medium. Indeed,

the scale and breadth of the IRA could

potentially kick-start a race to develop

cost-efficient clean energy technology

that will ultimately reduce hydrocarbon

demand.

Capricorn Energy PLC

Annual Report and Accounts 2022

Industry Context continued

Key

drivers

Energy

demand

Climate change

and energy transition

Continuing economic development and population

growth drives growth in primary energy demand,

particularly from emerging economies. Non-OECD

economic growth tends to be an important

influence on oil and gas demand, being economies

with a greater manufacturing bias, which is more

energy intensive than service sectors. These

economies also have growing needs to move goods

and people, with non-OECD countries seeing the

fastest growth in vehicle ownership as incomes and

populations rise.

The need to address climate change impacts energy

demand and the energy mix. A range of actions

affect global efforts to combat climate change:

government intervention through policy, regulation

and support for mitigation and adaptation, business

commitments to net zero and associated actions,

changes in consumer behaviour, deployment of new

technologies and investment in alternative energies.

The intergovernmental panel on climate change

(IPCC) reports that delivering a 1.5 degree or 2

degree warming scenario requires emissions to fall

between 2020 and 2025, a daunting goal made

more challenging by the impact to energy supplies

of the war in Ukraine. Some governments are

actively seeking to diversify oil and gas supplies and

increase the share of renewables and nuclear in the

energy mix.

2022 Backdrop

– Global economic activity in 2022 experienced a

broad-based slowdown. Despite this, limited oil

supply and supply disruptions drove oil prices of

US$100/barrel or above for much of the year, with

gas spot prices at all-time highs. Russia’s ongoing

war with Ukraine contributed to a significant

reduction in gas supplies to Europe, driving

year-on-year gas prices many times higher.

– In the second half of 2022, OPEC+’s decision to cut

supply by around 2m barrels per day supported

high prices.

– Major policy responses to support energy

transition: US IRA, EU Fit for 55 and REPowerEU,

Japan’s GX programme and new clean energy

targets for China and India.

– Policies announced in 2022 will drive major clean

energy investment out to 2030, a rise of more

than 50% compared to today, according to

the IEA.

Short-term

opportunities

and risks driver

– Rising demand for alternative sources of oil and

gas to replace Russian exports.

– New policies in major energy markets are

encouraging increased investment in clean

energy.

– Increasing demand, coupled by restricted supply

of capital for energy system investments creates

tensions between host governments for sources

of equity and debt finance.

– 2022 global carbon emissions remain at record

levels at 40.6bn CO

(Global Carbon Project).

– Global demand for natural gas is forecast to

double to 2050 in some net zero scenarios,

creating a material business opportunity.

– Current spending on clean energy technology

is outstripping that on fossil fuels (IEA).

Long-term

opportunities

and risks driver

– Fossil fuel share of global energy mix just below

75% by 2030 (IEA STEPS – Stated Policies

Scenario).

– IEA projects under STEPS scenario that natural gas

demand plateaus by the end of this decade, with

oil demand levelling off in the mid-2030s

– Upstream oil and gas investment of US$650bn

to 2030, a rise of 50% on recent years (IEA STEPS).

– Long-term sales agreements provide certainty

on pricing.

– On current projections, the world is considerably

outside a pathway to 1.5 degree warming.

– Annual clean energy investment projected

to be US$2trn annually by 2030 (IEA STEPS).

– Current growth rates for solar, wind, EV and

battery deployment would lead to a more rapid

transformation of the global energy system

by 2030 than the IEA STEPS projections,

if maintained.

Links to

principal risks

– Volatile oil and gas prices.

– Political and fiscal uncertainties.

– Inability to access capital.

– Future challenges and costs to achieving pathway

to net zero by 2040.

– Political and fiscal uncertainties.

– Inability to access capital.

Material issues

– Investment in clean technologies and business

innovation.

– Reduction of GHG emissions.

– Climate change and energy transition.

– Reduction in fossil fuel consumption.

– Managing a ‘Just Transition’.

– Investment in clean technology and business

innovation.

Annual Report and Accounts 2022

Strategic Report

Task Force on Climate-related Financial Disclosures (TCFD) Report

We are continuing to develop good practices

and standards for transparency in line with

TCFD recommendations. Our latest reporting

includes 11 TCFD-recommended disclosures

across four areas: governance, strategy, risk

management and metrics and targets.

Solving the ‘Energy Trilemma’ while

dealing with increasing ESG pressures

2022 has seen a significant ramping-up in

pressure on global energy issues. The

disruption caused by Russia’s invasion of

Ukraine in February 2022 caused a global

energy crisis, with energy prices soaring to

record highs.

Solving the Energy Trilemma became a

priority, as governments tried to balance

sustainable and affordable energy with

security of supply.

Regulatory, societal and political pressures,

emanating from Western Europe and

North America, but now resonating

internationally, are being reflected in

the concerted development of global

sustainability standards affecting virtually

all ESG criteria. There has been a particular

focus on climate change and the transition,

notably formalised in the Corporate

Sustainability Reporting Directive (CSRD)

guidelines adopted by the EU Parliament

in November 2022 and evolving Task Force

on Climate-related Financial Disclosure

(TCFD) requirements.

The Oil and Gas industry response

In response, at the industry level, it is clear

that the European major oil and gas

corporations are stepping up their

investment allocation to low carbon energy

solutions, on average now accounting for

around 25% of their total investment

spends

in the near term. The independent

exploration and production (E&P) sector is

also responding in its strategic thinking

and reporting. From our own assessment

Capricorn is positioned in the top quartile

compared to its independent peers on its

Carbon Disclosure Project (CDP) scoring,

and similarly in terms of its targets for net

zero emissions (under Scope 1 and Scope

2) by 2040.

Our net zero pathway

Consequently we are conscious of the need

to set out our net zero pathway more clearly

for our stakeholders, and to demonstrate

real strategic progress in meeting those

targets. In doing so we must nevertheless

be transparent that this is a journey that

cannot be completed overnight, and

requires us to assure all our stakeholders,

including investors, that we as a business

can successfully position ourselves through

the energy transition, while continuing to

deliver attractive returns and sustainable

assets.

We set out our updated net zero pathway

in September 2022 which commits to

reducing Scope 1 and 2 CO

emissions by

15% by 2025, 30% by 2030 and entirely by

2040 or earlier. The clear principles

underpinning these targets are: Avoid,

Reduce, Substitute, Sequester

and Offset.

Decarbonisation and diversification

The short to medium-term strategy is

based on decarbonisation of existing and

planned oil and gas assets, through

electrification of our operations, a move to

no routine flaring, use of energy-efficient

transport, services and infrastructure, and

the reduction of fugitive emissions. Over

the past year Capricorn has assessed a

number of opportunities in the clean

energy sector, across geothermal,

hydrogen, solar and carbon capture,

utilisation and storage (CCUS) themes.

The strategy review, which is currently

being conducted, is expected to provide

further clarity on our medium to long-term

energy transition strategy, including the

diversification into clean technologies.

As we move along this pathway, offsetting

will be undertaken to compensate for

ongoing net emissions, but is regarded

as only a temporary form of mitigation –

ultimately the business will need to aim for

a robust, fully net zero status operationally.

Early advances in Egypt

The advances being made in Egypt give

usconsiderable confidence in our short to

medium-term targets. We are anticipating

a significant reduction in daily diesel

consumption for power generation in

three years. Using flare gas for power is

expected to further reduce emissions,

and installation of transmission lines to

electric submersible pump (ESP) wells

will significantly assist in electrification of

operations. Longer-term opportunities in

Egypt include CCUS, biofuel and waste

heat recovery projects.

We are making progress with our carbon

capture and storage study, with initial data

collection and candidate storage and

screening phases now completed. The next

phase of the project will model and further

screen potential storage sites.

1 Source: Wood Mackenzie

Task Force on Climate-related

Financial Disclosures (TCFD) Report

(1) Source: Wood Mackenzie

Capricorn Energy PLC

Annual Report and Accounts 2022

Climate change and

transition governance

Capricorn attaches high importance to

climate change considerations at Board

level and throughout the organisation,

together with broader environmental,

societal and governance responsibilities.

Internally climate change and energy

transition are ranked as principal risks for the

business. The formation of the Sustainability

Committee, which meets twice a year, has

embedded consideration of climate change,

the transition and wider sustainability

factors in to every Board decision. Examples

include the screening of all new investment

opportunities with resilience testing against

transition and climate change, and the

vetting of contractors for drilling, marine and

aviation services for compliance with energy

efficiency and emissions standards.

This approach will be further refined as part

of the Company’s strategic review.

TCFD risk assessment turns

to physical risks

As part of its governance, the Company has

progressed in its TCFD reporting, which

now lies at the heart of its climate-related

financial disclosure for the financial markets,

investors and broader stakeholders. The

main objective of TCFD compliance is to

provide transparency on the risks and

opportunities presented to the business

by climate change. To the end of 2021,

Capricorn had reported analysis of the

transition risks for the Company on the

value of its asset portfolio based on policy,

legal, technological, market and reputational

factors. In 2022, we extended this

assessment to cover physical risks from

climate change, including the severity and

frequency of extreme weather, impacting

our assets or operating environment.

Insurance specialist, Willis Towers Watson

(WTW) was commissioned to assess the

Value at Risk impacts associated with

climate hazards, and the level of operational

vulnerability on our current and future

portfolio. Overall the assessment’s

modelling indicates that increased drought

and heat stress and a decrease in correlated

precipitation are likely across Capricorn sites

by 2050. Due to the location of our assets,

other climate hazards such as river flooding,

cyclones and rising sea levels are predicted

to be broadly stable.

In terms of Value at Risk, the likely impact

was concluded to be very low under the

Representative Concentration Pathways

(RCP) 2.6 scenario, where global warming

is kept below 2°C above pre-industrial

temperatures. Under the more extreme

RCP 8.5 ‘hothouse’ scenario, drought stress

was identified as the most material risk for

the Company in the 2040-2050 timeframe,

with medium Value at Risk (defined as

US$1-10m impact on cash flow and

potentially US$25-100m in terms of market

capitalisation). These risks have been

entered into the Company’s risk register.

Mitigatory measures are already being put

in place to address the impact of stressed

water resources and high temperatures on

our operations and employees in Egypt. As

a result of the WTW report the Board will

consider any further additional measures

that should be actioned in the short to

medium term to address issues raised.

 Visit our Sustainability Report for further information

Our Net Zero

Commitment

in Action

Focus on Scope 1 and 2 equity

emissions reduction

Zero routine flaring

First UK independent to commit to

World Bank Zero Routine Flaring by 2030

Portfolio resilience

Current portfolio creates value in stringent

transition scenario testing

Clear principles underpin target

Avoid, reduce and substitute

– Power generator rationalisation

and fuel substitution of diesel for

clean-burning gas progressing

– Electrification of Badr El Din (BED)

area with completion in 2023

– Exploring feasibility for installation of

waste heat recovery units at Obaiyed

Central Processing Platform (CPP)

– Progression of workstream on solar

integration at NEAG

– Assessing methane monitoring

solutions

Sequester

Study to test technical and commercial

feasibility for CCUS

Offset

Progression of workstream on diversified

high-quality carbon offsets

Task Force on Climate-related Financial Disclosures (TCFD) Report continued

Short-term target

2025

Use of more

energy-efficient

vessels and services

where practicable

Electrification of

operations

Detect and reduce

fugitive emission

Flare and vent

reduction including

zero flaring by 2030

By 2025 reduce emissions by

15%

Where we are now

Annual Report and Accounts 2022

Strategic Report

Short to medium-term target Long-term target

2030

2040

Operational

improvement

measure

Biofuels

Waste heat

recovery

Renewable/

hybrid power

Carbon capture

and storage

opportunities

By 2030 reduce emissions by

30%

By 2040 reach

Net

Zero

Capricorn Energy PLC

Annual Report and Accounts 2022

Task Force on Climate-related Financial Disclosures: Cross-reference table

Capturing all 11 recommendations for Governance, Strategy, Risk Management and Metrics & Targets.

Recommendations

Governance

Disclose the organisation’s

governance around climate-

related risks and opportunities

a) Describe the Board’s oversight of climate-related risks and opportunities Page 180

b) Describe management’s role in assessing and managing climate-related risks

and opportunities

Pages 180

and 181

Strategy

Disclose the actual and

potential impacts of climate-

related risks and opportunities

on the organisation’s

businesses, strategy and

financial planning where

such information is material

a) Describe the climate-related risks and opportunities the organisation has identified

over the short, medium and long term.

Pages 182

and 183

b) Describe the impact of climate-related risks and opportunities on the organisation’s

businesses, strategy and financial planning.

Page 183

c) Describe the resilience of the organisation’s strategy taking into consideration different

climate-related scenarios, including a 2ºC or lower scenario.

Pages 183

and 184

Risk Management

Disclose management’s role

in assessing and managing

climate-related risks and

opportunities

a) Describe the organisation’s processes for identifying and assessing climate-related risks Page 181

b) Describe the organisation’s processes for managing climate-related risks Page 181

c) Describe how processes for identifying, assessing, and managing climate-related risks

are integrated into the organisation’s overall risk management

Page 181

Metrics and Targets

Disclose the metrics and

targets used to assess and

manage relevant climate-

related risks and opportunities

where such information is

material

a) Disclose the metrics used by the organisation to assess climate-related risks and

opportunities in line with its strategy and risk management process

Page 184

b) Disclose Scope 1, Scope 2 and, if appropriate, Scope 3 greenhouse gas (GHG) emissions,

and the related risks

Page 184

c) Describe the targets used by the organisation to manage climate-related risks and

opportunities and performance against targets

Page 184

The first stage of this was to develop and

present our emissions reduction plan

and corporate net zero strategy to the

UK environmental regulators as part

of our drilling permit environmental

assessment. Through the development

of this plan, we identified the aspects

of the project that have the greatest

impact on emissions and worked out

the best process for reducing the

atmospheric impact. Our planning also

ensured that the Diadem work aligned

with the Energy White Paper, the North

Sea Transition Deal and OPRED’s Net

Zero Strategy.

With the implementation of this plan,

Capricorn kept the emissions from

drilling operations to a minimum.

The plan detailed how we use energy

efficiency and emissions as a

differentiating factor in our contractor

selection, how we designed the project

to minimise the environmental impact

in the event of a discovery and how we

selected a drilling rig equipped with

specialist NO

reducing units in its

engines along with a suite of other

emissions reduction strategies.

Our approach and presentation of our

emissions reduction plan was highly

commended during our drilling permit

application process. Capricorn continues

to look for new ways to reduce our

emissions footprint and we shall be

implementing similar emissions

reduction plans in future operations.

Case study

Emissions Reduction: Diadem exploration well

The operated Diadem exploration well, drilled in the UK Central North Sea, presented one

of the first opportunities for Capricorn to put its emissions reduction planning into action.

Task Force on Climate-related Financial Disclosures (TCFD) Report continued

Annual Report and Accounts 2022

Strategic Report

10.00

9.00

8.00

7.0 0

6.00

5.00

0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.0 0 8.00 9.00 10.00

Materiality Issues by Theme

Environment

Climate Change & Energy Transition

Reduction of GHG Emissions

Reduction of Fossil Fuel Consumption

Protection of Biodiversity &

Ecosystems

Discharges to Air, Sea, Land & Sound

Protection of Fresh Water Resources

Circular Approach & Minimisation

of Waste

People

Workplace Safety & Security

Diversity, Equality & Inclusion

Health & Well-being

Talent Management

Learning & Development

Society

Safeguarding Human Rights

Supporting & Safeguarding Local

Communities

Investing in Local Skills, Recruitment

& Procurement

Governance

Managing a ‘Just Transition’

Building & Maintaining a Responsible

Supply Chain

Decommissioning, Closure

& Rehabilitation Commitment

Ethics, Transparency & Regulatory

Compliance

Anti-Bribery & Corruption Practices

Robust Whistleblowing Mechanisms

Emergency Preparedness & Crisis

Management

Data & Cyber Security

Investment in Clean Technologies

& Business Innovation

Linking Remuneration &

Incentivisation to Sustainability and

Other Non-Financial Performance

Measures

Materiality Review

To support our licence to operate

and guide our approach to

sustainability, we need to listen

to our stakeholders so we

understand what matters

most to them.

We also need to make a careful assessment

of the issues that we believe will have the

most impact on the Company, both in

terms of its finances and potential risks.

The process we used to do so included

a close review of international reporting

requirements, benchmarking against our

peers, increasing the focus of our scrutiny

and conducting extensive engagement,

including a survey and one-to-one

interviews, with our stakeholders.

This year we have taken a more rigorous

approach to our materiality assessment

with the resulting Materiality Matrix clearly

identifying which issues are of most

importance, both internally and externally.

 We address the issues deemed to be of ‘high’,

‘significant’ and ‘medium’ importance in our

Sustainability Report at www.capricornenergy.com/

working-responsibly.

1411 1

Importance to external stakeholders

Importance to Capricorn (based on risk after mitigations)

Capricorn Energy PLC

Annual Report and Accounts 2022

Measuring Our Progress

Strategic objectives are set annually to monitor delivery of our strategy. These are

measured by Key Performance Indicators (KPIs) set by the Board. Our risk management

process identifies the principal risks to the delivery of our strategic objectives.

Strategic objective: ESG and HSSE

2022 KPIs 2022 Progress

HSSE Lagging Indicators: Achieve lagging

HSSE indicators measured against IOGP

targets.

HSSE Leading Indicators: Achieve HSSE

leading indicators surrounding safety

leadership.

Environmental: Outline a roadmap and

deliver opportunities to achieve Scope 1

and 2 emissions reductions versus our

short-, medium- and long-term net zero

targets.

Social: Agree, establish and track social

investment across the Group, which

helps to deliver a positive impact on

the communities with which we work.

Governance: Communicate our climate

change strategy, performance, and our

processes for governance, risk

management, target setting and carbon

pricing.

Governance: Enhance our approach to

Diversity & Inclusion.

Key Risks

– Future challenges and costs to

achieving pathway to Net Zero 2040

– Lack of adherence to health, safety,

environment and security policies

– Breach of Code of Ethics.

Operated activities, including well drilling, resulted in zero reportable regulatory spills to

the environment and, for Total Recordable Injury Rate and Lost Time Injury Frequency,

as reported in International Association of Oil & Gas Producers (IOGP) statistics, scores

which were better than the lowest number of all activity averages. This resulted in the

stretch target being met.

The HSSE leadership visits that took place in 2022 were strongly supported across

the business with contributions across the operational footprint. All participants used

the Site Safety Visit Guide to plan, execute and report on their leadership visits with

messaging communicated to staff, contractors and suppliers, which indirectly

contributed to the positive outcome on the lagging indicators.

In July 2022, management visited the Bapetco assets in Egypt for the purpose of

general management and observation, with good dialogue taking place on matters

for follow-up.

In August 2022, management visited the Valaris 123, which drilled the operated Diadem

well rig to demonstrate HSSE leadership and to focus on major accident hazard

prevention.

Members of management visited the seismic operations being undertaken in the

South-East Horus concession in Egypt, in September 2022. The focus of the visit was

HSSE leadership and to demonstrate and assess safety behaviours and lifesaving rules.

An action tracker was put in place for the operational period.

A field visit was undertaken to the Egypt production operations to undertake an

Environmental and Safety Audit with good progress noted against previous findings.

A visit was made to the West El Fayium concession seismic operations to observe health

and safety behaviours and a comprehensive visit report was prepared and

disseminated.

On 7 December 2022, an HSSE & CSR day was held in the Edinburgh office, with over

140 participants from across the organisation in attendance.

Progress with GHG emissions reductions initiatives in Egypt gave confidence to set

bolder Scope 1 and 2 targets, which were communicated to investors during the

September 2022 update. A new, near-term target of 15% reduction by 2025 has been

set, while the 2030 emissions reduction target was increased from 25% to 30%.

An emissions baseline assessment in Egypt was completed providing assurance on the

quality of emissions reporting. This is fully in line with the latest American Petroleum

Institute (API) GHG compendium (Nov-21). Bapetco have identified a suite of projects

and a roadmap to deliver on an ambitious Scope 1 and 2 emissions reduction pathway.

Significant progress was made on emissions improvement initiatives including mobile

diesel generator reduction, electrification using gas as power fuel, planning for multiple

flare reduction and waste heat recovery projects, and investigating feasibility for carbon

capture and storage at Badr El Din and Obaiyed through subsurface evaluation.

In January 2022, Capricorn purchased high-quality carbon offsets with BP, Shell and

Tradewater; all are verified with either Verra, Gold Standard or the American Carbon

Registry.

The inputs and outcomes from 2022 social investment efforts were assessed and it

was concluded that these meet the social investment guidelines for investments and

that they were being actively managed by the social advisors in collaboration with a

number of external stakeholders. A social management framework was developed in

2021 in line with the UN SDGs and this was first used in 2022, including using the

social investment screening tool.

Social investment projects undertaken in 2022 in Mexico included: the second year of

the Turtle Conservation Project where our donations funded the patrolling of 7,000km

of beach, an increased number of hatchlings being released year-on-year and a

technology transfer education and innovation programme with 25 participants.

Annual Report and Accounts 2022

Strategic Report

Strategic objective: ESG and HSSE continued

2022 Progress

In Suriname, we assisted for a third year in the mangrove rehabilitation project, with our

donation being used to acquire key pieces of equipment to support the construction of

sediment trapping units which increased the area now protected. Donations were also

given to create a community hub, with six local schools having access; 200-300 local

students and youths accessed the hub on a weekly basis and gained IT skills and

experience. Further donations funded the tuition fees for a two-year MSc in Public

Health for seven students and also allowed the purchase of key pieces of equipment

for the electrical engineering element of the oil and gas stream of NATIN Phase 2

programme which had 30 participants.

In the UK, a Clean Energy Scholarship at Heriot Watt University was supported,

enabling three students to be supported through a clean energy PhD. Also at Heriot

Watt University, a donation enabled 16 PhD students to be funded through

GeoNetZero CDT.

In Egypt, a financial donation and the provision of volunteer trainers was made towards

the Al Amal Graduate Training Programme, which had 42 participants.

CDP: In December 2022, we received our Water and Climate Change CDP ratings

(both B) relating to 2021 ESG data, submitted in July 2022. Our prior-year submission

for Climate Change was (-B) and Water (B). This puts us among the top performers

amongst our peers, on both metrics.

TCFD: We delivered a detailed standalone TCFD report, published as part of the Annual

Report 2021. We addressed all four pillars (Governance, Strategy, Risks and Metrics and

Targets) and 11 disclosures as required by the framework, including the assessment of

transition risks of climate change on our portfolio.

In 2022, we assessed the potential impact of the physical risks of climate change on

our assets. We conducted a study with an independent provider, Willis Towers Watson,

who helped us calculate Value at Risk (VaR) for three principal climate scenarios. The

results of this analysis are included in the TCFD 2022 disclosures and published as part

of the 2022 Annual Report and Sustainability Report.

SASB: To improve the quality and transparency of our reporting, we assessed and

aligned our reporting against the Sustainability Accounting Standards Board (SASB) Oil

& Gas – Exploration & Production Sustainable Accounting Standard (SASB, Oil & Gas –

Exploration & Production Index 2021).

An independent D&I survey was commissioned in April 2022; 170 employees

responded to the survey. We compared our results with those from 100+ energy

companies operating in the UKCS and Capricorn achieved 7.7 (out of 10) on the

D&I Index, 0.6 higher than the UKCS average of 7.1.

A D&I working group was formed in January 2022. The group identified several key

initiatives to further embed D&I into our culture: to improve opportunities for under-

represented groups to move into senior roles in the organisation; in January 2022 our

‘Shadow4success’ initiative started. A diverse group of female colleagues were

independently selected for the programme to shadow our Executive Team throughout

the year; in January 2022, we launched an ‘Inclusion calendar’, which is designed to

provide an overview and raise awareness of key dates and activities to reflect the

diverse population of our staff and the communities in which we work; and D&I training

was delivered for all staff between September 2022 and November 2022.

Past performance in KPI category

Remuneration

 Read more in the Remuneration Report –

pages 76 to 109

Weighting

(as % of allocated

proportion of maximum

opportunity)

20.00%

Bonus awarded

20.00%

2022

2021

2020

100%

90%

Capricorn Energy PLC

Annual Report and Accounts 2022

Measuring Our Progress continued

Strategic objective: Exploration and New Ventures

2022 KPIs 2022 Progress

Prospect Maturation & Well Planning:

Mature our key exploration projects for

planned drilling in 2022/23 in Egypt,

UK and Mauritania.

Exploration Operations: Conduct our

operated and non-operated exploration

and appraisal activities (surveys and drilling)

successfully, on time and on budget.

Adding Resources: Add new commercial

resources through E&A drilling, coupled

with conceptual development studies.

Key Risks

– n/a

The proposed prospects to be drilled in the SAS concession were agreed with the joint

venture, with the first (Saqr) spudded in February 2023.

Plymouth was evaluated using 2D seismic surveys – relative acoustic impedance

attribute. Ion 3D was acquired in late 2021 and processed products delivered in

May 2022.

Farm-down work continued during the year. Drilling planning has progressed with

the well design simplified and the ESIA preparations underway.

All projects executed in 2022 met their original basis of design objectives. The Jaws

exploration well was delivered on budget and the South East Horus 3D seismic and

West El Fayium 3D seismic both completed more than 10% under budget. The

Diadem exploration well completed, but over budget and, therefore, did not score.

The Jaws exploration well in the UKCS, operated by Shell (Capricorn 50% WI) was

completed in late January 2022. The well encountered 31m of Jurassic Fulmar sands

but was unfortunately water wet.

The Capricorn operated Diadem well (50% WI) was completed in September 2022

but was also unsuccessful, failing to find hydrocarbons.

As both wells were unsuccessful, no new contingent resources were added, resulting

in a zero score. Both licences P2380 and P2379 were relinquished by year-end.

Past performance in KPI category

Remuneration

 Read more in the Remuneration Report –

pages 76 to 109

Weighting

(as % of allocated

proportion of maximum

opportunity)

20.00%

Bonus awarded

5.75%

2022

2021

2020

28.75%

38%

36%

Annual Report and Accounts 2022 19 Strategic Report

Strategic objective: Production

2022 KPIs 2022 Progress

Reserves/Resource Conversion: Sanction

incremental development investment to

convert WI 2C Resources and 2P

Undeveloped Reserves into WI 2P

Producing Reserves.

Delivering Production and Opex Targets:

Deliver Net production targets within

public market guidance issued in January

2022.

Deliver operating cost/boe targets within

public market guidance in January 2022 in

relation to Egypt (US$4.5 – US$5.5 per boe).

Key Risks

– Underperformance of Egypt assets

– Reserves downgrade or impairment

The target of 15 mmbboe converted was based on 100% reserves replacement, where

production was expected to be ~40 kboepd (or an annual volume of 14.6 mmboe) on

the basis 40-50 wells would be drilled in 2022. The targets were not met.

The target was set with the ambition of drilling 40-50 new wells in the year. Due to

various reasons, the joint venture was only able to deliver 31 new wells, impacting

the production volumes. Oil and condensate volumes were above threshold of

12,950 bopd but below target of 15,000 bopd, scoring 1.5%. Gas production and oil

equivalent production were below threshold of 140 mmscf/d and 40,000 boepd

respectively, resulting in zero score.

Although the absolute opex was in line with guidance in terms of US$ annual

expenditure, the overall performance was impacted by the production performance

being below target and therefore pulled the opex/boe out of guidance, averaging

US$5.7/boe.

Past performance in KPI category

Remuneration

 Read more in the Remuneration Report –

pages 76 to 109

Weighting

(as % of allocated

proportion of maximum

opportunity)

20.00%

Bonus awarded

1.50%

2022

2021

2020

7.5%

59%

60%

Capricorn Energy PLC

Annual Report and Accounts 2022

Strategic objective: Financial Performance

2022 KPIs 2022 Progress

Headroom Test: Maintain a US$50m

‘headroom’ from existing sources of funds

in all financial projections covering all

currently committed and planned

expenditure, including capital funds

for exploration, appraisal, incremental

development and production opex.

Debt Liquidity: Covenants or applicable

facility tests met.

Funding Plan: Executable funding plan

presented and approved by the Board

to effect the Company’s strategy or as

required in line with any approved

acquisition.

Key Risks

– Volatile oil and gas projects

– Political and fiscal uncertainties

– Egypt receivables balance

– Inability to access capital

This funding test was maintained and therefore scored fully for this element of the

financial performance KPI.

The October 2022 redetermination for the reserve-based lending (RBL) debt facility

associated with Egypt completed and the KPI fully met for this element of the financial

performance KPI.

Following the annual strategic review, an all-share merger with Tullow Oil plc was

proposed and a funding plan prepared accordingly. This plan changed following the

recommendation to combine with NewMed Energy. In February 2023, the Company

and NewMed mutually agreed to terminate the Business Combination Agreement

with the associated funding plan not completed, meaning zero score achieved for this

element of the financial performance KPI.

Past performance in KPI category

Remuneration

 Read more in the Remuneration Report –

pages 76 to 109

Weighting

(as % of allocated

proportion of maximum

opportunity)

20.00%

Bonus awarded

10.00%

2022

2021

2020

50%

80%

86%

Strategic objective: Corporate projects

2022 KPIs Key risks 2022 Progress

Identify projects agreed with the Board of

strategic significance during the year to

enhance the portfolio.

Key Risks

– Failure to unlock value from the strategic

review.

Whilst a number of business development opportunities were reviewed, no corporate

projects concluded and no score was achieved in this element of the corporate

projects KPI.

Pre-determined portfolio management projects (commercially confidential) were

only partially achieved, scoring below half marks for this element of the corporate

projects KPI.

Past performance in KPI category

Remuneration

 Read more in the Remuneration Report –

pages 76 to 109

Weighting

(as % of allocated

proportion of maximum

opportunity)

20.00%

Bonus awarded

2.00%

2022

2021

2020

10%

31%

70%

Further information on the 2022 KPI weightings and scoring metrics can be found in the Directors’ Remuneration Committee

Report pages 76 to 109.

Measuring Our Progress continued

Annual Report and Accounts 2022 21 Strategic Report

Capricorn Energy PLC

Annual Report and Accounts 2022

Emissions and energy use

We are committed to promoting the

efficient use of energy, with the aim of

conserving natural resources, reducing

atmospheric emissions and mitigating

the impacts of our operations. Our net zero

roadmap – see pages 12 and 13 for more

detail – sets out our near to mid-term target

to reduce absolute emissions by 15% by

2025 and 30% by 2030, as well as our

commitment to an accelerated target of net

zero emissions by 2040. Achieving these will

involve a hierarchy of options for avoiding,

reducing, substituting and offsetting GHG

emissions, which includes opportunities for

carbon capture, utilisation and storage.

Residual emissions, which are hard

to eliminate through operational

improvements, will be offset using high-

quality carbon offset projects with positive

socioeconomic and biodiversity impacts.

This strategy is in line with our sustainability

objectives, the UN Sustainable Development

Goals (SDGs) and the Task Force on Climate-

related Financial Disclosures (TCFD).

 For more details, see our website:

www.capricornenergy.com/working-responsibly

We are actively engaged in voluntary

carbon markets and have acquired a

portfolio of high-quality carbon offsets,

including nature-based sequestration,

landfill gas and refrigerant gas destruction.

We make annual carbon disclosure

submissions to the CDP. In 2022, we

improved our CDP rating from B- to B

for both climate change and water

questionnaires. This positions us among

the top performers in our peer group.

We report on both an operated and an

equity basis. We have set out targets against

equity absolute Scope 1 and 2 emissions,

taking accountability for assets beyond our

operational control. Due to the dynamic

nature of our evolving portfolio, we will use

2022 as the baseline against which our

targets will be measured, with full-year

emissions from our Egypt portfolio taken into

account. We also report Scope 3 emissions

from business travel, employee commuting

and from the use of products sold.

Streamlined energy and

carbon reporting (SECR)

Our GHG emissions from our Operated

Activities are outlined in the SECR table

below, and form part of our UK regulatory

reporting requirements.

Emissions

Our operated annual GHG emissions arise

largely from exploration and appraisal

activities and, in absolute terms, vary with

the duration and nature of our projects.

2022 was a key year for improved GHG

Behaving Responsibly to the Environment

We at Capricorn continue to deepen our commitment and

energise our actions to take a responsible approach to the

environment. We are refocusing our efforts on net zero

emissions by 2040 or earlier, and reinforcing our approach to

biodiversity and water management. Ours is a precautionary

approach, with rigorous risk assessments and robust working

methods that help us to minimise our environmental impacts

without affecting our commitment to safety. We are working

hard to find ways to find a manageable trajectory for the oil

and gas industry to meet the demand for reliable, affordable

energy as it transitions to net zero emissions.

A responsible approach to the

Business Principles

– We take a precautionary approach

to our effect on the environment.

– We strive to prevent and minimise

our impact on the environment,

including no net loss of biodiversity.

– We will implement our pathway

to net zero carbon emissions and

report on our progress.

At the end of 2022, the following

environmental issues were identified

as being of high materiality:

– Climate change and energy transition

– Reduction of GHG emissions

– Reduction of fossil fuel consumption

– Protection of biodiversity and

ecosystems

– Discharges to air, sea, land and sound

– Protection of fresh water resources

– Circular approach – minimisation of

waste

 See our Materiality Matrix within our

Sustainability Report

2022 Performance Against Sustainability Objectives

– Revised our Climate and Energy

Transition strategy.

– Developed short-, medium- and

long-term sustainability objectives

and targets.

– Integrated carbon pricing

mechanisms and re-evaluated the

resilience of our portfolio.

– Assessed physical risks of climate

change on our portfolio.

– Improved our reporting against TCFD

and SASB requirements.

– Began disclosing Scope 3 emissions

from the use of our products.

– Applied newly developed biodiversity

assessment tools and improved

disclosure of biodiversity issues.

– Undertook an Environmental

Baseline Survey, furthered

knowledge of biodiversity and

ecosystem services risks in

Mauritania.

– Commenced the environmental and

social impact assessment (ESIA)

process for our exploration work in

Mauritania, including engagement

with key stakeholders.

– Applied our improved water

resilience and stress ranking and

reporting to opportunity screening.

– Completed environmental and social

impact assessments for our operated

exploration projects in Egypt.

 See our Sustainability Report for more information about our SDG performance

Environment

Annual Report and Accounts 2022

Strategic Report

emissions understanding associated with

the Egyptian producing assets, whereby

the JV completed a more comprehensive

baseline survey in our first full year of

ownership, with the applied methodologies

independently confirmed as consistent

with international standards. This gives us

an opportunity to apply new approaches

and techniques to lower emissions from

this 2022 baseline over the next three years

to achieve our target of a minimum of 15%

reduction by 2025. We are pleased that

Bapetco has already identified, and in some

cases, started to execute measures that will

move us to lower absolute emissions.

Energy use

Direct energy use from operated assets

mainly comprises diesel fuel combustion

in field operations and minor electricity

consumption in our offices. We seek to

minimise energy use during exploration

activities through planning and efficient

working. As our exploration programmes

vary annually, so too does energy

consumption.

Low-carbon assets and equipment

To minimise the energy used in our

exploration activities, we assess the fuel

consumption of rigs, vessels and

helicopters. We continue to use fuel

efficiency as one of our selection criteria

when tendering vessels for geophysical

and geotechnical surveys. We will strive

to align our supply chain products and

services with our own emissions reduction

target of net zero by 2040 or earlier.

Capricorn equity emissions

The majority of our equity-based emissions

were Scope 1 emissions from non-operated

assets in the Western Desert, Egypt. These

have been outlined in the 2022 Capricorn

Equity Emissions table on page 24.

We have been working closely with our

partners in Egypt to significantly improve

confidence in emissions measurement and

reporting, and to develop a suite of

decarbonisation projects, which include:

– electrification, to reduce diesel

consumption which is progressing well;

– flare reduction projects are underway

with flare gas to power projects being

developed;

– fugitive identification which has

been completed with a corrective

maintenance plan in place;

– integration of larger scale solar power,

which is under consideration;

– waste heat recovery units with the

potential to materially reduce emissions

by removing hot oil heaters;

– feasibility for waste heat recovery

which is being explored for certain sites;

– the potential for carbon dioxide

sequestration, which is being

studied; and

– the use of biofuels and hydrogen,

which is being considered.

Our indirect (Scope 3) emissions are also

reported, including emissions from

products sold.

Reduction of GHG emissions

We know from our engagement with

stakeholders that the reduction of

greenhouse gas (GHG) emissions is a key

demand of our external stakeholders, and

is also seen as a principal business risk by

the Company. Our approach to reducing

our GHG emissions is based around clear,

simple principles: Avoid, Reduce,

Substitute, Sequester and Offset.

See our Sustainability Report for data on all

emissions.

GHG emissions from operated activities (SECR)

Unit 2022 2021

Scope 1 (direct) emissions from fuel combustion, flaring and waste incineration tCO

UK 3,659.41 885

Capricorn total 7,862.61* 911*

Scope 2 (indirect) emissions(location-based) from electricity consumption tCO

UK 183.90 95

Capricorn total 223.31* 107*

Total gross Scope 1 and Scope 2 emissions tCO

UK 3,843.31 980

Capricorn total 8,085.92* 1,018*

Total energy consumption kWh

UK 1,754,673 3,833,782

Capricorn total 19,755,280 3,971,555

GHG intensity ratio: of Scope 1 and Scope 2 emissions to1,000 hours worked tCO

e/1,000 wh

UK 1.17 3.35

Capricorn total 3.12 3.2

Scope 3 emissions from business travel tCO

UK 1,202.16 451

Capricorn total 1,202.16* 451*

* Deloitte have provided independent third-party limited assurance in accordance with the International Standard for Assurance Engagements 3000 (“ISAE 3000”)

and Assurance Engagements on Greenhouse Gas Statements (“ISAE 3410”) issued by the International Auditing and Assurance Standards Board (“IAASB”) over

selected metrics, identified with *, within Capricorn Energy’s energy consumption and greenhouse gas (GHG) emission disclosure. Deloitte’s full unqualified assurance

opinion, which includes details of the metrics assured, can be found on our website – www.capricornenergy.com/working-responsibly. Details about our corporate

definitions, data and methodologies are outlined within our Basis of Reporting. Note: Figures do not include Scope 3 from the use of products.

Capricorn Energy PLC

Annual Report and Accounts 2022

Behaving Responsibly to the Environment continued

2022 Capricorn equity emissions

Operated and non-operated

Measure 2022 2021

Total equity emissions tCO

e 2,353,023 3,388,119

Total equity CO

e – Scope 1 tCO

e 269,412 146,579

Operated tCO

e 3,849 549

Non-operated tCO

e 265,563 146,030

Total equity CO

e – Scope 2 tCO

e 223 107

Total equity CO

e – Scope 3 tCO

e 2,083,388 3,241,433

Category 1 – Purchased goods and

services tCO

e 3,401 n/a

Category 3 – Fuel and energy-related

activities tCO

e 23 n/a

Category 4 – Upstream transportation

and distribution tCO

e 1,027 n/a

Category 5 – Waste generated in

operations tCO

e 44 1

Category 6 – Business travel tCO

e 1,202 451

Category 7 – Employee commuting tCO

e 393 n/a

Category 9 – Downstream transportation

and distribution tCO

e 69,832 50,989

Category 10 – Processing of sold products tCO

e 68,010 152,397

Category 11 – Use of sold products tCO

e 1,939,457 3,037,595

Intensity (Scope 1+2)* kgCO

e/boe 47.4 19.87

* Intensity is calculated on the entitlement basis.

Protecting Biodiversity and

the environment

Capricorn is committing increasing time

and resources to the protection of

biodiversity and natural ecosystems in

recognition of the importance of the

sustainable use of nature in supporting the

United Nations Sustainable Development

Goals (UN SDGs) and the UN’s crucial role

in addressing climate change.

We updated our biodiversity policy at the

end of 2021, and during 2022 we have

implemented and built on new tools and

guidelines for assessing and managing risk

to biodiversity from our operations. We are

also following the development of the

numerous initiatives to support business

action on nature such as Business for

Nature, the Task Force on Nature-related

Financial Disclosures (TNFD), the Science-

Based Targets Network (SBTN) and the

Aligning accounting approaches for Nature

(Align) project.

In 2022 we delivered a number of training

events to increase biodiversity awareness

and management capacity including: a

three-quarter-day session on no net loss for

biodiversity (developed and delivered by

The UN Environment Programme World

Conservation Monitoring Centre (UNEP-

WCMC), a Board education session

addressing the evolving corporate nature

management and reporting requirements,

and a lunch and learn for all staff.

Protecting and screening

biodiversity and sensitive areas

As nature and biodiversity risk are

inherently location-specific, prior to

entering new areas, we undertake detailed

screening and consultation to identify

protected areas and priority locations for

biodiversity conservation. The finding of

high biodiversity risk has led to recent

decisions not to progress investment,

or been followed by the commitment

to implement Biodiversity Action Plans.

We have an extensive and sophisticated

toolset for assessing biodiversity risks.

 For more detail see our Sustainability Report.

Assessing and managing our

impact on biodiversity

On entry to new projects, Capricorn

undertakes Environmental Baseline Surveys

(EBS) to define existing environmental and

biodiversity conditions around planned

operations. In 2022 we completed an

EBS and agreed the Environmental and

Social Impact Assessment (ESIA) Terms

of Reference with the Mauritanian

Government for our proposed exploration

drilling in the C7 licence block, offshore

Mauritania. In Egypt we completed an

Environmental Impact Assessment (EIA),

and all related studies required for our

activities such as Social Impact Assessment

(SIA), as per national requirements, for our

3D seismic Projects in our operated

concessions (West El Fayium and South

East Horus) and for our exploration drilling

campaign, which started in Q1 2023.

The fundamental concept which Capricorn

applies to manage potential impacts to

biodiversity is that of the Mitigation

Hierarchy; that is taking measures to Avoid,

Minimise, Restore, and finally Offset negative

impacts. We recognise the challenges in

achieving this, particularly in the marine

realm, and will be looking to develop KPIs to

assist us with delivering this commitment.

Water, effluents and pollution

Discharges to air, sea, land & sound

An important part of our commitment

to the environment is the minimisation

of discharges and emissions from our

operations. It ranks highly in the concerns

of our external stakeholders. As we move

into a more active phase in our Egyptian

operations it is a subject on which we are

putting a particular focus. As with our

broader waste policy we are working

towards a Reduce, Reuse, Recycle principle

with our emissions.

 See the Sustainability Report for details and our

performance against KPIs.

Protection of freshwater resources

Climate change and increased water

consumption are putting greater pressure

on freshwater resources around the world.

Access to clean, safe water for local

communities is a fundamental human

right and is enshrined within the UN SDGs.

We therefore take our responsibility for

protecting and maintaining the sources

and quality extremely seriously. Our

Corporate Environmental and Climate

Change Policy outlines the Company’s

commitment to efficient operations

regarding water usage. This policy aims to

protect water sources and water quality

where we operate, promotes the efficient

use of water, and includes the need to

engage with local communities to ensure

environmental resources are conserved.

Product stewardship

It is our responsibility to ensure all production

operations and the transportation of crude oil

from our non-operated production to buyers

comply with regulatory requirements, as

well as our own Code of Ethics and our

Environment and Climate Change Policy. We

engage with our partners to ensure proper

stewardship is in place via routine Operator

Committee and Technical Committee

meetings. Hydrocarbon sales are carried

out by marketing agents on our behalf,

with the gas from our non-operated assets

in Egypt sold domestically to the Egyptian

General Petroleum Corporation (EGPC).

Strategic ReportAnnual Report and Accounts 2022

Our 2022 performance

With over 1.5m total hours recorded

throughout the year, one Restricted Work

Day Case (RWDC) and zero Lost Time

Injuries (LTIs) in our operated assets, our

occupational safety performance exceeded

our target; this was set using the IOGP

benchmarks, which we use as lagging KPIs.

This performance was exceptional,

recognising that the activity level in 2022

was much higher and more complex than

in 2021, featuring an offshore well in the

UKCS and two seismic projects in the

newly acquired Egyptian Western Desert

concessions covering a total of 1,060 sq km.

Lost Time Injury Frequency (LTIF)

(lost time injuries per million hours worked)

IOGP benchmark: 0.22

Capricorn: 0.00

IOGP benchmark: 0.24

Capricorn: 0.00

IOGP benchmark: 0.26

Capricorn: 0.00

IOGP benchmark: 0.24

Capricorn: 0.00

IOGP benchmark: 0.26

Capricorn: 0.00

2022

2021

2020

2019

2018

Capricorn total for employees and contractors

The benchmark used is the latest available

International Association of Oil & Gas Producers

(IOGP) figure at the beginning of the year for the

industry overall.

Total Recordable Injury Rate (TRIR)

(total recordable injuries per million

hours worked)

IOGP benchmark: 0.70

Capricorn: 0.65

IOGP benchmark: 0.92

Capricorn: 0.00

IOGP benchmark: 0.99

Capricorn: 0.00

IOGP benchmark: 0.92

Capricorn: 0.98

IOGP benchmark: 0.99

Capricorn: 0.00

2022

2021

2020

2019

2018

Managing people and talent

Delivering on our strategy and achieving

sustainable results are only possible thanks

to the skills, experience and passion of our

people. Our employee processes are

underpinned by our values of Building

Respect, Nurturing Relationships and Acting

Responsibly, as well as our High Performing

Behaviours. Proactively managing and

empowering people to reach their full

potential is key to business success.

Behaving Responsibly to People

At Capricorn, our people are the key to our success. Our

employees’ well-being, safety and security is one of our core

values that underpins how we do business and the behaviours

we expect. Our culture promotes honesty and openness, and

we have programmes in place that prioritise health, safety,

inclusion, well-being and security.

Business Principles

– We develop the potential of our

people.

– We foster a workplace that respects

personal dignity and rights, is

non-discriminatory and provides fair

rewards.

– We provide a healthy, safe and secure

work environment.

At the end of 2022, the following people

issues were identified as being of high

materiality:

– Workplace safety and security

– Diversity, equality and inclusion

– Health and well-being

– Talent management

– Learning and development

 See our Materiality Matrix within our

Sustainability Report

A responsible approach to our

2022 Performance Against Sustainability Objectives

– Established our diversity and inclusion

(D&I) strategy and working group,

and developed tools and methods

to embed D&I in the way we work.

– Delivered the next phase of our talent

management programme, as we shift

to a more production-based strategy.

– Continued to support staff on

COVID-19 and facilitated a return to

office working.

– Reviewed and updated our

competency procedures in relation to

health, safety and the environment

(HSE) and major accident safety in

drilling operations.

– Revised our Project Delivery Process

with improved integration of HSE

elements within the Wells Project

Management Procedure.

– Implemented an HSSE management

system roadmap for our in-country

team in Cairo.

– Established a system to track social

investment across the Group that

helps deliver a positive impact on the

communities with which we work.

– Implemented an enhanced incident

reporting system across the Company

and provided training to users.

– Reviewed our security guidelines

against the latest ISO standard, and

assessed information sources and

providers to identify potential

improvements and updated our

Business Continuity Plan.

– Revised our technical competencies

project and strengthened links to our

Corporate Major Accident Prevention

Policy (CMAPP).

– Reviewed and updated our corporate

policies to ensure alignment with

latest legislation and clarity of

messaging.

– Revised our contractor assessment

criteria in relation to emissions,

energy efficiency objectives and our

net zero targets.

– Set improved contractor HSE

leadership expectations, including

revised key performance indicators

(KPIs) for forthcoming projects.

– Aligned our scoring mechanism for

contractor HSE evaluations with

International Association of Oil & Gas

Producers (IOGP) methodologies and

achieved our stretch target for 2022.

 See our Sustainability Report for more information about our SDG performance

People

Capricorn Energy PLC

Annual Report and Accounts 2022

2022

2021

2020

2019

2018

Employees

Direct Contractor

Management

People Managers

185

172

Employees

Full time

Direct contractors

Part time

In 2022, Capricorn Energy announced two

potential merger activities. Later in the year,

a voluntary redundancy programme was

announced as part of these new strategic

plans. Employees were given clarity about

both the merger plans and the voluntary

redundancy programme with a clear

signpost of where they could access further

information and support.

Measuring engagement: Pulse Surveys

2022 marked the fourth year of our ‘Have

your say’ pulse surveys and the key areas of

focus were the Company’s merger strategy

and the support given during this period of

change. These short, regular snapshots

continue to attract consistently high

participation rates of around 90%, 4% above

the industry average.

Our engagement scores at the end of each

quarter of 2022 were 8.2, 7.5, 6.7 and 6.2

respectively, compared to the industry

benchmark of 7.5. Throughout, the majority

of the scores for each component of the

survey tended to be higher than the

industry average. The year-end figure of

6.2 – a 2.1 reduction compared to Q4 2021

– can largely be attributed to a period of

uncertainty experienced by colleagues

from June 2022 when plans for a potential

merger were first communicated.

Employee Voice Forum

Our Employee Voice Forum gives our

people direct access to the Board. There are

two meetings each year, chaired by a

Non-Executive Director, at which colleagues’

material concerns, ideas and suggestions

are discussed. The main themes explored

in 2022 covered future working practices,

long-term and short-term strategy and

future focus of the Company.

Learning and development

Group-wide learning opportunities

Operating to the highest standard means

providing optimised learning opportunities

for our people. The right education also

means our business is more efficient,

effective and successful. We invest in

developing our people, helping them to fulfil

their potential, deliver our objectives and

meet the changing demands of our industry.

Leadership and management

development

We continued our partnership with a local

provider to work with each senior leader on

a one-to-one basis. The sessions provided

coaching and insights on strengths and

characteristics, and look at resilience,

managing relationships, emotional

intelligence, inclusive leadership and

succession planning. Each individual also

benefited from a robust development plan

with short-, medium- and long-term actions.

Total workforce

200

(2021: 238)

Employees and Direct Contractors

Average age of staff

(2021: 44)

Gender split

Total workforce

Male/Female

Board members

Male/Female

During 2022, we welcomed 28 new

colleagues to the business, with the skills,

competencies and technical knowledge

required to serve our production-based

business model. Our talent management

strategy continues to focus on growing our

talent through such measures as active

succession planning and mentoring;

leadership, management and development

programmes; and annual objectives and

development plans.

Diversity and Inclusion (D&I)

We recognise that our success depends

on a diverse range of talented people with

the necessary skills and passion, and

acknowledge diversity in all its dimensions:

national origin, age, race and ethnicity,

religion and belief, gender, sexual orientation

and marital status. We nurture a diverse and

inclusive culture, where everyone can

uniquely contribute and thrive; a culture

which values and encourages individual

differences, unleashing the potential of our

talent and flourishes under the collective

strength and value that diversity brings.

 See our Sustainability Report for more information

about our SDG performance and details of our Policies.

Our D&I ambition

We aim to nurture a diverse and inclusive

culture where everyone can uniquely

contribute and thrive: a culture that values

and encourages individual differences,

unleashes the potential of our talent and

flourishes under the collective strength

and value that diversity brings.

Our people

We will focus our outreach across a breadth

of communities to support a more diverse

talent pool, as we strive to attract, develop

and retain the very best talent.

Our communities

Our commitment to D&I reaches beyond

the boundaries of our business to

incorporate the diverse values and

perspectives of the communities and

societies of the countries within which we

are privileged to work. We will continue to

reflect these values and perspectives in our

social investment decisions and practices

in all countries in which we operate.

Employee engagement

Commitment to employee engagement

Our people are the foundation on which

our success is built. We aim to create a

positive, collaborative work environment

that enables colleagues to fulfil their

potential. We respect personal dignity and

rights, and want everyone to feel involved

and valued by their colleagues, managers

and senior leaders.

Employment type

Behaving Responsibly to People continued

Annual Report and Accounts 2022

Strategic Report

For current and aspiring people managers,

we have added the TalentBuilder

programme to our Management Bootcamp

programme, while a Career Focus module

is now available for all staff.

Training

38 hours

Average amount of training given to

non-management staff

(2021: 31)

31 hours

Average amount of training given to

management staff

(2021: 30)

Workplace safety

Providing a safe working environment is

central to working responsibly. All our

people must apply our safe systems of

work. Managing day-to-day operational

safety hazards involves several systems to

promote safe working procedures. These

are linked to those of our principal

contractors where they operate key assets.

Our own personnel provide clear oversight,

and procedures are bridged where

necessary to ensure responsibilities are

understood and activities are managed

effectively. As an HSSE initiative, in 2022 we

undertook several senior leadership visits to

our operated and non-operated activities

with the aim of promoting safety

leadership across staff, contractors and

suppliers. Additionally, we held the HSSE

and Social Responsibility Day for our staff

across the global offices promoting a wide

range of safety, environmental and social

challenges and mitigations.

Minimising health and security risks

We support all staff who could be exposed to

health risks through their work. The main

threat remains the potential exposure to

infectious diseases, either where we have

assets or during travel to prospective

destinations. In locations where endemic

diseases such as malaria are prevalent, we

have mechanisms in place to minimise the

risk, and remain vigilant to any new or

re-emerging epidemics and pandemics.

We perform risk assessments before

international travel, which cover inoculations

and country briefings, as well as general

advice on basic travel health, natural

disasters, security alerts and female traveller

security. Our Traveller Health and Security

intranet site provides all personnel with

security advice and travel management

procedures for our countries of operation.

Employee well-being

Our health and well-being programme in

the UK helps staff to understand how their

behaviour and lifestyle can affect their

health, explore their values and attitudes

and, where appropriate, change their

behaviour. We learned a great deal about

the role of health and well-being at work

during the COVID-19 lockdowns, and our

programme of activities – now in its fourth

year – is accessible to all staff across all

locations, with a focus on three areas:

Getting Healthy, Maintaining Health and

Regaining Health.

To promote good physical and mental

health, we run exercise and yoga sessions,

walking challenges and virtual tours, as

well as workshops and webinars covering

meditation, anxiety and stress management,

financial well-being, understanding change,

and healthy eating. Our HR staff have also

completed mental health first aid training

to strengthen the support we provide.

Following a phased return to office working,

we have introduced hybrid working in the

UK as part of our shift to more flexible

working practices without impairing our

ability to deliver our work programmes.

Security

We have a duty of care to protect our people

and our assets, and place high importance

on protecting our investments, reputation

and data. All security measures are balanced

with human rights and our social

responsibility considerations, and executed

in accordance with international law and

industry best practice. As a member of the

IOGP Security Committee, we remain

vigilant to emerging threats, and offer

support, advice and training as necessary.

New operational security guidelines were

developed for release across the Company

in late 2021. While we reported no security

incidents affecting our staff or premises

during 2021, the impact of COVID-19 on

Mexico’s economy has led to an increase in

kidnappings, cyber-crime and violent crime.

Key members of the Capricorn Mexico team

now engage in weekly meetings to ensure

we have the measures in place to keep our

people safe. Meanwhile, in Egypt, we are

promoting safe driving practices, and we

have conducted two exercises simulating

road traffic accidents involving Capricorn

personnel to ensure emergency teams

are fully aware of what measures to take.

Major accident prevention

Our industry faces a number of major

hazards and we have extensive safety

measures and procedures in place to prevent

accidents across every phase of our activities.

Where it is not possible to eliminate the risks,

we manage them to a level that is ‘As Low

As Reasonably Practicable’ (ALARP).

Crisis management and emergency

response

We focus on prevention but, should a

significant accident or incident occur, we

maintain a three-tiered crisis and emergency

response that supports our activities around

the world. For a quick and effective tactical

response, trained local Incident Management

Teams (such as in Mexico City and Cairo) are

in place in all operational locations. These are

supported by Incident Response Teams in

our field assets, normally provided by our

contractors. Our Crisis and Emergency

Response Team (CERT) in Edinburgh

provides strategic and tactical support,

depending on local capability. Specialists can

be called in to assist in crisis management

and to prevent escalation, in accordance with

the priority issues of People, Environment,

Assets and Reputation (the PEAR principle).

Contractors

We rely on third-party suppliers and

contractors for much of the technical

expertise, equipment and services we

need to maintain our operational capability.

In 2022 field contractors accounted for

approximately 79% of our workforce and

76% of hours worked across the business.

These figures are up from 2021’s 15% and

5% respectively.

Selecting contractors

Contractor performance impacts our

licence to operate, so effective selection,

strong working relationships and good

performance are fundamental to our

success. In evaluating tenders, we require

suppliers to use management systems and

ways of working that align with our Code of

Ethics, policies, standards and procedures,

where applicable. We improved our scrutiny

of key equipment providers in terms of

environmental performance and emissions

monitoring as part of the tendering process.

In 2022, we assessed the energy efficiency

and emissions of vessels, rigs, seismic

vehicles and helicopters, as well as

contractor HSSE data metrics aligned with

IOGP averages, as a differentiator in our

contractor selection process.

Pre-qualification tools

We use specialist services in some

jurisdictions to identify pre-approved vendors

and examine their performance prior to

tendering. We continued to use the Achilles’

Oil and Gas Europe platform to assess

potential contractors in the European oil and

gas market. This supported the identification

of potential vendors for the Diadem project

(see page 29).

Annual Report and Accounts 2022Capricorn Energy PLC

Identifying and assessing

human rights risks

Our starting point in safeguarding human

rights in our business is to identify and

assess potential internal and external risks

of human rights transgressions within our

sphere of influence. The standards that we

work within include compliance with or

consideration of the UN Universal

Declaration of Human Rights; the

UN Guiding Principles on Business and

Human Rights; the International Finance

Corporation (IFC) Performance Standards;

and the ISO26000 Guidance for Social

Responsibility.

With this in mind we have developed our

own Human Rights Guidelines which

define how we identify, assess and

manage potential issues, not least when

we are considering or entering new

projects. The guidelines include a five-step

process which has been incorporated into

our Corporate Responsibility Management

System (CRMS). Our overall position on

human and labour rights is summarised in

our Corporate Social Responsibility (CSR)

policy and our Code of Ethics. The relevant

documents can be found on our website

and the key points are that in all activities,

we will:

– Respect, support and promote

internationally recognised human rights

standards wherever we operate and

seek to ensure non-complicity in

human rights abuses aligned with the

UN Guiding Principles on Business and

Human Rights.

– Identify, assess, prevent or mitigate

adverse human rights impacts resulting

from or caused by our business through

effective due diligence and mitigation

processes.

– Maintain zero tolerance of all forms of

modern slavery and not be complicit in

the use of forced, compulsory, bonded

or child labour or any form of human

trafficking.

– Provide human rights training to our

personnel and actively promote

awareness of human rights issues with

our stakeholders.

Ahead of any major project, we undertake

extensive Environmental and Social

Impact Assessments (ESIAs and SIAs),

and where necessary Human Rights

Impact Assessments (HRIAs). Where

potential issues are identified we engage

in detail with interested parties to consider

how best to manage or mitigate risks

and develop comprehensive Social

Management Plans (SMPs).

Behaving Responsibly to Society

We seek to make a positive difference to society, investing in

efforts to support economic and community development.

Atthe same time, we recognise that we must manage and

mitigate any potential risks and impacts associated with our

activities to support the communities that may be affected

by our operations. Respecting and protecting human rights

across our operations is a fundamental part of our integrated

approach.

Business Principles

– We seek to make a positive social

impact in every area where we

operate by working ethically and with

integrity.

– We respect and promote the human

rights of individuals, communities

and indigenous peoples.

– We acknowledge the aspirations and

concerns of the communities in

which we work, and will respond to

and address grievances fairly.

At the end of 2022, the following

societal issues were identified as being

of high materiality:

– Safeguarding human rights

– Supporting and safeguarding local

communities

– Investing in local skills, recruitment

and procurement

 See our Materiality Matrix within our

Sustainability Report

A responsible approach to

– Applied human rights guidance in

planned operations, including the

availability of transparent grievance

procedures.

– Delivered a specialist run, in-house

human rights ‘lunch and learn’

session for all staff.

– Rolled out human rights and modern

slavery training to employees.

– Audited the application of modern

slavery prevention requirements in

selected projects.

– Implemented new social investment

projects and carried out scoping for

potential projects across the Group.

– Applied the recently developed

Social Investment screening tool to

potential and new social investment

projects.

– Developed Stakeholder Engagement

Plans for all new projects

demonstrating application of

stakeholder engagement guidance.

2022 Performance Against Sustainability Objectives

 See our Sustainability Report for more information about our SDG performance

Society

Annual Report and Accounts 2022

Strategic Report

Human rights training

The human rights and modern slavery

modules of our training programme were

each completed by 181 people during

2022, representing 98% of Capricorn’s

employees across our sites. This is

undertaken through the e-learning

platform of the Capricorn Learning

Academy scheme.

As part of our wider training, in January

2022, the Institute of Human Rights

presented a Lunch & Learn session in our

Edinburgh office to help employees

understand the context of this vital subject.

Human rights management

Policies and guidelines

Respecting human rights is a fundamental

part of our commitment to protecting our

business and our stakeholders. We

support internationally recognised human

rights standards; we have mechanisms in

place for raising and addressing grievances

and include requirements on modern

slavery in supplier contracts. To ensure

human rights are respected and promoted

in our relationships with contractors,

communities and other stakeholders, we

seek to comply with international

standards such as the UN Universal

Declaration of Human Rights and the UN

Guiding Principles on Business and

Human Rights. Our Human Rights

Guidelines define how we identify, assess

and manage issues at key project stages,

including the assessment of potential

investments. Our position on human and

labour rights is integrated into our

Corporate Social Responsibility (CSR)

Policy and our Code of Ethics, most

recently reviewed and revised in

November 2021 to include our renewed

strategy and linkages with the UN SDGs.

Adherence to the Code is included in all

tender and contract documentation.

Modern slavery

We have a zero-tolerance approach to

modern slavery and human trafficking,

which has become a significant global

issue. We do not employ forced, bonded or

child labour, and take all reasonable steps

to ensure that slavery, in all its different

forms, does not exist in any part of our

operations or supply chain. We publish an

annual Modern Slavery Statement (www.

capricornenergy.com/working-responsibly)

and have rolled out refresher training as an

e-learning module to employees and

contractors.

Assessing our supply chain

We use a consistent approach for assessing

proposed acquisitions and planned

activities, understanding where the supply

chain could represent modern slavery risks.

We found no significant risks of forced or

compulsory labour in our activities in 2022,

but it remains an important procurement

consideration. For example, though our

work in Mauritania is in its early stages as we

prepare the ground for future drilling, we

have a responsibility to get our approach to

human rights and labour practices correct

given the country’s low scoring in the 2018

Global Slavery Index. The standard terms

and conditions within our contracts specify

our zero tolerance for modern slavery, and

include our right to audit suppliers and

subcontracting parties. Our tender process

includes specific questions about whether

potential contractors, vendors and suppliers

have modern slavery policies and

procedures in place. We use specialist

contractors with well-developed

employment practices that understand our

requirements and standards. Our suppliers

often use subcontractors of their own so,

while our influence diminishes down the

supply chain, we continue to use our

leverage to promote good employment

practices, address non-discriminatory

behaviour and prevent child labour.

In 2022, we undertook an audit of one of

our Tier 1 vendors, providing services

during the Diadem drilling campaign. The

audit was to ensure prevention of modern

slavery risks within the supply chain, and

the key areas of focus included:

– determination of contractor’s parent

Company policy position on matters of

modern slavery and conformance with

Capricorn policies and procedures;

– test understanding of potential risks

within the local supply chain used by

the Contractor;

– assessment of conditions of

employment of personnel and

subcontract or agency personnel; and

– examine safeguards in place.

Security and human rights

Operating in complex and challenging

environments, we recognise the need to

maintain the safety and security of our

people and operations while respecting

human rights. As part of our standard

procedures, 100% of our operations are

subject to human rights reviews and

modern slavery assessments. Security

contractors, where required, are assessed

on their adherence to our principles and

standards, and their activities, equipment

and training also need to meet the

requirements of key human rights

standards and guidelines. Before we enter

a new country as an operator, our due

diligence process involves human rights

screening. We review key indicators from

international indices such as the Global

Slavery Index and the US Trafficking in

Persons Report, and research the risks

using specialist geopolitical advisers. We

assess potential impacts through

Environmental and Social Impact

Assessments (ESIAs) and, where necessary,

undertake a Human Rights Impact

Assessment. If any current or potential

issues are identified, we engage with those

affected to consider how best to manage

them. Prior to proceeding with a non-

operated joint venture, we check any

human rights issues and identify any risks

that may require management by the

operator.

Delivering social and

economic benefits

We seek to mitigate any negative impacts

and enhance the positive benefits that

arise from our operations while sharing the

value generated by oil and gas activities.

Taking a long-term approach to social

investment, we promote good practice,

support a wide range of international

agreements and standards such as the

UN SDGs, and support capacity building in

the communities where we operate. Our

social investment strategy is informed by

stakeholder engagement at a community

level. We have recently updated the criteria

under which we select social investment

projects and assess their success. These

are grouped into four priority areas:

community health; community economic

and environmental benefit; community

protection and climate adaptation; and

education and innovation. We apply a

comparative assessment tool for potential

projects, as well as a range of key

performance indicators (KPIs) to

demonstrate the inputs, short-term

outputs and longer-term outcomes of

each project. Both the social investment

criteria and KPIs are aligned with the UN

SDGs, which provide an additional

framework for understanding ESG risks

and opportunities. This also supports the

development of Impact Benefit Plans for

each major project.

Capricorn Energy PLC

Annual Report and Accounts 2022

Social investment plans

around the world

Egypt

We followed a rigorous process, including

site visits and presentations, to identify a

select number of appropriate projects that

were candidates for consideration as social

investments in Egypt. We are now in the

final stages of reviewing the preferred

candidate. In line with the findings of the

Social Impact Assessment (SIA), our focus

was on veterinary issues, people’s health,

and water. It is crucial that we support

projects that leave a lasting legacy.

Suriname

Capricorn continues to work on its licence

commitments in Suriname, working

closely with Staatsolie, the national oil

company. During 2022 we held an

Operators’ Forum in the Suriname capital,

Paramaribo, in November and participated

in a Technical Committee Meeting.

Through the Production Sharing Contract

(PSC) started in 2018 we are committed to

a spend of US$100,000 per annum on

local social responsibility and community

investment programmes and training.

In 2022, Capricorn agreed to support

seven students taking a two-year MSc

degree in Public Health at Anton de Kom

University. This project, in which we cover

the students’ tuition fees for the two years

of the course, meets criteria in both the

Community Health and Education

categories. The students we are

supporting are drawn from community or

other local hospitals or are current local

government employees with a particular

interest in public health.

Community hub in Coronie

Having previously invested in much-

needed IT and office equipment at the

Institute for Natural Resources and

Engineering Studies in the Suriname

capital, Paramaribo, in 2022 we supported

a community hub in the district of Coronie

in the same way. The hub provides local

students with a place to study, complete

homework and improve their IT skills. An

investment from Capricorn of US$56,000

provided IT equipment and printers not

otherwise available in the area. Six schools

– four primary and two secondary – have

access to the hub. The committee keeps

an eye on how it is progressing and reports

that it is popular and well-used and

continues to run well.

Social management

In accordance with our Corporate

Responsibility Management System

(CRMS), we evaluate the potential social

benefits, risks and impacts of any major

activity. The scope and nature of such SIAs

depend on local context and regulations.

Given the environmental and social

interdependencies, an SIA usually forms

part of an ESIA, but these are sometimes

separated as a legislative requirement. For

each project, the SIA often includes a

Social Management Plan (SMP). The SMP

assesses the benefits and impacts of a

project, with the aim of mitigating any

negative impacts and providing a positive

overall benefit.

Local procurement

We encourage our principal contractors to

engage local personnel where appropriate

skills and services exist. In line with our

Operating Standards, we have set out a

comprehensive process through which

the ‘national content’ of received tender

submissions will be assessed. Where

applicable, contractors are required to

confirm that they, and any subcontractors,

will comply with the required minimum

percentage of national content and

associated reporting requirements.

When categorising local, national and

international vendors we use definitions

used within local legislation. Although we

have only limited contracting requirements

in both Mexico and Suriname we follow this

principle in both. In Suriname, the national

oil company (Staatsolie) provides guidance

on national content.

In Mexico, the methodology is based on

a framework that is mandatory by law,

and under our Production Sharing

Contract (PSC) with the Mexican National

Hydrocarbons Commission (CNH), each

of our key contracts carries a percentage

target for local content. This is assessed

during the tender process, and is monitored

and reported throughout the duration of

the contract.

Local community engagement

We aim to enhance our community

development activities by understanding

and addressing the needs, aspirations and

concerns of the communities in which we

work. We consult with local stakeholders to

identify any potential impacts associated

with our activities and to acquire local

knowledge to inform any future plans.

This enables us to minimise risks, maximise

shared economic and social benefits,

and foster long-lasting relationships with

community partners, governments,

investors and employees. To support our

seismic exploration work in Egypt in 2002,

we undertook extensive engagement with

local communities around issues such as

land access and compensation. We are

also using targeted stakeholder

engagement to support our early-stage

activity in Mauritania (see page 42).

Behaving Responsibly to Society continued

Annual Report and Accounts 2022

Strategic Report

Risk Management

Successful and sustainable implementation of our strategy requires strong

corporate governance and effective risk management. We deliver this through

a comprehensive framework of business policies, systems and procedures that

enable us to assess and manage risk effectively.

Managing business risks

Managing existing and emerging risks and

opportunities is essential to Capricorn’s

long-term success and sustainability. All

investment opportunities expose the

Group to political, commercial and

technical risk and Capricorn maintains

exposure to these risks at an acceptable

level in accordance with its appetite for risk.

As in previous years, Capricorn’s risk

management process is based on a holistic

approach and provides a systematic

process for the identification and

management of the key risks and

opportunities which may impact the

delivery of the Group’s strategic objectives.

KPIs are set annually and determining the

level of risk the Group is willing to accept in

the pursuit of these objectives is a

fundamental component of Capricorn’s risk

management framework. As outlined

below, this integrated approach to the

management of risk and opportunity plays

a key role in the successful delivery of the

Group’s strategy.

Capricorn’s system for identifying and

managing risks is embedded from the

top down in its organisational structure,

operations and management systems

and accords with the risk management

guidelines and principles set out in

ISO 31000, the International Standard

for Risk Management. The Group’s risk

management structure is set out below.

This framework for risk assessment applies

to all risk types including operational,

health and safety, environmental, financial,

strategic and reputational.

Risk governance

Overall responsibility for the system of risk

management and internal control rests

with the Board. The Board set the risk

appetite each year and is responsible for

reviewing and monitoring the application

of the risk framework. Principal risks and

opportunities, as well as progress against

key projects, are reviewed at each Board

meeting and at least once a year the Board

undertakes a risk workshop to review the

Group’s principal risks.

The Group’s framework for risk

management promotes a bottom-up

approach to risk management with

top-down support and challenge. The risks

associated with the delivery of the strategy

and work programmes and the associated

mitigation measures and action plans are

maintained in a series of risk registers at

Group, asset, function and project level.

Reporting of these risks within the

organisation is structured so that risks

are escalated through various internal

management and Board committees,

and to the Board itself.

At the third line of defence is the internal

Audit function which provide assurance on

the effectiveness of our Risk Management

process and other key controls to the Risk

Management Committee, chaired by the

Chief Executive Officer, and then to the

Board and its Committees.

The Board carried out a robust assessment

of the Group’s principal and emerging risks

in 2022.

Group’s risk management framework

Risk governance framework

Outline the

strategy

Set a sustainable

strategy to achieve

Capricorn’s near-and

longer-term goals.

Define strategic

objectives

Set clear strategic

objectives in the form

of KPIs.

Define risk

appetite

Determine the level of

risk the Group is willing

to accept in the pursuit

of its strategic objectives

and document this in the

Group Risk Appetite

Statement.

Identify key risks

Identify key risks to

the achievement of

strategic objectives and

associated opportunities,

through discussions at

Board, Risk Management

Committee,

Management Team,

Regional and

functional levels.

Apply risk

assessment

process

Apply the Group risk

assessment process to

ensure the ongoing

management of key risks

to our objectives.

Deliver strategic

objectives

Delivery of strategic

objectives through

informed risk-based

decision making.

The Board

Holds overall responsibility for

the Group’s risk management

and internal control systems

Sets strategic objectives

and defines risk appetite

Sets the tone and influences the

culture of risk management

Completes robust assessment

of principal and emerging risks

Risk Management

Committee (RMC)

Executive Committee chaired

by CFO in 2022

Responsibility for setting the direction

for risk management

Facilitates continual improvement

of the risk management system

Audit Committee

Chaired by Non-Executive Director in 2022

Monitors and reviews the scope and

effectiveness of the Company’s systems

of risk and internal control

Reviews principal risks and output

from the RMC meetings

Management Team

Chaired by COO in 2022

Performs a quarterly deep-dive review

of the Group’s risk register and assesses

risk actions, control effectiveness and

risk ownership

Asset/Project/Function level

Risk identification, assessment and

mitigation completed at asset, project

and functional level

Risk management system embedded and

integrated throughout the Group

Risk culture influencing all business activities

Top-down: Oversight, accountability, monitoring and assurance

Bottom-up: identification of risks and mitigating actions for assets, projects and functions

Capricorn Energy PLC

Annual Report and Accounts 2022

Viability Statement

In accordance with the provisions of the UK

Corporate Governance Code, the Board has

assessed the viability of the Group over a

period longer than the 12-month period

required for its Going Concern assessment.

Period of assessment

The Directors have assessed the viability

of the Group over a three-year period to

April 2026. In selecting the length of period

over which to assess viability, the Board has

considered the following:

– The Group’s financial outlook is assessed

primarily through its business planning

process. At least annually the Board

considers the Group’s business plan and

cashflow projections over a three-year

period.

– Key assumptions which underpin

the Group’s internal forecasts include

forecast oil prices, production profiles,

forecast cost levels for drilling and

operations, and availability of debt under

the Group’s borrowing facilities. The

Board considers that most significant

risks to the business are shorter term

in nature, in particular those associated

with asset performance, volatility of

commodity prices and availability and

repayment of debt under the current

facilities.

– The Group’s longer-term work

programme is in part dependent on the

results of future exploration activity and

optimisation of capital allocation.

Consequently, the Board has determined

that three years is the appropriate period

over which to assess the Group’s viability.

Principal risks

The Directors have considered the impact

of the principal risks of the business on the

Group’s financial viability over the

assessment period as well as the mitigation

strategy in respect of those risks. While all

of the risks could potentially impact

performance, the principal risks and

uncertainties that are considered to affect

the Board’s assessment of the Group’s

financial viability in this period are:

– operational performance of its

producing assets;

– the effect of volatile oil and gas prices on

the business, on our partners, and other

stakeholders’ financial positions;

– volatility of cash revenue receipts in

Egypt due to irregular settlements of

trade receivables due from EGPC;

– the impact of operational performance

and oil prices on contingent

consideration in respect of divested

assets;

– a lack of availability and/or increased

cost of debt facilities to fund our capital

programme and execute our strategy;

and

– the results of any exploration or

appraisal activities.

Financial forecasts

The Group’s base case financial forecasts

are based on the following key

assumptions that reflect the principal risks:

– Production profiles and expenditure

forecasts on an asset-by-asset basis

based on the Group’s business plan.

– Forecast oil prices in line with the

two-year forward curve and US$60/bbl

thereafter.

– Egypt trade receivables settlement

forecasts based on a proportion of

the balance due.

– Contingent consideration receipts in

respect of divested assets based on

expected production and forecast oil

prices as above.

– Forecast availability and repayments

of debt based on current position of

redetermination process in respect of

the RBL facility as well as the current

amortisation schedule.

Further sensitivity analysis is also assessed

around the base case, reflecting a more

severe impact of the principal risks, both

individually and in aggregate as follows:

– Lower crude oil prices, with both a

sustained low oil price scenario of

20-25% of the base case as well as a

more severe oil price crash case with a

subsequent recovery modelled

separately within the assessment period.

– A 10% reduction in forecast production

volumes for the first half of the

assessment period and 5% thereafter.

– Other downside assumptions in respect

of contingent consideration receipts and

Egypt trade receivables settlements.

The Group has considered two main

downside scenarios:

– a sustained period of lower oil prices of

20-25% lower than the base case with

all of the other sensitivities assumed to

occur simultaneously and in aggregate;

and

– a more severe oil price crash scenario

assumed to occur in the current year,

with prices dropping to US$35/bbl

and then recovering over a period of

18 months, combined with a 10%

reduction in production and downside

sensitivities in respect of contingent

consideration receipts and Egypt trade

receivables settlements.

In each of these downside scenarios it is

assumed that discretionary cash returns

to shareholders planned in the base case

would be cancelled or postponed as

required to ensure sufficient financial

headroom remained available.

Taking this into account, in each of these

combined downside scenarios the Group

is forecasting sufficient financial headroom

throughout the assessment period.

Conclusion

The Directors’ assessment of viability is

based on the Group’s current position,

prospects, and the principal risks and

uncertainties affecting the business. As

part of this analysis the Directors have also

considered mitigations that could be

deployed to increase headroom although

they are not required in either of the main

downside scenarios tested.

Based on this analysis, the Directors’ have a

reasonable expectation that the Group can

continue in operation and meet its liabilities

as they fall due over the three-year period

to April 2026.

Annual Report and Accounts 2022

Strategic Report

Principal Risks to the Group in 2022-2023

The following pages provide a summary overview of the principal risks to the Group at

the end of 2022, the potential impacts, the mitigation measures and the risk appetite.

Emerging risks

Within the Group’s risk assessment

framework, emerging risks are

considered as part of the identification

phase. These are risks that cannot yet

be fully assessed, risks that are known

but are not likely to have an impact

for several years, or risks which are

unknown but could have implications

for the business moving forward.

Cost inflation has been identified as

an emerging risk. 2022 saw significant

rate increases for rigs, equipment and

personnel and whilst this has impacted

on specific assets across the Group

portfolio, the cumulative effect has

been manageable. Should factors such

as geopolitical concerns, supply chain

challenges and an increase in global

project activity continue to drive a rise in

costs, the potential for material impacts

on capital expenditure will increase.

Impact

HighSignificantMediumLowInsignificant

Low Medium High

Likelihood

Risk Viability

Volatile oil and gas prices

✓

Underperformance of Egypt assets

✓

Failure to unlock value from strategic review

Reserves downgrade or impairment

✓

Future challenges and costs to achieving

pathway to net zero by 2040

Political and fiscal uncertainties

Lack of adherence to health, safety,

environment and security policies

Egypt receivables balance

✓

Breach of code of ethics

Inability to access capital

✓

Major cyber risk

Capricorn Energy PLC

Annual Report and Accounts 2022

Strategic objective: Production

Principal risk: Underperformance of Egypt assets

Owner: Managing Director, Egypt

Risk appetite Low – Delivering operational excellence in all the Group’s activities is a strategic objective for the Group

and the Group works closely with all JV partners to mitigate the risk and impact of any operational delay

or underperformance. Therefore, the Group has a low appetite for risks which may impact on operating

cash flow or result in an impairment on the balance sheet.

Impact Mitigation 2022 movement

– Cost/schedule

overruns

– Delay or reduction

in cash flow

– HSE incidents

– Negative impact

on asset value

– Reputational

damage

Actively engage with all partners early to establish

good working relationships.

Actively participate in operational and technical

meetings to challenge, apply influence and/or

support partners to establish a cohesive JV view.

Conducting independent economic analysis on all

investment opportunities and only voting in favour

of those that meet Capricorn’s requirements.

Actively monitoring and looking for wells and project

delivery improvement opportunities, in liaison with

our partner, and via our Bapetco secondees.

Proactive engagement and recommending

solutions to challenges at Bapetco Board, and

in JV meetings.

This risk increased in 2022.

2022 overall production averaged ~34,200 boepd,

within revised full-year guidance of 33,000-36,000

boepd. This was lower than original full-year

guidance principally due to the JV drilling fewer

development wells than originally planned and

targeting oil versus higher-rate lower-value gas; the

Teen gas condensate project start-up date being

delayed from 2022 to 2023; and, certain gas wells

performing below year-end 2021 expectations.

Principal risk: Reserves downgrade or impairment

Owner: Chief Petroleum Engineer

Risk appetite Low – Delivering operational excellence in all the Group’s activities is a strategic objective for the Group

and the Group works closely with all JV partners to mitigate the risk and impact of any operational delay

or underperformance. Therefore, the Group has a low appetite for risks which may impact on operating

cash flow or result in an impairment on the balance sheet.

Impact Mitigation 2022 movement

– Reduction in

cash flow

– Reduction in

share price

– Reputational

damage

Annual Reserves & Resources independently

reviewed internally, and in parallel, the use of

external Reserves Estimators.

Appropriate allocation of capital to Near Field

Exploration (NFE) wells to add more material new

or additional reserves and resources.

Maturation of opportunities within existing fields.

Positive and regular engagement with operators

and partners to share knowledge, offer support

and exert influence.

This risk increased in 2022.

Capricorn holds interests across four main

concession areas: Obaiyed (Capricorn 50% WI),

Badr El Din (Capricorn 50% WI), North-East Abu

Gharadig (Capricorn 26% WI) and Alam El Shawish

West (Capricorn 20% WI).

2022 oil production grew 10% year-on-year (YoY)

and averaged ~14,500 bopd net to Capricorn’s

working interest (WI), with ~80% of revenues being

generated from oil and condensate sales in a

supportive price environment.

The Group 2P reserves decreased by 10.2 mmboe

during the year from 37.4 mmboe at year-end 2021

to 27.2 mmboe at year-end 2022 on an entitlement

interest basis. This was principally due to Egyptian

production of 4.7 mmboe and some downward

revisions in gas reserves within the AESW and

Obaiyed concessions.

Risk Management continued

Annual Report and Accounts 2022

Strategic Report

Strategic objective: Financial performance

Principal risk: Volatile oil and gas prices

Owner: Chief Financial Officer

Risk appetite Medium – Exposure to commodity prices is fundamental to the Group’s activities; however, the Group

manages its investment programme to ensure that a threshold economic return is delivered and the

business model is funded even in sustained downside price scenarios.

Impact Mitigation 2022 movement

– Reduction in

future cash flow

– Value impairment

of development

projects

– JV partner capital

constraints

Sensitivity analysis conducted to assess robustness

of Group financial forecasts for funding plan.

Operators’ cost initiatives delivering material cost

reductions on development projects.

This risk remained static in 2022.

An underlying increase in demand, combined

with below target supply from OPEC and increased

tension over the Ukraine crisis helped to push prices

higher in 2022.

Oil price fluctuations are expected to continue in

2023 and this could materially impact on the cash

flow from Egypt production and the value of the

Catcher/Kraken earnout payments.

Principal risk: Political and fiscal uncertainties

Owner: Chief Financial Officer

Risk appetite Medium – The Group faces an uncertain economic and regulatory environment in some countries

of operation. The Group is willing to invest in countries where political and/or fiscal risks may occur

provided such risks can be adequately managed to minimise the impact where possible.

Impact Mitigation 2022 movement

– Loss of value

– Uncertain financial

outcomes

Operate to the highest industry standards with

regulators and monitor compliance with the Group’s

licence, Production Sharing Contract and taxation

requirements.

External specialist advice sought on legal and tax

issues as required.

Maintain positive relationships with governments

and key stakeholders.

Ongoing monitoring of the political and regulatory

environments in which we operate.

Working responsibly is an important factor in

maintaining our access to funding.

This risk remained static in 2022.

Capricorn has licences in jurisdictions with

moderate to high risk of political or fiscal

uncertainty.

The elevated oil price has resulted in producers

being targeted in certain jurisdictions, which has

materially impacted on value. There is a risk that

the Group is subject to fiscal penalties or claims

in existing or recently exited licences.

Capricorn Energy PLC

Annual Report and Accounts 2022

Strategic objective: Financial performance continued

Principal risk: Egypt receivables balance

Owner: Managing Director, Egypt

Risk appetite Medium – The Group faces an uncertain economic and regulatory environment in some countries

of operation. The Group is willing to invest in countries where political and/or fiscal risks may occur

provided such risks can be adequately managed to minimise the impact where possible.

Impact Mitigation 2022 movement

– Requirement for

cash injections

from existing

funds

– Uncertain financial

outcomes

Maintain positive relationships with governments

and key stakeholders.

Active and regular discussions with EGPC to agree

payment schedules.

Partial payment in Egyptian Pound where amounts

can be immediately reinvested in the JV.

Other settlement mechanisms available.

New principal risk.

EGPC receivables position was US$97m

at December 2022, including US$66m

of amounts overdue.

Discussions are ongoing with EGPC to agree

2023 payment schedules and other settlement

mechanisms.

Principal risk: Inability to access capital

Owner: Chief Financial Officer

Risk appetite Low – The Group seeks to develop and implement a funding strategy that allows a value generative

plan to be executed and ensures a minimum headroom cushion from existing sources of funding is

maintained.

Impact Mitigation 2022 movement

– Work programme

restricted by

reduced capital

availability

– Loss of value

Disciplined allocation of capital across the portfolio.

Continue to assess multiple forms of financing.

This risk remained static in 2022.

The divestment of Capricorn’s interests in the

Kraken and Catcher fields in the UK North Sea

completed in Q4 2021. The sale provided flexibility

to enhance the producing asset base while retaining

exposure to oil price growth through the earnout

considerations as part of the sale.

In Q1 2022, Capricorn received a tax refund from

the Government of India of ~US$1.06bn. This

enabled a capital return to shareholders via a

~US$500m tender offer and an additional US$25m

share buyback programme, completed in July 2022.

Financing is also in place for Egypt operations.

Several financial institutions and investors have

recently made policy decisions to exit oil and gas

sector investment. To date, this has not affected

Capricorn but if this trend accelerates there could be

a future impact.

Risk Management continued

Annual Report and Accounts 2022

Strategic Report

Strategic objective: ESG

Principal risk: Future challenges and costs to achieving pathway to net zero by 2040

Owner: Chief Executive Officer

Risk appetite Medium – The Group recognises global commitments to achieve a transition to lower carbon sources

of energy. In the near term, global demand for hydrocarbons continues to grow with hydrocarbons

expected to remain the principal source of energy over the short to medium term. In the longer term,

Capricorn will take investment decisions that ensure its assets remain competitive in an environment

where demand for oil may be lower than today.

Capricorn’s strategy is to play a responsible and competitive role in the production of oil and gas within

this transition. Capricorn acknowledges the contribution its activities have on carbon emissions, and

the Group continues to develop short, medium and long-term actions to minimise and mitigate this

contribution and address global climate change policies and regulations.

Impact Mitigation 2022 movement

– Providers of capital

limit exposure to

fossil fuel projects

– Increasing costs

– Climate-related

policy changes

– Reduced demand

for oil

– Stranded assets

– Reputational

damage

– Retaining and

attracting talent

Measuring and reporting our GHG emissions in line

with the Task Force on Climate-related Financial

Disclosures (TCFD) and Streamlined Energy and

Carbon Reporting (SECR).

Promotion of efficient energy use in activities

with business partners and service providers.

Consideration of climate change in investment

decisions.

Portfolio resilience modelling based on the

International Energy Agency Sustainable

Development Scenarios.

Endorsement of Global Gas Flare Reduction

Partnership.

Alignment with UN Sustainable Development Goals.

Active participation in industry initiatives.

Implementation of mangrove rehabilitation in

Suriname for coastline and community protection.

This risk decreased in 2022.

There was continued attention to climate change

from a range of stakeholders in 2022. This attention

has led, and we expect it to continue to lead, to

additional regulations designed to reduce

greenhouse gas (GHG) emissions.

The Group’s progress with GHG emissions

reductions initiatives in Egypt has been positive.

This has resulted in a new, near-term GHG reduction

target of 15% by 2025 and 30% by 2030. The

Company has set a net zero target of 2040 or earlier.

Bapetco have identified a suite of projects and a

roadmap to deliver on an ambitious Scope 1 and 2

emissions reduction pathway and expects to reduce

GHG emissions by 23% over the period December

2019 to December 2023. Significant progress has

been made on emissions improvement initiatives

including mobile diesel generator reduction,

electrification using gas as power fuel, planning for

multiple flare reduction and waste heat recovery

projects, and investigating feasibility for carbon

capture and storage at BED and Obaiyed through

subsurface evaluation.

Capricorn Energy PLC

Annual Report and Accounts 2022

Strategic objective: ESG continued

Principal risk: Lack of adherence to health, safety, environment and security policies

Owner: Chief Executive Officer

Risk appetite Low – The Group continuously strives to reduce risks that could lead to an HSSE incident to as low

as reasonably practicable.

Impact Mitigation 2022 movement

– Serious injury or

death

– Environmental

impacts

– Reputational

damage

– Regulatory

penalties and

clean-up costs

– Physical impacts

of climate change

Effectively managing health, safety, security and

environmental risk exposure is the priority for the

Board and Management Team.

HSE training is included as part of all staff and

contractor inductions.

Detailed training on the Group’s Corporate

Responsibility Management System (CRMS) has

been provided to key stakeholders to ensure

processes and procedures are embedded

throughout the organisation and all operations.

Process in place for assessing an operator’s overall

operating and HSE capabilities, including

undertaking audits to determine the level of

oversight required.

Effective application of CRMS in operated and

non-operated projects.

Crisis and emergency response procedures and

equipment are maintained and regularly tested to

ensure the Group can respond to an emergency

quickly, safely and effectively.

Third-party specialists in place to assist with security

arrangements and travel risk assessments.

Leading and lagging indicators and targets

developed in line with industry guidelines and

benchmarks.

Findings from ‘Lessons learned’ reviews are

implemented from other projects.

This risk remained static in 2022.

The Group’s lost time injury frequency (LTIF) for

operated activity in 2022 was zero per million hours

worked. Our total recordable injury rate (TRIR) for

2022 was 0.65 per million hours worked. There were

zero recordable spills above the IOGP level to the

environment.

The Group will continue to work responsibly with

all partners as part of our strategy to deliver value

for all stakeholders.

Principal risk: Breach of Code of Ethics

Owner: Chief Executive

Risk appetite Low – Capricorn is committed to maintaining integrity and high ethical standards in all the Group’s

business dealings. The Group has no tolerance for conduct which may compromise its reputation

for integrity.

Impact Mitigation 2022 movement

– Fines

– Criminal

prosecution

– Reputational

damage

Business Code of Ethics and supporting compliance

policies and procedures.

Due diligence process and questionnaire developed

for assessing potential third parties.

Annual training programme for all employees,

contractors and selected service providers.

Whistleblowing policy and process. Financial

procedures in place to mitigate fraud.

This risk remained static in 2022.

There were no reportable instances of breaches

of the Group Code of Ethics.

The Group operates in countries deemed high-risk

for bribery and corruption. Acompliance

programme will be implemented for each area

of operation.

Risk Management continued

Annual Report and Accounts 2022 39 Strategic Report

Strategic objective: Corporate viability

Principal risk: Failure to unlock value from the strategic review

Owner: Chief Executive Officer

Risk appetite Low – The Group seeks to develop and implement a funding strategy that allows a value generative

plan to be executed and ensures a minimum headroom cushion from existing sources of funding is

maintained.

Impact Mitigation 2022 movement

– Negative

shareholder

reaction

– Loss of value

Experienced new Board assembled to undertake

strategic review of Capricorn’s business including

an assessment of the future cash needs of the

business.

Third party appointed to review organisational

structure and requirements for the business

going forward.

Re-sizing of UK staff numbers to appropriate levels.

Significant reductions planned as part of this

process which commenced in March 2023.

New principal risk.

Capricorn appointed six new Board members on

1 February 2023. The Board’s first course of action

is to conduct a comprehensive strategic review

of Capricorn’s business and the several potential

directions for the future of the Company. These

will be evaluated from the perspective of both

maximising the Company’s value and acting

in the best interests of all stakeholders.

There is a risk that the strategic review fails to identify

an appropriate path forward for the Company

resulting in negative stakeholder reactions.

Principal risk: Major cyber attack

Owner: Group IT Manager

Risk appetite Low – Capricorn is committed to maintaining high standards in all the Group’s business dealings.

The Group has no tolerance for risks which may compromise its reputation for integrity or impact

on the continuity of operations.

Impact Mitigation 2022 movement

– Loss of value

– Loss of stakeholder

confidence

– Impact on

business

continuity

Security awareness programme in place supported

by regular staff susceptibility phishing training

and testing.

Annual mandatory security awareness e-learning

training delivered to all staff.

Cyber Incident Response Plan in place which

has been verified and tested by Capricorn in

combination with third parties.

Security Operations Centre providing 24/7 network

and device monitoring, alerting and response.

Programme in place to align the Group’s cyber

controls with the National Institute of Standard and

Technology (NIST) Cyber Security Framework.

New principal risk.

The external cyber security threat environment

is continuously evolving and becoming more

sophisticated, and the risk of a significant

cyber-attack is ever present.

In 2022, Capricorn began a 3-year information

security improvement programme to align the

control framework with the NIST Cyber Security

Framework. The original target was to achieve a

maturity level of 3.3 over 3 years, from a start of 1.3.

A recent third-party review of our progress against

NIST assigned a score of 2.6 which was a positive

result for the Group.

Capricorn Energy PLC 40 Annual Report and Accounts 2022

Stakeholders and S172 Statement

The Directors of Capricorn Energy PLC, and

those of all UK companies, are bound by

their duties under the Companies Act 2006

to promote the success of the Company for

the benefit of its members, and in doing so,

having regard to the interests and views of

all relevant stakeholders.

The Board fully recognises the need to

balance the contrasting and, at times,

conflicting interests of various stakeholder

groups, whilst focusing on the Company’s

purpose, values and strategic priorities. Such

engagement underpins the governance

framework embedded throughout our

business and helps to ensure we maintain

the highest standards of business conduct.

Throughout the past year, there has

been extensive engagement regarding

a number of significant matters which

has helped shape the Company’s actions;

these include the return of capital following

receipt of the Indian tax refund proceeds,

proposed mergers, Board composition,

ongoing operational arrangements and the

energy transition. All key business decisions

considered include an analysis of

stakeholder considerations, anticipated

impact and any mitigating factors. The

Directors of Capricorn Energy PLC consider,

both individually and together, that they

have acted in accordance with their duties

codified in law, which include their duty to

act in the way in which they consider, in

good faith, would be most likely to promote

the success of the Company for the benefit

of its members as a whole, having regard

to the stakeholders and matters set out in

Section 172(1) of the Companies Act 2006.

Details of how the Board and senior

management engage and foster strong

relationships with some of our key

stakeholders, and examples of the impact

of this engagement are set out below.

 Further information can also be found throughout

the Strategic Report and in our exploration of key

strategic decisions made in the Governance Report.

Understanding what matters to our stakeholders is fundamental to enabling

us to operate. Continuous engagement is integral to our day-to-day operations

and working together towards shared goals is a key factor in facilitating the

long-term success of the business.

Why is it important

to engage?

How the Board and/or

management engaged

Key topics of engagement Examples of the impact of such

engagement and actions taken

Investors

– The views of our investors

influence our strategic

and operational decision-

making

– We are dependent on

shareholders for access

to funding

– We are accountable to

our shareholders

– Undertaking a full investor

programme including:

• Holding over 180

investor meetings

including one-to-ones

and attending roadshows

/conferences

• Conducting regular

financial reporting

• Responding in a timely

manner to investor and

analyst enquiries

• Offering shareholders the

opportunity to submit

questions by email in

advance of general

meetings (as well as

being able to raise

questions at the

meetings themselves)

• Post-general meeting

correspondence to

discuss vote outcomes

– Return of capital to

shareholders following

receipt of the Indian

tax refund

– Proposed merger

opportunities and

transactions

– ESG matters including

energy transition

– Board composition

– Strategy and

performance

– Corporate governance

– Regular reviews of corporate

objectives

– Return of capital being

conducted by way of tender

offer as opposed to special

dividend

– Contributed to the decisions

to not proceed with the

proposed combinations with

Tullow Oil plc and NewMed

Energy Limited Partnership

(as discussed on page 3)

– Board composition changes

(as discussed on page 56)

Governments

– We are responsible to

them for compliance

with local and/or

international laws

– Their permissions are

required for us to access

acreage and operate

– Meetings with Heads of

State, UK and Country

Ambassadors, Ministers

and Civil Servants

– Legal Compliance

– ESG matters

– Major accident

prevention

– Investment and

economic growth

– Continued monitoring of

responsible performance at

Board meetings and annual

review of CRMS and objective

KPI setting

– Implementation of enhanced

incident reporting system

– Reviewing feedback and

commentary from

government and regulatory

bodies regarding

performance expectation

– KPIs include performance

against leading and lagging

indicators for health, safety

and environmental

protection and are reviewed

at all Board meetings

Annual Report and Accounts 2022

Strategic Report

Why is it important

to engage?

How the Board and/or

management engaged

Key topics of engagement Examples of the impact of such

engagement and actions taken

Business partners,

peers and contractors

– We are reliant on our

partners in joint ventures.

– We are commercially

responsible to

contractors, suppliers and

partners

– Their performance

directly impacts our

financial, operational and

responsible performance

– Meetings with partners,

peers and contractors with

Board members and senior

executives in addition to

regular joint venture and

operations planning

meetings

– Maintaining membership

of industry bodies

– Active management of

key projects and assets

(including alignment of

project deliverables)

– Policies and standards

– Industry reputation

– Investment

opportunities for

growth

– Long-term

relationships

– ESG matters

– Careful selection of

contractors (discussed on

page 27)

– Continued membership of

IOGP Security Committee

(performance against IOGP

benchmarks discussed on

page 25)

– Actively engage with all

JV partners early to establish

good working relationships

Local communities

and interest groups

– We have an ethical

responsibility to

maximise social and

economic benefit and to

minimise impact on

livelihoods and the

environments in which

we operate

– They provide an

alternative perspective,

strengthening our

knowledge of local

situations and/or specific

demands

– Community meetings

– Reviews of social investment

strategies aligned with

UN SDGs

– Senior management visits

– Media monitoring

– Protection of resources

and livelihoods

– Community

development and

social investment

– Access to employment

and business

opportunities

– Transparency of

payments to

governments

– Education assistance

– Community investment

focus to include adaptation

to climate change

– Continued membership

of the Extractive Industries

Transparency Initiative (EITI)

– Continued dialogue with

Invest in Africa to build skills

and capacity among SMEs

– Implementation of targeted

stakeholder engagement

plans to support activity in

Mauritania

– Social investment in Egypt

and Suriname including

supporting further education

in the health and energy

sectors (discussed on

page 30)

Employees

– We are dependent on

employees’ performance

and that of the wider

workforce

– We have a legal and

ethical responsibility

for their well-being

– They bring a diverse

perspective to the

identification of

opportunities and

ways of working

– Regular staff meetings

– Monthly ‘pulse’ surveys

– Employee Voice Forum

(EVF) meetings (discussed

on page 26)

– Working practice focus

groups

– General Meetings

– Exit interviews

– Long-term and

short-term strategy

– Internal mobility

– Working practices

– Lessons learned from

projects

– Introduced the

Shadow4success

programme to encourage

under-represented groups to

apply for senior roles within

the Company (discussed on

page 17 and see our

Sustainability Report for

more detail)

– Adoption of a permanent

hybrid working strategy.

– Continuing the development

and delivery of health and

well-being initiatives

– Formation of an employee

representative group,

providing support to

employees primarily on

cross-department matters

Capricorn Energy PLC 42 Annual Report and Accounts 2022

Case study

Mauritania ESIA stakeholder management

Block C7 in Mauritania borders the Banc d’Arguin, a UNESCO national park where the local

communities are populated by the Imraguen people who maintain proprietary and ancient

fishing practices.

We undertake to protect the national park in full consultation

with all concerned in order to protect their livelihood and

mitigate any loss they may experience as a result of our work.

We have undertaken detailed stakeholder engagement and

reporting and are building an understanding of the needs

and priorities of this community group, consulting with

multiple Mauritanian and international organisations and

NGOs over the course of 2022.

In November 2022 we held a public meeting in Nouamghar,

a coastal village in the national park, at which we presented

the Terms of Reference for our Environmental and Social

Impact Assessment to around 90 local people.

We were there expressly to engage with the local communities;

to present our plans clearly and to listen to their feedback and

incorporate that feedback into our EIA planning. Many of their

questions related to social investment, covering topics such

as water and jobs, and to concerns about the impact our

work may have on their fishing sites and practices. It was

clear to us at the meeting that local people were highly

engaged with the process and keen to be involved in the

decision-making. We will continue to build on the feedback

we received with a social investment scoping visit to these

communities planned for early 2023.

We understand the importance of working through the

national park management and are committed to minimising

our impact on their environment as well as making a positive

contribution to their society. If and when drilling begins in

Mauritania, we will have laid good foundations in terms of

our relationships with the local community.

Stakeholders continued

Annual Report and Accounts 2022

Strategic Report

Operational and Financial Review

Strategic Review – Initial Findings:

– Strategic review commenced on

1 February 2023

– Capital returns: the Board commits to

return to shareholders all excess cash

flow not required for our go forward

core operational focus, resulting in

a significant return of capital of

approximately US$575m via a

c.US$450m special dividend proposed

to be paid in May 2023, a further special

dividend in Q4 2023 of US$100m

dependent upon certain conditions and

a share buyback of at least US$25m

over the next twelve months

• The US$100m special dividend in Q4

2023 is dependent upon a number

of factors including: addressing our

receivables position in Egypt; the

outcome of conversations with

stakeholders in Egypt around licence

extensions and renegotiation of

terms; actual oil and gas price

outcomes for the remainder of 2023;

and the conclusions of our strategic

review as it relates to further cost

actions and future investment in

our Egypt business

– Cost saving programme initiated:

identified and actioned initial gross G&A

reduction of at least US$35m on a run

rate basis; opportunities for further cost

savings to be pursued, with costs to be

aligned to activity on an ongoing basis

to maximise cash

– Materially scale back all exploration

spend outside Egypt and monetise,

farm-down or exit all other exploration

positions. A process has commenced

for a potential sale of our UK assets

– Focusing on maximising value of Egypt

by optimising investment, well selection

and rig performance, continuing to

focus on liquids production growth and,

alongside partners, exploring options to

enhance fiscal terms

– Appointment of new Chief Executive:

Randy Neely, former President and CEO

of Egypt-focused operator TransGlobe

Energy Corporation to join Capricorn

on 1 June 2023

– Strategic review continues with medium

to longer term strategic outcomes to be

presented in due course, with a Capital

Markets Day to be held in Q4 2023

ESG Highlights

– Net zero by 2040: good progress on

decarbonisation pathway, on track for

15% GHG equity emissions reduction

by 2025

2022 Financial Highlights

– Working interest Egypt oil and gas

production ~34,200 boepd, comprising

42% liquids and within revised guidance

of 33,000-36,000 boepd; net

entitlement sales volumes 4.7 mmboe

– Revenues from Egypt production

US$229m: average realised oil price of

US$98.8/bbl and gas price of US$2.9/

mcf (average total production cost

US$5.7/boe)

– Net cash generated from Egypt oil

and gas production US$104m,

comprising US$129m net cashflow

generated during the year and deferred

consideration and settlements paid

US$24m

– Tax refund of US$1.06bn in Q1 2022

resulting from Indian tax dispute

resolution

– US$529m returned to shareholders

in H1 2022 via tender offer and share

repurchase programme

– Year-end Group cash and cash

equivalents US$757m; net cash

US$597m after debt drawn to

31 December 2022 of US$160m

– Egypt trade receivables at

31 December 2022 US$97m

– Earnout consideration on the disposal

of the UK Catcher and Kraken interests

in relation to 2022 production and oil

prices US$137m received in Q1 2023;

US$77m production earnout in relation

to 2021 production received in

H1 2022

– Group capital expenditure on oil and

gas assets US$162m

– Operating loss after tax US$160m

from continuing operations

• Impairment charge of US$43m

on Egypt producing assets

• Non-Egypt unsuccessful exploration

costs of US$94m

– Profit of US$109m from discontinued

operations from increase in value of

earnout from sale of UK producing

interests

– Loss after tax of US$51m

2023 Outlook

– The Board is confident in the outlook for

the Group. We believe that over time we

can deliver meaningful improvement

and efficiencies to the way Capricorn

is run to deliver good returns for

shareholders. The next stage of our

strategic review will seek to address

this point

– Capricorn WI production to average

32,000-36,000 boepd, remaining

broadly flat on 2022 and continuing

to focus on liquids opportunities

• Oil and condensate production

expected to average between

14,000-16,000 bopd on a WI basis,

with gas expected to average

100-112 mmscf/d on a WI basis

– Operating costs forecast to be stable at

US$5-US$7/boe influenced by liquids

processing volume and absolute

production levels

– Current estimates of 2023 capital

expenditure total approximately

~US $155-175m, inclu ding:

• Egypt production and development

expenditure of US$100-120m, with

five rigs in country focused on

production and development drilling

and influenced by the phasing of

minor and major projects

expenditure

• Egypt exploration expenditure of

~US$25m to sustain the resource

base

• Committed non-Egypt exploration

expenditure of up to US$30m,

including costs associated with

the Yatzil well in Mexico which was

drilled in Q1 2023, with no further

commitment wells in the

international exploration portfolio

outside Egypt

– Additional earnout consideration in

respect of the Catcher and Kraken

interests will be due in relation to

production and oil prices in calendar

years 2023 to 2025, subject to

minimum production and oil price

thresholds being met

Reserves

The Group 2P reserves decreased by 10.2

mmboe during the year from 37.4 mmboe

at year-end 2021 to 27.2 mmboe at

year-end 2022 on an entitlement interest

basis. This was principally due to Egyptian

production of 4.7 mmboe and some

downward revisions in gas reserves within

the AESW and Obaiyed concessions.

The AESW revisions are related to

disappointing reservoir properties in the

Karam-11 well and a limited connected

reservoir volume in the Assil-105 well.

Obaiyed reserves have been downgraded

due to a steeper production decline,

which is partly attributed to lower activity

as the consortium focuses on higher-

value oil production.

Capricorn’s 2P reserves have decreased

by 10% relative to the year-end 2020

estimate provided in the shareholder

circular for the Egypt acquisition, once

adjusted for interim production and the

re-classification of the Teen full-field

development (3.9 mmboe) from reserves

to contingent resources, as detailed in

the 2021 Annual Report.

Operational and Financial Review

Capricorn Energy PLC

Annual Report and Accounts 2022

Egypt

Post year-end, Capricorn’s first operated

drilling operations onshore Egypt began in

Q1 2023 on the Saqr-1X well in the South

Abu Sennan concession, resulting in a dry

well. This was the first of an expected five

well programme in 2023, with the next

well in the sequence, Seman-1X, currently

drilling. During 2022, the operated

acquisition of two 500 sq km 3D seismic

surveys was completed safely and under

budget in the Southeast Horus and West

El Fayium concessions in support of future

exploration activity. A seismic survey was

also completed in the non-operated North

Um Baraka concession.

Capricorn operates five UK Southern North

Sea licences: P2428 and P2567 (Capricorn

60% WI) and P2560, P2561 and P2562

(Capricorn 70% WI) with partner Deltic

Energy.

The Capricorn-operated Diadem exploration

well spudded in Q2 2022, reaching total

depth in Q3 2022. Hydrocarbons were not

found, and the well was permanently

plugged and abandoned. The non-operated

Jaws well completed operations in Q1 2022

and was unsuccessful. Across the five

Mid North Sea High licences, seismic

reprocessing and prospect maturation

continues ahead of well investment

decisions in H2 2023. There is no further

capital commitment on the remaining UK

licences and a process has commenced for

the potential sale of the UK assets.

During 2022, Capricorn relinquished the

P2379, P2380, P2381 and P2468 licences.

Mexico

Capricorn has interests in four blocks in the

Gulf of Mexico, two as Operator: Blocks 9

(Capricorn 50% WI) and 15 (Capricorn 50%

WI), and two as non-Operator: Blocks 7

(Capricorn 30% WI) and 10 (Capricorn 15%

WI).

Capricorn’s final commitment exploration

well in Mexico, Yatzil-1X in Block 7 (Eni

Operator) was drilled in Q1 2023 and

discovered hydrocarbons. According to

preliminary Operator estimates, around

200 million barrels of oil may be in place

and the Operator is examining options

to determine commerciality. Capricorn

internal analysis led to the decision not

to participate in the forthcoming phases

and the Company has therefore informed

partners of its decision to withdraw from

the Block 7 licence. Capricorn’s withdrawal

processes in Blocks 9 and 10 and the

JV relinquishment process in Block 15 are

ongoing with completion expected during

the course of 2023.

Suriname

Capricorn operates Block 61 (100% WI),

situated in the Guyana-Suriname basin

where significant discoveries continue to be

made. Capricorn is seeking to farm-down

its interest in the licence.

Mauritania

Capricorn has a 90% WI as Operator

in Block C7 offshore Mauritania. An

environmental baseline and drilling site

survey was completed in Q1 2022 with

data gathered to inform a drilling decision

ahead of the next licence phase. Capricorn

has requested a six-month extension on

the licence which it is discussing with the

Mauritanian authorities, with a drill or

drop decision due in September 2023.

Discussions with potential partners are

ongoing with a view to farming down

Capricorn’s working interest.

Exploration

Egypt

Working interest production across the

four main concession areas in the Western

Desert of Obaiyed (Capricorn 50% WI), Badr

El Din (Capricorn 50% WI), North East Abu

Gharadig (Capricorn 26% WI) and Alam El

Shawish West (Capricorn 20% WI) averaged

~34,200 boepd during the period, with

~42% of the production mix comprising oil

and condensate, as liquids opportunities

continued to offer the best returns in the

current price environment.

The Joint Venture originally planned to drill

>40 development wells in 2022, but this

was not achieved due to logistical and rig

acceptance challenges associated with the

two rigs imported from Algeria into Egypt,

and operational performance issues with

the third new rig. These factors contributed

to a 2022 new well count of 31 with five rigs

operating by Q4 2022. With overall drilling

and completion performance improving by

year-end, ongoing improvement initiatives

are required to achieve the targeted average

ten new wells/year per rig to deliver overall

production growth from the Western Desert.

Looking ahead, the 2023 well programme

targeting >40 wells will use six rigs for both

development and exploration wells while

we continue to work to optimise the

programme and improve overall drilling,

completion and hook-up performance.

The Teen project is expected to come on

stream during 2023, tying in three existing

wells in a pilot evaluation to determine

optimal full field exploitation.

Decarbonisation initiatives continue

building on the work that commenced in

2022 relating to projects to reduce flaring,

venting and identification of fugitive

emissions. Additionally, verification of the

overall calculation methodology for GHG

emissions, associated with our 2022

baseline was completed in Q4 2022.

Capricorn’s short and medium term

GHG equity emission reduction targets

(15% by 2025/30% by 2030) are on track.

Operational and Financial Review continued

Production

Annual Report and Accounts 2022

Strategic Report

Key production statistics

Year ended

31 December

2022

Year ended

31 December

2021*

Production – net WI share (boepd) 34,228 36,459

Sales volume – net El oil (bblpd) 5,028 5,360

Sales volume – net El gas (mmscfd) 44,471 51,599

Average price per bbl (US$) 98.8 7 7.8

Revenue from production (US$m) 228.9 56.2

Average production costs per boe (US$) 5.70 6.00

* from date of acquisition to 31 December 2021

Loss for the Year

Year ended

31 December

2022

US$m

Year ended

31 December

2021

US$m

Loss from Egypt operating segment (19.2) (6.7)

Loss from other Capricorn Group continuing operations (141.1) (194.5)

Exceptional income – India tax refund – 1,070.7

Profit from discontinued operations 109.3 25.0

Loss/(Profit) after taxation (51.0) 894.5

Egypt Operating Segment Results

In Capricorn’s first full year of production

in Egypt, total revenue was US$228.9m.

US$181.4m was generated on sale of

liquids with an average price of US$98.8

per bbl on net sales volumes of 1.8 mbbls.

Gas revenue was US$47.5m from volumes

of 16,230 mmscf at the contracted rate of

US$2.9/mscf.

Cost of sales in the year were US$71.2m.

Production costs decreased slightly to

US$5.7 per boe, on working interest

production, while depletion charges were

US$124.1m, at a weighted average rate of

US$23.3 per boe across the concessions.

Following the downward reserves revisions

on the Obaiyed and AESW concessions,

impairment charges of US$42.6m arise, with

related deferred tax credits of US$17.3m.

Capricorn records other income on

additional production that is notionally

allocated to the Group to cover tax due on

profits from the concessions. This is offset

by an equal and opposite tax charge. In the

current year, the value of this income and

notional tax gross-up is US$54.8m.

Net finance costs in Egypt of US$21.4m,

include US$14.9m of loan interest and

charges and the Group recognised a fair

value loss of US$12.7m on deferred

consideration payable on the 2021

business combination.

The total tax charge on Egypt operations

for the year is US$31.8m, being the tax

gross-up charge of US$54.8m offset by

deferred tax credits on impairment and

other deferred tax movements. These

include the recognition of deferred tax

assets of US$7.1m on two concessions,

which is supported by future profits forecast.

Results from Other Continuing

operations

The loss on other Capricorn continuing

operations of US$141.1m includes

unsuccessful exploration costs of US$94.1m

and administration charges of US$64.1m,

with offsetting net finance income of

US$18.9m.

Unsuccessful costs during the year

included UK Diadem and Jaws well costs of

US$29.3m and US$13.5m. Remaining costs

of US$19.3m on Block 7 in Mexico have

been expensed following the results of the

Yatzil well. After internal analysis, Capricorn

decided not to participate in forthcoming

phases and the Company has informed

partners of its decision to withdraw from

B l o c k 7.

Administration costs include costs

associated with the India tax refund of

US$13.1m and transaction costs of

US$8.1m incurred in relation to the two

deals recommended to shareholders

by the previous Board.

Net finance income of US$18.9m includes

interest earned on deposits and money

market funds of US$14.7m.

Discontinued Operations

Earn-out consideration on disposal

of UK Producing assets

Year-on-year increases in the fair value of

the earn-out consideration due increased

by US$110.4m, offset by a deferred tax

charge of US$4.1m. Interest due on the

2021 receivable and a refund of prior year

costs totalling US$3.0m, brought the total

profit for the year to US$109.3m.

Cash received in 2022 was US$77.2m and

the second payment due of US$136.7m,

including interest from 1 January 2023,

was received on 31 March 2023.

Contingent consideration on

Senegal asset sale

Capricorn disposed of its interests in

Senegal in 2020. Under the sale agreement,

Capricorn is due further consideration of

up to US$100m based on the first oil date

and the prevailing oil price. No revenue has

been recognised for this payment to date.

Financial review

Capricorn Energy PLC

Annual Report and Accounts 2022

Exploration assets

At the year end, the Group held exploration

assets of US$95.2m, with US$26.8m in

Egypt, US$39.3m in Mauritania, US$17.0m

in Suriname and US$12.1m across

remaining UK licences.

In Egypt, exploration is focused on the

Group’s operated concessions, where a

six well programme commenced in 2023,

and on near-field exploration opportunities

across the non-operated concessions.

In Mauritania and Suriname, Capricorn is

seeking to farm-down its working interest

before committing further expenditure to

these two licences.

Development assets and goodwill

At the year end, the carrying value of the

Group’s producing assets in Egypt was

US$249.5m. Additions in the year of

US$71.5m were offset by a reversal of

accruals of US$29.2m. These accruals were

included in the opening balances following

the acquisition of the Egypt business, but

without further information to reconcile

these accruals to subsequent spend,

Capricorn has reversed in full.

Depletion and impairment charges in

the year were US$166.7m. Goodwill of

US$25.4m relating to the Egypt business

combination was also tested for

impairment, with none identified.

Other assets and liabilities

Financial assets at fair value through

profit and loss include US$224.1m of

the earn-out due in relation to the sale

of the Group’s UK producing assets, with

US$134.4m due within one year and

subsequently settled in Q1 2023, with

additional interest of US$2.3m. Deferred

consideration due on the Egypt business

combination is also held at fair value and

the current liability of US$25.0m was

settled in January 2023.

Trade receivables at the year end were

US$96.9m, an increase of US$33.6m

across the year. US$66.0m of this amount

was overdue.

The Group’s net deferred tax position in

Egypt was a liability of US$26.8m, with a

UK deferred tax liability of US$4.1m. It is

anticipated that deferred taxes will reverse

without any future cash outflow.

Net cash inflow for the Period

US$m

Opening net cash as at 1 January 2022 132.7

India tax refund 1,056.0

Return of cash to shareholders and share buy-back (528.6)

Net cash inflow from Egypt operations 128.6

Egypt deferred consideration and working capital settlement (24.1)

Egypt exploration expenditure (27.9)

Egypt development expenditure (62.2)

UK earnout consideration and working capital settlement 67.6

Exploration expenditure – non-Egypt (67.0)

Pre-award costs and carbon credits (16.0)

Administration expenses, business development and other (53.9)

Net finance income less equity movements (8.3)

Closing cash as at 31 December 2022 596.9

* other costs include non oil and gas asset expenditure of US$4.9m and lease costs of US$2.5m.

Cash balances at 31 December 2022

of US$756.8m were offset by borrowings

in Egypt of US$159.9m. Cash includes

restricted cash balances of US$52.5m

which may not be distributed to

shareholders. Of this amount, US$43.5m

is available for use to fund non-operated

concessions in Egypt.

The India tax refund of INR 79 billion was

settled in February 2022. On settlement

of the INR refund, Capricorn immediately

converted the amounts received into

US$ and £, realising US$1,056.0m.

Subsequently cash was returned to

shareholders through a tender offer and

share re-purchase programme which,

together with costs, totalled US$528.6m.

Cash inflows from operations in Egypt of

US$104.5m, include settlement of deferred

consideration and can be reconciled to

cash flows from operations per the

statutory cash flow as follows:

US$m

Operating cash flow per statutory cash flow statement 63.5

Non-GAAP Adjustments:

Discontinued operations – working capital settlements 9.6

Pre-award and new venture costs reallocated 25.1

Administration expenses and India arbitration costs 30.4

Net cash inflow from operations 128.6

Balance Sheet

The Group’s net asset position at 31 December 2022 is summarised as follows:

US$m

Exploration assets 95.2

Development assets and goodwill 274.9

Other non-current assets 14.1

Financial assets at fair value through profit and loss 230.6

Trade and other receivables and payables and inventory 94.9

Net cash, including unamortised facility fees 598.2

Deferred consideration on business combination (61.8)

Net deferred taxation and other liabilities (31.5)

Net assets 1,214.6

Operational and Financial Review continued

Financial review continued

Annual Report and Accounts 2022

Strategic Report

Equity movements

Return of cash to shareholders and

share buy-back

Following the receipt of the India tax

refund, Capricorn returned US$511.5m to

shareholders by way of a tender offer and

share buy-back programme in H1 2022.

After adjusting for opening accruals, cash

outflows in relation to the returns were

US$528.6m across the year.

Post-balance sheet capital reduction

In anticipation of further returns to

shareholders, Capricorn undertook a share

premium cancellation which completed

in 2023, following a shareholder vote on

15 December 2022. The cancellation

received the required confirmation for

the Court of Session in late January 2023

and was registered with the Register of

Companies on 31 January 2023, which

is the effective date of the cancellation.

The full amount of the Company’s share

premium accounts transferred to retained

earnings increasing distributable reserves

available for future returns.

This Strategic report has been

approved by the Board and

is signed on their behalf by

Chris Cox

Interim Chief Executive

27 April 2023

Capricorn Energy PLC

Annual Report and Accounts 2022

Leadership

and

Governance

Board of Directors 50

Responsible Governance 52

Corporate Governance Statement 54

Audit Committee Report 66

Nomination & Governance

Committee Report 72

Directors’ Remuneration Report 76

Sustainability Committee Report 110

Directors’ Report 112

Annual Report and Accounts 2022

Leadership and Governance

Capricorn Energy PLC

Annual Report and Accounts 2022

Board of Directors

Committee membership

Term of office

Craig was appointed as Non-Executive

Chair in February 2023.

Independent

Yes

Committee membership

Term of office

Erik was appointed as a Non-Executive

Director in May 2020.

Independent

Yes

Committee membership

Term of office

Maria was appointed as a Non-

Executive Director in February 2023.

Independent

Yes

Committee membership

Term of office

Chris was appointed as a Director and

Interim Chief Executive Officer in

February 2023.

Independent

Committee Chair

Committee membership key

Remuneration Committee

Audit Committee

Nomination &

Governance Committee

Skills and experience

• B.A. and Bachelor of Laws (LL.B.), University of Sydney

A qualified lawyer, Craig has nearly three decades of senior international executive

experience across a wide range of industries, including multinational public

companies at FTSE100 and ASX20 level with exposure to operations in over 50

countries. He is an experienced driver of strategic initiatives, complex transactions,

portfolio reconstructions and capital market activities with a strong commitment

to delivering the highest standards of corporate governance at Capricorn.

Key external appointments

Public companies:

Non-Executive Director of SHAPE Group

Non-public companies:

None

Skills and experience

• Bachelor’s degree in Petroleum Engineering, Imperial College, University of

London

Chris has over 40 years’ experience in the global oil and gas upstream sector.

Most recently, he was CEO of Spirit Energy and Managing Director of Centrica

E&P where he delivered significant and sustainable improvements in complex

businesses. Chris possesses deep knowledge of a broad range of disciplines

relevant to Capricorn’s portfolio, including subsurface, drilling, projects, operations,

M&A and JV management.

Key external appointments

Public companies:

Non-Executive Director of Nostrum Oil & Gas PLC

Non-public companies:

None

Skills and experience

• BA in Business Administration, Southern Methodist University, Dallas

Erik B. Daugbjerg has over 20 years’ experience in both midstream and upstream

oil and gas sectors in the US including founding roles at two oil and gas operators

based in the Permian Basin. In 2006, Erik co-founded Pecos Operating Company,

and in 2010, co-founded RSP Permian, Inc. Erik has extensive public markets

experience, including delivery of acquisitions and disposals, and he played an

integral role in the disposal of RSP Permian to Concho Resources, Inc in July 2018

for US$9.5bn.

Key external appointments

Public companies:

Director of Kimbell Royalty Partners

Non-public companies:

Co-Founder of Pecos Operating Company, LLC

Skills and experience

• Master’s degree, Fletcher School of Law and Diplomacy, Tufts University

• Bachelor’s degree in Political Science, University of Wisconsin

• Chartered Financial Analyst

• Corporate Director Certificate, Harvard Business School

Maria has strong governance experience, having served as chair, senior director

and committee member of various public companies. She currently serves as

Non-Executive Chair of Constellation Oil Services, a deep-water drilling oil services

company based in Brazil. She has two decades of direct investment experience in

senior roles, including as Head of Emerging Markets Equity Strategy at Goldman

Sachs and PIMCO. With that she brings considerable expertise in portfolio

management and equity and debt capital markets.

Key external appointments

Public companies:

None

Non-public companies:

Non-Executive Chair of Constellation Oil Services

Craig van der Laan

Non- Executive Chair (57)

Chris Cox

Interim Chief Executive (62)

Erik B. Daugbjerg

Non-Executive Director (53)

Maria Gordon

Non-Executive Director (49)

Annual Report and Accounts 2022

Leadership and Governance

Committee membership

Term of office

Richard was appointed as a

Non-Executive Director and

Senior Independent Director

in February 2023.

Independent

Yes

Committee membership

Term of office

Hesham was appointed as a

Non-Executive Director in February

2023.

Independent

Yes

Committee membership

Term of office

Tom was appointed as a Non-

Executive Director in February 2023.

Independent

Yes

Committee membership

Term of office

Catherine was appointed as a

Non-Executive Director in July 2019.

Independent

Yes

Group Risk Management

Committee

Employee Voice Forum

Executive Committee

Sustainability Committee

Skills and experience

• Bachelor’s degree in Geology, University of Bristol

Richard is a petroleum geologist with over 40 years’ experience in the oil and gas

sector, including leading executive roles across the world’s major hydrocarbon

provinces. Most recently, Richard served as CEO of Frontera Energy Corporation

and Global Head of Exploration for BP.

His career started at Phillips Petroleum, followed by 19 years at BP in senior

exploration and development positions spanning Southeast Asia, Latin America,

the US, Angola and the UK North Sea. After leaving BP, Richard spent six years

with TNK-BP in Russia, serving first as VP Exploration and then EVP Technology.

After that he worked in Canada as Vice-President, Exploration of Talisman Energy

for five years, before returning to BP as Head of Exploration in 2013.

Key external appointments

Public companies:

Chief Executive Officer of Angus Energy PLC

Non-Executive Director of PGS ASA

Non-public companies:

None

Skills and experience

• BSc and MSc in Petroleum Engineering, Colorado School of Mines

Catherine Krajicek started her career with Conoco as an associate engineer and

remained with the company for a total of 22 years, progressing through a variety

of oil and gas technical and subsequently asset management roles in both the US

and Indonesia. In 2007, Catherine left ConocoPhillips and joined Marathon Oil

where she went on to hold a number of senior executive (Vice President) roles

before retiring from Marathon in 2018.

Key external appointments

Public companies:

None

Non-public companies:

None

Skills and experience

• Advanced Management Program (AMP), Harvard Business School

• MBA, Boston University

• Bachelor’s degree in Engineering, Cairo University

Hesham is an accomplished senior corporate executive with over 30 years of

experience at BP, serving most recently as Regional President of BP North Africa.

He brings considerable industry knowledge and experience of the North Africa

region, having developed strong political and business relationships in the region.

Key external appointments

Public companies:

Non-Executive Director of Orange Egypt

Non-public companies:

Non-Executive Director of Egypt’s Sovereign Infrastructure & Utilities Sub-Fund

Skills and experience

• Master’s degree, Queens’ College, University of Cambridge

Tom has over 25 years’ investment banking and private equity experience in

public and private markets. He is currently a partner at LionRock Capital, having

previously served in senior leadership positions at firms including Credit Suisse,

Morgan Stanley and D.E. Shaw. Tom has broad experience in emerging markets,

capital markets and structuring of complex financial products.

Key external appointments

Public companies:

None

Non-public companies:

Non-Executive Vice Chairman of Harmony Advisors

Non-Executive Director of SiGi Capital

Richard Herbert

Senior Independent Director

(64)

Catherine Krajicek

Non-Executive Director (61)

Hesham Mekawi

Non-Executive Director (62)

Tom Pitts

Non-Executive Director (57)

Capricorn Energy PLC

Annual Report and Accounts 2022Capricorn Energy PLC

Working responsibly

At Capricorn, working responsibly means

striving to deliver value for all our

stakeholders in a safe, secure, and

environmentally and socially responsible

manner. Our sustainability strategy spans

efforts to:

– protect the environment and transition

to more sustainable energy sources;

– support society by creating value for

our stakeholders; and

– use social governance structures to

ensure we conduct our business

ethically and with integrity.

We have the right values, principles and

policies in place to deliver this, and we

make sure our people understand and

uphold them. Our comprehensive

systems and standards reinforce our

culture, while externally, we support

agreements and frameworks that

promote responsible working practices

and the resilience of our business.

Code of Ethics

Our Code of Ethics describes how we

do business and outlines our core values,

High Performing Behaviours and Business

Principles. It sets out our position on

environmental and social themes, and

provides guidance on issues including

conflicts of interest, bribery and

corruption, political contributions, tax

principles and anti-competitive behaviour.

Our Code of Ethics applies to everyone

who carries out work for or on behalf of, or

provides services to, Capricorn. Employees

are encouraged to report any non-

compliance with the Code, or other

concerns surrounding ethical issues, by

speaking directly to their line manager,

using a confidential phone line or

contacting the whistleblowing charity,

Protect. Where appropriate, independent

investigations are conducted.

Anti-Bribery and Corruption (ABC)

practices

Maintaining transparent relationships,

free from bribery, fraud and corruption,

with governments, authorities, contractors

and suppliers is a high priority for us. Our

zero-tolerance position helps us to

maintain our strong culture of ethics and

compliance, and protects the Group’s

reputation. All entries into new jurisdictions

require an ABC risk assessment to highlight

exposure to potential risks and ensure the

necessary level of due diligence. New

venture and business development activity

spans a range of locations with varying risk

profiles, so it is critical to identify the level of

risk in locations where corruption could

impact our operations and our reputation.

Through the Capricorn Academy, we

provide annual staff training on bribery

and corruption. Bespoke sessions to staff

in higher risk roles were delivered during

the year. The Management Team and the

Board continue to receive ABC training.

Responsible Governance

Delivering on our strategy, achieving our objectives and

creating long-term value for our shareholders requires robust,

transparent corporate governance. We protect our business

against existing and emerging risks through comprehensive

policies and management systems, underpinned by our core

values, Business Principles, Standard Operating Procedures

and Corporate Responsibility Management System (CRMS).

Responsible

Business Principles

– We manage risk and seek to

continually improve.

– We behave honestly, fairly, with

integrity and in a sustainable manner.

At the end of 2022, the following

governance issues were identified as

being of high materiality:

– Managing a Just Transition

– Responsible supply chain

– Decommissioning closure and

rehabilitation

– Ethics, transparency and regulatory

compliance

– Anti-bribery and corruption practices

– Robust whistleblowing mechanisms

– Emergency preparedness and crisis

management

– Data and cyber security

– Investment in clean technologies

and business innovation

– Remuneration

 See our Materiality Matrix within our

Sustainability Report

– Further strengthened our Climate

and Energy Transition roadmap,

committing to net zero by 2040 or

earlier, with a reduction of emissions

of 15% by 2025 and 30% by 2030.

– Continued to communicate about

climate change for the investment

community and our wider

stakeholders.

– Recorded, tracked and reported

our Scope 1 and 2 equity emissions,

reporting against additional Scope 3

listings.

– Set up a Sustainability Committee in

March 2022, which featured all Board

members meeting twice to discuss

sustainability-related issues and

review policies.

– Developed a new Operating

Management System based on the

IOGP OMS model, designed to focus

on all phases of an asset life.

– Undertook a detailed review of our

CMAPP and resource base to meet

the need for major accident

prevention.

– Enhanced our approach to Diversity

& Inclusion, and commissioned an

independent D&I survey with 170

employee respondents to compare

our results with those from 100+

other energy companies.

– Set up a D&I working group to

identify several key initiatives to

focus on.

2022 Performance against Sustainability Objectives

 See our Sustainability Report for more information about our SDG performance

Governance

Annual Report and Accounts 2022

Leadership and Governance

Transparency and reporting

As a listed public company, we report

annually in line with UK regulations.

In 2022, we responded to all queries

associated with our Annual Report and

Accounts, and to information requests

from stakeholders including investor

analysts and shareholder representatives.

The Company continued to apply the

executive remuneration policy that was

strongly supported at the 2020 AGM and

at the Company’s AGM in May 2022, the

Directors’ Remuneration Report received

95% of votes in favour of it, following a

lower approval vote of 65.13% in 2021.

More details of that policy can be found

in our Directors’ Remuneration Report,

pages 79 to 87. Following the UK corporate

governance framework, we will be seeking

shareholder approval for the remuneration

policy at the 2023 AGM, being three years

since its last approval, which will be

operated for the rest of 2023.

Our Sustainability Report and

accompanying Data Appendix (both of

which are published on our website: www.

capricornenergy.com/working-responsibly)

provide investors, analysts and other

interested parties with comprehensive

information about our performance. We

apply global standards to ensure our

reporting is of the highest quality and

aligns with our shareholders’ preferences,

as well as a number of established

frameworks and standards. Relevant

information and regular announcements

are also provided via the Investors section

of our website (www.capricornenergy.com/

investors) and through investor meetings.

Climate change and energy transition are

considered principal risks to our business.

We continue to consider the specific

challenges, risks and opportunities they

represent to improve our understanding

and response. We have revised and

improved our Climate and Energy

Transition roadmap and set a clear target.

Payments to governments

We are committed to financial

transparency and compliance in the

jurisdictions where we work, many of which

are complex and uncertain from a

legislative perspective. As in previous years,

our 2022 disclosures included the

payments to governments detailed in our

Extractive Industries Transparency Initiative

(EITI) reporting. We also report additional

payments, including VAT, payroll taxes and

social security costs.

Public policy and lobbying

While we do not engage in party politics or

make donations to political parties,

candidates or lobbyists, each of our assets

are responsible for engaging with host

governments as part of their local

Stakeholder Engagement Plan. Our wider

involvement in public policy development

is conducted through industry bodies such

as the International Association of Oil & Gas

Producers (IOGP) and regional groups

including Offshore Energies UK, BRINDEX

and the Association of Mexican

Hydrocarbon Businesses (AMEXHI).

Economics and funding

Expanding and diversifying our production

base is a strategic imperative. It helps us to

add value, fund our exploration and

development activity, and generate returns

for shareholders. We actively manage our

portfolio of assets and work with our JV

partners to allocate capital and financial

resources efficiently.

Creating and distributing value

In 2022, our portfolio continued to move

towards production following a strategic

change in 2021. A focus on two potential

mergers in 2022 meant no further

divestments were made during the year.

The sale of assets allows us to distribute

value to our shareholders and makes funds

available for strategic investments such as

the 2021 investment in Egypt. 2022 saw

our first full year of operations, and the

investment used funds from the sale of our

Senegal operations at the end of 2020.

Egypt’s onshore operations had lower

production costs and strong production

and development growth opportunities,

while providing the opportunity for us to

reduce our GHG emissions.

Although no divestments occurred during

the year, the new Board elected in early

2023 will continue to make strategic and

timely decisions on the sales of our assets if

financially prudent; returning dividends to

shareholders and providing further

opportunity to invest in low-cost,

sustainable production assets.

Capricorn Energy PLC

Annual Report and Accounts 2022

Corporate Governance Statement

Dear Shareholder

The past few months have seen significant change in the

organisation from a corporate governance perspective. Following

the proposed combination with NewMed Energy Limited

Partnership in late September 2022 (and preceding

recommendation to shareholders in June 2022 to approve an

all-share merger with Tullow Oil Plc), a shareholder notice to

requisition a general meeting at which resolutions would be

proposed to make changes to the Board, led to the appointment

of six new Directors, including my appointment. Seven members

of the Board in place during 2022 resigned from the Board in

advance of the new Director appointments on 1 February 2023.

This Board, in place from 1 February 2023, believes that having

strong corporate governance practices in place is a vital enabler for

Capricorn and its Board to navigate its stated strategic review and

the ongoing growth of the Company efficiently and appropriately.

This belief, combined with the commitment of the Board to ensure

that decisions are made responsibly and with consideration of the

Company’s many stakeholders, are values that each of the

Directors are committed to demonstrating both within and

outside of the organisation.

As has been the case for many years, key to the Company’s

successful future, is its people (see pages 25 to 27). The

organisation faced considerable change during 2022, with long

periods of uncertainty during that time. It is a testament to the

people and the culture within Capricorn that individuals, teams

and the business as a whole continued to promote the responsible,

supportive and dedicated culture of the business. The Board works

with integrity and in an honest and open environment and I have

seen this, firsthand, reflected throughout the organisation.

As we continue to move through the energy transition, the formation

of the Sustainability Committee of the Board in March 2022 has

supported the Company’s work in this area, demonstrating its

commitment to environment-, social- and governance-related

matters. More information on the work and membership of this

committee can be found on pages 110 and 111.

Both 2022 and to date in 2023 have seen significant engagement

with stakeholders, both internally to the organisation and in the

wider, external environment. The strategic announcements made

during the year were the main focus of those engagements with

employees and contractors. The Executive Directors and other

Board members in place during the year engaged frequently with

shareholders and interested parties as the proposed transactions

proceeded. The Company’s approach to stakeholder engagement

during the year is set out on pages 40 and 41, which also includes

a statement from our Directors in accordance with Section 172 of

the Companies Act 2006. Some of the key issues, including the

proposed transactions announced, that were engaged on during

the year, are noted there.

Details on our strategy and key performance indicators can be

found on pages 16 to 20. The Board regularly reviews and develops

its framework of effective and prudent controls, which enables risks

and opportunities to the execution of the strategy to be identified

and addressed. The risk management section of this Annual Report

is on pages 33 to 39 and the internal control statement on pages

63 to 65 further describes these processes and controls.

During 2022, succession planning continued to be an important

matter for the Board. The Nomination & Governance Committee

and full Board frequently considered the required competencies

and skills at Board, executive and senior management levels, taking

into account matters such as term in office, diversity and strategic

goals. The Board considered this an area of particular importance

given the corporate changes proposed during the year and the

movements at Board and senior management levels that were

announced alongside those changes. Change will continue for the

organisation in 2023 as we progress the announced headcount

reduction. Further information on our succession planning work

can be found in the Nomination & Governance Committee Report

on pages 72 and 73.

Given the challenges and uncertainties being faced as a result

of the proposed corporate transactions during 2022, employee

engagement remained a key focus of the Company and of the

Board. The Employee Voice Forum (EVF), which is our formal

workforce advisory panel, established in 2019 in line with the

Financial Reporting Council’s UK Corporate Governance Code,

continued during 2022 under the chairmanship of Peter Kallos,

then Senior Independent Director. Following his appointment on

1 February 2023, Richard Herbert assumed the role of chair of the

EVF. The EVF currently comprises four employees from a range of

functions and regions, and has a rotating membership. Members

gather questions and areas of consideration from employees in

their allocated departments and bring these to the forum for

Craig van der Laan

Chair

Annual Report and Accounts 2022

Leadership and Governance

discussion. These issues of importance to employees are then

discussed with the Board, allowing Board members to gain a

greater understanding and feel for the Company’s culture and to

identify any areas that may be impacting it or which are enhancing

it. Appropriate consideration of matters raised to the Board

through the forum can then be made in the context of the Board’s

decision-making. The EVF’s scheduled meetings were in May and

September 2022. An additional meeting was added to the

schedule in Q1 2023, following the appointment of the current

Board in February 2023, to introduce Richard as chair to the

employee members and to allow questions to be raised with him.

Given the period of change that the organisation is experiencing,

further meetings of the EVF are proposed to be added to those

already scheduled for 2023.

In advance of the EVF meetings, the employee members of the

forum hold a pre-meeting, without the Chair present, to identify

agenda items and topics for consideration by the EVF. Following a

number of years during which the COVID-19 pandemic required

that the meetings be held using video-conferencing, the meetings

in 2022 were held in person. In the event that a member was

based in another region to the location of the meeting, or was

unable to be present at the meeting in person, video-conferencing

technology was once again utilised to ensure full participation by

members or their alternates. The results of employee engagement

surveys (see page 26) are shared with the Board and summarised

results of those surveys are provided to employee members of

the EVF to allow them to further consider topics for prioritised

discussion in the forum. Engagement levels were impacted by

the proposed transactions announced during the year, and the

employee voice forum assisted the Directors in understanding

the variety of reasons for this and allowed them to discuss at Board

level what steps could be taken to help address these matters,

which included, for example, more frequent ‘townhall’ meetings

with all staff to ensure they were kept updated appropriately on

progress being made.

Compliance with the UK Corporate Governance Code

As a company incorporated in the United Kingdom with a

Premium Listing on the London Stock Exchange, Capricorn is

required to report against the UK Corporate Governance Code.

This statement reports compliance with the version published in

July 2018. Capricorn is fully committed to achieving compliance

with the principles and provisions set out in the Code and the

Board is responsible for ensuring that an appropriate framework

is in place to do so.

The information in this statement (together with the Strategic

Report, Audit Committee Report, Nomination & Governance

Committee Report, Sustainability Committee Report, Directors’

Remuneration Report, and Directors’ Report) describes the manner

in which the Company has applied the main principles of

governance set out in the Code and complied with the individual

Code provisions. As explained in the 2020 Annual Report and

Accounts, the pension contribution rates for Executive Directors and

staff would be aligned at 12.5% with effect from 1 January 2023.

Save for this element of non-compliance during 2022 (which has

now been remedied), it is the Board’s view that the Company has

complied with the 2018 version of the Code throughout 2022.

Period of non-compliance

On 24 January 2023, Capricorn announced that the Board, having

continued to engage with its shareholders ahead of a 1 February

2023 general meeting to approve the proposed combination

with NewMed Energy, had understood the concerns that had

been raised in relation to the alignment of the general meeting

to approve the merger with NewMed (the “GM”) and the general

meeting requisitioned by a shareholder to remove seven of the

nine then Board members and appoint six new Directors (the

“Requisitioned GM”), both then scheduled for 1 February 2023.

The Board announced that it intended to adjourn the GM to

22 February. Alongside this, Nicoletta Giadrossi (Chair), Simon

Thomson (CEO), Peter Kallos (SID), Alison Wood (independent

Non-Executive Director) and Luis Araujo (independent Non-

Executive Director) announced they would be stepping down from

the Board with immediate effect, with Keith Lough (independent

Non-Executive Director and Chair of Audit Committee) and

James Smith (CFO) remaining in place until the Requisitioned GM.

Catherine Krajicek and Erik B. Daugbjerg would also remain on the

Board and continue post the Requisitioned GM, with the aim of

ensuring an orderly transition and an appropriate continuation

of governance.

It was agreed by the Board that James and Keith’s retention was key

to ensure the ongoing good governance of the Company and allow

for an effective handover of key processes including the annual

reporting/audit to the new Directors following the Requisitioned

GM. No other changes were made to the reporting or corporate

governance structure of the Company. In the interim, work was

undertaken to support the onboarding of the new Directors and to

ensure that the Company would remain fully able to comply with its

ongoing obligations as a Premium Listed issuer and to ensure that

at all times a Board that had the information it needed to maintain

orderly management and oversight of the Company.

Whilst the Company remained in compliance with the vast majority

of the principles of the UK Corporate Governance Code (the “Code”)

during the period of its reduced membership ahead of the

Requisitioned GM, there were some in respect of which it

temporarily did not, most notably provisions 15, 25 and 32 of the

Code, all of which related to the minimum membership of Board

committees and/or the appointment of specific Board roles. Given

the short and defined duration of this non-compliance (~ seven

days), and the lack of any clearly required responsibilities for these

committees/Board roles in that transitory period, the non-

compliance did not have an impact on the standard of the

Company’s ongoing corporate governance. For example, there were

no Directors’ Remuneration Committee meetings scheduled for the

interim period, nor did the Company expect there to be a significant

risk that any meeting would need to be convened in the period prior

to the Requisitioned GM.

Following the appointment of six new Directors to the Board and

the appointment of reconstituted Board committees, those

provisions of the Code were once again fully complied with.

The Board recognises that reporting in some areas will continue

to evolve in future years and will continue to monitor, review and

develop its governance arrangements to ensure these are effective.

The Board

It is important that the Capricorn Board has the required skills,

experience and expertise to allow it to operate effectively and

efficiently across a number of geographies and disciplines given

the international nature of its business. The Board has, following

the change in its membership in February 2023, considered the

competencies of its Directors, which includes industry experience

in addition to financial, regulatory, risk-management and

sustainability experience, to ensure that it is fit-for-purpose in

pursuing the strategy of the Company. The Board will continually

review these competencies to ensure they are appropriate for the

Company’s requirements, taking into account the strategy of the

organisation and the environment in which it operates. Board

appointments, for both executive and non-executive positions,

consider an individual’s objectivity and integrity along with the

abilities, skills, experience and diversity that they can bring to the

Board. This process is applied below Board level in senior

management and other appointments and such matters are

taken into account when considering succession plans.

Independent and objective challenge from non-executive

directors is encouraged at Capricorn and changes to the Board

membership can support this. It is important that new

perspectives are complemented with experience in the Company

to provide continuity for the business and its stakeholders.

Capricorn Energy PLC

Annual Report and Accounts 2022

Corporate Governance Statement continued

Board changes

During the year, Luis Araujo joined the Capricorn Board as a

Non-Executive Director with effect from 11 May 2022. Luis had

many years’ experience gained from working in Brazil and other

countries, and brought his emerging market insights to matters

considered by the Board during the year; his experience with

energy transition issues was valuable, notably in his role on the

Sustainability Committee. As noted, Luis stood down from the

Board in late January 2023. For further detail, please see the

Nomination & Governance Committee Report, set out on page 73.

The Board currently comprises one Executive Director and seven

Non-Executive Directors, including the Chair. The Directors of the

Company as at the date of this statement are set out in the table

below and further biographical information about our Directors is

also included in the Board of Directors section on pages 50 and 51.

Name Role

Date of appointment

(in current role)

Date of last

re-election

Chris Cox

Interim Chief

Executive

February 2023 –

Craig van der Laan

Non-Executive

Chair

February 2023 –

Catherine Krajicek

Non-Executive

Director

July 2019 May 2022

Erik B. Daugbjerg

Non-Executive

Director

May 2020 May 2022

Maria Gordon

Non-Executive

Director

February 2023 –

Richard Herbert

Non-Executive

Director

February 2023 –

Hesham Mekawi

Non-Executive

Director

February 2023 –

Tom Pitts

Non-Executive

Director

February 2023 –

Diversity is a fundamental tenet of the Capricorn Board. This extends

beyond gender to culture, experience, nationality, cognitive diversity

and heritage. From 2019 to February 2023, there were three women

on the Board, and, following Nicoletta’s appointment to Chair

on 1 January 2021, a women occupied a senior Board position.

Following the change of the Board composition on 1 February

2023, we currently have two female Directors and a female,

Clare Mawdsley, occupies the role of acting Chief Financial Officer.

The Board demonstrates diversity in a broader sense in terms of UK

and international experience. During 2022, the Board deepened

this diversity following Luis’ appointment in May of that year. Luis,

with South American heritage and citizenship in Brazil, Portugal

and the United Kingdom, joined Erik B. Daugbjerg and Catherine

Krajicek (both from the USA) and Nicoletta Giadrossi, from Italy,

as members of the Board from outside of the UK. Since February

2023, in addition to continuing members Erik and Catherine

from the USA, I join the Board with Australian nationality, Hesham

Mekawi is from Egypt, Tom Pitts from Canada, Maria Gordon has

both British and Russian nationality and Richard Herbert and

Chris Cox are from the UK. Following these Board changes, we

remain compliant with the targets of the 2017 Parker Review.

Further information on the diversity within the Capricorn Board,

including in terms of its wide range of experience and expertise

across the industry, governance, technical and commercial arenas,

is included in the Nomination & Governance Committee Report on

page 74 and in the Strategic Report section of this Annual Report.

As announced on 11 April 2023, Erik B. Daugbjerg and Catherine

Krajicek will not seek re-election at the AGM this year. We recognise

that the Board composition following, in particular, Catherine’s

departure, falls short of our ambitions for a diverse membership and

that of the FRC as announced in April 2022. We will be seeking to

add to the Board as soon as possible, focusing on the appointment

of diverse candidates to address the imbalance. An update on

progress will be provided at the AGM in June.

Current Board Competencies

Environment/sustainability – 7

Energy – 4

Government relations – 5

International – 7

Executive experience – 6

Oil and gas – 6

Financial – 6

Legal – 1

Division of responsibilities between the Chair and the

Chief Executive

The Company has a clear division of responsibilities between the

positions of Chair and the Chief Executive, which is set out in

writing and agreed by the Board.

Chair: key responsibilities Chief Executive: key responsibilities

– Leading the Board in

an ethical manner and

promoting effective Board

relationships.

– Ensuring that the Board

plays a full and constructive

part in the determination

and development of the

Company’s strategy.

– Building a well-balanced

Board, considering Board

composition and Board

succession.

– Ensuring the effectiveness

of the Board and individual

Directors.

– Overseeing the annual

Board evaluation and acting

on its results.

– Ensuring appropriate

induction and development

programmes for Directors.

– Setting the Board agenda,

chairing Board meetings

and overseeing

implementation of the

Board’s decisions.

– Engagement with

shareholders and other

stakeholders when

appropriate.

– Managing the business and

proposing and developing

the Company’s strategy and

overall objectives in

consultation with the Board.

– Driving the successful and

efficient achievement of the

Company’s Key Performance

Indicators (KPIs) and strategic

objectives.

– Leading the Executive Team

in ensuring the effective

implementation of decisions

of the Board and its

committees.

– Providing strong and

coherent leadership of the

Company and effectively

communicating the

Company’s culture, values

and behaviours internally

and externally.

– Engagement with

shareholders and other

stakeholders.

Senior Independent Director

During 2022, Peter Kallos was the Company’s Senior Independent

Non-Executive Director. Since his appointment on 1 February

2023, Richard Herbert has assumed the role of Senior Independent

Director. The main responsibilities of this role are as follows:

– To provide a sounding board for the Chair and to serve as an

intermediary with other Directors when necessary;

– To be available to shareholders and other stakeholders if they

have any concerns which contact through the normal channels

of Chair, Chief Executive or Chief Financial Officer has failed to

resolve or for which such contact is inappropriate;

– To meet with the other Non-Executive Directors without the

Chair present, at least annually, in order to appraise the Chair’s

performance; and

– To act as Chair of the Employee Voice Forum.

Annual Report and Accounts 2022

Leadership and Governance

Board performance evaluation

The annual performance evaluation process is considered by

the Board as an opportunity to improve its effectiveness and

to enhance its processes and procedures where appropriate. As

reported in the Company’s Annual Report and Accounts 2021, the

performance evaluation process in 2021 was externally facilitated

by Gould Consulting, in line with the Code recommendation that

this evaluation be conducted by an external party at least every

three years. Previously externally facilitated evaluations took place

in 2018, 2015 and 2012, with evaluations conducted internally in

the intervening years.

The main action points arising from the 2021 externally facilitated

performance evaluation process, and the progress made against

these during 2022 are set out in the table below.

Key action points (disclosed in

last year’s Corporate Governance

Statement) Implementation

Increase Chair-led engagement

with Non-Executive Directors

individually between meetings

Prior to each Board meeting,

the Chair conducted informal

dialogue with each Non-

Executive Director to aid

discussion at the relevant

upcoming meetings and to

discuss key agenda items in

advance. In addition, the Senior

Independent Director and

Chair increased the frequency

of their out-of-round

discussions.

In addition to the conversations

held between the Chair and

each Director in advance of

Board meetings, there were

a significant number of

discussions held with Board

members throughout the year

to update and discuss with

Non-Executive Directors the

progress being made on the

announced proposed corporate

transactions.

Ensure a smooth transition

between the first and second

days of Board meetings

The Non-Executive Directors

have time allocated in the

Board meeting schedule,

without executives or

management present, at the

end of day one to discuss

matters raised and to

determine if further discussion

is required and a summary of

discussions held is provided by

the Chair at the start of the

second day of each Board

meeting.

Restructure of management

presentations

Whilst continuing the

advanced distribution of the

management presentation

to Board members, the

management presentation

itself has been further focused

on the key issues for

consideration by the Board,

allowing more time for

discussion amongst Board

members and senior

management, where relevant,

on these key issues.

Refresh the Board strategy day Discussions were held amongst

the Board in advance of the

strategy focused Board

meeting to determine the key

issues to be discussed and

what internal and external

input and range of speakers

would benefit the strategy

discussion.

Board Committee Papers for

wider distribution

In addition to the ongoing

process of providing reports

to the Board from each

committee chair and the

distribution of committee

minutes to all Board members,

all Board committee papers

are now sent to all members

of the Board.

As previously noted, the 2021 performance evaluation was

externally facilitated by Gould Consulting. That was the first

evaluation of Capricorn’s Board performance that Gould

Consulting had undertaken and they had no other connection

to the Board or to the Company.

It was agreed at the meeting of the Board in September 2022, that

the Board performance evaluation for the year would be undertaken

internally. The Company Secretary prepared a questionnaire to assist

this process, which was reviewed and approved by the Chair and

Senior Independent Director. Each Director was asked to complete

the questionnaire and provide the responses to the Chair, save in

respect of questions relating to the performance of the Chair,

responses to which were submitted to the Senior Independent

Director. A questionnaire was also sent to several members of senior

management who have regular interaction with the Board. The

responses to that questionnaire were submitted to the Company

Secretary who then compiled the responses and, following

anonymisation, sent a summary to the Chair to assist in the

evaluation process. Each of the questionnaires sought views on the

performance of the Board in relation to the corporate transaction

activity that took place during 2022.

Following receipt of the questionnaires, meetings were held with

the Chair and each of the Non-Executive Directors to discuss the

questionnaire responses. The Senior Independent Director then

met with the Directors, excluding the Chair, to discuss the responses

to the chair performance questionnaire. The outcome and findings

from the 2022 Board performance evaluation were then discussed

in detail at the December 2022 meeting of the Board.

The main action points resulting from the 2022 Board

performance evaluation are set out below.

Key action points Implementation

Communication

with staff

During times of strategic change,

ensure more regular communication

from Board members in addition to

those communications already given

by the Executives on a regular basis.

Management

presentation structure

It was noted that the attendance at

the management presentation from

staff was beneficial for succession

planning and business awareness

purposes, and this would be

developed with further streamlining

of topics discussed to allow deeper

discussion with relevant employees

and amongst the Board, with Board

feedback provided after meetings.

Capricorn Energy PLC

Annual Report and Accounts 2022

Corporate Governance Statement continued

Given the changes that took place to the membership of the Board

on 1 February 2023, the Board intends to regularly review the

format and planning of Board meetings to refine the proceedings,

if required, throughout the year. The annual performance review

that will take place in Q4 2023 will be a valuable tool to assist this

process and Board performance into 2024.

Having undertaken the Board performance evaluation process in

2022, the Board and Board committees were satisfied that they

were operating effectively and that each Director had performed

in respect of their individual role on the Board and its committees.

The reconstituted Board believes that all of the Directors now in

place are effective and that each demonstrates commitment

to their role.

The performance of the Executive Directors is further reviewed by

the Remuneration Committee against the Group KPIs which are

set annually (further details of the KPIs and how achievement has

been measured against them can be found on pages 16 to 20).

The 2022 bonuses payable to the Executive Directors under the

Company’s discretionary cash bonus scheme (described in further

detail in the Directors’ Remuneration Report on pages 76 to 109)

are linked directly to the Group’s performance against these KPIs.

The KPIs set out the Company’s strategic objectives, ensuring that

executive performance is directly linked to Group strategy.

In respect of the position of the interim Chief Executive, given the

term of the appointment, shorter-term performance targets were

put in place and the performance of the interim Chief Executive

will be reviewed by the Remuneration Committee against these

as appropriate, with disclosure made in the 2023 Annual Report

and Accounts. For more information, see page 107 of the

Directors’ Remuneration Report.

Independence of Non-Executive Directors

The Board considers the independence of each of the Non-

Executive Directors on an ongoing basis, taking into account their

integrity, their objectivity and their contribution to the Board and

its committees. The Board believes that the following behaviours

are essential for a Director to be considered independent:

– Provides an objective, robust and consistent challenge to the

assumptions, beliefs and views of senior management and the

other Directors;

– Questions intelligently, debates constructively and challenges

rigorously and dispassionately;

– Acts at all times in the best interests of the Company and its

shareholders and other stakeholders;

– Has a detailed and extensive knowledge of the Company’s

business and of the market as a whole which provides a solid

background against which they can consider the Company’s

strategy objectively and help the executive director(s) develop

proposals on strategy; and

– Has no close ties or material relationships with the Company,

either directly or indirectly.

Six of the eight Directors of the Board were nominated by a

shareholder of the Company to be appointed as Directors from

1 February 2023. These Directors are independent in their

appointment and have no relationship, other than by being

nominated, with the nominating shareholder.

Having reviewed the independence of each of the Non-Executive

Directors against these criteria, the Board concluded that all

Non-Executive Directors demonstrated each of the required

competencies to a high level and are, therefore, each considered

independent by the Board.

Time commitment of Non-Executive Directors

The Board recognises its responsibility under the Code to take

into account other demands on each Director’s time, with a view

to ensuring that its Directors (particularly those Non-Executive

Directors who sit on other public company boards) have sufficient

time to devote to their role on the Capricorn Board. Prior to

appointment, each individual’s other significant commitments

are disclosed and there is also a policy in place to ensure that

additional external appointments are not undertaken without prior

consultation. The other directorships held by each Non-Executive

Director (where applicable) are disclosed in the Board of Directors

section on pages 50 and 51.

None of our Non-Executive Directors sits on more than four public

company boards (including Capricorn) and those who do sit on

other public company boards have taken appropriate steps to

ensure that they have sufficient time to devote to their role on

the Capricorn Board.

Re-election of Directors

In accordance with the Code, each of the Company’s Directors

are subject to annual re-election by shareholders. As such, each

of the current Directors, save for Erik B. Daugbjerg and Catherine

Krajicek, who, as announced on 11 April 2023, will not be standing

for re-election at this year’s AGM, will seek re-election at the AGM

to be held on 20 June 2023.

Induction and development

New Directors, including Luis Araujo following his appointment

in May 2022 and each of Craig van der Laan, Richard Herbert,

Maria Gordon, Hesham Mekawi, Tom Pitts and Chris Cox,

following their appointment on 1 February 2023, received a full

and appropriate induction on joining the Board. This involves a

tailored programme of meetings with other Board members,

senior management and the Company Secretary.

In addition, new Directors receive a comprehensive induction pack

which contains a wide range of materials including:

Board Board papers and minutes of previous

meetings; schedule of matters reserved

to the Board; list of Board and committee

members and dates of appointment; and

schedule of dates for Board and committee

meetings.

Committees Terms of reference for all Board committees.

Risk Terms of reference for Risk Management

Committee and minutes of last meeting;

current Group Risk Matrix and Risk Appetite

Statement; FRC Guidance on Risk

Management, Internal Control and Related

Financial and Business Reporting.

Key policies Capricorn Operating Standards, Group

Corporate Responsibility Guiding Principles;

Group Code of Ethics; Anti-Bribery-and-

Corruption (ABC) Management System;

Dealing Code; Insider Lists Process;

Procedures, Systems and Controls for

Compliance with the Market Abuse

Regulation, the Listing Rules and the

Disclosure Guidance and Transparency

Rules.

Organisation Organisational Structure, Group Structure

Chart; latest Annual Report and Accounts.

Governance UK Corporate Governance Code; supporting

FRC Guidance on: Board Effectiveness; Audit

Committees and audit tenders; and Risk

Management Internal Controls and Related

Financial Business.

Annual Report and Accounts 2022

Leadership and Governance

Legal/regulatory Memorandum on continuing obligations of

directors of premium listed companies; ICSA

Guidance on Directors’ General Duties; ICSA

Guidance on Liability of Non-Executive

Directors; Section 172 and Stakeholder

Considerations.

Insurance Full details of Directors’ and Officers’

liability cover.

The Company ensures that new directors also receive additional

induction support and training when assuming any additional

responsibilities such as membership of Board committees. Where

appropriate, the Company arranges for new non-executive

directors to receive additional briefings on key matters regularly

discussed by the Board.

The Company provides, on an ongoing basis, the necessary

resources for developing and updating its existing Directors’

knowledge and capabilities. In particular, the Company is

committed to the provision of continuing professional

development training for its directors. In 2022, the Company

continued with its practice of providing a Directors’ education

programme consisting of a number of seminars for Board

members, which are presented by the Company’s external

advisers, guest speakers or members of senior management,

on subjects appropriate to the Company’s business, including

changes to legislation, regulation and market practice. During

2022, the subjects covered by these seminars included:

– Drilling on the UK Continental Shelf – presented by the

Company’s Drilling & Operations Manager and Risk &

Compliance Manager;

– UK Takeover Code Obligations – presented by Company

advisers;

– A presentation and discussion on updates in the governance

environment – presented by the Company Secretary; and

– Biodiversity and its upcoming regulation – presented by the

Company’s Senior HSE Advisor and Energy Transition Director.

These seminars were incorporated into the schedule for the

relevant Board meeting and were attended by all Directors present

at such meetings as well as the Chief Operating Officer and

Director of Exploration (the Company keeps a record of

attendance). Any Director may request that a particular subject be

covered in a seminar.

Information and support

The Board has full and timely access to all relevant information to

enable it to discharge its duties. Under the direction of the Chair,

the Company Secretary is responsible for ensuring good

information flows within the Board and its committees and

between executive management and Non-Executive Directors,

as well as facilitating induction and assisting with professional

development as required. The Company Secretary ensures the

presentation of high quality information to the Board and its

committees and that all papers and information are delivered

in a timely fashion. Board and committee papers are delivered

securely through an electronic platform.

The Company Secretary is responsible for advising the Board,

through the Chair, on all UK Corporate Governance Code and

related matters, and each Director has access to the advice and

services of the Company Secretary.

There is also a procedure agreed by the Board for directors, in

furtherance of their duties, to take independent professional

advice if necessary, at the Company’s expense.

Conflicts of interest

The Board has in place a procedure for the consideration and

authorisation of conflicts or possible conflicts with the Company’s

interests. All Directors are aware of the requirement to submit

details to the Company of any current situations (appointments

or otherwise) which may give rise to a conflict, or potential conflict,

of interest. The Board will continue to monitor and review potential

conflicts of interest on a regular basis.

Whistleblowing

The Group has a robust Whistleblowing Policy in place through

which the workforce can raise any matters of concern – further

information on the Group’s Whistleblowing Policy is included in

the Audit Committee Report on pages 70 and 71.

Matters reserved to the Board and delegation of authority

The Board has a formal schedule of matters specifically reserved

to it for decision, which is divided into categories covering different

types of decisions, including: corporate; Board/directors; financial/

operational; and legal/regulatory.

By way of example, some of the matters which the Board

considered and/or approved during 2022 and 2023 to date were:

Corporate Board/Directors

The Company’s 2021 and

2022 Annual Report and

Accounts and 2022 Half-Yearly

Report

Appointment of new

Non-Executive Directors

The Company’s 2022 AGM

circular

Creation of the Sustainability

Committee

The Company’s Risk Appetite

Statement

Expansion of the Nomination

& Governance Committee to

include wider governance

considerations

Review of the Company’s

Corporate Responsibility

Management System

Detailed review of talent

management and of

succession contingency

planning

Financial/Operational Legal/Regulatory

Approval to recommend the all-

share merger with Tullow Oil plc

and thereafter to withdraw that

recommendation and

recommend to shareholders

to approve a combination with

NewMed Energy. In February

2023, the reconstituted Board

recommended to shareholders

to vote against the NewMed

transaction, which resulted in

the mutual agreement with

NewMed to terminate the

relevant business combination

agreement.

Oversight of the resolution

of the Indian tax issue and

subsequent return of value of

US$500m to shareholders by

way of tender offer

The appropriateness of the

Group going concern sign-off

for the 2021 and 2022 full year

accounts and 2022 half-year

Financial Statements

Approval of the Company’s

Modern Slavery Statement

and its publication on the

Company’s website

The Company’s viability

statement included in the

2021 and 2022 Annual Report

and Accounts

Approval of the Group Tax

Strategy and its publication

on the Company’s website

The Company’s annual work

programme and budget

Capricorn Energy PLC

Annual Report and Accounts 2022

Corporate Governance Statement continued

Financial/Operational Legal/Regulatory

Group Reserves and Resources

The acquisition of production

and exploration assets in Egypt

The recommendation to

shareholders to approve the

cancellation of the share

premium account of the

Company

In addition to the above, the Board conducts an annual review of

the effectiveness of the Company’s internal controls (with ongoing

monitoring throughout the year), intensive strategy sessions, and

an annual ‘deep dive’ risk management workshop (held at the

final meeting of each calendar year).

The Board also has an approved set of financial delegations of

authority to ensure clarity throughout the business concerning

the distinction between financial matters which require Board

approval and those that can be delegated to senior management.

During 2022, the senior management structure beneath Board

level comprised an Executive Committee (ExCo) and Management

Team (MT), each which played a key role in supporting the Board.

Board and management committee structure during 2022

Board of Directors

Board Committees

(Audit, Remuneration and Nomination & Governance*)

Risk Management

Committee

Chief Executive

Executive Committee (ExCo)

Management Team (MT)

Exploration Leadership Team (ELT)

* Further information on our Board committees is contained later in this

statement on pages 61 to 63 and in the separate Audit Committee Report,

Nomination & Governance Committee Report and Directors’ Remuneration

Report.

During the year, the ExCo comprised the Executive Directors

(the Chief Executive and the Chief Financial Officer), the Chief

Operating Officer and the Director of Exploration. The ExCo was

chaired by the Chief Executive and met approximately six times

with those meetings scheduled in advance of Board meetings.

Key elements of the ExCo’s role included the following:

– Devising and generating the Company’s strategy to be

proposed to the Board for approval and implementing

and communicating this strategy across the business;

– Implementing the business plan, the key performance

indicators and annual work programme and budget following

their approval by the Board;

– Considering business development and new venture projects

prior to recommending these to the Board; and

– Providing leadership and guidance to the Company on

purpose, vision, strategy, culture, corporate governance,

corporate responsibility and HSE matters.

The MT was chaired by the Chief Operating Officer and met

formally six times per year, with four of those meetings focusing

on a quarterly performance review of the business.

The key elements of the MT’s role included the following:

– Developing and executing the annual work programme and

budget, which will deliver the Company’s strategic objectives;

– Assessing and determining the mitigation plans for key

business risks and ensuring that risks are captured and

reviewed regularly;

– Coordinating operations and licence management along with

resource allocation and organisational alignment to ensure

timely and cost-effective delivery against approved budgets;

– Oversight of the Company’s commitment to working

responsibly; and

– Reviewing and approving the Company’s Operating Standards.

A number of members of the MT are also members of the RMC,

which identifies and reviews key business risks – further information

on the role of the RMC is contained in the internal control section

of this statement on page 65.

The Exploration Leadership Team (ELT), which was chaired by

the Director of Exploration, met on a monthly basis to assist the

Director of Exploration in delivering a robust exploration portfolio,

with a particular focus on the following:

– Providing assurance that opportunities being pursued by new

ventures are sufficiently value-adding and meet Capricorn’s

strategic objectives;

– Considering whether opportunities being pursued have

acceptable subsurface, above ground and fiscal attributes

to continue evaluation;

– Developing a timeline for each existing or proposed

opportunity which drives to a decision, including drill or drop,

as expeditiously as practical;

– Ensuring that the subsurface geoscience aspects of all

exploration and appraisal and new venture opportunities

align with Capricorn’s strategic objectives;

– Ensuring consistent, efficient screening and ranking of

exploration opportunities, following initial data room

assessment but prior to detailed evaluation, utilising the

significant knowledge and experience of the team;

– Ensuring that the significant knowledge and experience of the

team is utilised appropriately and consistently in the delivery

of best practice across all areas of geological and geophysical

(G&G) analysis in accordance with Capricorn’s business plan

and core business principles; and

– Considering and/or seeking appropriate data subscriptions,

purchases and academic collaborations to ensure rapid

opportunity evaluation and capture.

Board meetings

During 2022, a total of 11 scheduled meetings of the Board were

held. Five of these meetings were conducted over two consecutive

days following the usual format for Board meetings, described

below, with another six shorter meetings held to update the Board

and/or to approve specific matters during 2022. In addition to

these formal meetings, there were a large number of Board calls

that took place to discuss, primarily, matters relating to the

proposed transactions. As part of the strategic discussions taking

place during the year, an M&A Committee of the Board,

comprising independent Non-Executive Directors was formed to

discuss progress and met regularly with the Executive Directors,

senior management and advisors with weekly updates as

appropriate sent to the full Board.

The first day of Board meetings normally includes a CEO meeting

with the Non-Executive Directors and (when applicable) a Board

education session, followed by a report from the CEO and CFO and

a management presentation, both of which form part of the

formal business of the Board meeting. The CEO and CFO report

and management presentation provide a detailed update from

senior management and other employees on key projects, assets

or matters to be considered at the Board meeting, allowing

opportunity for rigorous discussion. This information allows the

Board to understand more fully any risks or challenges to the

business plan and strategy and also provides broad exposure to

the employee base within the Company.

Annual Report and Accounts 2022

Leadership and Governance

Board committee meetings are also scheduled for the same dates

as Board meetings and are either split over two days or scheduled

for one day, depending on the number of committee meetings

required. Board committee meetings take place prior to the main

part of the Board meeting so that the chair of each committee can

provide a report to the Board. These are followed by the remainder

of the formal business of the Board meeting. The Chair also holds

a short meeting with the other Non-Executive Directors (without

the Executive Directors).

Details of attendance at each of the Board meetings during 2022,

and at meetings of each of the Board committees, are set out

below. The Company has very successfully used its technological

communication platforms to ensure that Directors who are unable

to attend any meeting in person are still able to attend all

scheduled Board and committee meetings and were also able

to do so ‘on camera’.

The annual timetable for Board and committee meetings is

discussed early to allow the Directors to plan their time accordingly.

This process ensures that the Chair can be comfortable that each

Director is able to devote sufficient time and resources to their role

on the Board and, where relevant, its committees.

The formal agenda for each scheduled Board meeting is set by the

Chair in consultation with the Chief Executive and the Company

Secretary. The system for establishing agenda items means that

the Chair, the Board and each of the Board committees have the

confidence that all required items are included on their agenda at

the most appropriate time of the year and that there is sufficient

time allocated for discussion, allowing the Directors to discharge

their duties effectively.

Formal minutes of all Board and committee meetings are

circulated to all Directors prior to the subsequent Board meeting

and are considered for approval at that Board meeting. In addition,

the members of the Board are in frequent contact between

meetings. There is also a procedure in place to allow Board

meetings to be convened at short notice where required to deal

with specific matters which need to be considered between

scheduled Board meetings. This process was utilised when

matters surrounding the transaction proposals in 2022/early 2023

required discussion and decision in short order.

As noted above, the Non-Executive Directors have a practice of

meeting informally at the end of each Board meeting without

Executive Directors being present. At these Non-Executive forums,

the Non-Executive Directors are invited by the Chair to bring

forward any matter pertaining to the business of the Board that

they believe would benefit from discussion in such forums. This

practice also applies after Board committee meetings to ensure

that Non-Executive Directors can discuss any relevant issues

arising from those meetings without management being present.

Directors’ attendance at 2022 Board and Committee meetings

The table below sets out the attendance record of each Director at scheduled Board and Board committee meetings during 2022.

Board Board

Audit

Committee

Remuneration

Committee

Nomination &

Governance

Committee

Sustainability

Committee

Meetings held during 2022

(1)

11 4 4 4 2

Meetings

Attended

Meetings

Attended

Meetings

Attended

Meetings

Attended

Meetings

Attended

Executive Directors

Simon Thomson (Chief Executive) 11 n/a

(3)

n/a

(3)

4 2

James Smith (Chief Financial Officer) 11 n/a

(4)

n/a n/a 2

Non-Executive Directors

Nicoletta Giadrossi (Chair) 11 n/a 4 4 2

Peter Kallos (Senior Independent Director) 11 n/a 4 4 2

Keith Lough 11

(2)

4 n/a 4 2

Alison Wood 11 4 4 n/a 2

Catherine Krajicek 11 4 n/a 2

(5)

Erik B. Daugbjerg 11 n/a 4 n/a 2

Luis Araujo 8

(6)

n/a n/a n/a 2

Notes:

n/a not applicable (where a Director is not a member of the committee).

1 During 2022, certain Directors who were not committee members attended meetings of the Audit Committee, Remuneration Committee and Nomination &

Governance Committee by invitation. These details have not been included in the table.

2 Keith Lough was unable to attend the second day of one of the two-day Board meetings due to illness.

3 Simon Thomson is not a member of the Remuneration Committee but attends its meetings by invitation (other than parts of meetings where he would be

conflicted). Mr Thomson also attends Audit Committee meetings by invitation.

4 James Smith is not a member of the Audit Committee but attends its meetings by invitation.

5 Catherine Krajicek attended both meetings of the Nomination & Governance Committee that were held following her appointment to the committee in March 2022.

6 Luis Araujo attended all meetings of the Board from his appointment in May 2022.

Capricorn Energy PLC

Annual Report and Accounts 2022

Corporate Governance Statement continued

Board committees

Board committee structure during 2022

Board of Directors

Audit

Committee

Remuneration

Committee

Nomination &

Governance

Committee

Sustainability

Committee

Each of the Board committees is provided with all necessary

resources to enable them to undertake their duties in an effective

manner and has formal terms of reference approved by the Board.

Copies of the terms of reference, which were reviewed and updated

in line with the 2018 version of the Code and approved by the

Board in March 2022, are available on the Company’s website. The

Company Secretary acts as secretary to the Board committees. The

minutes of all committee meetings are circulated to all Directors.

In line with best practice, more detailed reports from the Audit,

Nomination & Governance and Sustainability Committees are

presented as separate reports (on pages 66 to 111) rather than

including these in the Corporate Governance Statement. In addition,

full details of the Company’s remuneration policy are given in the

separate Directors’ Remuneration Report on pages 76 to 109.

Summary details of the composition of each committee and

meetings held during 2022 are set out below.

Audit Committee

The members of the Audit Committee during the year were as

follows:

– Keith Lough (Chair);

– Catherine Krajicek; and

– Alison Wood.

The Audit Committee met four times during 2022 and comprised

three independent Non-Executive Directors. In line with Code

requirements and following her appointment as Chair of the

Company, Nicoletta Giadrossi retired as a member of the committee

with effect from 31 December 2020 and Catherine Krajicek was

appointed a member of the committee with effect from 1 January

2021. The Chair of the Board is not a member of the committee

but attends its meetings by invitation. Further information on the

role, responsibilities and work of the Audit Committee is included

in the Audit Committee Report on pages 66 to 71.

Remuneration Committee

The members of the Remuneration Committee during the year

were as follows:

– Alison Wood (Chair);

– Nicoletta Giadrossi;

– Peter Kallos; and

– Erik B. Daugbjerg.

The Remuneration Committee met four times during 2022 and,

with effect from 1 January 2021, comprised four independent

Non-Executive Directors. In line with Code requirements and

following her appointment as Chair of the Company, Nicoletta

Giadrossi retired as Chair of the committee but remained a

member of the committee. With effect from 1 January 2021,

Alison Wood was appointed Chair of the committee and

Erik B. Daugbjerg was appointed a member of the committee.

The Chief Executive was not a member of the committee but

attended its meetings by invitation. The committee’s remuneration

advisers during 2022 are also invited to attend the committee’s

meetings as required.

None of the members of the Remuneration Committee, nor the

Chief Executive nor the Chair, participated in any meetings or

discussions relating to their own remuneration. The committee

has established a practice of meeting informally without any

Executive Directors or advisers present after each Committee

meeting to allow the Non-Executive Directors to discuss any

matter which has arisen in the meeting (or relating to the duties of

the committee) which they believe would benefit from discussion

in such a forum.

Further information on the role, responsibilities and work of

the Remuneration Committee is included in the Directors’

Remuneration Report on pages 76 to 109.

Nomination & Governance Committee

The members of the Nomination & Governance Committee during

the year were as follows:

– Nicoletta Giadrossi (Chair);

– Simon Thomson;

– Keith Lough;

– Peter Kallos; and

– Catherine Krajicek.

The Nomination & Governance Committee met four times in 2022.

Following her appointment as Chair of the Company, Nicoletta

Giadrossi was appointed Chair of the committee with effect from

1 January 2021 and, with effect from 3 March 2022, Catherine

Krajicek joined the membership of the committee in addition to

those members who sat in 2021. As such, the members of the

committee included the new Chair and three of the Company’s

independent Non-Executive Directors. In addition, to provide

executive input on nomination matters, the Chief Executive was

also a member of the committee.

From 3 March 2022, the Nomination & Governance Committee

expanded its remit to include corporate governance in a broader

sense. Whilst corporate governance is a key consideration at all

times for the Board, including corporate governance within the

committee’s responsibilities demonstrates the commitment

of Capricorn to good governance.

Following the decision to expand its remit, from March 2022,

the Nomination & Governance Committee’s terms of reference

also include the roles of:

– monitoring the operation of the UK Corporate Governance

Code and its implementation and compliance by the Company;

– reviewing developments in corporate governance and advising

the Board with respect to developments in the law and practice

of corporate governance; and

– reviewing and approving changes to the Board’s corporate

governance practices and policies.

Further information on the role, responsibilities and work of the

Nomination & Governance Committee is included in the separate

Nomination & Governance Committee Report on pages 72 to 74.

Changes to Board Committee structure during the year

Sustainability Committee

In addition to the expansion of the Nomination & Governance

Committee’s remit to include broader corporate governance

matters, with effect from 3 March 2022, a new committee, the

Sustainability Committee, was established. The Sustainability

Committee met two times in 2022. Matters relating to the

environment, safety, social responsibility and sustainability are

considered within every Board decision and, therefore, are a key

element of each Board meeting, but establishing a committee

dedicated to these matters further embeds the importance within

the Board and wider organisation. The energy transition and

Capricorn’s role in it is of particular importance to the Board and

the formation of this new Committee, the membership of which

during 2022 comprised the full Board, allows it further dedicated

time. The terms of reference of this committee include:

– advising and supporting the Board in the drafting of the

sustainability and net zero roadmap and assessing its progress

and reviewing disclosures being made regarding the roadmap;

– reviewing the policies, practices and performance relating to

sustainability and the disclosures and annual reporting on

sustainability;

Annual Report and Accounts 2022

Leadership and Governance

– reviewing the policies, practices and performance relating to

safety, including in particular regarding the safe and responsible

performance of the Group’s operations;

– reviewing the policies, practices and performance relating to

social responsibility; and

– reviewing the policies, practices and performance relating to

environmental matters including, in particular, protection of

the environment and disclosure of Greenhouse Gas emissions.

Shareholders and the Annual General Meeting (AGM)

Communications with shareholders are given high priority by

the Board. The Company has implemented the provisions of the

Companies Act 2006 regarding electronic communication with

its shareholders, in order to give shareholders more choice and

flexibility in how they receive information from the Company.

Capricorn responds promptly to correspondence from shareholders

and the Company’s website contains a wide range of information

on the Company, including a dedicated investor relations section.

In order to ensure that the members of the Board develop an

understanding of the views of major shareholders, there is regular

dialogue with institutional shareholders, including meetings with

executive management after the announcement of the year-end

and half-year results. The Board is kept informed of any issues

raised by shareholders both as a standing agenda item in Board

papers and through feedback at Board meetings and following

results or other significant announcements. In addition, the

Company maintains an investor relations database which details all

meetings with investors or other related stakeholders. All analyst

reports relating to the Company are also distributed to the Board.

A list of the Company’s major shareholders can be found in the

Directors’ Report on page 114. The Company recognises that

the success of the comply-or-explain approach under the Code

depends on an ongoing and open dialogue with shareholders,

and remains committed to engaging with shareholders, as well

as governance and proxy voting agencies, on any matter which

they wish to discuss in relation to the Company’s governance.

The Company has a rolling programme of investor roadshows to

ensure that senior management are regularly engaging with

current and potential investors. During the last 18 months, certain

Directors have also engaged directly (either through meetings or

by telephone/written correspondence) with specific investors,

investor groups, and proxy advisory agencies on a range of matters

including progress against strategic objectives, diversity and

remuneration. During 2022, engagement with investors was of

notably high importance following the corporate transactions

proposed and investor meetings were held either through virtual

communications platforms or in person.

AGM details (2022 and 2023) Overview

2022 AGM: the first AGM since

the 2019 meeting to be held as

an open meeting since

restrictions were put in place

due to COVID-19 in 2020, was

held on 11 May 2022 at The

Galley, Kimpton Charlotte

Square Hotel, 38 Charlotte

Square, Edinburgh

– Full Director attendance save

for one Director who had

taken ill the previous evening;

– At least 54.52% of all issued

shares voted by shareholders

in each resolution

– Highest votes in favour >97%

for 13 resolutions and all votes

passed with at least 93.65% in

favour

2023 AGM: to be held on

Tuesday, 20 June 2023 at The

Galley, Kimpton Charlotte

Square Hotel, 38 Charlotte

Square, Edinburgh

(full details in Notice of AGM)

– Full Director attendance

expected other than one

Director who is expected to

be out of the country on the

date of the meeting

– 12 ordinary resolutions and

five special resolutions being

proposed to shareholders

The Board uses the AGM to communicate with private and

institutional investors and has always welcomed their participation

in annual general meetings. The Directors were pleased, therefore,

that the 2022 meeting could be held in person following the

lifting of COVID-19 related restrictions and that the 2023 meeting

will also be held in person.

It is policy for all Directors to be present at the AGM, when possible,

with the Chair of each of the Board committees also expected to

attend and be prepared to answer shareholder questions on areas

within their remit. Our employees based in Edinburgh are also

invited to attend the AGM as the Directors recognise that this

provides a valuable opportunity for workforce engagement with

the Board.

As part of our commitment to transparency, we look to involve

shareholders fully in the affairs of the Company and to give them

the opportunity at the AGM to ask questions about the Company’s

performance and activities. Details of resolutions to be proposed at

the AGM on 20 June 2023 and an explanation of each resolution

can be found in the separate Notice of AGM Circular accompanying

this Annual Report and Accounts.

The proxy votes for and against each resolution, as well as

abstentions, will be counted before the AGM and the results will be

made available following the meeting after the shareholders have

voted in a poll on each resolution. Both the Form of Proxy and the

poll card for the AGM include a ’vote withheld’ option in respect of

each resolution, to enable shareholders to abstain on any particular

resolution. It is explained on the Form of Proxy that a ’vote withheld’

is not a vote in law and will not be counted in the calculation of the

proportion of the votes ’for’ or ’against’ a resolution.

At the AGM held on 11 May 2022, the remuneration report received

over 95% of votes in favour, following a lower vote in favour (65.13%)

to approve the remuneration report in 2021. Following shareholder

engagement, the 2021 Annual Report looked to address matters

raised by stakeholders such as: the need for a more comprehensive

explanation of the alignment between Company performance

and bonus outcomes; and more detailed disclosure of the KPIs

used in the annual bonus scheme. The 2021 Annual Report

addressed these concerns and included significantly increased

levels of disclosure.

Information pursuant to the Takeover Directive

The Company has provided the additional information required by

the Disclosure and Transparency Rules of the UK Listing rules (and

specifically the requirements of DTR 7.2.6 in respect of directors’

interests in shares; appointment and replacement of directors;

powers of the directors; restrictions on voting rights and rights

regarding control of the Company) in the Directors’ Report.

Internal control

The Board has overall responsibility for the Group’s system of

internal control, which includes all material controls, including

financial, operational and compliance controls and related risk

management, and for regularly reviewing its effectiveness. The

system of internal control is designed to identify, evaluate and

manage significant risks associated with the achievement of the

Group’s strategic objectives. Because of the limitations inherent in

any system of internal control, Capricorn’s system is designed to

meet its particular needs and the risks to which it is exposed, with

a focus on managing risk rather than eliminating risk altogether.

Consequently, it can only provide reasonable and not absolute

assurance against material misstatement or loss.

The Company has in place an Integrated Internal Control and

Assurance Framework (the “Framework”), which plays a critical role

in setting out how the Company manages and assures itself that

the risks relating to the achievement of corporate vision, strategy

and objectives are effectively controlled. The Framework is based

on the Committee of Sponsoring Organisations (COSO) framework

Capricorn Energy PLC

Annual Report and Accounts 2022

Corporate Governance Statement continued

and its five key components, which is a commonly used and

recognised international framework for considering internal

control systems. The COSO framework seeks to help organisations

develop systems of internal control which help facilitate the

achievement of business objectives and improvements in

Company performance. The COSO framework also supports

organisations in adapting to increasingly complex business

environments and managing risks to acceptable levels with the

aim of safeguarding shareholders’ interests and Company assets.

The Framework has been in place for the 2022 financial year

and up to the date of approval of the Annual Report and Accounts.

The Board, supported by the Audit Committee, has carried out a

review of the effectiveness of the systems of internal control during

2022 and will ensure that a similar review is performed in 2023.

In so doing, the Board and Audit Committee took into account

the assurance provided by the year-end internal control report

in respect of the effectiveness of the Group’s system of internal

control. The Board is accordingly satisfied that effective controls

are in place and that risks have been mitigated to a tolerable level

across the Group in 2022.

Particular attention has been placed by the Company’s

management on ensuring that an effective system of internal

control has been maintained during the year in relation to the key

risks in the Company’s business activities. Enhancements have

been made during 2022 to the following key controls, business

processes and procedures:

– The Capricorn Board incorporates an annual workshop into one

of its Board meetings to consider and address a key risk to the

business. The theme for this year’s session was ‘ESG- What lies

ahead for Capricorn?’. The objective of the workshop was to give

the Board further insight into the ESG macro environment and

the potential risks and opportunities for Capricorn. The

workshop was facilitated by the Energy Transition Director and

Risk & Compliance Manager;

– The Management Team conducted a quarterly review of the

risks, mitigations and actions identified on the Group risk

actions were clearly assigned and implementation dates for

actions were tracked;

– Compliance certificates were completed by all staff members

and contractors confirming compliance with the Group’s Code

of Ethics;

– Capricorn commenced a project in 2022 to improve the

business management system used throughout the Company.

The management system structure follows that as

recommended by the International Association of Oil & Gas

Producers (IOGP), of which Capricorn is a member. It will deliver

a single system applicable across the whole Company that is

simple to describe to stakeholders, including contractors, other

operators, and governments and provide a platform to access

all organisational documentation which is consistent,

connected and without duplication;

– The Group’s Business Resilience Plan and Cyber Incident

Response Plan were both revised and updated in 2022;

– Several activities were completed to enhance our bribery and

corruption controls across the business including the

completion of country-specific risk assessments for Egypt and

Mauritania which supplemented the overarching Group risk

assessment already in place;

– A compliance dashboard was maintained to assess compliance

with several key regulations impacting the Group including the

UK Bribery Act, the general data protection regulations (GDPR),

the corporate criminal offence for the failure to prevent the

facilitation of tax evasion (CCO), the Group’s corporate major

accident prevention policy (CMAPP) and modern slavery. The

dashboard was presented at each Risk Management

Committee meeting and annually to the Audit Committee as

part of the year end control assessment. There were no material

weaknesses identified;

– IT continued to progress the plan to implement the NIST Cyber

Security Framework. Several initiatives were completed in 2022

and the Group is on course to deliver the three-year plan;

– EY, the Group’s internal auditor in 2022, delivered the annual

internal audit plan which consisted of several risk areas

identified from the risk register. Topics covered in 2022

included culture, values and internal communications and

Egypt operations. The Group has been working through the

year to implement the identified improvements; and

– To ensure awareness, understanding and compliance on

important governance, regulatory and security topics,

mandatory e-learning was implemented across the Group,

which included comprehensive modules on bribery and

corruption, CMAPP, CRMS, human rights, modern slavery,

cyber security, cyber fraud and tax evasion. Bespoke training

was also provided to the Egypt and Mexico offices on bribery

and corruption.

The following describes the key elements of the Framework

and the processes used by the Board during 2022 to review the

effectiveness of the system and the approach to be taken in 2023.

1. Strategic direction

The Company’s strategy and business plan are proposed by the

ExCo and approved by the Board. The Chief Executive is responsible

for managing the Company’s business and implementing the

Company’s strategic objectives in consultation with the Board

and ExCo. The Chief Executive is also responsible for implementing

the decisions of the Board and its committees and driving

performance measured against the Company’s KPIs.

2. Operating management

The Company operates two regional units covering different

countries and assets and with multiple partners on both an

operated and non-operated basis. The assets within each region

are the principal focus for our asset managers, who are tasked

with delivering the strategic objectives for their particular region,

with a combination of operational and technical teams as well as

functional departments providing support to each of the assets.

The implementation of the Capricorn Operating Standards

supports this process, providing assurance, standards and

consistency in the delivery of our strategic objectives.

In 2022, the Executive Directors continued to be supported by

the ExCo as well as by the MT and ELT. There are also a number of

functional department heads whose roles include providing expert

input and challenge to the Company’s work programmes, budgets

and business plan; and supplying the Directors with full and

accurate information with which to make statements on the

adequacy of internal control.

The Company refreshes its business plan, work programme

and budget on an annual basis in line with its overall strategy.

These documents start at asset level before being consolidated at

regional and Company levels. The business plan sets out detailed

objectives and KPIs for each asset and supporting functional

departments and is consolidated into the Company’s strategic

planning. After an iterative process, the annual business plan,

work programme and associated budget are presented to the

Board for approval.

The asset management teams then have the required authority

to implement the business plan and to deliver the agreed work

programmes within the approved budget and delegations of

authority, and in accordance with the internal control framework.

Annual Report and Accounts 2022

Leadership and Governance

3. Risk management

The Board is responsible for maintaining sound risk management

and internal control systems across the Capricorn Group. The Board

must satisfy itself that the significant risks faced by the Group are

being managed appropriately and that the system of risk

management and internal control is sufficiently robust to respond

to internal or external changes in the Group’s business environment.

The Risk Management Committee (RMC) continues to be

responsible for the development of risk management strategy

and processes within the Company and for overseeing the

implementation of the requirements of this strategy. It does this

by ensuring that the framework for the identification, assessment,

mitigation and reporting on all areas of risk is fit-for-purpose and

that appropriate assurance arrangements are in place in relation

to these risks to bring them within the Risk Appetite Statement

approved by the Board.

To supplement the role of the RMC, the Group Risk Management

Process defines the steps through which Capricorn seeks to

systematically identify, analyse, assess, treat and monitor the

business risks faced by the Group. The Group Risk Management

Process also identifies the risk management organisational

structure through which business risks are managed and regularly

reviewed at operating-, asset-, country- and Company-levels.

Asset-level, project-level, country-level and functional-level risk

registers are used to capture, assess, monitor and review risks before

the principal risks are consolidated into the Group risk register.

In 2022, risk management updates were presented at each Board

meeting and as part of an annual process, the Board undertook a

strategic risk workshop in December 2022.

The RMC, which meets on a quarterly basis, was chaired by the Chief

Financial Officer in 2022 and comprised the Executive Directors

and senior functional management. The internal auditor also

attends RMC meetings, in order to ensure integration of the Group’s

internal audit plan with the risk management process. Regular MT

risk sessions were also held during 2022 to manage and facilitate

the assessment and treatment of business risks that may affect the

Company’s ability to deliver its strategy.

The RMC reports on the Company’s risk profile to both the Audit

Committee and the Board. Additionally, the Audit Committee and

the Board receive internal reviews of the effectiveness of internal

controls relative to the key risks. The conclusion of the Board

following these reviews during 2022 is that the internal controls

in respect of key risks are effective.

4. Assurance

The ’three lines of defence’ framework adopted by the Board

provides three levels of assurance against the risks facing the

Company: firstly at the operational level; secondly through

overview by functional management and the RMC; and thirdly

through internal or joint venture audits.

The integrated internal control and assurance framework

document includes a description of the Company’s business and

assurance models and of its organisation and committee structure

and defines the relevant roles and responsibilities. The framework

defines the key policies and procedures which govern the way in

which Capricorn conducts its business and is therefore a core part

of its system of internal control.

During 2022, the Directors reviewed the effectiveness of the

Company’s system of financial and non-financial controls,

including operational and compliance controls, risk management

and high-level internal control arrangements through the

completion of internal control self-assessment questionnaires.

These questionnaires, which are tailored to each region or function,

are designed to provide an internal assessment of the

effectiveness of key controls for the Group’s principal risks.

Additionally, assurance maps for principal risks are developed,

which outline the key sources of assurance across the ‘three lines

of defence’. The ‘three lines of defence model’ is a method of

assessing different sources of assurance the Group can rely

on when analysing key risks and controls. Assurance is gained

through the application of the business management system

which directs the day-to-day running of the business (first line), the

oversight functions within Capricorn which provide challenge to

the risk and control environment (second line) and any third-party

reviews the Group instructs to assess the status of a risk/control

(third line). The assurance maps help identify potential areas of

control weakness and/or ineffective use of assurance resources

across the Group, which influenced the topics included in the

2022 Group internal audit plan.

The Directors derived assurance from the following internal and

external controls during 2022:

– A schedule of matters specifically reserved for decision by the

Board;

– Implementation of the Capricorn Operating Standards for key

business activities;

– An appropriate organisational culture and structure;

– Control over non-operated joint venture activities through

delegated representatives;

– Specific delegations of authority for all financial transactions

and other key technical and commercial decisions;

– Segregation of duties where appropriate;

– Business and financial reporting, including KPIs;

– Functional management reviews;

– An annual ’letters of assurance’ process, through which asset

and functional managers review and confirm the adequacy of

internal financial and non-financial controls and their

compliance with Company policies, and report any control

weaknesses identified in the past year and actions taken in

respect of any weaknesses identified in the prior year;

– An annual internal audit plan, which is approved by the Audit

Committee and Board and is driven by risks and key controls;

– Reports from the Audit Committee and RMC;

– Reports from the external auditor on matters identified during

its statutory audit;

– Reports from audits by host governments and co-venturers;

– Independent third-party reviews; and

– The skills and experience of the workforce.

Craig van der Laan

Chair

27 April 2023

Capricorn Energy PLC

Annual Report and Accounts 2022

Audit Committee Report

Members and Meetings in 2022

Following the 2023 Board changes,

the new Audit Committee have

engaged with key internal and

external stakeholders to ensure a

successful induction, strengthening

governance where weaknesses were

identified and revising the Group’s

approach to internal audit to better

suit the organisation moving forward.”

Tom Pitts

Chair of the Audit Committee

Dear Shareholder

Composition of the Audit Committee

Following the changes to the Capricorn Energy PLC Board, I was

appointed Chair of the Audit Committee in February 2023. Serving

alongside me are my fellow, newly appointed independent

Non-Executive Directors, Maria Gordon and Richard Herbert and

additionally Catherine Krajicek provided continuity having served

on the Audit Committee under both the previous and current

Board of Directors.

The members of the committee have been chosen to provide the

wide range of financial and commercial experience needed to fulfil

these duties. Maria, Richard and Catherine are considered by the

Board to be independent.

Prior to my appointment, the Audit Committee was chaired by

Keith Lough, with fellow Non-Executive Director Alison Wood

serving alongside Catharine. Nicoletta Giadrossi also continued

to attended meetings in her capacity as Chair of the Board of

Capricorn Energy PLC but was not a member of the committee.

Keith, Alison and Nicoletta resigned from the Board in 2023.

Summary of Audit Committee meetings during 2022 and

subsequent to the year end

The previous Audit Committee met four times in 2022, with

meetings arranged around the key external reporting dates.

The first meeting in March 2022 focused on the 2021 year-end

external audit process (reported in the 2021 Annual Report and

Accounts). Meetings in June and September both centred on the

Group’s half-year reporting and a December meeting focused on

planning for the 2022 year-end.

Following the change in the composition of the Audit Committee,

a series of induction meetings were held to familiarise the new

members of the Audit Committee with the current issues facing

the Company in its financial reporting and risk management

activities. These consisted of the following:

– a general induction meeting with Capricorn senior

management summarising the Group’s approach to risk

management and the standing items to be considered on an

annual basis by the Audit Committee;

– a meeting with the Group’s internal auditor and Risk and

Compliance manager discussing the Group’s internal control

framework and approach to internal audit going forward;

2023 Audit Committee

Tom Pitts (Chair)

Member since February 2023

Maria Gordon

Member since February 2023

Richard Herbert

Member since February 2023

Catherine Krajicek

Member since July 2019

Members and meetings in 2022

Member

since

Meetings

attended

Keith Lough (Chair)

May 2014



Catherine Krajicek

July 2019



Alison Wood

July 2019



Annual Report and Accounts 2022

Leadership and Governance

– a presentation from Capricorn senior finance staff on the Group’s significant accounting policies, focusing on key issues for the 2022

year-end Financial Statements; and

– a meeting with the Group’s external auditors including a summary of the approved audit plan for the 2023 year-end and the

materiality levels to which the auditors will be planning their work.

A formal meeting of the Audit Committee was held in March 2023 to update on the 2022 audit and significant accounting issues and an

update on the going concern and viability statements. A second meeting was held in April 2023 to approve the Group’s 2022 year-end

Financial Statements.

Meetings are attended by senior Capricorn staff from finance, including the Chief Financial Officer, risk management and other

departments as appropriate. The Group’s external auditors also attend all meetings and the Group’s internal auditors attended during

2022 before being stood-down in 2023, discussed below.

Responsibilities and activities during the year

The Audit Committee’s primary responsibilities include the integrity of the Group’s Financial Statements, the effectiveness of the Group’s

risk management and internal assurance processes and related governance and compliance matters.

The terms of reference of the committee take into account the requirements of the UK Corporate Governance Code and are available for

inspection on the Group’s website. A summary of the committee’s principal responsibilities and activities during the year are set out

below.

Principal responsibilities of the committee Activities during the year Key areas formally discussed

Financial

Statements

– Monitoring the integrity of the

Financial Statements of the Group

and formal announcements

relating to the Group’s financial

performance;

– Reviewing any significant financial

reporting judgements; and

– Reviewing the appropriateness of

accounting policies, their

consistent application and

disclosures in Financial

Statements.

– March 2022: 2021 Financial

Statements approval (included in

2021 Annual Report and Accounts).

– June 2022: Half-year key accounting

issues, estimates and assumptions.

– September 2022: Approval of

half-year Financial Statements.

– December 2022: Year-end key

accounting issues, estimates and

assumptions.

– March/April 2023: Approval

of2022 year-end Financial

Statements.

– Going concern conclusions,

linkage to the viability statement

and impact of proposed

transactions; and

– Significant accounting issues

at the half-year and year-end

(see below);

External audit – Overseeing the Group’s

relationship with the external

auditors, including:

• making recommendations to

the Board as to the

appointment or reappointment

of the external auditor;

• reviewing their terms of

engagement and engagement

for non-audit services; and

• monitoring the external

auditor’s independence,

objectivity and effectiveness.

– At each meeting the committee

receives an updated report from

the external auditors which either

explains their plans and scope for

the forthcoming audit or review or

contains the conclusions from

their work performed.

– Reviewing the external auditor’s

scope and audit plan for the 2022

year end;

– Discussing the materiality levels

set by the auditor;

– Approval of the auditor’s

remuneration;

– Consideration of the results of the

external audit with the auditor and

management; and

– Assessment of the effectiveness of

the external audit (see overleaf).

Internal risk

management

and assurance

– Reviewing the Group’s internal

financial controls and internal

control and Risk Management

systems and oversight of the

Group’s Risk Management

Committee; and

– Monitoring and reviewing the

effectiveness of the Group’s

internal audit function.

– At each meeting, the Audit

Committee receives:

• An update from management

on the latest Risk and

Assurance Committee

meetings and risk

management process; and

• a report from the internal

auditors, tracking the progress

of internal audits and their

output and recommendations.

– Reviewing the Group’s corporate

and operational risk register;

– Reviewing reports on the activities

of the Risk Management

Committee;

– Consideration of internal audit

work planned for 2023 and for

future years; and

– Assessment of key findings raised

from internal audits conducted in

the year.

Whistleblowing

procedures

– Reviewing the Group’s

whistleblowing procedures and

ensuring that arrangements are in

place for the proportionate and

independent investigation of

possible improprieties in respect of

financial reporting and other

matters and for appropriate

follow-up action.

– The committee’s annual review

and approval of the Group’s

whistleblowing procedures was

performed at the December 2022

meeting.

– Reviewing and approving

of the Group’s whistleblowing

procedures.

Capricorn Energy PLC

Annual Report and Accounts 2022

Audit Committee Report continued

Financial Statements

At each reporting date, the Audit Committee reviews the results for the relevant period and the key assets and liabilities in the Group

balance sheet, focusing on the key estimates, assumptions and judgments that management has used in applying the relevant

accounting standard.

The key issues identified at the December 2022 year-end were: the impairment review performed on the Group’s intangible exploration/

appraisal assets, property, plant and equipment, development/producing assets and goodwill, the valuation of contingent consideration

receivable and trade receivables after expected credit loss adjustments and a change in accounting policy regarding exploration/

appraisal assets as a consequence of the NewMed transaction. As always, the assessment of the ability of the Group to continue to

operate as a going concern and the viability statement is also considered by the Audit Committee, including the implications of the

NewMed combination.

2022 year-end significant accounting issues

Impairment review

Impairment reviews have been performed across the Group’s exploration/appraisal, asset portfolio and the Group’s Egypt development/

producing assets. Reductions to reserve estimates and increased capital expenditure costs in Egypt indicated that impairment may

exist on the Egypt development/producing assets and these were tested for impairment along with goodwill allocated to the Egypt

operating segment.

Audit Committee action Audit Committee conclusions

The Audit Committee reviewed management’s conclusion on the

impairment tests performed on the Group’s exploration/appraisal

assets.

In determining the appropriateness of the value of assets used in

Egypt assets impairment tests, the Audit Committee confirmed

that the corporate assumptions used in the supporting economic

models were consistent with those approved by the PLC Board.

The Audit Committee reviewed the assumptions proposed,

comparing against the market range of assumptions noted

by the external auditor, challenging management.

Corporate assumptions approved by the PLC Board in place before

the February meeting had been applied in the impairment test

calculations. The Audit Committee were satisfied that the impairment

tests had been performed correctly and that the impairment on two

Egypt concession areas had been properly recorded.

The Audit Committee noted that a single corporate discount rate

may not be appropriate and that a move to country-specific

discount rates should be considered, though took comfort from

management confirming that there would be no material change to

the impairment recorded if the discount rate were increased to fall

within the market range expected to be applied to assets in Egypt.

Expected credit loss: Earn-out considerations, contingent consideration and trade receivables

Expected credit losses on the Group’s receivables classified as financial instruments, are reviewed at each reporting date.

Audit Committee action Audit Committee conclusions

The Audit Committee reviewed management’s calculation for

the expected credit loss adjustments posted against the earn-out

consideration receivable from Waldorf and trade receivables due

from EGPC in Egypt.

The Audit Committee challenged management on the

assumptions underlying the credit loss adjustments proposed.

The Audit Committee were satisfied that expected credit loss

adjustments were appropriate provided in the Financial Statements.

Other matters – Reviewing the Group’s policy for

approval of non-audit work to the

Company’s auditor; and

– Reviewing booking of Group

reserves and resources.

– The committee’s annual review

and approval of the Group’s policy

for approval of non-audit work was

undertaken at the December

meeting.

– Review and approval of the Group

policy for approval of non-audit

work to the Company’s auditor; and

– Classification of reserves and

resources for disclosure in the

Annual Report.

Following the change in the composition of the Audit Committee, the governance of the Group’s hydrocarbon reserves and resources

estimation process has been strengthened. Capricorn’s Reserves and Resources Reporting Committee, responsible for recommending

the booking of Group reserves and resources to the Board, will now be chaired by a Non-Executive Director. We believe having a non-

executive Chair this sub-committee and report into the Audit Committee will strengthen oversight of the Group’s processes in this matter.

For the current year end, Catherine and Richard have had several meetings with the Group’s Senior Petroleum Engineer to conclude on

the Group’s 2022 year-end reserves and resources bookings.

The review of the Annual Report and Accounts for fair, balanced and understandable presentation and disclosure, while considered by

the Audit Committee, is formally performed, and approved by the full Board.

Annual Report and Accounts 2022

Leadership and Governance

Change in accounting policy for Exploration Assets

As part of the proposed combination with NewMed, Capricorn indicated its intention to change its accounting policy in relation to

exploration/appraisal. With that deal now terminated the Audit Committee reconsidered the proposed change.

Audit Committee action Audit Committee conclusions

The Audit Committee discussed the rationale proposed by

management for the change in accounting policy under the

proposed combination, which would have led to an immediate

expensing of all non-well specific exploration costs.

The Audit Committee concluded that with Capricorn continuing

to execute an exploration-focused strategy during 2022, it was

appropriate to maintain the Group’s existing policy of capitalising

all general exploration and appraisal costs, pending allocation to

successful or unsuccessful exploration wells, or impairment on

cessation of exploration activity.

The Audit Committee will further review the accounting policy

choice on completion of the strategic review which will determine

the outlook for the business going forward.

Going concern and viability

At each reporting date, management considers the factors relevant to support a statement of going concern included in note 1.2 to the

Financial Statements. The Audit Committee reviews and challenges management’s conclusions so that we may, in turn, provide comfort

to the Board that management’s assessment has been considered, challenged and is appropriate.

The Audit Committee carefully reviewed management’s going concern conclusion based on the Group’s latest cash and debt position,

factoring in the planned shareholder returns. As well as the Group’s base case scenario, a downside scenario, with sustained low oil prices,

reduced production, cost increases and a reduction in available finance, and an oil-price crash scenario, with a sharp fall and slow recovery

in oil price, were reviewed, ensuring that the Group’s planned returns to shareholders did not lead to a potential going concern issue.

The Audit Committee subsequently recommended to the Board that the Group continues to use the going concern basis in preparing

its Financial Statements.

The committee also reviews and challenges management on the sensitivity analysis performed to support the Group’s viability

statement, included in the Strategic Report on page 32. The viability statement review included assessing both the operational risks

identified by management, including reserve downgrades and major emergency incidents and corporate risks identified, including

volatile oil prices, failure to deliver the net zero 2040 roadmap, a failure to expand the production base and a failure to deliver exploration

success. Following this challenge, the committee recommended approval of the viability statement to the Board.

External audit

The current version of the UK Corporate Governance Code states that FTSE 350 companies should put the external audit contract out

to tender at least every ten years. Capricorn complied with this provision before it came into force and completed an external audit

re-tendering process in 2013. PwC were subsequently appointed as external auditors of the Group, on the recommendation of the

Audit Committee at that time. The 2022 year-end audit therefore represents the tenth year of PwC’s tenure as Group auditors.

Capricorn had previously indicated that it intended to re-tender for the role of Group auditors during 2022 for appointment of the

new auditors (or re-appointment of PwC) at the AGM in 2023 in compliance with the Competition and Markets Authority 2014 Order

requiring a mandatory tender after ten years. Following the announcements of proposed merger combinations during 2022, the Audit

Committee wrote to the FRC seeking a one-year extension to the tender process. The FRC granted the Company’s request agreeing that

with the proposed transactions, running a robust tender process would not be possible. The Group therefore propose to run a re-tender

process for the external audit during 2023 for appointment at the AGM in 2024. PwC will continue for an eleventh year as auditor of the

Group. Bruce Collins remains lead audit partner.

Assessment of external audit process

The Audit Committee has an established framework to assess the effectiveness of the external audit process that will continue going

forward. This comprises:

Audit Committee action Audit Committee conclusion

An assessment of the independence of the auditors. The Audit Committee considered PwC to be independent.

A review of the audit plan including the materiality level set by the

auditors and the process they have adopted to identify Financial

Statement risks and key areas of audit focus (summarised in the

Independent Auditors’ Report on pages 118 to 125).

The Audit Committee accepted the level of materiality set by the

auditors.

A review of the Audit Quality Inspection (“AQI”) report on our

auditor, published by the FRC with particular emphasis on any

key messages applicable to Capricorn.

There were no matters raised in the AQI report that caused

concern for the Audit Committee.

A review of the final audit report, noting key areas of auditor

judgement and the reasoning behind the conclusions reached.

The Audit Committee reviewed findings on the key audit issues

identified. The committee was satisfied that appropriate challenge had

been made of management and that the audit process was robust.

Regular communications through formal papers submitted

and presentations to the committee, including a review by the

committee of the extent to which the auditors have challenged

management.

The audit plan for the year ending 31 December 2022 was

originally presented to the Audit Committee in September,

re-presented to the reconfigured Committee during the induction

meeting in February 2023 and is summarised in the Independent

Auditor’s Report on pages 118 to 125.

Audit findings on significant matters are presented to the

committee, together with the work performed by the auditors to

challenge management’s key estimates and assumptions.

Capricorn Energy PLC

Annual Report and Accounts 2022

Audit Committee Report continued

Separate meetings were held between myself and my

predecessor as Chair of the Audit Committee and the lead audit

engagement partner.

Separate meetings were held regularly during the year, both with

myself and my predecessor as Chair.

A formal questionnaire issued to all Audit Committee members

and senior Capricorn management who are involved in the audit

covering the robustness of the audit process, the quality of delivery,

the quality of reporting and the quality of the auditor’s people and

service.

Steps have been taken by both management and the auditors to

ensure that inefficiencies identified after the 2021 audit have not

been repeated. The questionnaire approach will be actioned after

the completion of this report, though tailored to reflect the Audit

Committee changes in the period.

Of particular focus for the committee is the assessment of the judgement applied by PwC during each stage of the audit process

including setting audit materiality, identifying the risks to the Financial Statements, evaluating audit findings and communicating those

areas of judgement to the committee.

The Audit Committee noted the level of planned materiality and agreed on the levels of misstatements to be reported to the committee.

The final audit report was presented to the Audit Committee in April 2023. The committee agreed with the conclusions reached by the

auditors, noting the degree of judgement around areas of significant audit risk.

The significant accounting issues identified by the Audit Committee were included in the significant matters identified by the external

auditors in their audit plan. There were no other specific areas that the Audit Committee requested the auditors to look at.

At the end of each annual reporting cycle, the Audit Committee reflect on the quality of the audit provided by the auditors. At each Audit

Committee meeting, the auditor presents an update on their progress and, where appropriate, conclusions on their half-year review and

full-year audit and how the audit has been conducted in relation to the plan presented to the Audit Committee, with the committee able

to challenge the audit at any point. Following conclusion of the 2022 year-end audit, the committee discussed the quality of the audit

service provided, using the questionnaire responses as a basis for the discussion, and concluded that the auditors had delivered an audit

of appropriate quality. The Audit Committee noted that there were certain inefficiencies in the performance of the audit, largely driven

by the acquisition of the Egypt assets and partially reflected in increased fees for the year and the committee were pleased to see that

management had worked with the auditors to agree on improvements ahead of the current year-end audit.

Though the formal assessment of the 2022 audit has yet to be formally undertaken, provisional discussions held at the March 2023

Committee meeting did not identify any matter where the Audit Committee believed that the quality of the audit had regressed from

previous years. The committee were pleased to hear that inefficiencies encountered in 2021 had not repeated in 2022.

Internal risk management and assurance

The Audit Committee reviews the Group’s principal risks at each meeting. The Group Risk Management Committee meet in advance

of the Audit Committee and minutes are reviewed by the Audit Committee and follow up queries addressed with management. The

Group’s risk management project plan is also presented with the Audit Committee closely monitoring the close-out of recommendations

raised during completed internal audits as well as noting progress of ongoing audits and plans for future audits, ensuring they remain on

schedule. The Audit Committee also complete an annual review of management’s formal internal controls assessment.

The Group’s principal risk dashboard is updated in advance of every meeting and changes to operational and corporate risks noted and

discussed. The Audit Committee will challenge management on the classification of risks where further clarification is sought on either

the assessment of the likelihood of a risk materialising or its estimated financial impact. During the current period, risks were reviewed

against a back-drop of uncertainty caused by the proposed corporate transactions, together with the risks associated with the continued

integration of the Egyptian business into the Group.

Internal audit

Ernst & Young LLP (“EY”) continued in the role of internal auditor throughout the year ending 31 December 2022.

Prior to the beginning of the year, an internal audit plan was developed by the internal auditors, in consultation with senior management,

based on a review of the outcome of the previous year’s internal audits, the outcome of the annual assessment of effectiveness of internal

control (refer to page 118 to 125), the results of historical audits of fundamental business processes and the significant risks in the Group

Risk Matrix and identified mitigation measures. The plan was then presented to the Audit Committee for review and approval. During

2022, the Group’s internal auditors conducted audits on ‘Culture, Values and Internal Communications’ and ‘Egypt Country Review’.

No high-risk findings were identified across the audits conducted. A further planned audit on ‘HSE Incident Reporting and Investigation’.

No plan had been presented by EY for 2023 internal audits pending conclusion of the business combination recommended by the

previous Board, thus allowing EY the opportunity to tender for the audit of the potential combined Group. Following termination of that

transaction and a re-assessment of Group’s approach to internal audit, the Audit Committee have decided to bring management of the

internal audit process in-house.

The Group’s external auditor did not place any reliance on the work undertaken by the Group’s internal audit function due to the nature

of the scope and the timing of their work. Going forward the Audit Committee will develop their audit plan to ensure that future internal

audits are aligned with the external audit, avoiding duplication, as the Audit Committee continue to ensure that the Group’s controls are

operating effectively.

Working responsibly – Whistleblowing and related policies

The Group is committed to working responsibly as part of its strategy to deliver value for all stakeholders. This means delivering value in a

safe, secure, environmentally and socially responsible manner.

As part of this, the Audit Committee is responsible for ensuring the Group has a robust Whistleblowing Policy in place and this policy is

reviewed annually by the committee. The Group’s current version of the policy was first presented to, and approved by, the Audit

Annual Report and Accounts 2022

Leadership and Governance

Committee at the March 2022 meeting and most recently re-approved at the December 2022 meeting.

The committee is also responsible for and is satisfied that arrangements are in place for the proportionate and independent investigation

of possible improprieties in respect of financial reporting and other matters and for appropriate follow-up action.

The Group has in place a comprehensive anti-bribery and corruption management system and Code of Ethics. Regular training updates

are provided to all employees and long-term contractors in addition to the training that is provided to all new staff joining the Company.

As Capricorn enters new countries, monitoring is undertaken, and training is refreshed. Further information regarding these policies can

be found on the Group’s website.

Other matters:

Provision of non-audit services

Capricorn has a long-established policy in relation to the supply of non-audit services by the external auditor. The Group will engage an

external adviser to provide non-audit services on the basis of the skills and experience required for the work, where benefit will be derived

as a result of the third party’s knowledge of the Group and at a reasonable cost. These advisers may include the Group’s external auditor,

under a restricted set of circumstances, although, before the engagement commences, the Audit Committee must be satisfied that the

auditor’s objectivity and independence would not be compromised in any way as a result of being instructed to carry out those services.

The policy on approval of non-audit fees for the Group’s auditor is re-approved annually. All non-audit fees should be approved by the

Audit Committee in advance of the engagement with a practical workaround of only seeking approval from the committee Chair, rather

than seeking full Committee approval, in advance for fees below an approved threshold of £100,000. This approval will then be ratified at

the next meeting of the committee.

The policy is available online on the Group’s website.

PwC provided other services during the year including audit-related services on corporate transactions and non-statutory audits of the

Group’s timewriting recharges to operated assets.

A full analysis of remuneration paid to the Group’s external auditor in respect of both audit and non-audit work is provided in note 7.5

to the Financial Statements.

Board and Committee performance evaluation

Details on the internal evaluation conducted during 2022 can be found on pages 57 and 58 of the Corporate Governance Statement.

There were no action points directly impacting the Audit Committee.

Tom Pitts

Chair of the Audit Committee

27 April 2023

Capricorn Energy PLC

Annual Report and Accounts 2022

Nomination & Governance Committee Report

Craig van der Laan

Chair

Nomination & Governance Committee

Capricorn’s Nomination & Governance Committee plays a leading

role in ensuring that the composition of the Board is appropriate

to enable the Company to deliver on its strategic aims whilst

promoting its values and culture. It is vital that the Board has in

its membership what is needed to provide appropriate challenge

and effective leadership for the business, and the committee looks

to ensure the Board maintains the correct balance of skills and

representation. Board succession is an important area of planning

for the ongoing success of the Company and is a key focus of the

Nomination & Governance Committee.

The membership of the committee during 2022 is set out in

the table to the right and comprised a majority of independent

Non-Executive Directors. The Chief Executive was also a member

of the committee. With effect from 3 March 2022, the remit

of the committee was expanded to include a greater focus on

governance. At the same date, the membership of the committee

was also expanded as independent Non-Executive Director,

Catherine Krajicek became a member of the Nomination

& Governance Committee.

Prior to the committee’s role expansion, the then named

Nomination Committee’s remit included:

– reviewing and evaluating the structure, size and composition

(including the balance of skills, knowledge, experience and

diversity) of the Board;

– giving full consideration to succession planning for Directors

and other senior executives, ensuring plans are in place for

orderly succession and taking into account the Company’s

strategy and the challenges and opportunities that it faces;

– overseeing the development of a diverse pipeline for

succession; and

– ensuring that appointments made to the Board promote

diversity of gender, social and ethnic backgrounds.

Following the decision to expand its remit, from March 2022,

the Nomination & Governance Committee’s role also includes:

– monitoring the operation of the UK Corporate Governance

Code and its implementation and compliance by the Company;

– reviewing developments in corporate governance and advising

the Board with respect to developments in the law and practice

of corporate governance; and

– reviewing and approving changes to the Board’s corporate

governance practices and policies

2023 Nomination & Governance Committee

Craig van der Laan (Chair)

Member since February 2023

Maria Gordon

Member since February 2023

Richard Herbert

Member since February 2023

Hesham Mekawi

Member since February 2023

* Keith missed one meeting due to illness.

** Catherine attended both meetings of the committee that were held

following her appointment to the committee in March 2022.

Members and meetings in 2022

Member

since

Meetings

attended

Nicoletta Giadrossi

(Chair)

May 2018

Jan 2021 (Chair)



Simon Thomson

Mar 2013



Keith Lough

May 2015



Peter Kallos

Sept 2015



Catherine Krajicek

Mar 2022



Annual Report and Accounts 2022

Leadership and Governance

Board changes during 2022

Whilst the membership of the Board was diverse in terms of the range of nationalities, culture and international experience represented,

as a result of its ongoing review and evaluation of the composition of the Board during 2021, the committee then in place recognised

that the Board would benefit from further enhancing the diversity of its membership.

The Parker Review on ethnic diversity of UK Boards was published in 2017, with the target that no member company of the FTSE 250

lack a person of colour as a director on its board by 2024. The Board, and the committee, recognised that ethnic diversity, and the benefits

it brings, was missing amongst the Company’s Board membership. In Q4 2021, a search was commenced for a new Non-Executive

Director. The Company instructed recruitment consultants, Ridgeway Advisors, in connection with this appointment. Apart from providing

prior recruitment advice, Ridgeway had no other connection with the Company or any of its individual Directors. The Board was pleased

to announce that its diversity was deepened from May 2022 upon the appointment of Luis Araujo, who had South American heritage

and citizenship in Brazil, Portugal and the UK. With experience gained working in Brazil and other countries, Luis brought his emerging

market insights to the Board along with a focus on energy transition issues.

Also during 2022, as the Chair of the Audit Committee was approaching eight years in post as a Non-Executive Director, a search was

commenced, assisted by Ridgeway, for a new Non-Executive Director, with appropriate experience to enable that individual to be appointed

chair of the Audit Committee. This process started in early 2022 but was put on hold following the announcement in June 2022 of the

proposed merger with Tullow Oil plc.

Board changes in 2023

In December 2022, shareholder Palliser Capital Master Fund Ltd requisitioned a general meeting to consider resolutions to remove

seven of the Company’s nine Directors from the Board of Directors of the Company and to appoint six new Directors to the Board.

The general meeting was held on 1 February 2023. At the end of January, in advance of that general meeting, five Directors, including

the then Chair, Nicoletta Giadrossi and CEO, Simon Thomson, stepped down from the Board. In addition to Catherine Krajicek and

Erik B. Daugbjerg, who continue as Non-Executive Directors, Keith Lough and James Smith remained on the Board up to the date of

the general meeting, to ensure ongoing oversight of reporting obligations and other corporate governance requirements. For the week

in advance of the general meeting, the Nomination & Governance committee membership consisted of Keith Lough and Catherine

Krajicek, both independent Non-Executive Directors.

On 1 February 2023, six new Directors were appointed to the Board by an overwhelming shareholder vote to sit alongside continuing

Board members, Catherine Krajicek and Erik B. Daugbjerg. On the same date, it was agreed that the membership of the Nomination &

Governance Committee would comprise myself, as chair of the committee, Maria Gordon, Richard Herbert and Hesham Mekawi. The newly

formed Nomination & Governance Committee carefully considered the roles of Chair of the Board, Senior Independent Director and Chief

Executive. The committee evaluated the balance of skills, knowledge, independence, experience and diversity on the Board and considered

candidates on merit and against objective criteria and, within that context, sought to ensure that any appointment made would promote

diversity of gender, social and ethnic backgrounds, and cognitive and personal strengths, ensuring also that appointees would have enough

time available to devote to the relevant position. No member of the Nomination & Governance Committee, who was also a proposed

appointee, would vote on his or her own appointment. After careful consideration, it was recommended to the Board, by whom it was

agreed, that I be appointed as Chair of the Board, Richard Herbert be appointed as Senior Independent Director and that Chris Cox be

appointed as an Executive Director of the Company, to serve as interim CEO, each appointment being made with immediate effect.

On 11 April 2023, it was announced that Erik B. Daugbjerg and Catherine Krajicek would not be standing for re-election at this year’s

AGM. The Nomination & Governance Committee will shortly be considering the membership of the affected Board committees.

Succession planning

On a regular basis, the Nomination & Governance Committee evaluates the combination of skills, experience, independence and

knowledge of the Company whilst considering the length of service of members of the Board. Recommendations in terms of director

membership are made to the Board accordingly. Diversity is an important principle of a well-functioning Board and encompasses

multiple aspects including gender diversity, social and ethnic diversity, cognitive diversity to ensure the avoidance of groupthink, and

personal strengths and experience. All appointments are made on merit and objective criteria, promoting the diversity principles.

Working together, the Board and Nomination & Governance Committee maintain a comprehensive succession plan for appointments

to the Board ensuring there is an appropriate balance of skills and experience that continues to align with the Company’s strategic aims.

The Company’s talent management strategy, for both Executive Board and other senior management positions, focuses on growing

talent through a number of measures including: active succession planning and mentoring; programmes designed to aid leadership

and management development; and annual objective and development plan setting.

The Company’s succession planning also includes contingency plans for the sudden or unexpected departure of an Executive Director

and other senior roles, which are reviewed by the Board.

During 2022, the Company undertook a voluntary redundancy programme for UK employees. It was important to ensure that succession

planning remained fit-for-purpose following the departure of those employees electing to leave the organisation. This is also a vital piece

of ongoing work as we progress through the stated headcount reduction.

The Board has a good understanding of the Company’s talent management and succession planning, receiving regular updates from

the Group HR Manager, as well as knowledge of the range of measures being used to continue to develop and recruit talented senior

employees. During 2022, our mentor programme, which commenced in May 2019, continued to provide invaluable support to

colleagues whose ambitions are to grow and develop into senior roles within the business. A second cohort of individuals identified as

employees who would benefit from the mentoring programme started the programme in the middle of 2021. These colleagues were

partnered with non-executive Board members as well as senior managers to gain knowledge and strategic understanding from their

experience in these areas.

Capricorn Energy PLC

Annual Report and Accounts 2022

Nomination & Governance Committee Report continued

Diversity

As noted, the Nomination & Governance Committee very much values the benefits of building a diverse Board, not just in terms of

gender and social and ethnic background, but also to promote diversity of cognitive and personal strengths. Women currently represent

25% of the Board membership (being two women out of eight members) and Clare Mawdsley sits as acting Chief Financial Officer.

The committee, and the Board, recognise that, to gain the benefits of a diverse membership, further female representation is required.

This will be of even greater importance following Catherine Krajicek’s announced departure from the Board after the AGM in June 2023.

We will be seeking to add to the Board as soon as possible, with a focus on diverse candidates to address this imbalance. We intend to

provide an update on progress made at this year’s AGM.

The Directors’ range of knowledge and practice covers not only a wealth of experience of operating in the oil and gas industry but also

extensive technical, operational, financial, governance and commercial expertise. Following 1 February 2023, the Board continues to

be diverse in terms of the range of nationalities, culture and international experience of its members and meets the ambitions of the

Parker Review. The committee will continue to monitor and consider diversity for all future Board appointments, whilst also continuing

to recruit on merit.

At levels below the Board, we continue to think more broadly than gender diversity in all areas of our work, taking into account diversity

in many dimensions. Our diversity and inclusion strategy aims to nurture an inclusive and sustainable culture, where differences are

encouraged, embraced and recognised as key drivers of value to all our stakeholders. A diverse and inclusive culture, where everyone

can uniquely contribute and thrive and which values and encourages individual differences is nurtured throughout Capricorn. The Board

is committed to ensuring such a culture is embedded in the organisation. In February 2023, we were pleased to appoint Clare Mawdsley

to the role of acting Chief Financial Officer. Clare’s appointment is a welcome deepening of the diversity on our previously all-male

Executive Committee. As at 31 December 2022, following a reorganisation as a result of a process of voluntary redundancy, including

interim reporting lines, the number of female direct reports to the Executive Committee was seven female and 18 male (2021: six female,

14 male). Of the business critical roles identified in our talent management programme, 24% of the talent pool is female. The gender split

of our management population has greatly increased in female representation from one-third female/two-thirds male at the end of 2021

to 42% female and 58% male at the end of 2022. Looking at our broader talent pool, the gender diversity of our employee population is

49% female and 51% male. These numbers will change as a result of the announced headcount reduction process, the consultation in

respect of which is ongoing. Diversity and inclusion will remain an important focus of the Company going forward.

In recognition of the Company’s diversity challenges within its management and executive populations, a new pilot programme was

introduced in 2022, called the Shadow4success programme, with the aim to provide an opportunity for under-represented groups

to gain a better understanding of how the Executive Committee and Board operate and to ultimately seek to increase the diversity of

applications for more senior roles within Capricorn. The Shadow4success programme, which formed part of the Company’s diversity and

inclusion strategy, had eight participants, each with an assigned member of the Executive Committee that would rotate during the year

to provide a broad range of experience for the participant during the course of the programme. Following completion of the pilot,

feedback will be provided for taking into account in the designing of future programmes.

As noted in the strategic review section of this report (pages 2 to 47), the Company has developed our strategic framework which is

designed to cultivate D&I across the business and developed methods to embed it within the way we do work.

The Company has continued to participate fully in the annual submission of gender performance data as part of the FTSE Women

Leaders Review (formerly the Davies Review and the Hampton-Alexander Review) aimed at improving the representation of women

in leadership positions in the FTSE 350. The FTSE Women Leaders Review published in February 2023 noted our increased percentage

of female direct reports to the Executive Committee but highlighted that this committee was, at the time of data submission in 2022,

all-male. The Board and Nomination & Governance Committee, alongside the Capricorn organisation, will continue to promote diversity in

its widest possible sense. Our strategies, polices and practices encourage this and seek to ensure the potential of our team can be met,

driving the success of the individuals within it and the business as a whole.

Board and Committee performance evaluation

The Board is committed to annual evaluations of its performance in order to assess and improve its effectiveness on an ongoing basis,

with the individual Directors also evaluated to determine whether each Director continues to contribute effectively. In line with the UK

Corporate Governance Code, which provides that FTSE 350 companies should have an externally facilitated board evaluation process at

least every three years, the Board appointed Gould Consulting to facilitate the 2021 Board performance evaluation (previous externally

facilitated evaluations took place in 2018, 2015 and 2012, with internally run evaluations conducted in the intervening years). Gould

Consulting had no prior connection to the Board or its Directors. For the 2022 Board performance evaluation, the process was

undertaken internally (see pages 57 and 58).

The Board retains overall responsibility for implementation of its annual performance evaluation and the process and outcomes of the

2022 internally conducted evaluation are described in the Corporate Governance Statement on pages 57 and 58. The process included

a review of all Board committees and it was concluded that the relationship between the Board and its committees was functioning well,

with all committees fully meeting their remit. The Nomination & Governance Committee works together with the Board in seeking to

address any performance evaluation outcomes relating to Board composition and succession planning.

It is an important role of the newly reconstituted Board to ensure that the Board and its committees function as appropriate to best

enable the Company to deliver on its strategy as we progress through the year and beyond.

Craig van der Laan

Chair of the Nomination & Governance Committee

27 April 2023

Annual Report and Accounts 2022

Leadership and Governance

Capricorn Energy PLC

Annual Report and Accounts 2022

Directors’ Remuneration Report

Part 1 – Annual Statement from the Chair

of the Committee

Dear Shareholder,

I am pleased to present our Directors’ Remuneration Report for

2022, my first since accepting the position of Remuneration

Committee Chair following my election to the Board on 1 February

2023. Many of the key decisions set out in this report relate to the

implementation of the policy prior to my appointment, however

the approach for 2022 is consistent with the remuneration policy

endorsed by shareholders at the 2020 AGM. In this report we have

also sought to provide an indication of our future approach to

senior executive pay matters.

This report comprises three sections:

Part 1 – this Annual Statement;

Part 2 – our new Directors’ Remuneration Policy, which will be

put to a binding shareholder vote at the forthcoming AGM; and

Part 3 – our Annual Report on Remuneration, setting out how

our existing policy was implemented in 2022 and how we intend

to implement the new Policy in 2023; together with this Annual

Statement, it will be put to an advisory vote at the AGM.

Remuneration Policy renewal and implementation for 2023

The current policy was approved by shareholders in 2020 and

therefore, under the UK corporate governance framework, we

are required to seek re-approval for a new policy in 2023.

The past year has been a period of exceptional change at

Capricorn. In February 2023, the Board announced a strategic

review to explore options for Capricorn’s future direction. There

have also been substantial changes in the constitution of the

Board, with the Company in the process of making permanent

executive appointments. Given this context, the Remuneration

Committee determined to delay our full review of the

remuneration policy until there was greater clarity regarding the

future direction of the business. The objective is to ensure that any

future remuneration strategy fully supports our strategic priorities

as a business and the investment proposition presented to our

shareholders.

2023 Directors’ Remuneration Committee

Maria Gordon (Chair)

Member since February 2023

Erik B. Daugbjerg

Member since January 2021

Tom Pitts

Member since February 2023

Members and meetings in 2022

Member

since

Meetings

attended

Alison Wood (Chair)

Jan 2021



Erik B. Daugbjerg

Jan 2021



Nicoletta Giadrossi

Jan 2017



Peter Kallos

Sept 2015



Maria Gordon

Chair

Directors’ Remuneration Committee

Annual Report and Accounts 2022

Leadership and Governance

The policy renewal at the 2023 AGM will, therefore, be largely

technical in nature, with only minor changes being proposed.

Key decisions include:

– Base salary – Although the policy will remain unchanged,

base salary levels for incoming executives are expected to be

positioned more modestly than for previous incumbents.

– Benefits – The value of regular ongoing benefits will be

reduced. The current car allowance has been eliminated for

permanent Executive Directors. Pension benefits for new

Executive Directors will be capped at the all-employee rate.

– Annual bonus – The maximum opportunity is unchanged. We

are increasing bonus deferral so that 25% of any awarded bonus

is deferred into shares, to ensure greater long-term alignment

with investors (previously only the portion over 100% of salary

was subject to deferral). Targets for 2023 will focus on our

short-term operational priorities and re-stabilising the business.

– LTIP – No change proposed to the policy. However, the

committee is minded to review both operational award levels

and performance criteria for any 2023 grants to ensure that

they reflect the strategic priorities of the group.

Overall, we intend to take a more measured approach to pay than

has been the case historically. Our full policy is set out in Part 2 of

this report (pages 79 to 87).

Whilst formulating our approach to the new policy, we took

into account the views of the Company’s largest shareholders

and investor representative bodies on our existing approach to

remuneration. Following the conclusion of the strategic review,

we intend to undertake a more holistic review of our approach to

pay. We would once again consult with our major shareholders

regarding our proposed approach and, where necessary, seek

approval for a revised policy at a future general meeting.

Executive Board changes

Simon Thomson and James Smith stepped down from their

positions as Chief Executive Officer and Chief Financial Officer

on 24 January 2023 and 1 February 2023, respectively. The exit

arrangements for Simon Thomson and James Smith were largely

limited to contractual terms. Although the current policy provides

scope to enable partial vesting of unvested LTIP awards subject

to time pro-rating and performance, the committee determined

that all unvested LTIP share awards subject to performance should

lapse in full. Given that both individuals were in office for the

entirety of the 2022 performance year, they were eligible to

receive a bonus award in respect of 2022 in light of performance

against targets set in early 2022. As detailed below, the committee

exercised downward discretion to reduce the bonus outcomes

for both individuals.

Chris Cox was appointed interim CEO on 1 February 2023 on a

short-term contract. His salary was positioned at £550k, which is

~13% lower than the previous permanent incumbent. The annual

bonus maximum was also set at 100% of salary, which is lower

than the 125% of salary limit under our policy. No long-term share

awards have been granted. In order to provide alignment with

shareholders during the course of his tenure, the committee have

agreed to deliver any FY22 bonus earned in shares, based on the

share price at the point of appointment.

As noted above, we intend to take a more measured approach

when determining the remuneration arrangements for any

executives appointed during the course of 2023. While the

detail of pay arrangements will need to reflect the nature of the

candidates appointed, our current intention is for the levels of fixed

pay and long-term incentives to be lower than for the previous

incumbents, and for a significant proportion of the package to be

clearly aligned with performance, execution of the strategy and

the interests of our shareholders. The performance criteria for

incentive awards to incoming directors, including future LTIP

awards, will be set based on business circumstances at the time

of appointment. We will suitably engage with investors regarding

the performance targets applicable to any long-term incentive

awards granted to incoming Executive Directors and provide

suitable disclosures in due course.

Summary of 2022 Business Context and Key Remuneration

Decisions

As noted elsewhere in the Annual Report and Accounts, the

Company had considered various transactions during 2022 that

were intended to realise value for our shareholders. During this

period the Company continued to progress its key strategic

initiatives whilst working in a safe, sustainable, environmentally and

socially responsible manner for all stakeholders. Highlights of work

undertaken during the year included the following:

– successful conclusion of a long-running dispute between

Capricorn and the Government of India dating back to a

January 2014 retrospective taxation claim and subsequent

asset seizure in relation to the 2007 initial public offering of

Cairn India Limited. This resulted in Capricorn receiving a tax

refund from the Government of India of approximately

US$1.06bn;

– a US$500m return of value to shareholders by way of tender

offer, completed in April 2022; and

– working towards the first operated exploration wells in Egypt,

which spudded in Q1 2023.

Against this background, the committee was required to review

the bonus outcome against the targets previously set in respect of

2022. The formulaic outcome under the 2022 bonus was 39.25%

of maximum. The committee undertook a review of the outcome

in the context of the Company’s overall financial and operational

performance during the year and determined that discretion

should be exercised to reduce the final outcome by more than

40%. As a result of this discretion the actual bonus payable to

former Executive Directors was limited to 22.5% of maximum.

The 2019 LTIP was subject to TSR performance conditions, with

the award vesting at 73.7% of maximum for the ‘core’ elements.

No part of the ‘kicker’ elements vested and they lapsed in full.

As noted above, the LTIP awards granted to Executive Directors

in 2020, 2021 and 2022 lapsed in full on cessation of employment.

Further details of incentive outcomes are set out in Part 3 of this

Report.

Consideration of remuneration arrangements for the wider

workforce during 2022

In accordance with best practice, the committee regularly takes

into account remuneration practices in the wider organisation

when determining senior executive pay arrangements.

The committee as previously constituted had determined that

annual salary increases for the Executive Directors would be

capped at 4%, which was below the level of standard annual salary

increase awarded to other employees at that time of 6%.

During the year, members of staff were also given the opportunity

to raise issues on a variety of matters, including executive pay, via a

number of mechanisms. These included the Company’s Employee

Voice Forum which enables two-way communication between

employees and the Board; throughout 2022 this was chaired by

Peter Kallos who was a member of the committee during the

whole of the year.

Decisions have been made in the context of the requirements of

the 2018 UK Corporate Governance Code and, in particular, after

considering the various factors set out in its Provision 40, being

clarity, simplicity, risk, predictability, proportionality and alignment

to culture. The committee is satisfied that, during 2022, the

approved remuneration policy operated as intended and delivered

outcomes that fairly reflected business achievements over the year.

Capricorn Energy PLC

Annual Report and Accounts 2022

Feedback on Directors’ Remuneration Report

This has been a period of major change for the business and as your

new Remuneration Committee Chair I am committed to an approach

to pay which is aligned with our strategy and which is in the best

interests of the business and our stakeholders. I am also keen to

maintain a dialogue with our investors so that the different

perspectives on pay are taken into account by the committee when

making key decisions.

We welcome questions and feedback from all those interested on

both the content and style of this report. We also look forward to

receiving your support for the Directors’ Remuneration Report and

new Directors’ Remuneration Policy at the AGM to be held on

20 June 2023.

Maria Gordon

Remuneration Committee Chair

27 April 2023

Directors’ Remuneration Report continued

Annual Report and Accounts 2022

Leadership and Governance

Part 2 – Directors’ Remuneration Policy

Introduction

Background and details of approval process

This Directors’ Remuneration Policy provides an overview of the Company’s policy on directors’ pay that will be applied in 2023, subject

to shareholder approval at the 2023 AGM. It sets out the various pay structures that the Company will operate and summarises the

approach that the committee will adopt in certain circumstances such as the recruitment of new directors and/or the making of any

payments for loss of office. In accordance with the requirements of the Large and Medium-sized Companies and Groups (Accounts and

Reports) Regulations 2008 (as amended) (the “Regulations”), the policy contained in this part will be subject to a binding vote at the AGM

to be held on 20 June 2023 and will take effect immediately upon receipt of such approval from shareholders.

Overview of the decision-making process that was followed for the determination of the new policy

As explained in the Chair’s introduction on pages 76 to 78, the Board is currently undertaking a strategic review of the business. In light of

this ongoing process, no material changes are being proposed to the Company’s existing policy. It is the committee’s intention to review

the remuneration arrangements during 2023 to ensure the remuneration framework is aligned with our strategy going forward. The

committee will seek to engage with shareholders if any material changes are being proposed at that point.

As part of the policy renewal, the committee took into account the remuneration-related provisions contained in the 2018 UK Corporate

Governance Code and, in particular, sought to ensure that the proposals for the new policy adequately addressed the requirements

contained in its Provision 40 (relating to clarity, simplicity, risk mitigation, predictability, proportionality and alignment to culture).

In its deliberations, the committee received support and advice from Deloitte, its newly appointed independent external advisor.

No other committee was involved in the decision-making process, but the Non-Executive Directors took into account broader Board

discussions when developing the final approach.

The final decisions around the structure of the new policy were taken by the committee alone in order to avoid any conflicts of interest arising.

Significant revisions made to the previous policy

The proposed policy largely mirrors the previous policy approved by shareholders at the 14 May 2020 AGM. However, and as noted in the

Chair’s introduction on pages 76 to 78, a relatively small number of changes have been made in order to aid the operation of the policy

and increase flexibility in certain areas, and to reflect evolving market and best practice. In particular:

– the pension policy for Executive Directors has been updated so as to ensure that the levels of Company contributions they receive will

be in line with those offered to the wider UK workforce;

– for any annual bonus payment, 25% of the amount will be awarded in shares under the Company’s Deferred Bonus Plan; and

– the removal of the previous car allowance for Executive Directors.

Purpose and role of the Remuneration Committee

The Remuneration Committee determines and agrees with the Board the overall remuneration policy for the Executive Directors and

the Group’s PDMRs (Persons Discharging Managerial Responsibilities). Within the terms of this agreed policy, the committee is also

responsible for:

– determining the total individual remuneration package for each Executive Director and the PDMRs;

– determining the level of awards made under the Company’s LTIPs and employee share award schemes and the performance

conditions which are to apply;

– determining the KPIs used to measure performance for the annual bonus scheme;

– determining the bonuses payable under the Company’s annual bonus scheme;

– determining the vesting levels of awards under the Company’s LTIPs and employee share award schemes; and

– determining the policy for pension arrangements, service agreements and termination payments for Executive Directors and PDMRs.

The committee also reviews the overall remuneration levels and incentive arrangements (including the Group-wide bonus scheme) for

employees below senior management level but does not set individual remuneration amounts for such individuals. This oversight role

allows the committee to take into account pay policies, employment conditions and culture within the Group as a whole when designing

the reward structures of the Executive Directors and PDMRs. For example, the committee considers the standard increase applied to

basic pay across the Group when setting Executive Directors’ base salaries for the same period.

The committee operates within written terms of reference agreed by the Board. These are reviewed periodically to ensure that the

committee remains up-to-date with best practices appropriate to Capricorn, its strategy and the business and regulatory environment in

which it operates. The current version of the terms of reference are available on the Company’s website.

Consultation with relevant stakeholders

The committee is always keen to ensure that, in carrying out its mandate, it takes into account the views and opinions of all the relevant

stakeholders in the business. During 2022, discussions were held with a number of shareholders around any impacts of the proposed

corporate transactions on Executive Director pay.

The Company will engage with its major investors and a selection of proxy agencies regarding the policy renewal, to explain the proposed

approach and offer a meeting to discuss the changes being put to shareholder at this year’s AGM.

Historically, the committee has not undertaken a formal consultation exercise with employees in relation to the Group’s policy on senior

management remuneration. Members of staff are, however, regularly given the opportunity to raise issues on a variety of matters,

including executive pay, via a number of mechanisms such as the Company’s Employee Voice Forum, the attendance of Directors at

team meetings and employee engagement surveys. The committee believes that this mechanism ensures that its obligations under

Provision 41 of the 2018 UK Corporate Governance Code are met.

Capricorn Energy PLC

Annual Report and Accounts 2022

Overview of proposed remuneration policy

A description of each of the elements comprised in the pay packages for Capricorn’s directors under its remuneration policy is as follows:

Policy Table – elements of directors’ remuneration package

Remuneration

element

Purpose and

link to strategy Operation Opportunity Framework for assessing performance

Base salary Helps recruit

and retain

employees.

Reflects

individual

experience

and role.

Normally reviewed annually (with

changes taking effect on 1 January)

and/or when otherwise appropriate,

including when an individual changes

position or responsibility.

Aim is to provide a competitive base

salary relative to the market (although

the committee does not place undue

emphasis on benchmarking data and

exercises its own judgement in

determining pay levels).

Decision influenced by:

– role and experience;

– average change in broader workforce

salaries;

– individual performance; and

– remuneration practices in companies

of a broadly similar size and value and

relevant oil and gas exploration and

production companies.

Whilst the committee

has not set a monetary

maximum, annual

increases will not normally

exceed the level of

standard increase

awarded to other

employees except that

more significant increases

may be awarded at the

discretion of the

committee taking into

account factors such as:

– an increase in the

scope and

responsibility of the

individual’s role; or

– the individual’s

development and

performance in the role

following appointment;

– a re-alignment with

market rates.

None

Benefits Helps recruit

and retain

employees.

Directors are entitled to a competitive

package of benefits. For UK executives,

the major elements include, but are not

limited to, permanent health insurance,

private health insurance, death-in-service

benefit and a gym and fitness allowance.

Directors may also participate in any

all-employee plans on the same basis

as other employees.

The committee reserves the right to

provide further benefits where this is

appropriate in the individual’s particular

circumstances (for example costs

associated with relocation as a result

of the director’s role with the Company).

Executive Directors are also eligible for

other benefits which are introduced

for the wider workforce on broadly

similar terms.

Benefits are intended to

be market competitive.

The committee has not

set a monetary maximum

for other benefits as the

cost of these may vary

from time to time. The

maximum value for any

all-employee plans will be

in line with the maximum

value for all other

employees.

None

Directors’ Remuneration Report continued

Annual Report and Accounts 2022

Leadership and Governance

Remuneration

element

Purpose and

link to strategy Operation Opportunity Framework for assessing performance

Annual

bonus

Rewards the

achievement

of annual KPIs

and/or other

objectives

linked to the

Company’s

strategic goals.

Bonuses are awarded by reference to

performance against specific targets

normally measured over a single

financial year.

75% of any amounts awarded to an

individual under this arrangement

are paid out in full shortly after the

assessment of the performance targets

has been completed. The remainder

of the bonus will normally be deferred

into an award of shares for a three-year

period, (or such other period as

determined by the committee), with the

vesting of deferred amounts typically

subject to continued employment only.

Annual bonuses may be subject to

clawback, and the extent to which

deferred share awards vest may be

reduced, if certain events occur in the

period of three years from the end of

the relevant financial year. These include

the committee becoming aware of:

– a material misstatement of the

Company’s financial results;

– an error in the calculation of

performance targets which, had it

been known at the relevant time,

would have reasonably been

expected to have resulted in a lower

award being made;

– an act committed by the relevant

participant that has (or could have)

resulted in summary dismissal by

reason of gross misconduct; or

– a corporate failure which arose due

to the conduct of management and

which has resulted in the appointment

of a liquidator or administrator.

The detailed terms of the clawback

mechanism applicable to the cash

element of any annual bonus award

are set out in an individual agreement

entered into between the Company

and the relevant Executive Director. This

provides the committee with a variety of

alternative means by which value can be

recovered including:

– the reduction of future bonus awards;

– the application of a reduction in the

number of shares in respect of which

share awards would otherwise vest or

be exercisable; and

– requiring the individual to make a

cash payment to the Company.

Maximum % of salary:

125%

The measures and targets

applicable to the annual bonus

scheme (and the different

weightings ascribed to each of

them) are set annually by the

committee in order to ensure

they are relevant to participants

and take account of the most

up-to-date business plan and

strategy.

All, or a significant majority, of the

bonus opportunity will normally

be determined by reference to

performance against demanding

Group KPIs. Further detail in

respect of the approach taken for

2022 and 2023 is set out in the

Annual Report on Remuneration.

The remaining part of a director’s

bonus (if any) will normally be

based on the achievement of

personal objectives relevant to

that individual’s role within the

business.

Where possible, a payment scale

(ranging from 0% at ‘threshold’,

not more than 50% at ‘target’ and

100% at ‘maximum’) for different

levels of achievement against

each KPI and/or other objective is

specified by the committee at the

outset of each year. The payment

scale may be varied to reflect

the stretch of the underlying

targets set.

The committee has discretion

to vary the measures and

weightings during the year if

events arise which mean that

it would be inappropriate to

continue with the originally

prescribed structure. The

committee expects that this

discretion will only be exercised

in exceptional circumstances and

not to make the bonus scheme

for that year less demanding than

when it was originally set.

In addition, the committee

has discretion to adjust awards

or outcomes to ensure that the

ultimate bonus payment for

a financial year is fair and

reasonable and properly reflects

performance over that period.

Capricorn Energy PLC

Annual Report and Accounts 2022

Remuneration

element

Purpose and

link to strategy Operation Opportunity Framework for assessing performance

Long Term

Incentive

Plan

Incentivises

Executive

Directors to

deliver long-

term

performance

for the benefit

of shareholders,

thereby aligning

the interests of

the directors

with those of

the Company’s

investors.

The LTIP was established by the

Company following receipt of the

necessary shareholder approvals

at the 2017 AGM.

Awards will normally be made annually

with vesting dependent on achievement

of performance conditions chosen by the

committee that are typically measured

over a period of at least three years.

Vesting of awards will generally take

place on the third anniversary of grant or

shortly following the date on which the

performance conditions are assessed by

the committee.

All awards that vest will normally be

subject to a holding period in terms of

which the relevant shares will only be

released/become exercisable after a

further period of at least two years

following the end of the performance

period.

The committee reviews the quantum

of awards annually, taking into account

factors such as market rates and overall

remuneration. The committee also

retains the discretion to adjust award

levels in certain circumstances e.g. where

there has been a significant movement

in the Company’s share price.

Under the rules of the LTIP, awards may

be subject to malus and/or clawback

provisions if certain events occur after

their grant but before the expiry of the

period of three years from the end of the

relevant performance period. These

events include:

– the committee becoming aware

of a material misstatement of the

Company’s financial results;

– the committee becoming aware of an

error in the calculation of performance

targets which, had it been known at

the relevant time, would have

reasonably been expected to have

resulted in a lower award being made;

– the relevant participant committing

an act that has (or could have) resulted

in summary dismissal by reason of

gross misconduct; or

– a corporate failure arising, due to the

conduct of management, which has

resulted in the appointment of a

liquidator or administrator.

Normal total maximum

% of salary: 250%.

Vesting of awards granted under

the LTIP will be determined

based on performance against

stretching targets, normally

measured over a period of at least

three years.

The committee will review and

set weightings and targets for

each LTIP grant to ensure they

remain appropriate. A significant

proportion of any award will

normally be linked to share

price-based measures. The

Remuneration Committee may

change the balance of the

measures, or use different

measures for subsequent awards,

as appropriate. Where material

changes are made to the type

of performance conditions, the

committee will consult with

major shareholders prior to

making any such decision.

Up to 25% of the maximum

award may vest for threshold

performance.

The committee retains the

discretion to vary the vesting

outcome level produced by

the formulaic operation of the

performance conditions in

circumstances where, based

on its independent judgement,

it considers it appropriate to do

so (e.g. where the outturn from

the assessment of the prescribed

targets is not, in the committee’s

view, a genuine reflection of the

underlying performance of the

Company).

As noted in the Chair’s statement,

the details of performance criteria

for 2023 onwards will be

determined in due course based

on the strategic priorities at the

time of award.

Directors’ Remuneration Report continued

Annual Report and Accounts 2022

Leadership and Governance

Remuneration

element

Purpose and

link to strategy Operation Opportunity Framework for assessing performance

Retirement

benefits

Rewards

sustained

contribution.

The Company operates a defined

contribution group personal pension

plan in the UK. The scheme is non-

contributory and all UK permanent

employees, including the Executive

Directors, are eligible to participate.

The Company contributes a specified

percentage of basic annual salary for

senior employees, including Executive

Directors.

Where an Executive Director has an

individual personal pension plan (or

overseas equivalent), the Company pays

its contribution to that arrangement.

If an Executive Director’s pension

arrangements are fully funded or

applicable statutory limits are reached,

an amount equal to the Company’s

contribution (or the balance thereof)

is paid in cash.

For Executive Directors,

the Company’s pension

contributions are at a

level that is capped at

the maximum amount

payable to the wider UK

employee population

(currently 12.5% of basic

salary).

None

ownership

policy

Aligns Executive

Director and

shareholder

interests and

reinforces

long-term

decision-

making.

During their employment, Executive

Directors are obliged to build up and

maintain a target holding of shares

worth 200% of salary.

Executive Directors are also normally

required to maintain a shareholding

equal to 200% of final salary for a period

of two years after they step down from

the Board.

Further details relating to both the

above requirements (including the

particular shares to which they relate

and the enforcement mechanisms that

have been put in place) are set out on

page 103 and 104.

Not applicable. None

Capricorn Energy PLC

Annual Report and Accounts 2022

Remuneration

element

Purpose and

link to strategy Operation Opportunity Framework for assessing performance

Non-

Executive

Chair’s fees

and

Non-

Executive

Directors’

fees

Helps recruit

and retain

high-quality,

experienced

individuals.

Reflects time

commitment

and role.

Non-Executive Directors’ fees are

considered annually and are set by the

executive members of the Board and the

Non-Executive Chair taking into account

a range of relevant factors such as:

– market practice;

– time commitment; and

– responsibilities associated with

the roles.

Additional fees may be payable for

additional Board responsibilities such

as membership and/or chair of a

committee.

The Non-Executive Chair’s fee is similarly

considered annually and is determined in

light of factors such as market practice,

the time commitment and

responsibilities associated with the role

and other relevant factors.

Role-appropriate benefits may be

provided in certain circumstances.

This includes the reimbursement of any

expenses incurred in the performance

of duties (and associated tax on those

expenses).

None of the Non-Executive Directors nor

the Non-Executive Chair participates in

any of the Company’s share schemes

and they are not entitled to a bonus or

pension contributions. Their fees can

however be paid in cash or in shares

(or a balance of both)

The aggregate fees of the

Non-Executive Chair and

Non-Executive Directors

will not exceed the limit

from time to time

prescribed in the

Company’s Articles of

Association.

None

Notes:

(1) A description of how the Company intends to implement the policy set out in this table during the financial year to 31 December 2023 is provided on pages 107

and 108.

(2) The following differences exist between the Company’s above policy for the remuneration of directors and its approach to the payment of employees generally:

• Participation in the LTIP is typically aimed at the Executive Directors and certain selected senior managers. Other employees are eligible to participate in the

Employee Share Award Scheme (details of which are provided in section 4.4 of the notes to the Financial Statements on page 154).

• A lower level of maximum annual bonus opportunity applies to employees other than the Executive Directors and certain PDMRs.

• Benefits offered to other employees generally comprise permanent health insurance, private health insurance, death-in-service benefit and gym and fitness

allowance.

In general, these differences arise from the development of remuneration arrangements that are market competitive for the various categories of individuals.

They also reflect the fact that, in the case of the Executive Directors and PDMRs, a greater emphasis is placed on variable pay.

(3) The choice of the performance metrics applicable to the annual bonus scheme reflect the committee’s belief that any incentive compensation should be tied

to appropriately challenging measures of both the overall performance of the Company against its strategic KPIs and (where appropriate) those areas that the

relevant individual can directly influence.

(4) The performance conditions applicable to the LTIP will be selected by the committee to ensure that they align with the Company’s strategic objectives going forward.

(5) Where a nil-cost option award under the LTIP becomes exercisable, it will generally remain so until the 10th anniversary of the date on which it was granted.

Directors’ Remuneration Report continued

Annual Report and Accounts 2022

Leadership and Governance

Detailed provisions

Common terms of share awards

Awards under any of the Company’s discretionary share plans may:

– be granted as conditional share awards or nil-cost options or in other such form that the committee determines has the same

economic effect;

– have any performance conditions applicable to them amended or substituted by the committee if an event occurs which causes the

committee to determine that an amended or substituted performance condition would be more appropriate and not materially less

difficult to satisfy;

– incorporate the right to receive an amount (in cash or additional shares) equal to the value of dividends which would have been paid

on the shares under the award that vest up to the time of vesting (or, where the award is subject to a holding period, release). This

amount may be calculated assuming that the dividends have been reinvested in the Company’s shares on a cumulative basis;

– be settled in cash at the committee’s discretion;

– be adjusted in the event of any variation of the Company’s share capital or any demerger, delisting, special dividend or other event that

may affect the Company’s share price; and

– otherwise be adjusted or amended in accordance with the provisions of the relevant plan rules.

Legacy awards

The committee reserves the right to make any remuneration payments and/or payments for loss of office (including exercising any

discretions available to it in connection with such payments) notwithstanding that they are not in line with the policy set out above

where the terms of the payment were agreed (i) before 15 May 2014 (the date the Company’s first shareholder-approved directors’

remuneration policy came into effect); (ii) before the policy set out above came into effect, provided that the terms of the payment were

consistent with the shareholder-approved directors’ remuneration policy in force at the time they were agreed; or (iii) at a time when the

relevant individual was not a director of the Company and, in the opinion of the committee, the payment was not in consideration for the

individual becoming a director of the Company. For these purposes ‘payments’ includes the committee satisfying awards of variable

remuneration and, in relation to an award over shares, the terms of the payment are ‘agreed’ at the time the award is granted.

Minor amendments

The committee may make minor amendments to the policy to aid its operation or implementation without seeking shareholder

approvals (e.g. for regulatory, exchange control, tax or administrative purposes or to take account of a change in legislation) provided that

any such change is not to the material advantage of the participant.

Annual variable pay arrangements for the interim CEO

Notwithstanding the terms of the policy table set out on pages 80 to 84, the committee retains the discretion to operate a different

annual bonus structure in 2023 for the interim CEO in terms of which:

– his maximum opportunity will be capped at 100% of base salary per annum;

– short-term targets will be set to reflect the interim nature of the role;

– any bonus awarded will be satisfied wholly by the delivery of unrestricted shares (with the number of those shares being determined

by reference to their value on 1 February 2023, being his commencement date); and

– alternative clawback arrangements may be applied.

Remuneration scenarios relating to the above policy

The Regulations require the Company to present charts illustrating the level of remuneration that would be received by each person who

is an Executive Director in the first year of operation of the proposed policy set out in Part 2 of this report. However, at the time of drafting

this policy, the Company does not have any permanent Executive Directors on the Board. As a result, and in order to ensure appropriate

levels of transparency, the charts below show remuneration outcomes for the proposed policy that would be received under minimum,

on-target and maximum scenarios by both:

– the current interim CEO; and

– a theoretical permanent Executive Director.

41%

50%

60%

20%

25%

20%

100%100%

39%

25%

20%

Interim CEO Permanent Executive Director

Minimum

£663,983

£938,983

£1,213,983

On-Target

Maximum

with share

price growth

Fixed elements

Annual Variable Long-Term Incentives

29%

45%

100%100%

71%

55%

Minimum

£663,983

£1,695,233

£2,726,483

£3,413,983

On-Target

Maximum

with share

price growth

Capricorn Energy PLC

Annual Report and Accounts 2022

In developing the above scenarios, the following assumptions have been made:

– The ‘minimum’ columns are intended to show the fixed level of remuneration to which the interim CEO and permanent Executive

Director are, or would be, entitled in 2023 irrespective of performance levels, namely base salary (with the current rate payable to the

interim CEO being used in both cases), benefits (using, for both charts, the former CEO’s details set out in the 2022 single total figure

table provided on page 90) and pension (calculated by applying the percentage entitlement for those individuals set out in the policy

table against the above salary figures).

– The ‘on-target’ scenario seeks to illustrate the remuneration the interim CEO and permanent Executive Director would receive

if performance was in line with expectation. In addition to the fixed elements summarised above, it assumes a 50% of maximum

payout under the annual bonus scheme (with the interim CEO having a 100% of salary maximum opportunity and a 125% of salary

maximum being applied to the permanent Executive Director). In the case of the permanent Executive Director, this scenario also

assumes a 50% vesting of an LTIP award granted over shares worth 250% of salary. No such LTIP award has been included for the

interim CEO.

– The ‘maximum’ columns demonstrate total remuneration levels in circumstances where the above variable elements pay out in full.

– For the ‘maximum with share price growth’ column, share-price appreciation of 50% over the relevant performance period has been

assumed for any LTIP award. For all other columns, any post-grant share price movements have not been taken into account for the

purposes of valuing LTIP and deferred bonus awards.

– The Executive Directors are entitled to participate in the SIP on the same basis as other employees. The value that may be received

under this arrangement is subject to legislative limits and, for simplicity, has been excluded from the above chart.

Recruitment policy

Base salaries

Salaries for any new director hires (including internal promotions) will be set to reflect their skills and experience, the Company’s intended

pay positioning and the market rate for the role. Where it is appropriate to offer a below-market salary initially, the committee will have

the discretion to allow phased salary increases over time for newly appointed directors, even though this may involve increases in excess

of the rate for the wider workforce and inflation.

Benefits

Benefits for new appointees to the Board will normally be provided in line with those offered to other Executive Directors and employees

taking account of local market practice, with relocation expenses/arrangements provided for if necessary. Tax equalisation may also be

considered if an executive is adversely affected by taxation due to their employment with Capricorn. Legal fees and other reasonable

costs and expenses incurred by the individual may also be paid by the Company. Retirement benefits for any new Executive Directors will

be in accordance with the terms of the policy.

Variable pay

Where an individual is appointed to the Board, the committee will ensure that ongoing variable remuneration arrangements are framed

in accordance with the terms of, and are subject to the limits contained in, the Company’s policy table set out above, however, different

performance measures may be set for the year of joining the Board, taking into account the individual’s role and responsibilities and the

point in the year the executive joined.

For an internal appointment, any variable pay element awarded in respect of the prior role may be allowed to pay out according to its

terms, adjusted as relevant to take into account the appointment.

Buy-outs

The committee may make awards to ‘buy-out’ a candidate’s remuneration arrangements and contractual terms that are forfeited as a

result of joining the Company. In doing so, the design of these awards would appropriately reflect the value, nature, time horizons and

performance requirements attaching to the forfeited remuneration. Shareholders will be informed of any such arrangements at the time

of appointment.

Non-Executive Chair and Non-Executive Directors

On the appointment of a new Non-Executive Chair and other Non-Executive Directors, the fees will be set taking into account a range of

relevant factors such as market practice, time commitment and the responsibilities associated with the role. Where specific cash or share

arrangements are delivered to Non-Executive Directors, these will not include share options or other performance-related elements.

Permanent Executive Directors’ service contracts

Executive Directors have a rolling service contract that provides for 12 months’ notice by the director or the Company. The committee

believes that this policy on notice periods provides an appropriate balance between the need to retain the services of key individuals who

will benefit the business and the need to limit the potential liabilities of the Company in the event of termination. The service contracts

may also include restrictive covenants which may apply after leaving the Company.

The Executive Directors’ service contracts are available for inspection, on request, at the Company’s registered office.

Exit payment policy for Executive Directors

Executive Directors’ contracts allow for termination with contractual notice from the Company or termination with a payment in lieu of

notice, at the Company’s discretion. The contracts also allow for phased payments to be made on termination with an obligation on the

individual to mitigate loss. Neither notice nor a payment in lieu of notice will be given in the event of gross misconduct. The committee’s

approach when considering payments in the event of termination is to take account of the individual circumstances including the reason

for termination and the contractual obligations of both parties as well as the relevant share plan and pension scheme rules.

Directors’ Remuneration Report continued

Annual Report and Accounts 2022

Leadership and Governance

In the event of termination by the Company, an Executive Director would be entitled to receive an amount representing base salary and

the value of benefits and pension contributions due under the individual’s service contract for the notice period. Directors are not entitled

to participate in any additional redundancy scheme. The committee will have the authority to settle legal claims against the Group

(e.g. for unfair dismissal, discrimination or whistle-blowing) that arise on termination. The committee may also authorise the provision

of outplacement services and pay reasonable legal expenses associated with the termination.

On termination of employment, the committee has discretion as to the amount of bonus payable in respect of the year of termination.

The bonus paid would reflect the Company’s and the individual’s performance during that period. However, any bonus payable (in cash

and/or share awards as determined by the committee) on termination would not normally exceed a pro-rated amount to reflect the

period for which the individual had worked in the relevant year.

As a general rule, if an Executive Director ceases employment, all unvested share awards granted pursuant to the Company’s deferred

bonus arrangements will lapse immediately. However, if such cessation occurs by reason of death, injury, permanent disability, or because

the individual’s employing company or part of the business in which he/she is employed is transferred out of the Group, retirement with

the agreement of the Company, or in any other circumstances determined by the committee other than where an individual has been

summarily dismissed (in each case, a ‘good leaver’), those awards will not lapse and will normally continue to vest at the end of the

original vesting period. The committee may determine that a deferred bonus award should vest before the normal time in certain

circumstances, for example where an individual has died. The committee also has the discretion to time pro-rate any awards held by such

a good leaver.

As a general rule, if an Executive Director ceases employment, all unvested awards granted pursuant to the Company’s LTIP will lapse

immediately. However, if such cessation occurs by reason of death, injury, permanent disability, or because the individual’s employing

company or part of the business in which he/she is employed is transferred out of the Group, or in any other exceptional circumstances

determined by the committee (in each case, a ‘good leaver’), those awards will not lapse and will normally continue to vest at the end of

the original performance period but only if, and to the extent that, the applicable performance conditions are satisfied. The committee

may determine that an award should vest before the normal time in certain circumstances, for example where an individual has died. It is

the Remuneration Committee’s normal policy to time pro-rate any awards held by such a good leaver, although it retains the discretion

to refrain from doing so in exceptional circumstances. Any holding period attached to the share awards would normally continue to apply

unless the committee determines otherwise.

If an Executive Director ceases employment, LTIP awards subject to a holding period will normally be released (or if structured as nil-cost

options, become exercisable) on the original timescales. These awards will, however, lapse where cessation occurs due to the individual’s

gross misconduct, or if the committee considers it appropriate, the individual’s bankruptcy. The committee has the discretion to

accelerate the release of shares in certain circumstances, for example death.

In the event of a change of control or winding up of the Company, treatment of share awards will be in accordance with the relevant plan

rules. The committee has the discretion to disapply time pro-rating in the event of a change of control.

If there is a demerger or special dividend, the committee may allow awards to vest on the same basis as for a change of control.

Non-Executive Directors’ letters of appointment

None of the Non-Executive Directors nor the Non-Executive Chair has a service contract but all have letters of appointment that set out

their duties and responsibilities, the time commitment expected by the Company, and the basis on which their fees will be paid. These

letters of appointment have either: no fixed term but can be terminated with immediate effect by either the director concerned or the

Company; or have a fixed term of three years but can be terminated with one month’s notice by either the director concerned or the

Company, and, in both cases, are subject to the Company’s Articles of Association, which provide for the annual election or re-election

by shareholders of all the Company’s directors. There are no provisions for compensation payable on termination of appointment.

None of the Non-Executive Directors nor the Non-Executive Chair participates in any of the Company’s share schemes and they are not

entitled to a bonus or pension contributions.

The Non-Executive Directors’ and Non-Executive Chair’s letters of appointment are available for inspection, on request, at the Company’s

registered office.

Capricorn Energy PLC

Annual Report and Accounts 2022

Part 3 – Annual Report on Remuneration

Introduction

This Annual Report on Remuneration provides details of the way in which the committee operated during the financial year to

31 December 2022 and explains how Capricorn’s approved Directors’ Remuneration Policy that was in force during that period was

implemented. It also summarises how the new Directors’ Remuneration Policy set out on pages 79 to 87 will be applied in 2023,

assuming it is approved by shareholders at the AGM to be held on 20 June 2023.

In accordance with the requirements of the Regulations, this part of the report, together with Part 1 – Annual Statement from the Chair

of the Committee, will be subject to an advisory vote at the 2023 AGM.

The Company’s auditor is required to report to Capricorn’s shareholders on the ‘auditable parts’ of this Annual Report on Remuneration

(which have been highlighted as such below) and to state whether, in their opinion, those parts have been properly prepared in

accordance with the Regulations and the Companies Act 2006.

On the basis that Capricorn has fewer than 250 UK employees, the Company is not required to publish or report its gender pay gap information.

Operation of the Remuneration Committee during 2022

Members of the Remuneration Committee

The members of the Remuneration Committee during the year were as follows:

– Alison Wood (Chair of the committee);

– Nicoletta Giadrossi;

– Peter Kallos; and

– Erik B. Daugbjerg.

The individuals who served on the committee during 2022, each of whom was an independent Non-Executive Director of the Company

throughout the period, had no personal financial interest (other than as shareholders) in the matters decided, no potential conflicts of

interest from cross-directorships and no day-to-day involvement in running the business. Prior to her appointment as Chair in January

2021, Alison Wood (Chair of the committee in 2022) had served on the remuneration committees of other listed companies for more

than 12 months. Details of attendance at the committee’s meetings during 2022 are shown on page 76.

Following recent Board changes, details of current Remuneration Committee membership is set out below:

– Maria Gordon (current Chair of the committee)

– Erik B. Daugbjerg; and

– Tom Pitts

Biographical information on the individuals who are currently committee members is shown on pages 50 and 51.

Internal assistance provided to the Committee

The Company’s Chief Executive is not a member of the Remuneration Committee but may attend its meetings by invitation and is

consulted in respect of certain of its proposals. The Chief Executive is not involved in any discussions in respect of their own remuneration.

During the year, the committee also received assistance and advice on remuneration policy from the Company Secretary.

External assistance provided to the Committee

As and when the Remuneration Committee considers it appropriate, it takes external advice on remuneration from a number of sources.

During the year, it received the following assistance:

Adviser Assistance provided to the committee during 2022

Fees for committee

assistance in 2022

Other services provided to the

Company during 2022

Alvarez & Marsal

Taxand UK LLP

Appointed by the committee to give periodic advice during

the period to 11 March 2022 on various aspects of the

directors' remuneration packages. Also assisted with the

preparation of the 2021 Directors’ Remuneration Report

and provided support on a number of miscellaneous

remuneration-related projects.

£16,319 Provided advice on various

aspects of remuneration practice

across the Group in the period to

11 March 2022.

Mercer LLC

Appointed by the committee to give periodic advice during

the period from 11 March 2022 on various aspects of the

directors' remuneration packages.

£19,500 Provided advice on various

aspects of remuneration practice

across the Group in the period

from 11 March 2022.

Ernst & Young LLP Appointed by the Company to carry out an independent

verification of its achievement against performance conditions

applicable to the Company's LTIPs and share option schemes.

n/a – no advice

provided to the

committee

Internal auditor of the Company

throughout the year.

Shepherd and

Wedderburn LLP

Appointed by the Company to carry out regular calculations

in relation to the LTIP performance conditions. Also assisted

with the preparation of the 2021 and 2022 Directors'

Remuneration Reports.

£20,485 General legal services to the

Group throughout the year.

Notes:

(1) The bases for charging the fees set out in the table were agreed by the committee at or around the time the particular services were provided and, in general,

reflected the time spent by the adviser in question on the relevant matter.

(2) Both Alvarez & Marsal Taxand UK LLP and Mercer LLC are (or were when providing advice to the committee) members of the Remuneration Consultants Group

and their work is governed by the Code of Conduct in relation to executive remuneration consulting in the UK.

(3) The committee reviews the performance and independence of all its advisers on a continuous basis. No issues relating to performance or independence were

noted by the committee during the year.

Directors’ Remuneration Report continued

Annual Report and Accounts 2022

Leadership and Governance

Statement of Shareholder Voting at General Meetings

The table below shows the voting outcome at the last general meeting(s) at which shareholders were asked by the Company to approve

a resolution relating to its Directors’ Remuneration Report and Directors’ Remuneration Policy:

Description of resolution

Date of general

meeting

Number of

votes ‘For’ and

‘Discretionary’ % of votes cast

Number of

votes ‘Against’ % of votes cast

Total number of

votes cast

Number of

votes

‘Withheld’

To approve the 2021

Directors’ Remuneration

Report 11 May 2022 169,523,838 95.75% 7,529,592 4.25% 177,053,430 172,162

To approve the 2020

Directors’ Remuneration

Policy 14 May 2020 417,923,175 93.01% 31,405,942 6.99% 449,329,117 26,501

Note:

(1) A vote withheld is not a vote in law.

The committee welcomed the endorsement of both the above resolutions that was shown by the vast majority of shareholders at the

relevant meetings and gave due consideration to any concerns raised by investors who did not support the resolutions.

Departure of Simon Thomson and James Smith

As previously announced, Simon Thomson and James Smith stepped down from their positions as Chief Executive Officer and Chief

Financial Officer on 24 January 2023 and 1 February 2023, respectively.

On 1 February 2023, Simon Thomson was served with 12 months’ notice to terminate his employment with Capricorn and, with effect

from 3 February 2023, was placed on garden leave. A similar notice was served on James Smith on 27 February 2023, with his garden

leave commencing on that same date. During the period of garden leave, individuals continued to receive salary and benefits including

pension contributions.

James Smith’s garden leave continued until 14 April 2023 at which point the Company exercised its right to end his employment and

make a payment in lieu of notice in respect of the balance of his notice period. This payment in lieu of notice, which reflected application

of mitigation, totalled £68,802.66. He also received a payment in respect of 14.5 days of accrued annual leave.

Simon Thomson’s employment was brought to an end on 21 April 2023. Going forward, he will be paid an amount equivalent to salary,

pension and benefits in monthly instalments in lieu of the remainder of his contractual notice period. Such amounts will be subject to

reduction to take account of any sums earned during the payment period from any alternative roles that he fulfils.

Both individuals were considered for a bonus in respect of 2022. Further details of the way in which these amounts were calculated

(and the reduced level awarded to Simon Thomson and James Smith compared to the wider employee base) and paid are set on pages

91 to 100.

Consistent with the rules of the Company’s Long Term Incentive Plan (or “LTIP”), both Simon Thomson and James Smith will retain any

awards that vested prior to the date on which they ceased employment. For the avoidance of doubt, any outstanding holding periods

applicable to those awards will continue to operate as before. All unvested LTIP awards held by James Smith and Simon Thomson,

however, immediately lapsed on the cessation of their employment (i.e. the committee declined to exercise its discretion to treat these

individuals as “good leavers” for the purposes of the plan rules).

All “free” or “matching” shares awarded to Simon Thomson and James Smith under the all-employee Share Incentive Plan (or “SIP”) less

than three years prior to their leaving date were forfeited for no consideration on cessation of their employment. The balance of their

shares under this arrangement have been released to them in accordance with the rules of the SIP.

Capricorn Energy PLC

Annual Report and Accounts 2022

Single total figure table for 2022 (audited)

The tables below set out the remuneration received by Executive Directors and Non-Executive Directors during the year in the following

categories.

Salary Benefits Pension SIP

Annual

Bonus

Long-term

incentives

Total

remuneration

Executive Directors during 2022

Fixed Remuneration Variable Remuneration Totals

Annual bonus

…

Financial

year

Salary

and fees Benefits

Pension

SIP

…paid in

cash

…deferred

into

…total

bonus

Long-term

incentives

Total

remuneration

Total fixed

remuneration

Total variable

remuneration

Directors

Simon

Thomson

2022 £610,293 £45,233 £91,544 £7,199 £171,645 £0 £171,645 £982,859 £1,908,773 £754,269 £1,154,504

2021 £592,517 £42,400 £88,878 £ 7,197 £448,091 £0 £448,091 £771,809 £1,950,892 £730,992 £1,219,900

James

Smith

2022 £396,938 £39,652 £59,541 £7,199 £111,639 £0 £111,639 £639,255 £1,254,224 £503,330 £750,894

2021 £385,377 £37,537 £57,8 0 7 £ 7,197 £291,441 £0 £291,441 £501,990 £1,281,349 £4 87,918 £793,431

Notes:

(1) Taxable benefits available to the Executive Directors during 2022 were a company car/car allowance, private health insurance, death-in-service benefit and

a gym and fitness allowance. This overall package of taxable benefits was largely unchanged from 2021, with the higher figures for both Simon Thomson and

James Smith primarily being attributable to increased charges for their company cars.

(2) Additional disclosures relating to the pension provision for the Executive Directors during 2022 are set out on page 91.

(3) This column shows the face value (at date of award) of matching and free shares provided to Executive Directors under the SIP during the relevant period.

Further details on the way in which the SIP was operated during 2022 are set out on page 103.

(4) Further information in relation to the annual bonus scheme for 2022 is provided on pages 91 to 100. For the avoidance of doubt, the quantum of awards made

under this arrangement is not attributable, either wholly or in part, to share price appreciation.

(5) This column shows the value of shares that vested in respect of LTIP awards with performance conditions that ended during the period in question. Further

details of the LTIP’s operation during 2022, including how the level of award was determined, confirmation of the amount (if any) of the above vesting value that

was attributable to share price appreciation and a summary of any discretions that were exercised, are provided on pages 100 to 103.

(6) Following the end of the year to 31 December 2022, the committee considered whether there were any circumstances that could or should result in the recovery

or withholding of any sums pursuant to the clawback arrangements contained within the Company’s remuneration policy. The conclusion reached by the

committee was that it was not aware of any such circumstances.

Non-Executive Directors

Fixed Remuneration Variable Remuneration Totals

Financial year

Salary

and fees

Benefits Pension

Annual

bonus

Long-term

incentives

Total

remuneration

Total fixed

remuneration

Total variable

remuneration

Directors

Nicoletta

Giadrossi

2022

£185,400 – – – – £185,400 £185,400 –

2021 £180,000 – – – – £180,000 £180,000 –

Keith Lough

2022 £87,765 – – – – £87,765 £87,765 –

2021 £85,500 – – – – £85,500 £85,500 –

Peter Kallos 2022 £77,765 – – – – £77,765 £77,765 –

2021 £75,500 – – – – £75,500 £75,500 –

Alison Wood

2022 £87,765 – – – – £87,765 £87,765 –

2021 £85,500 – – – – £85,500 £85,500 –

Catherine

Krajicek

2022 £77,765 – – – – £77,765 £77,765 –

2021 £75,500 – – – – £75,500 £75,500 –

Erik B.

Daugbjerg

2022 £77,765 – – – – £77,765 £77,765 –

2021 £75,500 – – – – £75,500 £75,500 –

Luis Araujo

2022 £49,432 – – – – £49,432 £49,432 –

2021 – – – – – – – –

Notes:

(1) As disclosed in the 2021 Annual Report on Remuneration, the annual fee payable to the Company’s Chair for 2022 was increased from £180,000 to £185,400.

Similarly, the basic annual fee for Non-Executive Directors in 2022 was increased from £75,500 to £77,765.

(2) The Non-Executive Directors do not participate in any of the Company’s long-term incentive arrangements and are not entitled to a bonus or pension

contributions.

(3) A further annual fee of £10,000 was payable to Keith Lough for his role as Chair of the Audit Committee during 2021 and 2022.

(4) A further annual fee of £10,000 was payable to Alison Wood for her role as Chair of the Remuneration Committee during 2021 and 2022.

(5) Luis Araujo was appointed as a Non-Executive Director on 11 May 2022. His fees for 2022 reflect the period from that date to the year-end.

Directors’ Remuneration Report continued

Annual Report and Accounts 2022

Leadership and Governance

Executive Directors’ base salaries during 2022

Based on a review carried out in November 2021, the following salary increases for Executive Directors became effective on 1 January 2022:

2022 Annual Salary Details

Job title

Annual salary as at

31 December 2021

Annual salary as at

1 January 2022

% increase with

effect from

1 January 2022

Directors

Simon Thomson Chief Executive £592,517 £610,293 3.0%

James Smith CFO £385,377 £396,938 3.0%

The increases shown in the above table for both Simon Thomson and James Smith were consistent with the level of standard annual

salary increase awarded to other employees on 1 January 2022.

Executive Directors’ pension provision during 2022 (audited)

In accordance with the terms of the Directors’ Remuneration Policy, the Company operates a defined contribution, non-contributory

Group personal pension plan which is open to all UK permanent employees. During 2022, the Company contributed 10% of basic annual

salary (15% in respect of current Executive Directors) on behalf of all qualifying employees.

With effect from 1 January 2023, and in accordance with the terms of the new Directors’ Remuneration Policy set out on pages 79 to 87,

the above contribution rates were aligned so that all employees and Executive Directors now benefit from an annual Company pension

contribution of 12.5% of basic salary.

The Company also has a pension committee which meets on a regular basis to assess the performance and suitability of the Company’s

pension arrangements.

Throughout 2022, James Smith was a member of the Company scheme and, during the year, received Company contributions up to his

statutory annual allowance. The balance of his 15% of basic salary entitlement for the year ended 31 December 2022 was paid in cash.

During the year, Simon Thomson received an amount equal to 15% of his annual basic salary in the form of additional cash as his pension

arrangements have already reached the relevant lifetime limit.

Details of the actual amounts of pension contributions/additional cash that were paid to the Executive Directors during 2022 are set out

in the ’pension’ column of the single total figure table on page 90.

Annual bonus – 2022 structure and outcome (audited)

During 2022, Capricorn operated an annual bonus scheme for all employees and Executive Directors. The maximum level of bonus

award for Executive Directors and certain PDMRs for the year was 125% of annual salary.

For all participants other than the Executive Directors, 2022 bonus awards were based on achievement against a mixture of personal

objectives, project-based KPIs and Group-wide KPIs. When determining the level of award attributable to the personal performance

element of these individuals’ bonuses, consideration was also given to the extent to which they demonstrated the Company’s ‘high

performance behaviours’ during the period and also the level of their understanding, application and compliance with the Company’s

various standards and policies. The final level of all bonuses awarded to employees below Executive Director/PDMR level was reviewed

and approved by the committee.

Consistent with the approach adopted in 2021, 100% of each Executive Director’s bonus opportunity for the year to 31 December 2022

was determined by reference to the extent to which certain Group KPIs were achieved. A summary of the relevant targets, ascribed

weightings, payment scales and achievement levels is set out below.

Capricorn Energy PLC 92 Annual Report and Accounts 2022

KPI measures and performance achieved in 2022

Weighting Bonus awarded

KPI remuneration

committee decision

Purpose 2022 KPI Measurement and payment scale 2022 performance

(as % of allocated proportion

of maximum opportunity)

ESG and HSSE

Deliver value

in a safe, secure and

environmentally

and socially

responsible

manner.

– HSSE Lagging Indicators: Achieve

lagging HSSE indicators measured

against IOGP targets.

– An important focus for the business across our operated portfolio

of surveys and onshore and offshore wells, with increased

weighting allocated in 2022 than in the prior year given planned

activities. Threshold, target and stretch goals identified at the start

of the year.

– Operated activities, including well drilling, resulted in zero reportable regulatory

spills to the environment and, for Total Recordable Injury Rate and Lost Time

Injury Frequency, as reported in International Association of Oil & Gas Producers

(IOGP) statistics, scores which were better than the lowest number of all activity

averages. This resulted in the stretch target being met.

4% 4% Fully achieved

– HSSE Leading Indicators: Achieve

HSSE leading indicators surrounding

safety leadership.

– A number of executive/management visits were targeted to take

place during 2022 to embed, monitor and audit safety culture

amongst staff, contractors and joint ventures, with threshold (one

visit), target (two or more visits) and stretch (four visits plus

Group-wide HSSE day held) numbers of visits agreed at

commencement of the year.

– The HSSE leadership visits that took place in 2022 were strongly supported

across the business with contributions across the operational footprint. All

participants used the Site Safety Visit Guide to plan, execute and report on their

leadership visits with messaging communicated to staff, contractors and

suppliers, which indirectly contributed to the positive outcome on the lagging

indicators.

– In July 2022, management visited the Bapetco assets in Egypt for the purpose of

general management and observation, with good dialogue taking place on

matters for follow-up.

– In August 2022, management visited the Valaris 123, which drilled the operated

Diadem well rig to demonstrate HSSE leadership and to focus on major accident

hazard prevention.

– Members of management visited the seismic operations being undertaken in

the South-East Horus concession in Egypt in September 2022. The focus of the

visit was HSSE leadership and to demonstrate and assess safety behaviours and

lifesaving rules. An action tracker was put in place for the operational period.

– A field visit was undertaken to the Egypt production operations to undertake an

Environmental and Safety Audit with good progress noted against previous

findings.

– A visit was made to the West El Fayium concession seismic operations to observe

health and safety behaviours and a comprehensive visit report was prepared and

disseminated.

– On 7 December 2022, an HSSE & CSR day was held in the Edinburgh office, with

over 140 participants from across the organisation in attendance.

4% 4%

– Environmental: Outline a roadmap and

deliver opportunities to achieve Scope 1

and 2 emissions reductions versus our

short-, medium- and long-term net-zero

targets.

– Target-based scoring identified with threshold (0% score) for

securing project(s) that contributed towards our 2040 target,

target (50% score) for securing project(s) that contributed towards

our 2030 target, and stretch (100% score) for securing project(s)

that contributed to our 2040 target plus project(s) that contributed

towards our 2030 target plus project(s) that helped to deliver

improvements before 2025.

– Progress with GHG emissions reductions initiatives in Egypt gave confidence to

set bolder Scope 1 and 2 targets, which were communicated to investors during

the September 2022 update. A new, near-term target of 15% reduction by 2025

has been set, while the 2030 emissions reduction target was increased from 25%

to 30%.

– An emissions baseline assessment in Egypt was completed providing assurance

on the quality of emissions reporting. This is fully in line with the latest American

Petroleum Institute (API) GHG compendium (November 2021). Bapetco have

identified a suite of projects and a roadmap to deliver on an ambitious Scope 1

and 2 emissions reduction pathway. Significant progress was made on emissions

improvement initiatives including mobile diesel generator reduction,

electrification using gas as power fuel, planning for multiple flare reduction and

waste heat recovery projects, and investigating feasibility for carbon capture and

storage at Badr El Din and Obaiyed through subsurface evaluation.

– In January 2022, Capricorn purchased a portfolio of high-quality carbon offsets

with BP, Shell and Tradewater; all are verified with either Verra, Gold Standard or

the American Carbon Registry.

5% 5%

Directors’ Remuneration Report continued

Annual Report and Accounts 2022 93 Leadership and Governance