Annual Report
and Accounts
2021
Pharos Energy is an independent oil and gas exploration and production
company with a focus on sustainable growth and returns
to stakeholders.
With a registered office in London and listed on the London Stock Exchange,
we have production, development and exploration interests in Egypt and
Vietnam and exploration interests in Israel.
www.pharos.energy
STRATEGIC REPORT
Company overview 2
Pharos at a glance 3
Where we operate 4
Capital discipline
5
Growth opportunities
7
Diversity and inclusion
9
Sustainability
10
Chair’s statement 11
Market overview 13
CEO’s statement 15
Core strategic objectives 17
Business model 20
Key metrics 21
Operations review 26
s.172(1) 35
CFO’s statement 38
Risk management 43
Risks 49
Corporate Responsibility 58
FINANCIAL STATEMENTS
Independent Auditor’s Report 123
Consolidated Income Statement 132
Consolidated Statement of
Comprehensive Income 132
Balance Sheets 133
Statements of Changes in Equity 134
Cash Flow Statements 135
Notes to the Consolidated Financial
Statements 136
GOVERNANCE REPORT
Chair’s Introduction
to Governance 79
Board of Directors 83
Corporate Governance Report 86
Environmental, Social & Governance
(‘ESG’) Committee Report
92
Nominations Committee Report 95
Audit and Risk Committee Report 97
Directors’ Remuneration Report 102
Directors’ Report 117
ADDITIONAL INFORMATION
Non-IFRS Measures 163
Five Year Summary 165
Reserves Statistics 166
Report on Payments to Governments 167
Transparency Disclosure 2020 168
Glossary of Terms 169
Company Information 171
Pharos Energy Annual Report and Accounts 2021
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JANN BROWN
INCOMING CHIEF EXECUTIVE OFFICER
Capital discipline
PAGE 5
Portfolio of low-cost growth opportunities
PAGE 7
Diversity & Inclusion
PAGE 9
Sustainability
PAGE 10
Our distinctive portfolio in the energy regions of Asia and MENA, together with
a robust and disciplined capital allocation framework, supports our strategy of
delivering long-term, sustainable growth. We have a range of opportunities in the
portfolio to position us for a positive future. Our purpose is to continue to provide
energy for communities around the world and fuel their lives and businesses.
INVESTMENT CASE
Pharos Energy Annual Report and Accounts 2021
3
Pharos at a Glance
2021 KEY FIGURES
2021 GROUP HIGHLIGHTS
1997
Founding year
14
Blocks & Licences
20,537
Acreage Km
2
12
Oil & Gas fields
65
Employees
3
Countries
$16.05
Cash operating costs * ($/boe)
$27.1m
Cash & cash equivalents ($m)
($4.7m)
Net loss
0p
Return to shareholders
(Pence per ordinary shares)
$163.8m
Revenue ($m)
Prior to hedging loss of $29.7m
8,878
Average net production (boepd)
(2020: 71 employees)
(2020: $11.60/boe)
(2020: $24.6m)
(2020: Net loss $215.8m)
(2020: $142.0m)
(2020: 0p)
(2020: 11,373 boepd)
* Read More
Non-IFRS measures on page 163
PHAROS AT A GLANCE
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WHERE WE OPERATE
We have production, development and exploration
assets in Egypt, Israel and Vietnam.
Read More
Operations Review on page
26
EGYPT ISRAEL VIETNAM
D: Development P: Production E: Exploration
EGYPT (D,P,E)
We have high quality oil production operations,
development and exploration assets in Egypt.
Production is from 10 development leases in the
El Fayum Concession located in the Western
Desert south west of Cairo and close to local
energy infrastructure. In 2021, Pharos was also
an operator with a 100% working interest in
the North Beni Suef (NBS) Concession, which
is located immediately south of the El Fayum
Concession. Upon completion of the farm-
out transaction with IPR, IPR will hold a 55%
working interest and operatorship in each of the
El Fayum and North Beni Suef Concessions.
Pharos will hold a 45% non-operated working
interest in both Concessions.
ISRAEL (E)
Pharos, together with Capricorn
Energy PLC (formerly known as
Cairn Energy PLC) and Israel’s
Ratio Oil Exploration, have eight
licences offshore Israel. Each party
has an equal working interest and
Capricorn Energy is the operator.
VIETNAM (D,P,E)
We have valuable and long-
established producing fields in
Vietnam. Production is from two
fields (TGT & CNV) and there is
further potential for growth from two
exploration blocks (Blocks 125 & 126).
3,318bopd
2021 Average production
5,560boepd
2021 Average production (net)
33.33%
Working interest
Responsible, Disciplined, Focused
(2020: 5,270 bopd) (2020: 6,103 bopd)
Pharos Energy Annual Report and Accounts 2021
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1. Responsible management
• Cost and balance sheet actively managed through continued uncertainty in the macroeconomic
environment
• Positive operational cash flow
• Active hedging programme
• Gearing remains modest (net debt to EDITDAX 1.00x)
Robust capital discipline
in our DNA
We take great care with our investors’ money and use our expertise:
• To allocate capital to those assets which offer a combination of cash flow, growth and sustainability
• To focus on our cost base wherever we are
• To assess and develop high grade growth opportunities
• To provide cash returns to shareholders
2020 was a year of significant change for Pharos, with the impact of the COVID-19 pandemic and the associated low oil prices, and
2021 continued to see a sustained macroeconomic environment of uncertainty. A major priority for the Board and the Group in the
period was the preservation of cash in order to protect balance sheet strength. Therefore, in addition to a series of financing activities
such as the equity placing and refinancing of the RBL, the Board had to make a difficult decision to restructure the London office and
continue to suspend dividend payments for the second year. A commitment to cash returns to shareholders remains a core element of
our overall allocation framework. We are not complacent about the situation, and it is our intention to return to shareholders through the
combination of annual dividends and capital growth as soon as appropriate.
Read More
CFO’s statement page 38
2. Flexibility in allocation
• Low level of commitments
• RBL facility in place
• IPR carry on farm-down Egyptian concessions
Capital allocation framework
• Focus on shareholder returns over the long term
• High-grade investment opportunities using a number of metrics
• Focus on near-term cash flow positive development opportunities
As a business, our ability to deliver value is key to
our investment case. Capital discipline and financial
stability have always been key to the Company and
continue to underpin the business.
INVESTMENT CASE – CAPITAL DISCIPLINE
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* Note: No dividends were issued in 2020 and 2021.
* OUR HISTORY OF SHAREHOLDER RETURNS
In 2021, the Board had to make a difficult decision to continue to suspend dividend payments for the second year, given the
continued uncertainty in the macro environment driven by COVID-19 and the pressure on oil price against this backdrop.
The Board will continue to use the well-documented capital allocation criteria to assess where and how to apportion any free
cash flow generated. The key goals are to preserve balance sheet strength, to invest in growth opportunities in excess of the
cost of capital and to generate sustainable returns to shareholders, as we have done since 2006.
3. Returns to shareholders
• Integral part of approach to cost control
• Growth opportunities in all areas of the portfolio
• All opportunities screened for cash generation
OUR CASH POSITION
$24.6m
$10.8m
Cash Balance at
31 December 2020
Cash Balance at
31 December 202
1
Operating
CF
Investment Activities
- Capital Expenditure
Investment Activities
- Advanced
consideration
on farm out
of Egypt
Financing Activities
- RBL Refinancing,
NBE and Interest
Financing
Activities
- Placing
$27.1m
$41.8m
$2m
$20.6m
$10.96m
0 100 200 300 400 500 600
2006
13.6
2011
6.8
2013
213.4
2012
32.9
2014
119.2
2015
51.1
11.7
Capital raised during equity
placing 2021 for the first time
since 1997 ($m)
Shareholder returns
since 2006 ($m)
2016
17.5
2017
21
2018
23.3
2019
27.4
Pharos Energy Annual Report and Accounts 2021
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Portfolio of low-cost growth
opportunities to access free cash flow
Over the past few years, we have created multiple growth opportunities in our
diverse and complementary portfolio in Asia and MENA. We are always focused on
value-adding activities that have potential to generate free cash flow.
In Vietnam, our current growth opportunities include fully funded near-term development drilling programme in TGT and CNV, and
seismic mapping on Block 125 & 126 to identify future prospects.
In Egypt, this includes the full deployment of the waterflood programme to provide reservoir pressure support and maintain production.
Upon completion of the transaction with IPR and transfer of operatorship in Egypt, the first phase of the main multi-year and multi-well
development drilling programme at El Fayum will commence in order to increase production in break-even price on the Concession.
EGYPT
Egypt is a dynamic and growing economy, providing a stable business environment. In
2021, Pharos had a 100% working interest* in two concessions in Egypt - El Fayum and
North Beni Suef. The El Fayum Concession is located in the Western Desert, about 80km
south west of Cairo and close to local energy infrastructure. The El Fayum Concession
covers an area of 1,722 km
2
in Egypt’s low-cost and highly prolific Western Desert, and
so benefits from extensive existing infrastructure and a well-developed service industry.
Additionally, the El Fayum development area is 256 km
2
. The North Beni Suef Concession
covers an area of 5,060 km
2
in the Beni Suef basin, immediately south of the El Fayum
Concession and close to existing Egyptian production in adjacent development leases.
The existing dataset on the North Beni Suef Concession consists of 3,101 km 2D
seismic, 1,625 km
2
3D seismic and data from eight wells.
* In September 2021, Pharos announced the farm-out and sale of a 55% working
interest and operatorship in each of the El Fayum and North Beni Suef Concessions to
IPR Lake Qarun Petroleum Co, a wholly owned subsidiary of IPR Energy AG. Pharos
and EGPC have finalised all necessary documents to be presented to the Minister
of Petroleum and Natural Resources to approve the transaction with IPR and this
approval is expected shortly.
Growth opportunities
• Completion of the farm-out transaction and transfer of operatorship to IPR, which will
provide the investment needed to accelerate the first phase of the main multi-year and
multi-well development drilling programme at El Fayum and increase production
• Waterflood programme in the El Fayum Concession provided reservoir pressure
support and maintain production ahead of the main development programme
• El Fayum full field development investment case that identifies a path towards
production of over 10,000 bbls/day. The 2022 and 2023 work programme and budget
associated with the investment case have been agreed in principle by IPR under the El
Fayum farm-out agreement.
• Potential for low-cost oil exploration in the North Beni Suef Concession, as well as
possible extensions into the block of producing properties within separate development
leases held by a third party JV
37.8
MMBBL OF 2P RESERVES
(2020: 40.8 mmbbl)
3,318
BOPD 2021 PRODUCTION
FROM EL FAYUM
(2020: 5,270 bopd)
10
OIL FIELDS AT THE
EL FAYUM CONCESSION
7,038km
2
ACREAGE (EL FAYUM
AND NORTH BENI SUEF)
INVESTMENT CASE – PORTFOLIO OF LOW-COST GROWTH OPPORTUNITIES
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VIETNAM
Our 25-year history with Vietnam has been a success story both for the company and
the country. As at 2021, Pharos has invested c.$1.2 billion in the exploration, appraisal
and development of oil and gas projects located offshore Vietnam since inception, of
which $6.2 million was for training levy and charity donation projects, making Pharos one
of the largest British investors in the country. The Group’s current producing interests,
the Te Giac Trang (TGT) and Ca Ngu Vang (CNV) fields in the Cuu Long basin off the
southern coast, together, are amongst Vietnam’s largest oil producers. We have further
potential for growth from two deep-water exploration positions in Blocks 125 & 126 in
the Phu Khanh basin off the eastern coast, where we expect to seek an industry partner
to fund our commitments and develop the blocks before drilling. We continue to have an
excellent safety record in Vietnam, and are careful to maintain this.
Growth opportunities
• Two additional TGT wells planned to be drilled from cash flow in Q3 2022 as part of the
approved TGT Full Field Development Plan (FFDP), following completion of the initial
four-well drilling programme in 2021
• One well on CNV planned to be drilled in Q4 2022 after completion of the drilling of the
two TGT wells
• Submission of licence extension requests for both TGT & CNV
• Revised Full Field Development Plan for TGT & CNV by Q4 2022
• Final 3D seismic processed results on Block 125 expected in July 2022 and will
proceed to seismic mapping to identify prospects and bring in an industry partner
before drilling
5,560
BOEPD 2021 AVERAGE
NET PRODUCTION FROM
TGT & CNV
(2020: 6,103 boepd)
15.2
MMBOE OF 2P RESERVES
(2020: 17.9 mmboe)
c.$1.2
BILLION
INVESTMENT BY PHAROS
IN OIL AND GAS PROJECTS
OFFSHORE VIETNAM SINCE
INCEPTION
11.4
MMBOE OF 2C RESERVES
(2020: 12.2 mmboe)
Pharos Energy Annual Report and Accounts 2021
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Diversity and Inclusion at the
heart of the business
Greater diversity and inclusivity brings greater understanding of people. Led by
the Pharos Guiding Principles of ‘Openness and Integrity’ and ‘Empowerment and
Capability’, we have demonstrated our commitment to maintaining and building a
culture of diversity and inclusion in meaningful ways. approach to sustainability by
engaging with and taking into account views of these stakeholders.
We believe in a workforce with a diversity
of experience, nationalities, cultural
backgrounds and gender, to support our
business strategy of long-term sustainable
growth. It is crucial to the success of
our business that we retain and develop
the diversity of our workforce and have
diversity and inclusion at the heart of our
recruitment, development and promotion
processes.
Our Code of Business Conduct and
Ethics, associated policies and the Pharos
Guiding Principles commit us to providing
a workplace free of discrimination where all
employees can fulfil their potential based
on merit and ability. They also commit us
to providing a fully inclusive workplace,
while providing the right development
opportunities to ensure existing staff have
rewarding careers.
Diversity in all forms
The spirit of diversity, inclusion and trust
lies behind everything we do. In 2021,
four of nine Pharos Board members were
women, and we are proud that women
accounted for nearly 60% of employees
at our London head office. Our offices
across the organisation recruit talents
from diverse backgrounds, ethnicity and
experience. Most notably, our London
head office has 17 people from 10
different nationalities, which ensures that
we cultivate a culture that recognises and
promotes diversities in all forms, where
every voice is heard.
Regional knowledge and
experience
We apply our expertise locally with
operational teams in each region, working
closely with joint operating companies.
We encourage dialogue and co-operation
between the different business assets to
ensure new ideas and solutions are always
being considered.
We are committed to providing meaningful
opportunities for training and capacity
building in host countries. We have
maintained a gender-neutral recruitment
process and, wherever possible, are
ensuring that we first look to fill any
vacancy internally with a local candidate in
London, Vietnam and Egypt.
Further Board refreshment
In 2021, various Directorate changes were
made to the Board to ensure that Pharos
is guided by a lean management team
with diverse knowledge, deep experience
and greater gender diversity. In March
2021, the Company announced the
appointment of Sue Rivett to the Board as
Chief Financial Officer (“CFO”) effective 1
July 2021. Additionally, upon completion of
the transaction with IPR, Ed Story will step
down from the Board as Chief Executive
Officer (“CEO”) but will remain as President
of the Vietnam business, and Jann Brown
will assume the role of CEO as one of
two Executive Directors alongside Sue.
Mike Watts will also step down from the
Board on completion, though Mike will be
available to advise the Board for a period
in relation to its ongoing interests as the
Company may require. Finally, in support
of the policy to slim down the Board and
having served as Non-Executive Director,
Senior Non-Executive Director and Deputy
Chairman in his nearly 9 years on the
Board, Rob Gray will not be putting his
name forward for re-election as a Director
at the 2022 AGM in May. The result of
these changes is reduction in the size
of the Board from nine Directors (four
Executive Directors and five Non-Executive
Directors) to six (two Executive Directors
and four Non-Executive Directors), of
which four out of six Directors are women.
The Company is committed to good
governance and will continue to review the
balance and effectiveness of the Board
commensurate with our size and needs.
Read More
Corporate Governance Report page 86 - 91 and
Corporate Responsibility Report page 58 - 78.
INVESTMENT CASE – DIVERSITY AND INCLUSION
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Sustainability in all areas
of our business
Our goal is to have a responsible and positive presence in the regions in which
we operate, resulting in value for host countries, local communities, employees,
contractors and shareholders. Pharos continually monitors and reviews its
approach to sustainability by engaging with and taking into account views of these
stakeholders.
Responsibility framework
People
Zero Lost Time Injury Frequency Rate (number of lost time injuries per million man-hours) across all operations in
2021
4/9 Board positions held by women
Ethics
100% of staff received anti-bribery and corruption training
$198.2m taxes and royalties to host governments in 2021, which includes $146.7m of host governments’
entitlement share of production
Business
100% TGT & CNV Oil and 100% El Fayum Oil sold domestically, contributing to host country development goals
and access to energy
Society
$500,000 combined total training levies in Vietnam and Egypt for industry capacity building in 2021
$265,000 in community and charitable investments supporting 12 social projects in Vietnam through the
HLHVJOC Charitable Donation Programme
Environment
Further alignment with TCFD through the completion of Phase Two of our project to bring our disclosures in
line with the requirements of the Task Force on Climate-related Financial Disclosures (“TCFD”). Results of the
completion of Phase Two can be found in the Corporate Responsibility Report on page 60 to 63 and the Risk
Management Report on page 45 to 48.
A number of key factors, such as oil price, operating and capex costs and discount rate, considered likely to be
affected by climate climate-related risks are subject to sensitivity analyses and stress testing under various scenarios
including testing the forward oil curve based on the IEA Net Zero Emissions scenario
Read More
Corporate Responsibility Report page 58 - 78.
INVESTMENT CASE – SUSTAINABILITY
Pharos Energy Annual Report and Accounts 2021
11
CHAIR’S STATEMENT
Chair’s Statement
JOHN MARTIN
Non-Executive Chair
Rebalanced and focused on values
I am pleased to report that Pharos has
successfully navigated another challenging
year in 2021 whilst continuing to make
the improvements necessary to rebalance
our cost base, our capital structure and
our assets. We start 2022 with a clear
roadmap of how the company can drive
value for all our stakeholders and we have
the right team in place to deliver that.
The backdrop of the global pandemic
persisted throughout 2021 and the
ongoing climate of uncertainty remained
the dominant challenge in planning,
forecasting and managing capital. After
the swift and decisive actions taken
in 2020 to reduce costs and preserve
liquidity, 2021 saw us take further vital
steps to strengthen the capital structure
of the business, which had been severely
impacted by the loss of revenues as a
result of the oil price crash. The $11.7
million equity placing, subscription and
retail offering, completed in January
2021, was the first capital raised from the
market since 1997 and the support we
received is a testament to the strength
of our existing shareholder base and
the attraction of the company to new
investors. I welcome these new investors
and thank all our investors for their
support. The refinancing of our RBL over
the assets in Vietnam, completed in July
2021, provided additional liquidity while
maintaining our leverage at a comfortable
level. The approval of improved fiscal
terms in Egypt reset the economics for
the El Fayum Concession, bringing down
the breakeven price and improving the
overall returns. The farm-down of our
Egyptian assets, a process that started in
2020, achieved a key milestone with the
signature of conditional agreements with
IPR in September. The transaction with
IPR is a key step in the realignment of our
asset base to match the levels of funding
available to generate cash flow and
value. We now have a clear path to cash
generation and value creation in Vietnam,
where our programme is self-funded, and
in Egypt where we will be carried through
the next phase of investment by IPR.
As part of our reshaping for the future we
have driven down costs and created a
new, leaner organisational structure in the
UK and these efforts will continue in Egypt
in 2022. This positions us well to thrive in a
stronger oil price environment.
Board Changes
We have long recognised that our board
would need to be reshaped following
the farm-down of our assets in Egypt
to IPR and the associated transfer
of operatorship. We announced the
proposed changes in January of this year
and Ed Story and Mike Watts will step
down from the board once the farm-down
transaction completed. Ed will remain as
President of the Vietnam business, while
Mike will be available to advise the Board
during his notice period of one year. I
would like to take this opportunity to
thank Ed for his considerable contribution
to Pharos over many years. We are
delighted that he will stay with us to help
the management of our relationships and
activity in Vietnam. I would also like to
thank Mike for his long-term dedication
to the Company and for his important
contributions during that time. Our Senior
Non-Executive Director and Deputy Chair,
Rob Gray, will also step down in May of
this year at the 2022 AGM and again we
thank him for his long and valued service.
The result of these changes will be to
reduce the size of the Board from nine
Directors to six, commensurate with the
scale of the business, and we have all
of the skills and experience required to
provide the necessary governance and
oversight of a Premium Listed Company.
Pharos’ commitment to inclusion and
diversity remains strong. Following the
board changes described above, both of
our executive directors will be female, with
a total of four of the six directors being
women, representing two thirds of the
Board.
I am delighted Jann will be the CEO of
Pharos and I look forward to working
with her, Sue and the rest of my Board
colleagues into this next phase.
Sustainability
Sustainability is an increasing focus for our
entire industry. We recognise that oil and
gas will continue to play an essential role
in the provision of energy security and the
global energy mix for many years to come
and that the importance of producing
this energy in a safe, environmentally
sustainable and socially responsible way
will continue to grow amidst the wider
energy transition. We stand ready to
play our part in this transition and we
Pharos Energy Annual Report and Accounts 2021
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can do that by providing transparent and
comparable sustainability disclosures,
embedding sustainability considerations in
the way we operate and identifying where
changes in our field practices could make
a difference in our efforts to reduce our
carbon footprint.
We have also continued to participate
in various climate disclosures. Over the
past four years, we have participated in
the CDP Climate Change Questionnaire
and have maintained our score (C), which
is also the industry average. 2021 also
marks the first year that the Company
submitted their response to the CDP
Water Security Questionnaire, which was
completed at a basic level in 2021 and we
plan to improve our level of transparency
on water usage and protection by
completing the full version in 2022. More
recently, we commenced Phase 2 of the
project to bring our disclosures in line
with the requirements of the Task Force
on Climate-related Financial Disclosures
(“TCFD”) in accordance with LR 9.8.6.
Over the years, Pharos has embedded
sustainability considerations throughout
our operations. We set up an ESG
Committee at Board level and an ESG
Working Group to operationalise our
approach. Climate change is now,
following TCFD guidance, recognised
as a principal risk for the Company and
we engage our stakeholders regularly
on all aspects of environmental, social
and economic impacts. In 2021, the
Remuneration Committee has increased
the level of management incentives
which attach to improvements in our
sustainability performance in order to
further encourage action on this agenda.
Following the COP26 summit in Glasgow
in November 2021, we recognise and
understand the growing need to accelerate
business action on climate change. The
Board welcomed the outcomes of the
Glasgow Climate Pact and is now focused
on reviewing what a possible pathway
towards Net Zero entails. This will not be
straightforward, for Pharos and for the
wider industry, with a lot of solutions being
currently tried and tested. But we commit
to being transparent in what can and
what cannot be delivered and to keeping
stakeholders updated on the progress.
During the net zero transition, we want
to ensure we do not lose sight of the
role our energy plays in driving economic
development of those countries where it is
produced.
Purpose and organisation
Our purpose has been expanded to
include our commitment to sustainability;
to provide the energy to support the
economic development and prosperity of
the countries, communities and families
wherever we work, in line with recognised
socially and environmentally responsible
practices.
Our organisation has proved itself to be
resilient beyond expectations this year. We
have had difficult decisions to make on
reducing our staffing levels in the UK as
part of our efforts to manage costs. We
have lost many talented colleagues and I
am delighted that so many of them have
found new positions so quickly. The team
who have stayed with us have all risen to
the challenges of delivering what has been
needed and I have every confidence that
they will continue to do so.
The culture of the workforce is strong and
is built on openness, safety and care, trust
and respect for each other. Our workforce
in the UK has indicated a clear preference
for retaining flexibility in our way of working
and, throughout the period of mandatory
remote working, we have built well-
established channels of communication
and ways of working which can
accommodate these preferences with
minimal disruption and no adverse impact
on delivery and efficiency.
Outlook
Despite the turmoil we have all
experienced in the global macro-economic
environment, our strategy to deliver
long-term, sustainable value for all our
stakeholders remains unchanged. We
have capital to allocate to exciting work
programmes in 2022 and our commitment
to returning cash to shareholders remains
a core element of our overall allocation
framework.
It is with great sadness that we note the
terrible situation that is ongoing in Ukraine.
Alongside the humanitarian issues, there
are increased business risks due to the
heightened volatility in commodity price
and impact on inflation. We have no direct
business in the region but we are carrying
out due diligence checks and reviewing
the supply chain implications in all parts
of the business. No immediate impact
has been identified but we will continue
to keep this under close review and will
devise mitigating actions if needed.
In Vietnam our status as a major investor in
country plus our track record of managing
operations stand us in good stead to
deliver the next phase of value from our
existing producing fields. In Egypt, we
have a period of collecting revenues with
all costs covered by the carry provided by
IPR, our new partner. IPR has proven itself
to be a technically proficient, effective and
low-cost operator and are well capitalised
to fund the right work programme on
both Concessions in Egypt to maximise
long-term growth and cash flow. Their
long-standing in-country presence and
relationships with the Egyptian government
and regulatory authorities will support the
expansion of operational activity needed
to develop the resource base. The Board
firmly believes that IPR is the right partner
for Pharos in Egypt, and we look forward
to working with them in 2022 and beyond.
Thanks to the effort and hard work of all of
our colleagues, the businesses is now in
significantly better shape, with funding in
place to make the investments needed to
deliver value from the assets already in the
portfolio. On behalf of the Board, I would
like to thank our shareholders for their
support through the year, as well as our
staff, partners, suppliers and advisers all
of whom have helped to provide stability
through this period of uncertainty and
volatility.
We enter 2022 with a more confident
outlook. Pharos has a unique combination
of complementary assets, a talented and
diverse workforce and capital discipline in
its DNA. Most importantly, it has a clear
roadmap to cash generation and value
creation for the coming year.
JOHN MARTIN
Non-Executive Chair
Pharos Energy Annual Report and Accounts 2021
13
MARKET OVERVIEW
Market overview
While 2020 was characterised by the initial widespread shock brought about by
the COVID-19 pandemic, 2021 will be remembered for the year where global
vaccination programmes vastly changed how we lived and helped ease restrictions.
Global growth was significant, albeit in an environment of caution, as virus
mutations provided a reminder of how quickly circumstances can change. As well
as volatile rates of COVID-19, there was significant volatility in the oil price. In 2021,
we saw improved prices to an average Brent crude price of US$70.68 per barrel, a
68% increase from the previous year.
Economics and political
Unsurprisingly the pandemic remained a
significant force influencing global growth
in 2021 as most economies began the
year in the grip of restrictions stifling
growth. However, as vaccination rates
increased and restrictions were eased, the
economy made significant headway and
business practices returned to something
similar to pre pandemic times, even if
most economic metrics remained lower.
Global monetary and fiscal policies during
the crisis provided stimulus that has
had a significant effect for a prolonged
period across various economies,
which, added to the reopening of many
previously closed sectors, led to demand
and prices increasing. In many countries
this has meant inflationary pressures are
now prominent in many governments’
economic thinking going forward.
From a market perspective, the S&P500
in the US finished the year just under
27% up while the MSCI World index
finished up 31%, showing how global
equity markets reacted to the favourable
economic conditions. While in late 2021
the rapid spread of the Omicron strain of
the COVID-19 virus provided a reminder
of the fragility of the world’s markets, the
outlook for 2022 is regarded as positive
with levels of global vaccination and
antibody count in the general population
high enough that returning to a situation
akin to the beginning of the pandemic is
seen as unlikely.
Oil price
While an average Brent crude price of
US$70.68/bbl in 2021 was a significant
68% increase from the average price in
2020, the picture was one of a steady
recovery throughout the year as demand
for oil grew by 5.7mmbbls/d from the
previous period. This increase in demand
was primarily due to fiscal and monetary
stimulus supporting a buoyant economy,
with restrictions in movement easing
throughout the year as vaccination
programmes were deployed. This increase
in demand significantly outpaced supply
as OPEC+ retained its restrictive policies
spanning from the depressed prices of
2020, and prolonged periods of restrained
investment from other oil producing
nations such as the US meant that supply
capacity was constrained. As well as
increased pricing for crude, the market
saw significant inventory draws as nations
attempted to meet demand as best as
they could leading to the EIA estimating
that global petroleum inventories dropped
by 469 million barrels in the year.
The ongoing volatility in the oil price was
still prevalent in 2021. Average realised
oil price per barrel achieved for Vietnam
was c.$73/bbl representing a premium
of just under $2/bbl to Brent. For Egypt
the average realised price was c.$65/
bbl, representing a discount of c.$5/bbl
to Brent.
The Board’s strategy to mitigate this
principal risk of commodity price instability
is set out on pages 49 to 57 in our
discussion on principal risks. Pharos
regularly evaluates whether the benefit of
hedging its oil production is in the best
interest of shareholders by considering
the balance between protecting the
Group in low oil price scenarios, set
against the opportunity cost of being
unhedged. In addition, Pharos continues
to manage its overall portfolio to target
a low break-even oil price, regardless
of actual oil prices. Our strong ethos
of capital discipline ensures that cost
efficiencies are maintained, even in higher
oil price environments. Pharos ensures
all operational decisions – including new
country entry, production optimisation and
acquisitions – are reviewed through the
lens of full-cycle project economics in a
range of oil price scenarios.
Commentary around the outlook for oil
prices in 2022 is mostly positive with an
estimated world GDP growth forecast of
4.2%, meaning a repetition of the strong
demand seen in 2021. Tight supply is
expected to remain as investment in
upstream assets remains subdued while
OPEC estimates global demand to rise by
4.15 million barrels a day in 2022. Looking
forward, while interest rate increases (
likely to be used as a tool to supress rising
inflation by many central banks) pose as
a potential suppressant to the oil price,
the crude market looks set to be well
supported in the period.
For more information on the impact of
climate change on the long-term oil prices
and demand, please see pages 56 to
57 the Viability Statement.
Pharos Energy Annual Report and Accounts 2021
14
Additional InformationGovernance Report Financial StatementsStrategic Report
GLOBAL CRUDE OIL CONSUMPTION 2012-2022E
104
102
100
98
96
94
92
90
88
mmbpd
98.11
2012A 2014A 2016A 2018A 2020E 2022P
2021E
BRENT CRUDE 2012-2021 ($BBL)
120
100
80
60
40
20
0
mmbpd
70.95
2012 2014 2016 2018
2021
2013 2015 2017 2019 2020
GLOBAL E&P M&A, 2012-2021
40.0
80.0
120.0
160.0
0
Billions USD
2012 2013 2014 2015 2016 2017 2018 2019
2020
63.7
124.2
86.7
96.0
78.3
58.1
143.5
87.4
150.6
2021
90.6
E&P Merger & Acquisition activities
As with the oil price in 2021, M&A activity within the industry during the year increased significantly with a rise of 42% on deal value
compared to 2020, with over US$90 billion worth of E&P deals occurring in the year. The acquisition of North Sea producer Lundin
Energy AB by Aker BP represented the largest deal of the year at just under US$11 billion, with Australian producer Santos Ltd’s
acquisition of Oil Search following closely behind at over US$10.5 billion.
Climate change regulation
2021 continued to see developments
on climate change regulation, with
wider ESG concerns at the forefront of
thinking for the wider global economy.
The 2021 United Nations Climate Change
Conference, more commonly known as
COP26, was hosted by Glasgow in the
latter part of the year, putting focus on
world leaders and their commitments to
reducing the effects of climate change.
The end of the conference saw nearly 200
countries agreeing the Glasgow Climate
Pact to seek to limit global warming to
1.5C and accelerate action on climate
change this decade.
Pharos has continued to review emissions
with the objective of reducing them
wherever possible. We seek to be
transparent in our emissions performance
reporting and in 2021 we continued to
report our emissions and disclose them in
accordance with UK industry requirements
and standards. Pharos participated in the
CDP 2021 Climate Change Questionnaire
and Water Security Questionnaire and we
set an objective to continue to work to
improve GHG emissions management by
identifying realistic initiatives for emissions
reduction. Work to ensure we are
prepared to report in line with the TCFD
recommendations progressed well in 2021
with Phase 1 completed and the adoption
of our new Climate Change policy. Phase
2 of this work was interrupted by the
impact of the COVID-19 pandemic in
2020 but resumed in Q4 2021. Results of
the completion of Phase 2 can be found
in the Corporate Responsibility Report on
pages 56 to 57.
Source: Bloomberg
Source: EA
Source: IHS
Pharos Energy Annual Report and Accounts 2021
15
CHIEF EXECUTIVE OFFICER’S STATEMENT
CEO’s Statement
JANN BROWN
Incoming Chief Executive Officer
2021 was a critical year for Pharos and
several key steps were taken which
provide the foundations for the exciting
programmes, focused on growth, cash
flow generation and value, in 2022 and
beyond.
• In January, we had strong support for
an equity placing, subscription and
retail offer, raising $11.7m in gross
proceeds, with net proceeds invested
in the El Fayum waterflood programme
to support production levels.
• In March, we announced a reduction
of our head office headcount of c.50%,
significantly reducing our ongoing
annual G&A cost. Many talented
colleagues left the Company in this
reorganisation and it is a testament to
the team who have stayed with us that
they have continued to deliver.
• In March we announced that we
had reached agreement with EGPC,
the industry regulator and state
oil company in Egypt, to various
amendments to the El Fayum
Concession (known collectively as “The
Third Amendment”) the most important
effect of which was an improvement
in the fiscal terms backdated to
November 2020. The improved terms
were subjected to parliamentary and
presidential approval, which were
obtained in January 2022. As a result
of this Third Amendment, Contractor
share of revenues increased by 20%,
from c.42% to c50% whilst in full cost
recovery mode. Signature of the Third
Amendment was a key Condition
Precedent for the transfer of a 55%
participating interest (and operatorship)
in the El Fayum and North Beni Suef
Concessions to IPR.
• In July, we completed the refinancing
of our Reserve Based Lending Facility
(“RBL”) which provided access to
a committed $100m with a further
$50m available on an uncommitted
“accordion” basis and has a four-year
term that matures in July 2025. The
revised RBL facility extends the tenor of
the facility by 22 months, rephases the
repayment schedule and has provided
additional liquidity without taking
gearing to unacceptable levels.
• In September, we announced the
signature of agreements for the farm-
down to IPR to of a 55% working
interest in, and operatorship of, both
of our concessions in Egypt, full details
of which transaction are set out in the
Financial Review. Pharos and EGPC
have finalised all necessary documents
to be presented to the Minister of
Petroleum and Natural Resources to
approve the transaction with IPR and
this approval is expected shortly. The
IPR Energy group has been present in
Egypt for 40 years, currently has eight
concessions pre-acquisition, five of
which are operated, and has achieved
significant growth in net production. We
look forward to working with them to
deliver the full potential of these fields.
These steps, alongside the operational
activity set out below, have reset the
Group’s potential. That potential was
already there in the portfolio, but we now
have the access to funding to exploit
these to grow cash flow and increase
shareholder value. We enter 2022 with a
refreshed portfolio, cost base, and access
to capital.
Consistent operational
delivery amidst ongoing global
uncertainties
In Vietnam, the Group had a busy
operational year. Most notable was
the commencement of the TGT well
intervention and development drilling
programme in July 2021, following the
approval of the updated FFDP and the
two year extension on both the TGT and
CNV licences which was announced
in 2020. Phase 1 of the campaign was
successfully completed in November
2021, ahead of schedule and c.$20 million
below the JV gross budget. In 2021, the
crude produced from the fields in Vietnam
commanded a premium to Brent of just
under $2/bbl and the payback period for
the wells drilled is estimated at below 12
months, making investment in these fields
an attractive proposition.
Production for 2021 from the TGT and
CNV fields net to the Group’s working
interest averaged 5,560 boepd, in line with
guidance, and guidance for 2022 is set at
5,000 to 6,000 boepd.
Pharos Energy Annual Report and Accounts 2021
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In July 2021, the Company announced the
completion of its 3D seismic acquisition
programme on the western part of Block
125 in the Phu Khanh Basin, offshore
Vietnam. The seismic processing work is
ongoing, with the final processed results
expected in mid-2022. In September
2021, Pharos received approval for a
two-year extension of the initial exploration
phase under the Block 125 & 126 PSC,
which now runs until November 2023.
There is a commitment to drill one well on
these Blocks within the initial exploration
phase and, following completion of the
seismic processing, we will look to bring in
an additional partner pre-drill.
In Egypt, after an operational hiatus
in 2020, Phase 1B of the waterflood
programme on El Fayum commenced,
supported by the net proceeds of the
equity placing, subscription and retail offer
completed in January 2021. A three-well
development drilling programme was
started in November 2021 to provide
reservoir pressure support and maintain
production ahead of the multi-year, multi-
well development programme planned
following completion of the transaction
with IPR. Pharos will be carried through
the first part of this programme by IPR
for its retained 45% working interest in El
Fayum.
In June 2021, Pharos announced the
modest discovery on the Batran-1X
exploration commitment well, which
reconfirmed the potential for additional oil
on the El Fayum concession.
The Board believes that 2021 was a
turning point year for Pharos, with key
building blocks now in place to move
forward into exciting programmes in both
Vietnam and Egypt.
Sustainability
Sustainability has been a challenge for our
industry for many years and the focus on
our activities on this front is increasing,
and rightly so. Alongside our statutory
obligations in the United Kingdom (where
we are listed) and Egypt, Israel and
Vietnam (where we operate), we recognise
that the expectations of all stakeholders
are growing in this respect. At Pharos, we
have been diligently preparing to ensure
that our disclosures are in line with the
Task Force on Climate-related Financial
Disclosures (“TCFD”) recommendations
and can report that we are on track to do
so, having completed Phase Two of our
alignment project with TCFD’s reporting
requirements. We also continue to meet
our obligations under the Modern Slavery
Act and anti-bribery legislation. As part
of local agreements, we are focused on
meeting legal environmental, social and
economic obligations: that is why we
provide $500,000 every year for local
capability training in Vietnam and Egypt.
I am proud that we continue to achieve a
zero on our Lost Time indicators. In 2021,
we paid $198.2m in taxes and royalties to
host governments, including their share
of production entitlements. With 100%
of production sold domestically in 2021,
this has made a valuable contribution
to the host countries’ socio-economic
development, energy security and access
to energy.
But we go beyond what’s legally required,
noting the growing expectations of all our
stakeholders. As we work predominantly
through Joint Operating Companies
(“JOCs”) we work collaboratively with
our partners to identify what else
we can do. This extends to all our
community initiatives, where our financial
contribution amounted to $265,000 in
2021 via HLHVJOC Charitable Donation
Programme. We are investigating
opportunities to reduce our carbon
footprint by adopting different methods
and processes to power our operations
and other carbon reduction technologies
in the longer term and will provide updates
on our progress. We will not make
commitments or set targets which are
vague or which rely on new technologies
or those being developed in the future,
and which do not carry the support of our
partners.
Outlook - Reaping our rewards in a
new phase of growth
Over the past five years, we have built a
portfolio in Asia MENA with a combination
of assets which offer resilience in difficult
times, strong cash returns in better times
plus valuable growth potential when
investment capital is available.
In Vietnam, the economics are attractive
on all fronts – premium commodity pricing,
a low LOF Breakeven price, attractive
netbacks and rapid payback periods
on new development wells - with all
planned activities funded from cash flows
generated. Following the four wells drilled
on TGT in 2021, two further TGT wells
are planned for 2022 plus one on CNV.
The JOC is now progressing work on
submitting licence extension requests for
both TGT & CNV, with a Revised Full Field
Development Plan (“FFDP”) for both fields
to be submitted by Q4 2022. This would
take the licence terms out to 2031 (TGT)
and 2032 (CNV) and would add two years
of reserves to the production profiles and
economics for these fields.
In Egypt, upon completion of the
transaction with IPR and transfer
of operatorship which is expected
imminently], we will enter a new phase,
and will benefit from IPR’s experience as
an Operator plus the carry of our retained
45% working interest through the first
part of the multi-year and multi-well
development programme. With the field
economics enhanced by the signing of
the Third Amendment and the Group’s
own economics further improved by the
carry, we consider that Egypt is now in an
excellent position to deliver on its potential.
I would like to pay tribute to my colleagues
leaving the board at this time. To Ed Story,
as he ends his 25 year leadership of the
company, having taken it through many
different territories and phases, always with
a focus on shareholder returns. He will be
a key part of the team in Vietnam to deliver
on his long held view of the potential there.
Mike’s association with Pharos has also
been formative and instrumental over the
long term. Finally, Rob Gray will step down
in May from his roles as both Deputy Chair
and as Senior Non-Executive Director.
All three have played an important role in
putting the company where it is today and
I thank each of them for their own unique
contributions.
I would also like to thank our shareholders
and wider stakeholders for their ongoing
support.
Last but not least, I would also like
to express my gratitude towards my
colleagues for their efforts, continued
hard work and commitment as we
have navigated through challenges and
uncertainties to build a business with a
return to growth.
JANN BROWN
Incoming Chief Executive Officer
Pharos Energy Annual Report and Accounts 2021
17
CORE STRATEGIC OBJECTIVES
Navigating through
challenging times
1. Responsible & Flexible stewards of capital
A culture of prudent financial management, capital allocation and capital return.
We exhibit capital discipline through a focus on cost management and control. Capital allocation decisions are taken to make
investments where they will provide risk-adjusted full-cycle returns. It is this approach that has allowed us to return significant amounts of
capital to shareholders. We have looked to add another strand to the story – capital growth – to underpin the sustainability of dividends
over the longer term.
Activities in 2021
• Disciplined capital investment and
flexible allocation through:
- Completion of the equity placing,
subscription and retail offer in January
2021 to fund Phase 1B of the
waterflood programme in El Fayum
- Refinancing of the Reserved Based
Lending Facility (“RBL”) which provided
access to a committed $100m
with a further $50m available on an
uncommitted “accordion” basis, thus
allowing the Company more financial
flexibility
• Responsible and decisive cost-cutting
actions to preserve balance sheet
strength through:
- Continued reviewing and reducing of all
G&A costs across the Group, including
voluntary salary reductions from staff
and the Board
- Continuation of working from home
(WFH), thus reducing pre-pandemic
office rental cost
- Reorganisation and redundancy
programmes within the London and
Cairo offices
• Revenue stability through active
hedging programme – approximately
59% of production hedged in 2021.
With the ongoing volatility in the oil
price still prevalent, Pharos used
hedges judiciously to protect against
the downside
• Maintained financial strength through
bringing in an industry partner (IPR) to
support the next stage of development
in Egypt
• Modest gearing level – Net debt to
EBITDAX 1.00x
Priorities in 2022
• Continue to actively manage our cost
base, capital allocation and investments
into growth opportunities already in the
portfolio
• Manage a smooth transition of
operatorship to IPR to accelerate
investment into the Egyptian assets
• Complete the development drilling in
TGT and CNV
• Complete the seismic processing
and interpretation on 125 & 126 and
initiate the process for seeking a further
industry partner pre-drill
• Evaluate what we can do as a
responsible operator and good
corporate citizen to reduce our carbon
footprint; and what commitments can
be made towards our progress to Net
Zero
Risks
• Commodity price risk
• Carbon tax
• Insufficient funds to finance growth
plans and maintain dividends
• Rising operational cost
• Composition of the new workforce and
Board / HR management
• Regulatory risk; new regulations
• Climate related risk – transition and
physical risk
• Partner alignment risk
Mitigation
• Oil price hedging
• Close monitoring of business activities,
financial position, cash flows
• Control over procurement costs/
effective management of supply chains
• Capital discipline with focus on
controlling and managing costs
• Stress testing scenarios and
sensitivities to ensure a level of
robustness to downside price, carbon
tax, discount rates, and production
sensitivities, and review of capital
expenditure and operating cost
• Discretionary spend actively managed
• Cultivating and maintaining good
relationships with lenders
Pharos Energy Annual Report and Accounts 2021
18
Additional InformationGovernance Report Financial StatementsStrategic Report
2. Focus on stakeholders
Dialogue with shareholders, local communities, host governments, employees,
contractors, and others in the supply chain.
We continue to consult and engage, through formal and informal processes,
in an open dialogue with our stakeholders. These conversations consider matters that are important both to our stakeholders, and to the
successful delivery of our corporate objectives.
Activities in 2021
• Board refreshment to bring further
knowledge and deeper experience
• Active employee engagement by the
Executive Directors with UK, Egypt and
Vietnam employees during the entirety
of lock-down via anonymous surveys,
weekly Monday business meetings,
and off-site away days
• A hybrid working model of working from
home and working from physical offices
after consultation with employees
• Open and active dialogue with
shareholders throughout the year via
analyst research feed, Investor Meet
Company online meetings and Q&A,
and Results roadshows
• Engagement across our supply chain
to identify and address red-flag areas
of concern
• Continued social engagement with local
communities during the pandemic to
ensure continuous investments in local
projects with the most positive impact
• Transparent disclosure of ESG-related
metrics. Maintained grade C in CDP
Climate Change questionnaire, with
first time participation in the CDP Water
Security questionnaire. Completion of
Phase Two of the implementation of
Task Force on Climate-related Financial
Disclosures (TCFD) recommendations
Priorities in 2022
• Continue workforce and stakeholder
engagement, building on work in 2021
• Regular staff training and development
• Build on and improve new ways of
working and communication to make
the business base fit for the workforce
going forward
• Further Board reductions to ensure a
flatter organisational structure, shorter
lines of management and more direct,
accessible channels of communication
with leadership
Risks
• HSES reputational and operational risk
• Climate change –speed of the energy
transition and physical risks from
extreme weather events
• Human resource risk
• Political and regional risks
• Business conduct and bribery
• Partner alignment risk
Mitigation
• Promoting a positive health and safety
culture
• Continuing the implementation of
COVID-19 precautionary measures
based on applicable law, regulation and
public health guidance
• Emergency preparedness
• Embedding climate change scenarios
and evaluate decisions on key business
operations where we have control
• Complying with all legislative/regulatory
frameworks and focus on a goal based
approach to improve safety
• Adhering to the Group’s Code of
Business Conduct and Ethics and
associated policies
• Annual training and compliance
certifications by all associated persons/
whistleblowing facility in place
• Active participation in JOC
management
• Engaging directly with the relevant
authorities on a regular basis
Pharos Energy Annual Report and Accounts 2021
19
CORE STRATEGIC OBJECTIVES - CONTINUED
3. Enhanced growth potential
A portfolio of low-cost growth opportunities that is resilient in difficult times, and
thrive when economic environment improves.
Building and enhancing growth opportunities in our current portfolio. Actively managing our portfolio through investments and
divestments. Focusing on near-term development opportunities to create value for stakeholders whilst maintaining high operational and
safety standards using local staff and suppliers.
Activities in 2021
Egypt
• Improved fiscal terms signed in January
2022 with revenue increases backdated
to November 2020
• Commencement of Phase 1B of the
waterflood programme in El Fayum
• Return to drilling with commencement
of the El Fayum Phase 1B waterflood
programme, three-well development
drilling programme, and Batran-1X
commitment well oil discovery
• Interpretation of the large pre-existing
3D seismic survey on the NBS
Concession continues with several low
risk drillable prospects already identified
• Commencement of the farm-out
transaction with IPR to fund the capital
programme on the Egyptian assets to
increase production and fulfil the full
potential of the concessions
Vietnam
• Successful completion of the first
phase of the 2021 TGT well intervention
and development drilling campaign, on
schedule and below budget
• Approval for a two-year extension to
the terms of Phase 1 of the Block 125
& 126 Exploration Period from the
Ministry of Industry and Trade
• Completion of the 3D seismic
acquisition programme on Block 125 in
the Phu Khanh Basin, with processing
of the new data underway
Priorities in 2022
Egypt
• Completion of the three-well
development drilling programme
• Completion of the farm-out transaction
with IPR and transfer of operatorship to
support the next stage of development
in Egypt
Vietnam
• Commencement of development
drilling programme of two TGT wells
in the FFDP in Q3 2022, and one CNV
well
• Processing 3D seismic results on Block
125 in order to identify future prospects
• Progressing work on submitting
licence extension requests for both
TGT & CNV, and a revised Full Field
Development Plan for both fields
Risks
• Insufficient funds to meet commitments
• Commodity price volatility, volatility in
production levels – sub-optimal well
performance
• Partner alignment risk
Mitigation
• Regular review of funding options
• Stress testing forecasts
• Down side protection through hedging
• Cultivating and maintaining good
relationships with lenders
• Active participation in dialogue with
JVs/ JOCs
Pharos Energy Annual Report and Accounts 2021
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BUSINESS MODEL
Our Business Model
is to Build for the Future
We are building a business focused on generating sustainable returns. We look
to grow Pharos through the responsible management of our current portfolio
and careful selection of new opportunities, particularly those with near-term low-
cost development and, where appropriate, exploration assets with transformative
potential within Asia and MENA.
Assess
VALUE INPUTS
VALUE OUTPUTS VALUE OUTPUTS VALUE OUTPUTS
VALUE INPUTS VALUE INPUTS
Invest
Develop
& Produce
We assess opportunities which offer
a superior risk-weighted return. Our
experienced management team identify
established high margin, low-risk
producing assets enabling geographical
asset diversification and an increase in
exploration acreage growth leading to
value growth. In our assessment of capital
allocation processes, we look to take
account of the interests of all stakeholders
and to balance the value of investing in
the business against the value of returns
to shareholders.
Our investment programme will continue
to be allocated over our asset base in a
disciplined manner to deliver sustainable
returns for our stakeholders. We
maintain a culture of prudent financial
management, capital allocation, and
capital returns.
Our production increases through the
development of existing discovered
resources. We seek to maximise margins
through optimising production and low
operating costs. We are committed to
responsible and safe operations at all
times.
Our people
• Extensive industry experience
• Technical expertise
• Commercial acumen
• Relationship-driven
Growth opportunities
• Development of existing
discovered resources
• New prospects and leads in
Egypt and Vietnam
• Conventional and unconventional
+ exploration potential
Stakeholders
• Net Asset Value (NAV) growth
and share price
• Return to shareholders
• Local capability
• In-country economic contribution
and social investment
• Employment and training
Growth production
metrics
• Responsible and safe operations
• Low cost per barrel
• Development of discovered
Egyptian resources with our
partner IPR
• Continued development of
Vietnam assets
Our assets
• Mix of complementary assets
• Mature, short payback in Vietnam
• Development drilling in Vietnam
• Low-cost onshore drilling in Egypt
Our capital
• Low operating cost
• Low breakeven oil price in Vietnam
• Financial prudence
• Modest gearing
• Strict capital allocation proces
s
Pharos Energy Annual Report and Accounts 2021
21
Reporting on
our performance
The financial and non-financial metrics facilitate better management of long-term
performance and enable us to deliver on our sustainable responsible business
plans. They are kept under periodic review and regularly tested for relevance
against our strategies and policies.
LOW CASH OPERATING COST
$/BOE *
16.05
Description
Low operating expenditure helps deliver high margin production revenues. The cost of producing a single barrel of oil is influenced by industry
costs, inflation, fixed costs and production levels.
Objective
To be profitable at lower oil prices.
Performance
Pharos achieved an operating cost of $16.05/boe in 2021, an increase over 2020, largely due to fixed costs in Vietnam such as the FPSO
and other facilities being spread over fewer produced barrels and higher withholding tax.
Outlook
We continue to target improvements in 2022 and beyond through managing costs and increasing production.
Links to strategy
• Deliver value through growth
Associated risks
• Partner alignment risk
• Political and regional risk
Links to Remuneration Report (See pages 102 - 116)
Financial measures
2020
2019
2021
16.05
11.6
10.45
* Read More
Non-IFRS measures on page 163
KEY METRICS
Pharos Energy Annual Report and Accounts 2021
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CAPITAL EXPENDITURE
CASH $M (includes abandonment funding)
39.8
Description
Investment in the asset base required to maintain and grow the business and directed to the assets in Egypt and Vietnam.
Objective
To achieve returns in excess of cost of capital.
Performance
The 2021 cash capital expenditure was marginally higher than 2020, when all discretionary capex was deferred. In 2021, the TGT infill
development programme completed under budget and, in Egypt, Pharos return to drilling with commencement of the El Fayum Phase 1B
waterflood programme, three-well development drilling programme, and Batran-1X commitment well oil discovery.
Outlook
Post farm-out, the cash capex is forecast as $27.8m.
Links to strategy
• Deliver value through growth
• Investment growth
Associated risks
• Commodity price risk
• Partner alignment risk
CASH AND CASH EQUIVALENTS
$M
27.1
Description
Pharos has a history of stable finances and a strong balance sheet due to the prudent management of producing assets.
Objective
To maintain financial strength through preserving the balance sheet, to invest in growth opportunities in excess of the cost of capital and to
generate sustainable returns to shareholders
Performance
Pharos has a cash balance of $27.1m, an increase of 10% on prior year.
Outlook
Capital discipline and financial stability have always been key to the Company and continue to underpin the business.
Links to strategy
• Deliver value through growth
• Return to shareholders
Associated risks
• Commodity price risk
• Financial discipline and governance risk
2020
2019
2021
39.8
41.3
63.4
2020
2019
2021
58.5
24.6
27.1
Pharos Energy Annual Report and Accounts 2021
23
KEY METRICS - CONTINUED
RETURNS TO SHAREHOLDERS
PENCE PER ORDINARY SHARES
0
Description
Commitment to cash returns to shareholders remains a core element of our overall allocation framework.
Objective
To provide sustainable cash returns to shareholders.
Performance
In 2021, the Board had to make a difficult decision to continue to suspend dividend payments for the second year, given the continued
uncertainty in the macro environment driven by COVID-19 and the pressure on oil price against this backdrop.
Outlook
An annual dividend is a key aspect of the Company’s capital discipline and investment thesis and the Board will keep this under review.
Links to strategy
• Deliver value through growth
• Return to shareholders
Associated risks
• Commodity price risk
• Climate change risk
• Sub-optimal capital allocation risks
LOST TIME INJURY FREQUENCY (“LTIF”)
PER MILLION MAN-HOURS WORKED
0
Description
Safety of our workforce remains our number one priority. The Group is committed to operating safely and responsibly at all times. Having a
positive impact on the wellbeing of our employees, our contractors and the local communities in which we operate is a priority.
Objective
To achieve zero LTIF across the Group’s operations.
Performance
In Vietnam, our Joint Operations continue to deliver an exceptional record of safety, reporting zero LTIs since operational inception,
representing ten production years on TGT and 13 production years on CNV. In Egypt, we continually reinforce and implement safe working
procedures such as inspection of all instruments and equipment, obtaining the requisite permit to work applications, providing training and
awareness sessions and above all implementing checks to ensure risks are reduced to acceptable levels and encourage the immediate use
of stop-cards. In Vietnam, the JOC conducted over 200 and 100 HSE training sessions and emergency response drills respectively during
2021 to ensure safety and preparedness remain a top priority.
Outlook
Continue to work with the Joint Operating Companies to maintain high safety standards and training with the aim of driving continuous
improvement year-on-year.
Links to strategy
• Focus on stakeholders
Associated risks
• HSES and social risk
• Partner alignment risk
Links to Remuneration Report (See pages 102 - 116)
2020
2019
2021
5.5
0
0
2020
2019
2021
0.34
0
0
Operational measures
Pharos Energy Annual Report and Accounts 2021
24
Additional InformationGovernance Report Financial StatementsStrategic Report
GROUP NET PRODUCTION
BOEPD
8,878
Description
Production revenues generate cash flows which are re-invested in the portfolio of assets, new business opportunities, and in returns to
shareholders.
Objective
To optimise production from the Group’s asset base.
Performance
Vietnam 2021 production 5,560 boepd net. Egypt production 3,318 bopd.
Outlook
2022 production guidance for Vietnam is 5,000-6,000 boepd net.
2022 production forecast for Egypt will be evaluated following completion of the farm-down to IPR and transfer of operatorship. Guidance will
be given at the AGM.
Links to strategy
• Deliver value through growth
Associated risks
• Reserve risk
• Sub-optimal capital allocation risks
• Commodity price risk
Links to Remuneration Report (See pages 102 - 116)
SOCIAL AND ECONOMIC INVESTMENT
$
765,000
Description
In Vietnam, a training levy of $150,000 for each joint operating company goes into a fund which is ring-fenced to support the development of
future talent in the industry. In Egypt, under the El Fayum and North Beni Suef Concession Agreements, the Company contributes a total of
$200,000 per year split equally between the two Concessions to support training and development within the industry.
Objective
To continue supporting local capability building and social investments in Vietnam and Egypt.
Performance
In 2021, in addition to the aforementioned training levy funds, the HLHVJOC Charitable Donation Programme also invested $265,000 in 12
community and charitable partnerships and investment projects in Vietnam. Additionally, in cooperation with the Ministry of Higher Education
and Scientific Research, Petrosilah holds an annual summer training programme for all students applying from public and private Egyptian
universities for training in the administrative office and the company’s fields, of which they can obtain a training certificate from the company.
Outlook
Build on previous work, and continuously assess and review where the most valuable contribution to long-term social projects, both at the
local level and more widely, can be made.
Links to strategy
• Focus on stakeholders
Associated risks
• Commodity price risk
• Financial discipline and governance risk
• Business conduct and bribery
2020
2019
2021
12,136
11,373
8,878
2020
2019
2021
765,000
745,191
545,379
Pharos Energy Annual Report and Accounts 2021
25
KEY METRICS - CONTINUED
EMPLOYEES UNDERTAKEN ANTI-BRIBERY
AND CORRUPTION TRAINING %
100
Description
Our Anti-Bribery and Corruption (“ABC”) programme is designed to prevent corruption and ensure systems are in place to detect, remediate
and learn from any potential violations. All personnel are required to complete annual ABC training.
Objective
To have all Group personnel complete the annual ABC programme including training, testing and self-declaration statement.
Performance
100% of personnel completed the ABC training as at 31 December 2021.
Outlook
Maintain 100% completion rate for the ABC training and testing. Comply with new legislations and industry best practices and ensure the
training programmes are up-to-date.
Links to strategy
• Deliver value through growth
• Investment growth
Associated risks
• Partner alignment risk
• Business conduct and bribery
2020
2019
2021
100
100
100
Pharos Energy Annual Report and Accounts 2021
26
Additional InformationGovernance Report Financial StatementsStrategic Report
In 2021, Pharos had 100% interest in two concessions in Egypt - El Fayum and
North Beni Suef. *
Egypt
OPERATIONS REVIEW
3,318boepd
2021 Egypt production
10
Oil fields
EGYPT
CAIRO
El Fayum Concession
North Beni Suef Concession
ISRAEL
El Fayum (D&P)
The El Fayum Concession is located in the low-cost and highly prolific Western Desert,
about 80km south west of Cairo and close to local energy infrastructure.
+ See page 27
North Beni Suef (E)
The North Beni Suef (NBS)Concession is located south of the El Fayum Concession.
Pharos entered into the NBS Concession Agreement on 24 December 2019.
+ See page 28
* In September2021, Pharos announced the farm-out and sale of a 55% working interest and operatorship in each of the El Fayum and
North Beni Suef Concessions to IPR Lake Qarun Petroleum Co, a wholly owned subsidiary of IPR Energy AG. Pharos and EGPC have
finalised all necessary documents to be presented to the Minister of Petroleum and Natural Resources to approve the transaction with IPR
and this approval is expected shortly.
Pharos Energy Annual Report and Accounts 2021
27
OPERATIONS REVIEW - CONTINUED
El Fayum
Located in the Western Desert of Egypt
El Fayum Production
Production for 2021 from the El Fayum
Concession averaged 3,318 bopd (2020:
5,270 bopd). This is in line with the 2021
production guidance given in our Interim
Results statement on 15 September
2021.
El Fayum Development and
Operations
El Fayum Phase 1B waterflood
programme commenced in H1
2021 with one workover rig, with a
second workover rig contracted in
August dedicated to the maintenance
programme. Plans were put in place
to accelerate production enhancement
in the second half of the year, which
included the arrival of a second workover
rig and the commencement of a three-
well development drilling programme in
November 2021. This was to help provide
reservoir pressure support and maintain
production ahead of the main multi-year
and multi-well development programme to
be implemented following completion of
the transaction with IPR.
Petrosilah, the El Fayum joint operating
company, has tendered for a Drilling Rig
and a candidate has been identified for
a Q2 commencement of operations. The
results of the recently drilled wells have
been encouraging and confirm our latest
subsurface modelling work.
El Fayum Exploration
The Batran-1X commitment well was
drilled in May 2021 inside the Tersa
Development Lease. The well started
the first phase of a long production test
through Early Production Facility (EPF)
in November by testing the single Upper
Bahariya UB-1 zone to evaluate reservoir
continuity and pressure support. During
the initial test the well produced between
90 and 25 bopd and the rate of the well
continued to drop during the test. There
remains the option to test further reservoir
zones at a later date following completion
of the farm-down to IPR.
El Fayum Commercial
On 20 January 2022, the Company
announced that the Third Amendment
to the El Fayum Concession Agreement
had been signed by His Excellency Eng.
Tarek El Molla (Minister of Petroleum &
Mineral Resources of the Arab Republic
of Egypt), EGPC and the Company . The
agreement, and the improved fiscal terms,
are retroactively effective from November
2020.
While in full cost recovery mode,
Contractor’s share of revenue increases
from c.42% to c.50% as from November
2020 (corresponding to additional net
revenues to Contractor of c.$7 million to
the date of signature) significantly lowering
the development project break-even. The
new arrangements will strongly encourage
new exploration and development
investments, aimed at maintaining and
increasing production rates and optimising
resources, to the mutual benefit of Egypt
and the Contractor parties.
The Third Amendment also grants
Contractor a three-and-a-half-year
extension to the exploration term of the El
Fayum Concession Agreement, with an
additional obligation on Contractor to drill
two exploration wells and acquire a 3D
seismic survey in the northern area of the
concession.
EGYPT
CAIRO
El Fayum Concession
Area E
Pharos Energy Annual Report and Accounts 2021
28
Additional InformationGovernance Report Financial StatementsStrategic Report
2022 Work Programme
The three-well drilling programme, which commenced in November 2021, is ongoing. Two wells have been completed and
are on production, with the third one due to spud soon.
Following award of the drilling rig contract by Petrosilah on behalf of the Joint Venture and upon completion of the
transaction with IPR and transfer of operatorship, the Contractor parties expect to commence the main El Fayum multi-
year and multi-well development programme in Q2 2022.
Production forecast for 2022 will be evaluated following completion of the farm-down to IPR and transfer of operatorship.
Guidance will be given at the AGM.
North Beni Suef
Located south of the El Fayum Concession
Interpretation of the large pre-existing 3D seismic survey on the NBS Concession continues with several low risk drillable prospects
already identified. Following completion of the farm-down to IPR, the partners are planning to drill two low-risk low-cost commitment
wells by end of 2022.
Farm-down transaction and transfer of operatorship
Business integration between IPR, Pharos and local JV operator Petrosilah started as soon as the SPA was signed in
September 2021. A Transition Taskforce (TTF) team has been established to promote the smooth transition of operatorship
to IPR, transfer the knowledge of Pharos to IPR and set up collaborative partnership environment.
North Beni Suef block
CAIRO
EGYPT
Pharos Energy Annual Report and Accounts 2021
29
Vietnam
OPERATIONS REVIEW - CONTINUED
A valued asset with organic future growth opportunities. Supportive relationships
developed at the highest level of government.
We have established and valuable assets
in Vietnam. Production is from two fields
(TGT & CNV) and further potential for
growth from two additional exploration
blocks (Blocks 125 & 126).
Blocks 16-1 and 9-2, which contain
the TGT and CNV fields respectively,
are located in shallow water in the
hydrocarbon-rich Cuu Long Basin, near
the Bach Ho Field, the largest field in the
region with production already in excess
of one billion barrels of oil equivalent. The
Blocks are operated through non-profit
joint operating companies in which each
partner holds an interest equivalent to
its share in the respective Petroleum
Contract. The Group holds a 30.5%
working interest in Block 16-1 which
contains 97% of the Te Giac Trang (TGT)
field and is operated by the Hoang Long
Joint Operating Company. The Group’s
unitised interest in the TGT field is 29.7%.
Pharos also has a 25% working interest
in the Ca Ngu Vang (CVN) field located
in Block 9-2, which is operated by the
Hoan Vu Joint Operating Company. Its
partners in both blocks are PetroVietnam
Exploration and Production, a subsidiary
of the national oil company of Vietnam
and PTTEP, the national oil company of
Thailand.
Vietnam Production
Production in 2021 from the TGT and
CNV fields net to the Group’s net working
interest averaged 5,560 boepd. This is in
line with the 2021 production guidance.
TGT production averaged 13,887 boepd
gross and 4,120 boepd net to Pharos
in 2021 (2020: 15,296 boepd gross
and 4,547 boepd net to Pharos). CNV
production averaged 5,762 boepd gross
and 1,440 boepd net to Pharos in 2021
(2020: 6,223 boepd gross and 1,556
boepd net to Pharos).
Vietnam production guidance for 2022 is
5,000 to 6,000 boepd net.
HO CHI MINH CITY
VIETNAM
NHA TRANG
QUY NHON
Block 9-2 CNV Field
Block 16-1 TGT Field
Block 125
Block 126
CAMBODIA
Block 16-1 TGT Field
(D&P)
The TGT Field is located in Block 16-1,
offshore Vietnam in the shallow water
Cuu Long Basin multi-stacked sandstone
reservoirs.
+ See page 30
Block 9-2 CNV Field
(D&P)
The CNV Field is located in Block 9-2,
offshore Vietnam, in the shallow water
Cuu Long Basin. In contrast to the
geology of TGT, the CNV Field reservoir is
fractured granitic Basement.
+ See page 30
Blocks 125 & 126 (E)
Blocks 125 & 126 are located in
moderate to deep waters in the Phu
Khanh Basin, north east of the Cuu Long
Basin.
+ See page 31
Pharos Energy Annual Report and Accounts 2021
30
Additional InformationGovernance Report Financial StatementsStrategic Report
Block 16-1 TGT Field
Located in Block 16-1, offshore Vietnam, in the shallow water Cuu Long Basin.
Block 9-2 CNV Field
The CNV Field is located in Block 9-2, offshore Vietnam, in the shallow water
Cuu Long Basin.
2021 Activity on TGT
TGT Well Intervention and Development Drilling
In November 2021, the Company announced that the Hoang Long Joint Operating Company (HLJOC) had successfully completed its
2021 four-well development drilling campaign.
The 2021 drilling campaign was completed safely (on 15 November 2021) with four wells successfully drilled ahead of schedule
(approximately 54 days ahead) and budget. The production contribution of the drilling campaign mitigated against the field’s natural
decline and maintained field production levels. The four wells were put on production by November 2021. Overall, field production was
affected by the fault of the GTC-A compressor which was down for 74 days while the repair was done. This is now fully back in service.
The results of the drilling and intervention activity will ultimately improve recovery from the field and support the additional opportunities
set out in the Full Field Development Plan (i.e. nine contingent wells and an extensive well intervention programme), and a TGT licence
extension request to December 2031.
2021 Activity on CNV
As planned, no new drilling activities took place on CNV during 2021. Operations on CNV focused on routine well maintenance and acid
stimulation for two wells.
HO CHI MINH CITY
VIETNAM
Block 9-2 CNV Field
30.5%
Working interest; operated by HLJOC
4,120
boepd net
TGT 2021 production averaged
13,887 boepd gross and
4,120 boepd net to Pharos
25%
Working interest; operated by HLJOC
1,440
boepd net
CNV 2021 production averaged
5,762 boepd gross and 1,440
boepd net to Pharos
HO CHI MINH CITY
VIETNAM
Block 9-2 CNV Field
Pharos Energy Annual Report and Accounts 2021
31
OPERATIONS REVIEW - CONTINUED
2022 Work Programme
Following completion of the drilling of the initial four development wells in the TGT Full Field Development Plan (FFDP) and
the HLJOC management committee’s budget approval in 2021, two additional TGT development wells are planned to be
drilled in Q3 2022, with the Group’s share of the cost of the wells expected to funded from cash flow. In addition, extensive
well interventions are planned for TGT in 2022.
On CNV, one well is planned to be drilled in Q4 2022 after completion of the drilling of the two TGT wells.
Additionally, as part of the work programme, the JOC is progressing work on submitting licence extension requests for
both TGT & CNV, with a Revised Full Field Development Plan (“FFDP”) for both fields to be submitted by Q4 2022. This
would take the licence terms out to December 2031 for TGT and December 2032 for CNV and would add two years of
reserves to the production profiles and economics for these fields.
On Block 125, final 3D seismic processed results are expected in July 2022. Following this, the Group will proceed to
seismic mapping to identify prospects and expects to seek a further partner on the PSC before drilling.
Blocks 125 & 126
Located in moderate to deep waters in the Phu Khanh Basin, north east of the
Cuu Long Basin.
2021 Activity on Blocks 125 & 126
In July 2021, the Company announced the completion of the 3D seismic acquisition commitment on the western part of Block 125
in the Phu Khanh Basin, offshore Vietnam. The 909 km
2
3D seismic programme was acquired on behalf of Pharos by Shearwater
GeoServices Singapore Pte Ltd, using the SW Vespucci seismic vessel, across water depths of between 100m and 2,300m.
The capital spend for the acquisition of the 3D survey was $8.5m. The seismic processing contract has been awarded, the work is on
schedule and the final processed results are expected in July 2022.
On 8 September 2021, Pharos received approval for a two-year extension to the initial exploration phase of the Block 125 & 126 PSC
from the Vietnamese Ministry of Industry and Trade.
70%
Operated working interest
NHA TRANG
VIETNAM
HO CHI MINH CITY
Block 125
Block 126
CAMBODIA
Pharos Energy Annual Report and Accounts 2021
32
Additional InformationGovernance Report Financial StatementsStrategic Report
Israel
Option on East Mediterranean gas play.
Zone A & Zone C (E)
HO CHI MINH CITY
VIETNAM
Block 9-2 CNV Field
8
Licences
33.33%
Working Interest
Pharos, with Capricorn Energy PLC (formerly known as Cairn Energy PLC) and Israel’s Ratio Oil Exploration, have eight licences offshore
Israel. Each party has an equal working interest and Capricorn Energy is the operator. Evaluation of all reprocessed seismic data has
been finalised with an assessment of prospectivity being undertaken.
GROUP RESERVES STATISTICS
Net Working Interest, MMBOE TGT CNV Vietnam
3
Egypt
4
Group
Oil & Gas 2P Commercial Reserves
1,2
As of 1 January, 2021 13.0 4.9 17.9 40.8 58.7
Production (1.5) (0.5) (2.0) (1.2) (3.2)
Revision (0.6) (0.1) (0.7) (1.8) (2.5)
2P Commercial Reserves as of 31 December 2021 10.9 4.3 15.2 37.8 53.0
Oil & Gas 2C Commercial Reserves
1,2
As of 1 January, 2021 8.3 3.9 12.2 19.0 31.2
Revision (0.7) (0.1) (0.8) (0.4) (1.2)
2C Contingent Resources as of 31 December 2021 7.6 3.8 11.4 18.6 30.0
Total Group 2P Reserves & 2C Contingent Resources
3,4
as of 31 December 2021
18.5 8.1 26.6 56.4 83.0
1. Reserves and contingent resources are categorised in line with 2018 SPE standards.
2. Assumes an oil equivalent conversion factor of 6,000 standard cubic feet per barrel of oil equivalent.
3. Reserves and Contingent Resources have been independently audited by RISC
4. Reserves and Contingent Resources have been independently audited by McDaniel, 100% working interest pre-farm-down with IPR.
2021 Group reserves and contingent resources
The Group Reserves Statistics table below summarises our reserves and contingent resources based on the Group’s unitised net
working interest in each field. Gross reserves and contingent resources have been independently audited by RISC Advisory Pty Ltd
(RISC) for Vietnam and McDaniel & Associates Consultants Ltd. (McDaniel) for Egypt.
Pharos Energy Annual Report and Accounts 2021
33
OPERATIONS REVIEW - CONTINUED
Vietnam Reserves and Contingent Resources
In accordance with the requirements of its Reserve Base Lending Facility, the company commissioned RISC to provide an independent
audit of gross (100% field) reserves and contingent resources for TGT and CNV as of 31 December 2021.
VIETNAM RESERVES STATISTICS
Net Working Interest, MMBOE TGT CNV Total Vietnam
Oil & Gas 2P Commercial Reserves
1,2
As of 1 January, 2021 13.0 4.9 17.9
Production (1.5) (0.5) (2.0)
Revision (0.6) (0.1) (0.7)
2P Commercial Reserves as of 31 December 2021 10.9 4.3 15.2
Oil & Gas 2C Commercial Reserves
1,2
As of 1 January, 2021 8.3 3.9 12.2
Revision (0.7) (0.1) (0.8)
2C Contingent Resources as of 31 December 2021 7.6 3.8 11.4
Total Vietnam 2P Reserves & 2C Contingent Resources
3
as of 31 December 2021
18.5 8.1 26.6
1. Reserves and contingent resources are categorised in line with 2018 SPE standards.
2. Assumes an oil equivalent conversion factor of 6,000 standard cubic feet per barrel of oil equivalent.
3. Reserves and contingent resources have been independently audited by RISC.
On TGT, 2P reserves and 2C contingent resources were revised downwards due to lower-than-expected well performance and reduced
well intervention activity in the second half of the year because of drilling operations.
On CNV, the 2P reserves and 2C contingent resources were revised downwards due to lower than anticipated results from the well
interventions completed in the first half of 2021.
Egypt Reserves and Contingent Resources
EGYPT RESERVES STATISTICS
Net Working Interest, MMBOE Egypt
Oil 2P Commercial Reserves
1
As of 1 January, 2021 40.8
Production (1.2)
Revision (1.8)
2P Commercial Reserves as of 31 December 2021 37.8
Oil 2C Commercial Reserves
1
As of 1 January, 2021 19.0
Revision (0.4)
2C Contingent Resources as of 31 December 2021 18.6
Total Egypt 2P Reserves & 2C Contingent Resources
2
as of 31 December 2021
56.4
1. Reserves and contingent resources are categorised in line with 2018 SPE standards.
2. Reserves and Contingent Resources have been independently audited by McDaniel, 100% working interest pre-farm-down with IPR.
On El Fayum, lower than expected field performance and the delay in the implementation of the field development plan have resulted in a
downwards revision of the 2P reserves and 2C contingent resources.
Pharos Energy Annual Report and Accounts 2021
34
Additional InformationGovernance Report Financial StatementsStrategic Report
Group’s Net Working Interest Reserves and Contingent Resources
EL FAYUM FIELD AT 31 DECEMBER 2020 (MMBOE)
Reserves 1P 2P 3P
Oil 16.8 37.8 50.2
Contingent Resources 1C 2C 3C
Oil 7.5 18.6 38.8
Sum of Reserves and Contingent Resources
1,2
1P & 1C 2P & 2C 3P & 3C
TotalTotal 24.324.3 56.456.4 89.089.0
1. Reserves and Contingent Resources have been audited independently by McDaniel, 100% working interest pre-farm-down with IPR.
2. The summation of Reserves and Contingent Resources has been prepared by the Company.
TGT FIELD AT 31 DECEMBER 2021 (MMBOE) (NET TO GROUP’S WORKING INTEREST)
Reserves
3
1P 2P 3P
Oil 8.0 10.0 12.0
Gas
1
0.6 0.9 1.2
Total 8.6 10.9 13.2
Contingent Resources
3
1C 2C 3C
Oil 4.2 7.2 10.2
Gas
1
0.1 0.4 0.7
Total 4.3 7.6 10.9
Sum of Reserves and Contingent Resources
2
1P & 1C 2P & 2C 3P & 3C
Oil 12.2 17.2 22.2
Gas
1
0.7 1.3 1.9
Total 12.9 18.5 24.1
1. Assumes oil equivalent conversion factor of 6,000 standard cubic feet per barrel of oil equivalent.
2. The summation of Reserves and Contingent Resources has been prepared by the Company.
3. Reserves and Contingent Resources have been audited independently by RISC.
CNV FIELD AT 31 DECEMBER 2021 (MMBOE) (NET TO GROUP’S WORKING INTEREST)
Reserves
3
1P 2P 3P
Oil 2.4 2.8 3.2
Gas
1
1.2 1.5 1.7
Total 3.6 4.3 4.9
Contingent Resources
3
1C 2C 3C
Oil 1.5 2.5 3.5
Gas
1
0.8 1.3 1.9
Total 2.3 3.8 5.4
Sum of Reserves and Contingent Resources
2
1P & 1C 2P & 2C 3P & 3C
Oil 3.9 5.3 6.7
Gas
1
2.0 2.8 3.6
Total 5.9 8.1 10.3
1. Assumes oil equivalent conversion factor of 6,000 standard cubic feet per barrel of oil equivalent.
2. The summation of Reserves and Contingent Resources has been prepared by the Company.
3. Reserves and Contingent Resources have been audited independently by RISC.
Pharos Energy Annual Report and Accounts 2021
35
S.172(1) Companies Act 2006
In accordance with section 172(1) of
the Companies Act 2006 (“s.172(1)”),
the Directors of the Company have a
statutory duty to promote the success
of the Company. The Board at Pharos,
as individuals and together, consider
that they have acted in a way that would
most likely promote the success of the
Company, and deliver the goals and
objectives for the benefit of it¬s members
as a whole in relation to all stakeholders
who may be affected by or engaging with
the Company’s activities.
Board meetings and discussions
The Board has always taken into account
its s.172(1) obligations during the year in
line with current reporting requirements.
Their key decisions have been specifically
confirmed at each Board meeting to
take into account these matters. This
has been supplemented by the roles of
the individual directors giving due regard
and consideration of each element of the
s.172(1) requirements including:
a) The likely consequences of any
decisions in the long-term;
b) The interests of the employees;
c) The requirements to foster business
relationships with suppliers, customers,
and others;
d) The impact on the community and
environment of the Company’s
operations;
e) The desirability of the Company
maintaining a reputation for high
standards of business conduct; and
f) The need to act fairly as between
members of the company.
Illustration of how s.172(1) factors have
been applied by the Board can be found
throughout the strategic report.
a) The likely consequences of any
decisions in the long-term
During its meetings and discussions, the
Board considers decisions with keen
regard to consequences in the long term
for the business, for example, the decision
to defer all discretionary spend in Egypt
in order to preserve the group’s balance
sheet and position it for the longer term.
Board papers are drafted to promote
discussion and provide options for the
Board to hold an informed and balanced
debate.
For more information on how the Board
consider decisions with regards to the
long-term consequences for the business,
see pages 43 to 57 of the Risk
Management report for all principal risk.
b) The interests of the employees
The interests of the Company’s employees
is a key element of the statutory duty
under s. 172(1). Throughout the year, we
have run a dedicated Monday weekly
meeting to ensure all colleagues are
continuously informed about important
business developments in the Company
and have channels through which they
can ask questions and provide input.
Additionally, there was increased use
of video camera during virtual calls to
maintain visibility and connection. The
recent reorganisation of the Group has
instituted a flatter organisational structure,
allowing for shorter lines of management
and more direct, accessible channels of
communication with leadership.
The Executive Directors receive regular
updates on colleague engagement to
understand any complaints or troubles
from the changing work environment.
Following feedback from various
anonymous staff surveys, the Executive
Directors took on board feedbacks
from the team and organised an off-
site away day for the London team to
better understand employees’ working
preferences for working and to explore
any concerns arising from working from
home in the past year. Ed Story, who was
CEO at the time, could not travel to the
UK due to COVID-19 travel restrictions,
but joined the off-site meeting virtually via
Microsoft Teams in order to participate in
the sessions with the rest of the team. Ed
also used the opportunity to communicate
the Company’s long-term strategy going
forward, which was an additional area of
feedback from the anonymous surveys.
In another survey, colleagues gave views
on future working patterns. Regardless
of location, there was a clear preference
for permanently blending office with
home working in the future. This has
informed the development of our balanced
working programme and led to our rental
of a WeWork office space in central
London, which seeks to address UK
employees’ working needs and provide
greater flexibility in how and from where
those employees work after removal or
relaxation of travel and public gathering
restrictions introduced in response to the
COVID-19 pandemic.
For more information on the Board’s
engagement with employees, see
pages 86 to- 87 of our Corporate
Governance report, pages 11 to 12
of our Chair’s Statement, and pages
59, 60, 65 to 68, 76, 77 of
our Corporate Responsibility report.
c) The requirements to foster
business relationships with
suppliers, customers, and others
The Group’s business relationships
with suppliers, customers and
others are subject to regular review
and consideration through vendor
due diligence and active contracts
management. Vendor due diligence is
actively undertaken before a service
provider of any size is engaged. Significant
contracts, concessions and commitments
are considered by the executive and
the Board, supported by Board papers
The duty under section 172(1) of the Companies Act 2006 is applied in addition
to the other duties of a Director. Each Director must discharge these duties in
accordance with the duty of care, skill and diligence both objectively and to a
subjective standard.
S.172(1) COMPANIES ACT 2006
Pharos Energy Annual Report and Accounts 2021
36
Additional InformationGovernance Report Financial StatementsStrategic Report
outlining impact and consequences of
potential decisions. Our relationships
with our joint venture partners are key in
developing these strong foundations and
will support our business in the future.
The Board regularly monitors the Group’s
business activities, financial position,
cash flows and liquidity through detailed
forecasts. Scenarios and sensitivities are
regularly presented to the Board, including
changes in commodity prices and in
production levels from the existing assets,
plus other factors which could affect the
Group’s future performance and position.
For more information on how the
Company foster relationships with
suppliers and business partners, see
pages 59, 64 to 68, 75 to 77 of our
Corporate Responsibility report.
For more information on Board oversight
on business activities and financial
position, see pages 43 to 57 of the Risk
Management report.
d) The impact on the community
and environment of the Group’s
operations
The organisation has provided robust
evidence of its commitment to ESG in
the sector through its ESG Committee
and ESG Working Group. Over the
past four years, we have participated
in the CDP (Climate Disclosure Project)
Climate Change Questionnaire and have
maintained our score (C), which is also
the industry average. 2021 also marks
the first year that the Company submitted
their response to the CDP Water Security
Questionnaire, which was completed
at a basic level in 2021 and we plan to
improve our level of transparency on water
usage and protection by completing the
full version in 2022. More recently, we
re-engaged with Verisk Maplecroft, a
third party Task Force on Climate-related
Financial Disclosures (“TCFD”) consultant,
to commence Phase 2 of the project
to bring our disclosures in line with the
requirements of the TCFD. These efforts
had been interrupted by the impact of
the pandemic in 2020 but have resumed
in Q4 2021. Results of the completion of
Phase 2 can be found in the Corporate
Responsibility report.
In addition to this, the Company has
always remained committed to creating
value in a sustainable manner for host
countries and local communities as
well as for staff. In recent years, we
have structured our social investment
programme to align more with the United
Nations Sustainable Development Goals
(UN SDGs). We’ve worked closely with our
local partners and joint ventures in order
to make sure that our social initiatives in
the region continue to bring more positive
impacts to the region. In 2021, a total
of $765,000 was invested in long-term
community projects and ring-fenced funds
for training to develop future talents in the
industry.
For more information on the Board’s
commitment to ESG and considerations
on the community and the environment,
see pages 92 to 94 for the ESG
Committee report, pages 11 to 12 for the
Chair’s Statement, and pages 58 to 78 for
the Corporate Responsibility report.
e) The desirability of the Company
maintaining a reputation for high
standards of business conduct
Our Anti-Bribery and Corruption (‘ABC’)
Policy and Code of Business Conduct
and Ethics have been followed rigorously
in 2021, ensuring that our engagements
with government officials in all countries
are recorded and monitored internally.
This demonstrates that our Company
understands its Code of Business
Conduct and Ethics and places it at the
forefront of our engagement with public
officials. Our Whistleblowing Policy
ensures that employees are protected
from possible reprisals when raising
concerns in good faith. In addition to
internal reporting channels, we have a
confidential ethics hotline supported by
EthicsPoint with numbers displayed in
local offices available 24 hours a day all
year round.
The Board has an obligation and duty to
ensure that we exercise our intention to
behave responsibly. The management
team is obliged to execute the business
responsibly and to the highest standards.
We communicate regularly with the
Executive Directors and maintain open
communication with the management
team to ensure the two-way information
flow is clear and open. Each Board
member brings individual judgement and
considerable experience to decision-
making and carefully assesses the course
of action which is most likely to promote
the success of the Company. For
example, in 2021, following anonymous
feedback from the London office staff to
the Board and Executive Directors, the
Company introduced a hybrid working
model of working from home and working
from a physical office in central London,
seeking to address UK employees’
working needs and provide greater
flexibility in how and from where those
employees work after removal or
relaxation of travel and public gathering
restrictions introduced in response to the
COVID-19 pandemic. For more
information on the Company’s
commitment to maintaining high
standards of business conduct, see
pages 59, 60, 66, 76 of the Corporate
Responsibility report and pages 11 to 12
of the Chair’s Statement.
f) The need to act fairly as between
members of the company.
We believe in a workforce with a diversity
of experience, nationalities, cultural
backgrounds and gender, to support our
business strategy of long-term sustainable
growth. It is crucial to the success of
our business that we retain and develop
the diversity of our workforce and have
diversity and inclusion at the heart of our
recruitment, development and promotion
processes.
Our Code of Business Conduct and
Ethics, associated policies and the Pharos
Guiding Principles commit us to providing
a workplace free of discrimination
where all employees can fulfil their
potential based on merit and ability. We
remain respectful and accepting in our
relationships with current and future
employees without discrimination or
prejudice on grounds of age, disability,
gender, marital status, sexual orientation,
colour, race, religion or any other
characteristic protected by applicable
laws. They also commit us to providing a
fully inclusive workplace, while providing
the right development opportunities to
ensure existing staff have rewarding
careers.
For more information on our commitment
to act fairly as between members of
the company, see page 9 of the
Investment Case, pages 67 to 68
of the Corporate Responsibility report, or
visit our website at https://www.pharos.
energy/responsibility/policy-statements/
for our Human Rights statement.
The Company is committed to good
governance and will continue to review the
balance and effectiveness of the Board
with a view to maintaining the right skills,
experience and diversity to align with the
Group’s strategic goals.
We will act and make decisions
responsibly in the interests of the
Company, our shareholders and other
stakeholders, delivering our plan and
working closely to consider the best
opportunities for the Company. Detailed
Board and Committee papers are carefully
prepared and analysed to ensure all
scenarios and options are fully considered
in a timely and consistent fashion in
meetings.
In accordance with s. 172(1), the
Board has also continued to consult
with, and take account of, the views
of our investors, employees, partners,
governments, suppliers and other
stakeholders throughout the year.
Pharos Energy Annual Report and Accounts 2021
37
Our initiatives on stakeholder engagement included, but not limited to:
• Robust process to refresh Board
members and reduce Board size
• Agile and responsible response to
continued COVID-19 work restrictions
– protecting people, cutting costs and
deferring capex
• Ensuring the health and safety of
our workforce by adhering to the
requisite precautionary procedures and
vaccine recommendations, in line with
the government directives in Egypt,
Vietnam and the UK
• Re-engagement of Verisk Maplecroft
to complete Phase 2 of the project to
bring our disclosures in line with the
requirements of the TCFD
• Submission of CDP Water Security
Questionnaire, in addition to the Climate
Change Questionnaire, for the first time
in 2021 to ensure transparency on
water usage and protection
• Open and active dialogue with
its institutional private and retail
shareholder via website, Twitter and
LinkedIn, email communications, and
online meeting with Q&A to allow the
wider public a free platform to raise
questions directly to the Executive
Directors
• Rigorous assessment of all suppliers/
potential suppliers/ partners and off-
takers
• Frequent meetings between Executive
Directors and in-country regulators and
partners, reported to the Board
• A section of the agenda for each
regularly scheduled meeting of the
Board being dedicated to investor and
stakeholder considerations.
• Reports from brokers and financial PR
firm on feedback from investors and
research analysts.
• Confidential ethics hotline supported by
EthicsPoint with numbers displayed in
local offices available 24 hours a day all
year round
S.172(1) COMPANIES ACT 2006
Pharos Energy Annual Report and Accounts 2021
38
Additional InformationGovernance Report Financial StatementsStrategic Report
CFO’S Statement
CHIEF FINANCIAL OFFICER’S STATEMENT
SUE RIVETT
Chief Financial Officer
Finance strategy
Our finance strategy continues to
underpin the Group’s business model and
goes hand in hand with our commitment
to building shareholder value through
capital growth and sustainable dividends.
In 2021, we recommenced investment in
Vietnam and with the additional liquidity
offered by our farm-in partner in Egypt,
we are on the path back to focusing on
investing for cash flow generation and
growth in 2022.
Operating performance
Revenues
Group revenues for the year totalled to
$163.8m prior to hedging loss of $29.7m,
representing a 38% increase over the prior
year (2020: $118.3m plus hedging gain of
$23.7m).
The revenue for Vietnam of $131.0m
(2020: $87.7m) increased significantly
year on year. The average realised crude
oil price was $72.61/bbl (2020: $44.70/
bbl), a 62% increase year on year, and
the premium to Brent was just under $2/
bbl (2020: just over $3/bbl). Production,
however, declined from 6,103 boepd to
5,560 boepd primarily due to the GTC-A
compressor fault on the TGT field in
November 2021.
The revenue for Egypt of $32.8m (2020:
$30.6m) increased largely as a result of
the higher average realised crude oil price,
up 76% to $65.12/bbl (2020: $37.08/
bbl), offset by lower average production,
of 3,318 boepd from 5,270 boepd .
There are two discounts applied to the
El Fayum crude production – a general
Western Desert discount and one related
specifically to El Fayum. Both are set by
EGPC and combined stayed consistent at
nearly $5/bbl over the year.
Operating costs
Group cash operating costs were $52.0m
(2020: $48.3m). Vietnam increased by
17% from $26.5m to $31.0m in 2021,
which equates to $15.28/bbl (2020:
$11.86/bbl). The increase is due to higher
costs relating to the FPSO as a result of
(i) lower TLJOC production throughput
which increased Pharos’ share of the
costs and (ii) higher foreign contractor’s
withholding tax, of which the CIT element
impacts the FPSO costs included in
operating costs, from 2% to 5% from 27
August 2018 to date, which was also
spread over fewer produced barrels. Cash
operating costs in Egypt were $21.0m
in 2021 (2020: $21.8m), which equates
to $17.34/bbl (2020: $11.30/bbl). The
decrease in cash operating costs relates
predominantly to a reduction in variable
costs as a result of decreased production,
partially offset by higher well workover
costs, but spread over fewer produced
barrels.
DD&A
Group DD&A associated with producing
assets decreased to $51.0m (2020:
$63.3m) due to the lower depreciating
cost base following 2020 impairments
taken on both Vietnam and Egypt,
combined with lower production. DD&A
per bbl is currently $21.19/boe for
Vietnam (2020: $21.40/boe) and $6.61/
boe in Egypt (2020: $8.04/boe).
Administrative Expenses
Administrative expenses in 2021 of
$13.2m (2020: $14.7m) are lower than
prior year, due to continuous efforts
to reduce the head office costs. After
adjusting for the non-cash items under
IFRS 2 Share Based Payments of $2.2m
(2020: $2.8m) and IFRS 16 Leases $nil
(2020: $0.7m), the administrative expense
is $11.0m (2020: $11.2m). Voluntary staff
salary reductions at 20% continued from
2020 through to 1Q 2021. The executive
directors, who had previously volunteered
a 35% reduction in base salary in 2020
agreed to a further reduction from 1 April
2021 to 50% of base salary. The non-
executive directors reduced their fees
throughout most of 2020 and continued
those reductions throughout the whole
of 2021. The fees will revert to previous
levels post completion of the transaction
with IPR. A programme of phased
redundancies took place at head office in
London during 2021.
Operating Profit
Operating profit from continuing
operations for the year was $6.3m (2020:
$3.5m) excluding the net impairment
reversal of $42.0m (2020: $234.8m
impairment charge), reflecting the higher
commodity price environment throughout
the year, offset by lower production
volumes.
Other/Restructuring Expenses
Other/restructuring expenses for the
year totalled $3.3m (2020: $5.8m) and
included restructuring costs for both the
head office in London and the Egypt office
in Cairo ($3.0m). In addition, there was
$0.3m charge relating to the premium on
the transfer of the lease on the London
office.
Finance Costs
Finance costs increased to $6.4m (2020:
$4.2m), mainly related to amortisation
of capitalised borrowing costs of $2.4m
(2020: $1.5m gain due to changes in
future cash flows), interest expense
payable and similar fees of $3.8m (2020:
$4.8m) and unwinding of discount on
provisions of $0.8m (2020: $0.8m).
Pharos Energy Annual Report and Accounts 2021
39
CHIEF FINANCIAL OFFICER’S STATEMENT - CONTINUED
CASH OPERATING COST PER BARREL*
2021 $m
2020 $m
Cost of sales
114.6
123.8
Less
Depreciation, depletion and amortisation
(51.0)
(63.3)
Production based taxes
(10.1)
(7.0)
Inventories
0.1
(2.3)
Other cost of sales
(1.6)
(2.9)
Cash operating costs
52.0
48.3
Production (BOEPD)
8,878
11,373
Cash operating cost per BOE ($)
16.05
11.60
DD&A PER BARREL*
2021 $m
2020 $m
Depreciation, depletion and amortisation
(51.0)
(63.3)
Production (BOEPD)
8,878
11,373
DD&A per BOE ($)
15.74
15.21
CASH OPERATING COST PER BARREL BY SEGMENT
Vietnam $m Egypt $m
Total $m
Cost of sales 84.3 30.3
114.6
Less
Depreciation, depletion and amortisation (43.0) (8.0)
(51.0)
Production based taxes (9.8) (0.3)
(10.1)
Inventories 0.1 -
0.1
Other cost of sales (0.6) (1.0)
(1.6)
Cash operating costs 31.0 21.0
52.0
Production (BOEPD) 5,560 3,318
8,878
Cash operating cost per BOE ($) 15.28 17.34
16.05
DD&A PER BARREL BY SEGMENT
Vietnam $m Egypt $m
Total $m
Depreciation, depletion and amortisation (43.0) (8.0)
(51.0)
Production (BOEPD) 5,560 3,318
8,878
DD&A per BOE ($) 21.19 6.61
15.74
* Cash operating cost per barrel and DD&A per barrel are alternative performance measures. See pages 163-164.
MOVEMENTS IN THE PROPERTY, PLANT AND EQUIPMENT
2021 $m
2020 $m
As at 1 Jan
435.8
676.9
Capital spend
24.7
33.5
Revision in decommissioning assets
(1.9)
6.6
Disposal of other assets
-
(0.5)
Derecognition of right-of-use asset
-
(5.7)
Re-classification of assets held for sale
(62.0)
-
DD&A- Oil and gas properties
(51.0)
(63.3)
DD&A – Other assets
(0.4)
(1.2)
Impairment reversal/(charge) – PP&E
54.6
(210.5)
As at 31 Dec
399.8
435.8
Property, Plant and Equipment
399.8
435.7
Right-to-use-Asset (IFRS 16 Impact)
-
0.1
As at 31 Dec
399.8
435.8
Pharos Energy Annual Report and Accounts 2021
40
Additional InformationGovernance Report Financial StatementsStrategic Report
Taxation
The overall net tax charge of $43.3m
(2020: $25.6m credit) relates to tax
charges in Vietnam of $24.8m plus
the deferred tax charge on impairment
reversal of $18.5m (2020: Vietnam tax
charges of $11.1m offset by a deferred
tax credit on impairment of $36.7m).
The Group’s effective tax rate
approximates to the statutory tax rate in
Vietnam of 50%, after adjusting for non-
deductible expenditure and tax losses not
recognised.
The Egypt concessions are subject to
corporate income tax at the standard
rate of 40.55%, however responsibility
for payment of corporate income taxes
falls upon EGPC on behalf of Pharos El
Fayum (PEF). The Group records a tax
charge, with a corresponding increase in
revenue, for the tax paid by EGPC on its
behalf. Due to accumulated tax-deductible
balances, there is no tax due on PEF this
period.
One of the Group company entered into
commodity swaps designated as cash
flow hedges. In accordance with IAS
12, a deferred tax asset has not been
recognised in relation to the hedging
losses of $29.7m recorded in the year
as it is unlikely that the UK tax group
will generate sufficient taxable profit in
the future, against which the deductible
temporary differences can be utilised.
Loss post tax
The post tax loss for the year from
continuing operations and prior to
the impairment reversal of $42.0m,
impairment tax charge of $18.5m and
exceptional costs of $3.3m was $24.9m
(2020: post tax loss for the year of
$11.7m from continuing operations
and prior to the impairment charge of
$234.8m, impairment tax credit of $36.7m
and exceptional costs of $5.8m). The
overall loss for the year was $4.7m (2020:
$215.8m).
Cash flow
Operating cash flow (before movements
in working capital) was $60.1m (2020:
$70.8m), after tax charges of $39.9m
(2020: $26.5m), restructuring expense
$0.7m (2020: $2.7m) and working capital
adjustments of $8.6m (2020: $14.7m),
the cash generated from operations was
$10.8m (2020: $56.4m).
Operating cash flow (before movements
in working capital) adjusted for the impact
of the hedging positions of $29.7m loss
(2020: gain $23.7m) gives an underlying
operational performance of $89.8m (2020:
$47.1m), which is consistent with the
improvement seen in commodity prices
offset by the production decrease year on
year.
The increase in receivables was $7.2m
(2020: decrease in receivables of $19.6m).
The movement is mainly commodity price
driven, from YE20 the average oil price
realised has increased from $44.70/bbl
to $70.95/bbl, therefore increasing the
receivables balance held at YE21.
Capital expenditure on continuing
operations for the year was relatively flat at
$41.8m (2020: $41.3m). All discretionary
capex was deferred during 2020 following
the oil price crash to preserve balance
sheet strength and liquidity. During 2021,
the TGT four well infill development
was successfully carried out within
schedule and under budget. Egypt
capital expenditure included the drilling of
commitment exploration well Batran-1X
in May 2021 and a three-well back-to-
back development drilling programme
commenced in November 2021.
Net cash inflows from financing activities
of $31.1m (2020: $48.5m outflow)
included net inflow of the RBL totalling
$20.9m following the refinancing in July
2021 ($21.8m further borrowing, offset
by $0.9m settlement of the original RBL).
The revised RBL has provided access of
up to a committed $100m with a further
$50m available on an uncommitted
“accordion” basis and has a four year
term that matures in July 2025. In 2020,
the significant decrease in the oil price
during H1 2020 led to a reduction in the
borrowing base and principal repayments
during the year on the RBL totalled
$42.8m. In addition for 2021, the Group
drew down on a new facility with National
Bank of Egypt for a net amount of $6.5m
($18.1m principal facility, less $11.6m
of repayments). The carrying amount of
our trade receivables balance includes
receivables in Egypt which are subject
to an Uncommitted Revolving Credit
Facility for Discounting (with Recourse)
arrangement. This facility has been put in
place to mitigate the risk of late payment
of our debtors. Under this arrangement,
Pharos is able to access cash from
the facility using the El Fayum oil sales
invoices as evidence to support its ability
to repay the facility. The oil sales invoices
remain due to Pharos and it retains the
credit risk. The Group therefore continues
to recognise the trade receivables in their
entirety on the balance sheet.
In January 2021, also within financing
activities, the Company announced the
successful completion of the placing,
subscription and retail offer resulting in the
issue of 44,661,490 new ordinary shares.
Through this transaction, Pharos raised
additional capital of $10.9m (net of direct
issue costs of $0.8m).
No final dividend was paid for the year
(2020: $nil).
Tax strategy and total tax
contribution
Tax is managed proactively and
responsibly with the goal of ensuring that
the Group is compliant in all countries in
which it holds interests. Any tax planning
undertaken is commercially driven and
within the spirit as well as the letter of the
law.
This approach forms an integral part of
Pharos’ sustainable business model.
The Group’s Code of Business Conduct
& Ethics seeks to build open, cooperative
and constructive relationships with tax
authorities and governmental bodies in
all territories in which it operates. The
Group supports greater transparency
in tax reporting to build and maintain
stakeholder trust. We have a number of
overseas subsidiaries which were set up
some time ago and the Group is now
proactively planning to bring these into the
UK tax net to ensure greater transparency
and comparability. No additional taxes
are expected to be due as a result of this
exercise.
During 2021, the total payments to
governments for the Group amounted
to $198.2m (2020: $150.9m), of which
$151.9m or 77% (2020: $104.9m or 70%)
was related to the Vietnam producing
licence areas, of which $102.6m (2020:
$72.5m) was for indirect taxes based
on production entitlement. In Egypt
payments to government totalled $44.7m
(2020: $42.2m), of which $44.1m (2020:
$41.3m) related to indirect taxes based on
production entitlement.
Balance sheet
Intangible assets increased during
the period to $12.4m (2020: $1.5m).
Additions for the year related to Blocks
125 & 126 in Vietnam $10.6m (2020:
$2.0m), Egypt $3.9m (2020: $1.1m) and
$0.7m (2020: $1.2m) for the Israeli bid
round licence fee. The Group has written
off $2.2m relating to the Israel asset as
no substantive expenditure has been
identified under IFRS 6. In addition, $2.1m
of intangible assets relating to the Egypt
concessions has been re-classified as
assets held for sale.
The movements in the Property, Plant and
Equipment asset class are shown above.
Impairment
As a result of ongoing oil price volatility
and movements in 2P reserves, we
have tested each of our oil and gas
producing properties for impairment and
impairment reversals. The results of these
impairment tests are summarised below.
For Vietnam producing properties, the
recoverable amount has been determined
using the value in use method which
constitutes a level 3 valuation within
Pharos Energy Annual Report and Accounts 2021
41
the fair value hierarchy. The recoverable
amount is based on the fair value derived
from a discounted cash flow valuation
of the 2P production profile for each
producing property. For Egypt producing
property, the recoverable amount has
been determined using the value-in-use
method.
For CNV, a pre-tax impairment reversal
of $3.8m (2020: impairment charge
$23.3m) has been reflected in the income
statement with an associated deferred
tax charge of $1.4m (2020: deferred tax
credit $8.7m). As at 31 December 2021,
the carrying amount of the CNV oil and
gas producing property, after additions
of $0.3m, changes in decommissioning
asset due to discount rate ($0.9m), DD&A
($10.2m) and the impairment reversal
($3.8m), is $84.2m (2020: the carrying
amount of the CNV oil and gas producing
property, after additions ($1.9m), DD&A
($11.5m) and the impairment charge
($23.3m) was $91.2m).
For TGT, a pre-tax impairment reversal
of $49.1m (2020: impairment charge
$81.8m) has been reflected in the income
statement with an associated deferred
tax charge of $17.1m (2020: deferred tax
credit $28.0m). As at 31 December 2021,
the carrying amount of the TGT oil and
gas producing property, after additions
of $11.4m, changes in decommissioning
asset due to discount rate ($1.0m), DD&A
($32.8m) and the impairment reversal
($49.1m), is $266.0m (2020: the carrying
amount of the TGT oil and gas producing
property, after additions ($14.8m), DD&A
($36.3m) and the impairment charge
($21.9m) was $239.3m).
For Egypt, an impairment reversal (pre-
and post-tax) in the amount of $1.7m
(2020: impairment charge $105.4m) has
been reflected in the income statement.
As at 31 December 2021, the carrying
amount of the Egypt oil and gas producing
property, after additions ($12.9m), re-
classification of PP&E to assets held for
sale of ($1.4m), DD&A ($8.0m) and the
impairment reversal ($1.7m), is $109.3m
(2020: the carrying amount of the Egypt
oil and gas producing property, after
additions ($22.7m), DD&A ($15.2m) and
the impairment charge ($105.4m) was
$104.1m). After the reclassification to
assets held for sale, the Egypt oil and gas
producing property amounts to $49.2m.
The total non-cash, post tax impairment
reversal amounts to $36.1m and the
balance sheet carrying values of the oil
and gas producing properties stands at
$399.4m, after reclassification of assets
held for sale in relation to Egypt of $61.6m
(2020: the total non-cash, post tax
impairment charge amounts to $173.8m
and the balance sheet carrying values
of the oil and gas producing properties
stood at $434.6m). Further details of
these impairment charges and oil price
scenario sensitivity testing, including
key assumptions in relation to oil price,
discount rate and 2P reserves in Vietnam,
are provided in Note 16 of the financial
statements.
The agreement post year end of the Third
Amendment to the El Fayum Concession
Agreement, with retroactive application of
the improved fiscal terms from November
2020 and a three and a half year
extension to the exploration period was
not considered certain at 31 December
2021 and so has been treated as a non-
adjusting post balance sheet event. An
impairment reversal of $28.2m utilising the
circumstances of 31 December 2021 as
the basis has been calculated and will be
factored into the impairment reviews going
forward.
Balance sheet continued
Cash is set aside into abandonment
funds for both TGT and CNV. These
abandonment funds are operated by
PetroVietnam and, as the Group retains
the legal rights to the funds pending
commencement of abandonment
operations, they are treated as other non-
current assets in our financial statements.
Oil inventory was $5.9m at 31 December
2021 (2020: $5.6m), of which $5.4m
related to Vietnam and $0.5m to Egypt.
Trade and other receivables increased to
$28.1m (2020: $22.9m) of which $18.2m
(2020: $11.2m) relates to Vietnam and
$8.5m (2020: $10.0m) to Egypt, driven
mainly by the higher oil price and timing of
crude oil cargos.
Cash and cash equivalents at the end of
the year were $27.1m (2020: $24.6m)
mainly due to the RBL refinancing in July
and also the Placing in January 2021,
offset by the reduction in net cash from
operating activities as a result of the
hedging losses during the year.
Trade and other payables were $30.6m
(2020: $35.6m), of which $14.5m (2020:
$23.3m) relates to the Egypt payables,
$4.8m (2020: $1.7m) Vietnam payables
and $6.5m (2020: $6.8m) net hedging
liability. Tax payable decreased to $5.4m
(2020: $6.7m), consistent with lower
revenues.
Borrowings were $80.5m (2020: $53.7m),
an increase of $26.8m and $20.3m
related to the RBL refinancing in July,
inclusive of capitalised borrowing costs.
In April 2021, the Group drew down on
the new facility with the National Bank of
Egypt and the amount repayable under
the agreement at 31 December 2021 was
$6.5m (2020: $nil). Net debt was $57.5m
(2020: $32.6m).
Long-term provisions comprise the
Group’s decommissioning obligations and
the royalty over the El Fayum asset. In
Vietnam, the decommissioning provision
decreased from $68.0m at 2020 year-
end to $66.9m at 2021 mainly due to
an increase in discount rate from 0.9%
to 1.5% as a result of an increase in
prevailing risk-free market rates, partially
offset by the TGT infill well programme.
The amounts set aside into the
abandonment funds total $48.1m (2020:
$45.9m). No decommissioning obligation
exists in the El Fayum producing area
under the terms of the Concession
Agreement in Egypt.
The royalty provision relates to a historical
arrangement granting a 3% royalty on
Pharos’s share of profit oil and excess
cost recovery from El Fayum in Egypt. At
31 December 2021, the provision was
increased by $0.2m, giving a total of
$5.6m ($3.4m of which is deemed to be
repayable in 2022).
Own shares
The Pharos EBT holds ordinary shares
of the Company for the purposes of
satisfying long-term incentive awards
for senior management. At the end of
2021, the trust held 1,767,757 (2020:
2,181,655), representing 0.40% (2020:
0.54%) of the issued share capital.
In addition, as at 31 December 2021,
the Company held 9,122,268 (2020:
9,122,268) treasury shares, representing
2.02% (2020: 2.24%) of the issued share
capital.
Assets held for sale
In December 2021, the Company
announced that shareholders had
approved the farm-out of 55% of the
Group’s operated interest in each of our
Egyptian Concessions, El Fayum and
North Beni Suef, to IPR, a group that has
extensive experience in Egypt.
As part of the transaction, IPR will fund
Pharos’s share of the costs to a maximum
of $33.425m (to be adjusted for working
capital and interim period adjustments
from the effective economic date of 1 July
2020). This is in addition to the deposit
at signing of the farm-out agreements of
US$2 million and a further US$3 million
payable on completion. This investment
programme should result in an increase
in production and also fulfil commitments
under the concessions. In addition,
the Group will be entitled to contingent
consideration depending on the average
Brent Price each year from 2022 to the
end of 2025, capped at a maximum total
payment of US$20 million.
CHIEF FINANCIAL OFFICER’S STATEMENT - CONTINUED
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An impairment of $10.4m was recognised to bring the value of the net assets classified as held for sale down to the fair value less costs
to sell calculated as at 31 December 2021. The breakdown of assets held for sale at year end is as follows:
2021 $m
Intangible assets
2.1
Property, plant and equipment – oil and gas properties - NBV
61.6
Impairment charge – Assets classified as held for sale
(10.4)
Property, plant and equipment – oil and gas properties – after impairment
51.2
Property, plant and equipment – other - NBV
0.4
Inventories
6.3
Trade and other receivables
2.0
Assets classified as held for sale 62.0
Trade and other payables
(8.5)
Liabilities directly associated with assets classified as held for sale (8.5)
Net assets classified as held for sale 53.5
Going concern
Pharos continuously monitors its business
activities, financial position, cash flows
and liquidity through detailed forecasts.
Scenarios and sensitivities are also
regularly presented to the Board, including
changes in commodity prices and in
production levels from the existing assets,
plus other factors which could affect the
Group’s future performance and position.
A base case forecast has been
considered which uses an oil price of
$76.9/bbl in 2022 and $70.2/bbl in
2023.The key assumptions and related
sensitivities include a “Reasonable Worst
Case” (RWC) sensitivity, where the Board
has considered the risk of an oil price
crash broadly similar to 2020 as a result
of the global outbreak of the COVID-19
virus. This assumes the Brent oil price
drops to 49.0/bbl in April 2022 and
gradually recovers to base price in next
12 months, concurrent with reductions in
Vietnam and Egypt production compared
to our base case of 5% from March
2022. Both the base case and RWC
take into consideration the hedging that
has already been put in place for 2022
and 2023 which covers 24.6% of the
Group’s forecast Q2 2022 to Q2 2023
entitlement volumes securing a minimum
and maximum price for this hedged
volume of $67.5 and $81.4 per barrel,
respectively. Under the RWC scenario,
we have identified appropriate mitigating
actions, which could look to defer capital
expenditure programme as required.
We have also developed a reverse stress
test sensitivity, which shows the extent to
which oil prices would need to fall before
our financial headroom is breached,
keeping all other variables unchanged.
In Egypt, the Base case assumes a full
investment scenario and a farm-down.
Our business in Vietnam remains robust
with a breakeven price of c.$25/bbl. We
have limited capital expenditure outside
of the two TGT wells and one CNV well
in Vietnam over the rest of the business
with most falling outside 2022. Most of
our debt is secured against the Vietnam
assets under the RBL with just $6.5m
drawn on an uncommitted revolving credit
facility on the Egypt revenue invoices.
The forecasts outlined above show that
the Group will have sufficient financial
headroom for the 12 months from the
date of approval of the 2021 Accounts.
Based on this analysis, the Directors have
a reasonable expectation that the Group
has adequate resources to continue in
operational existence for the foreseeable
future. Therefore, they continue to use
the going concern basis of accounting
in preparing the annual Financial
Statements.
Financial outlook
Pharos’ financial strength is founded on
our long-term approach to managing
capital to provide risk adjusted full
cycle returns, which has allowed us to
return significant amounts of capital
to shareholders in previous years. In a
prevailing stronger oil price environment,
our focus can turn again to returns to
shareholders.
We continue to have the support of
our strong RBL lending banks who
approved the refinancing of the RBL
during July, extending the tenor to July
2025. Additionally, we also signed an
uncommitted revolving credit facility with
National Bank of Egypt, which provides
modest additional liquidity.
The improvement in the fiscal terms and
the farm-down of our concessions in
Egypt to IPR means that we will enjoy the
benefit from completion in 2022 and into
2023 of the carry of our share of operating
and capital costs. During the carry period
we continue to receive our revenues with
only Pharos 100% costs to cover.
The low breakevens and continuation
of the TGT infield development plan in
Vietnam with two additional wells and
one well infield well in CNV will support
the production profiles in a strong price
environment.
The restructure of the London and Cairo
offices will be fully completed following
the transfer of operatorship of the Egypt
concessions to IPR. The restructure
resets the cost base for the Group moving
forward.
The measures we have taken during
this period have set us up to be able to
reap the benefits of stable production
from our assets, improved fiscal terms,
low breakevens, improved liquidity from
our lenders, a streamlined organisation
against a background of improved long
term prices.
SUE RIVETT
Chief Financial Officer
Pharos Energy Annual Report and Accounts 2021
43
Risk Management
Report
Risk Management Framework
at Pharos
Pharos carried out regular and robust
risk assessments to identify and manage
its Principal and Emerging risks during
2021 and continues to monitor closely
the evolving risk landscape during the
COVID-19 pandemic and the global
macroeconomic environment. Our
management undertook a number of
deep-dive exercises as the pandemic
unfolded to gauge its risk appetite and
recalibrate its risk tolerance to ensure
the appropriate mitigating actions were
implemented. The Board has closely
considered the potential impact and
probability of these risks and related
events on its corporate strategy,
objectives and stakeholders’ perspectives
of the Group.
Control environment
The Group’s control environment is based
primarily on its Code of Business Conduct
and Ethics, which carries a number of
fundamental values, including openness
and integrity, safety and care for the
environment and respect for human rights.
The control environment is also supported
by a series of corporate policies, which
form part of the Group’s Business
Management System. These documents
are distributed to all employees, followed
up with training as required and are
available on the Intranet. As part of the
compliance programme, all employees
have to do an anti-bribery and corruption
training and assessment at least once a
year.
Governance, authorities
and accountability
The Board of Directors, supported by
its various Committees, ensures that
the internal control functions operate
properly. The Audit and Risk Committee
oversees the implementation by the
Senior Management Team of the internal
control and risk management procedures
based on the risks identified to support
the Group’s objectives.
Principal risks in 2021
• Further lockdowns dampening oil demand
• Insufficient funds to meet commitments
• Commodity Price volatility
• Volatility in Production levels
• Climate Change and speed of energy transition
• HSE & Social
• Unsuccessful Farm-out of Egypt assets
• Partner alignment
• Reserves downgrades
• Cyber security
• Human Resources
• Sub-optimal capital allocation
• Political and Regional
• Business Conduct and Bribery
Principal and Emerging risks in 2022
• Further lockdowns dampening oil demand
• Insufficient funds to meet commitments
• Commodity Price volatility
• Volatility in Production levels
• Rising operational costs
• Climate Change - transition and physical risks
• HSE & Public Health Risk – COVID-19 resurgence
• Partners’ alignment
• Reserves downgrades
• Cyber security
• Human Resources
• Sub-optimal capital allocation
• Political and Regional
• Business Conduct and Bribery
MANAGING OUR RISKS
RISK MANAGEMENT
Pharos Energy Annual Report and Accounts 2021
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The Pharos Risk Management Framework
requires that all business units within
the Group conduct on-going risk
management and reporting to the
Audit and Risk Committee and the
Board. The Group’s Risk Management
Policy defines the specifics of the risk
management process, describes the risk
tools (for example, the preparation and
maintenance of a Group risk matrix and
risk register) and outlines the reporting
process and responsibilities in order
to meet the Group’s risk governance
framework.
Risk management and reporting is a
necessary and important activity at
Pharos. It is an internal control process
implemented by the Board, management
and all other personnel; applied
throughout the organisation and all
functions, designed to identify potential
events which may affect the business,
and manage those risks within its risk
appetite. In addition, risk management
is a process that provides reasonable
assurance regarding the achievement of
the Group’s objectives. A comprehensive
risk management approach allows Pharos
to:
• Assist the Group in achieving its
corporate objectives and develop
alternate strategies
• Better manage the business by
anticipating potential risks and devise
preventive / mitigating measures
• Meet regulatory requirements
• Promote sustainability and help build
more resilient systems
The Business Management System
(BMS) evolves continually at Pharos
but at its core comprises a set of
policies and standards, including the
Risk Management Policy based on ISO
31000 Risk Management Principles
and Guidelines. The BMS is supported
by procedures and processes for each
function and business unit to control day-
to-day business activities. The internal
control framework and risk management
process under the BMS seeks to ensure
that risk identification, assessment and
mitigation are all properly embedded
throughout the organisation. Whilst the
Group’s approach to risk management
is designed to provide a reasonable
assurance that material financial
irregularities and control weaknesses
can be detected, the process does not
totally eliminate that a risk could have a
material adverse effect on our operations,
earnings, liquidity and financial outlook.
Risk is often described as an event,
change of circumstances or a
consequence. The Group’s risk reporting
will focus on identifying risk as a “potential
event”. Each event will be assessed
on its potential impact to people, the
environment, the respective asset /
financial impact on operations, and the
Group’s reputation in terms of severity and
likelihood.
A challenging future
COVID-19 was originally declared a
pandemic back in March 2020, more
than two years ago. During this time, this
virus has caused millions of deaths and
triggered changes to people’s lives and
the way of doing business that previously
have been difficult to imagine. The
scientific community developed a number
of COVID-19 vaccines in record time and
many governments fast-tracked their
approval and use for the general public.
Numerous variants emerged leading to
renewed lockdowns, international travel
restrictions and forcing many governments
to apply fiscal incentives to boost their
economies. Many sectors, such as
hospitality, aviation, transport and energy,
have been greatly impacted as demand
for their products and services dropped
drastically while some other sectors
such as technology and pharmaceutical
benefited from an unexpected surge in
demand, causing supply chain issues and
inflationary pricing.
The oil and gas sector experienced a
roller-coaster ride in the last two years,
with the Brent price dipping to as low as
$20/bbl at the start of the pandemic and
averaging $42/bbl and $71/bbl in 2020
and 2021 respectively. The second half of
2021 saw a rising oil price and this trend
has continued in Q1 2022. However,
outlook for Brent price remains uncertain
well into 2022 due to a number of factors
and also due to the knee-jerk reactions
of the financial markets on demand and
supply outlook for energy:
• OPEC + world geopolitics
• Changes to national strategic energy
reserves
• Renewed lockdowns further reducing
demand for oil
• Natural Gas shortages in Europe and
Asia
• Oil futures trading and speculations
• Large investors and banks avoiding
fossil fuel investments
• IEA’s sustainable outlook where fossil
fuels’ share may reduce in the overall
energy mix
• New legislation and regulation resulting
in increased costs for heavy CO
2
polluters
• Ukraine/Russia conflict
Review & Escalation
Risk identification
and mitigations
Maintain Risk registers
Risk Owners
Oversight
Accountability
Monitoring
Deep-dive
BOTTOM UP
TOP DOWN
Pharos Risk Management framework
Risk Management Framework
The Board
Senior Management Team
Audit & Risk
Committee
ESG
Committee
Asset/Projec/Function
Set
strategic
objectives
Define
risk
appetite
Identify
Principal
risks
Apply risk
assessment
process
Deliver
strategic
objectives
RISK MANAGEMENT FRAMEWORK
Pharos Energy Annual Report and Accounts 2021
45
RISK MANAGEMENT - CONTINUED
Public Health risk – COVID-19 and
the future variants
The rise and fall of the Omicron impact
around the world is being closely
watched by scientists and governments
- precautionary measures such as the
effectiveness of lockdowns to control any
spread are dividing camps and may be
risky in triggering another recession. The
waning immunity of those vaccinated and
the need for regular boosters can cause
many logistical and equity issues. With
very high levels of infection worldwide,
further virus mutations are inevitable and
so is the emergence of new variants of
concern. With this landscape, 2022 will
remain full of uncertainties and oil price is
likely to see significant swings either way.
The health, safety and welfare of our staff,
contractors and host communities across
our business remains the highest priority
on the Board agenda, especially during
the pandemic. The Group adhered to the
requisite precautionary procedures and
restrictions, in line with the government
directives in Egypt, Vietnam and the
UK. In Egypt at Petrosilah and Pharos
El Fayum, a vaccination campaign for all
employees in the main offices and fields
started in Q2 2021 and culminated to
97% (2 doses) of the workforce being
vaccinated at the end of December 2021.
In Vietnam, the HLHV JOC strict 5-7 days
quarantine regulations are being applied
for the workforce going offshore, in
addition to rapid and PCR tests one day
prior to offshore mobilisation - 100% of
the workforce are vaccinated with at least
two doses at the end of December 2021.
For the office workforce at all locations,
Pharos has continuously applied a hybrid-
working mode and will do so until further
notice.
The new mode of working under the
pandemic has led to the culture of many
organisations including Pharos to change
overnight with more focus on flexibility
and mutual trust. However, it is important
that companies watch for any possible
negative signs - can workers’ health
and productivity suffer as a result of
prolonged Working from Home (WFH)?
How to ensure operational staff do not
feel disadvantaged as they cannot WFH?
An active and regular programme of
engagement between management and
the workforce is important so that any
issues can be discussed and tackled
early.
Climate Change risks
During 2021 a number of trends peppered
the energy sector; the energy price
inflation crisis, the rise of the activist
blaming companies on overpromising
and under delivering on climate and the
speed of recovery of oil price particularly
in the second half of 2021 as the Omicron
COVID-19 variant was still causing rising
infections and uncertainty on the markets.
In August 2021, a landmark report from
IPCC* warned that global warming will hit
1.5C by 2040, thus potentially breaching
the targets of the Paris Agreement. The
report found that immediate, rapid and
large-scale reductions in emissions were
needed to avert a calamitous effect on the
planet.
The COP26 summit in Glasgow in
November 2021 culminated with the
agreement of the Glasgow Climate Pact
(GCP), where each participating country
commits to their submitted nationally
determined contributions (NDCs) but how
the various governments will achieve their
respective CO
2
reduction commitments by
passing legislation to tax heavy polluters
or incentivise renewable investments
remains uncharted territory. As the
success or failure of COP26 is debated, a
number of ESG topics have been elevated
and will likely dominate 2022:
• Focus on reporting and reducing Scope
3 emissions
• How private capital can influence and
assist the energy transition journey?
• Carbon markets - how to set a globally
acceptable price and ensure carbon
offsets are verifiable?
• The rise of sustainability accounting
• Focus on diversity, equity and inclusion
* UN Intergovernmental Panel on
Climate change
Climate Risk and Resilience
Climate change risks, both arising from
energy transition and the physical effects
of changes in climate are identified and
assessed as part of the Group’s integrated
risk management approach and mitigated
within the remit of a diverging set of key
stakeholders’ aspirations and calibrated
within the Group’s risk appetite and
corporate strategy.
In January 2022, Pharos further advanced
its alignment with the four TCFD pillars
and disclosures on Governance,
Strategy, Risk Management and Metrics
and Targets. A detailed analysis was
commissioned with the help of aa Climate
Change and TCFD specialist consultancy
which produced in-depth assessments of
the transition and physical climate risks
followed by a hi-grading risk exercise
based on the Group internal risk matrix.
These assessments were then discussed
with the Senior Management Team and
submitted to the ESG committee of the
Board.
The physical risk assessment focused
on screening our interests in Vietnam,
Egypt and Israel using the consultant’s
physical risks datasets and an attempt to
quantify changes in key climate variables
(e.g. drought, rainfall, wave height) over a
5 and 10 year timeframe under the three
emissions scenarios – Representative
Concentration Pathways (RCPs). The
transition analysis focused on the potential
impacts of different future scenarios on
the key transition risks facing the Group
and the oil and gas sector more broadly
over the next 5-10 years. By undertaking
these assessments, Pharos is in a better
position to formulate strategies which
will increase its resilience to climate
related risks - and better cope with the
uncertainty, speed and extent of the
energy transition. The transition risk
analysis conducted by an independent
Climate Change and TCFD specialist
consultant was assessed under the
International Agency (IEA) Sustainable
Development Scenario (SDS) and
Stated Policies Scenario (STEPS)
over a timeframe of 5 and 10 years.
Additionally, Pharos has considered
the risk that climate change pressures
could reduce oil prices during the 3-year
Viability Statement window under the
recommended IEA’s Net Zero Emissions
scenario. For more information, please
see pages 56-57 for the Viability
Statement.
Pharos Energy Annual Report and Accounts 2021
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OVERVIEW OF THE KEY CLIMATE RISKS
PHYSICAL
RISKS
Assessment
timeframe:
Until 2050
EGYPT:
Water stress – limited saline ground water used for O&G operations
Drought hazard
Sand and dust storms – health threats to workers, risk of downtime and damage to
infrastructure
Supply chain disruptions – caused by the frequency and severity of extreme weather events
around the world
VIETNAM:
Both heatwave events and extreme temperatures will become more frequent and longer in
duration.
Rises in sea levels potentially raising risks for facilities and infrastructure
A strengthening of the dominant monsoonal circulation will result in greater disruption risks
from winds
TRANSITION
RISKS
Assessment
timeframe:
Over the next 5-10
years
Commodity prices: oil & gas price volatility
Challenges in raising capital: pressure in investors to divest / avoid fossil fuel companies /
projects
Lack of portfolio diversification: transition towards low-carbon economy will see a reduced
demand for oil
Carbon price: increased price of carbon through national and international schemes
International measures to limit fossil fuel use: net zero commitments will result in a decreased
demand for fossil fuels
Uncertainty in the energy market: Shift in demand to less carbon intensive primary energy
sources
Physical Climate Risk Scenario
analysis:
This analysis adopted a data-driven
approach to identify and analyse the
most material physical climate risks facing
Pharos Energy’s activities in Egypt, Israel
and Vietnam and how those risks may
manifest differently under three emissions
scenarios. It assesses current climate
extreme, such as flooding, heat stress and
storms, as well as how long-term shifts if
climate features will affect these events.
The information provided will help Pharos
understand the inherent risk profile of the
locations and identify current and future
operational weaknesses, vulnerabilities
and opportunities and inform strategic
decision around making resilience
building. Furthermore, the assessment
can inform climate risk disclosures in
line with the recommendations of the
Taskforce on Climate-related Financial
Disclosure (TCFD).
Key findings:
• Common to all onshore and offshore oil
and gas activities, projected increases
in the frequency, duration, and intensity
of extreme heat events will pose
threats to the health of workers and
heat-sensitive equipment, which in
some cases could result in reduced
efficiencies and even operational
downtime.
• Offshore sites will experience increases
in sea level of between 18cm and
22cm under all emissions scenarios
considered with direct implications of
offshore activities as well as onshore
infrastructure.
• Onshore Egyptian operations are found
in locations which already experience
extremely hot and dry conditions,
climate change will marginally raise
risks of disruption from rare extreme
rainfall and flash flooding events.
• Offshore sites in the Eastern
Mediterranean currently have low
exposure to climate-related disruption
risks. A reduction in average wind
speeds and wave heights is projected
under all emission scenarios,
suggesting that these threats could
weaken further by 2045.
• The southern offshore Vietnamese
blocks are more exposed to higher
wind speeds than the northern blocks
and these are projected to increase in
the future under all emission scenarios,
creating more challenging operating
environments for oil and gas activities.
However, wave heights are projected
to fall under most emission scenarios
in the South China Sea due to shifts in
the prevailing wind direction, reducing
disruption risks to platforms and service
vessels.
Transition Risk Scenario Analysis
The aim of this analysis is to supplement
the work that Pharos has already
undertaken by assessing the potential
impacts of different future scenarios
on the key transition risks facing the
company, and the oil and gas industry
more broadly, over the next 5-10 years.
By assessing how a range of transition
risks manifest differently under these
contrasting scenarios, Pharos can
demonstrate how it tests portfolio
resilience amid the uncertainty of the
speed and extent of the energy transition
in line with the recommendations of
the TCFD. As Pharos has already used
the International Energy Agency (IEA)
Sustainable Development Scenario
(SDS) and NZE to benchmark its
Reasonable Worst Case price curve,
the same scenario is used here. This
is supplemented by the IEA’s Stated
Policies Scenario (STEPS). Under
SDS, it is assumed that there is a rapid
implementation of clean energy policies
that set the planet on course to meet the
objectives of the Paris Climate Agreement.
Pharos Energy Annual Report and Accounts 2021
47
RISK MANAGEMENT - CONTINUED
Meanwhile STEPS is a more conservative
view of the future, in which only current
and planned policies are enacted, and oil
and gas play a greater role in the energy
system for longer.
To tackle the climate and environmental
challenges Pharos will continue to focus
on the following:
• Measuring and assessing our
environmental footprints
• Conducting climate scenario analysis
• Evaluating our alignment with market
frameworks and regulations designed
to support the transition to a low
carbon, sustainable and equitable
future
• Continuing on our TCFD commitments
and alignment
• Exploring partnerships with effective
CO
2
reduction solutions
Identifying the costs of mitigating
climate risks
One of the most important considerations
in assessing climate risk is the cost of
mitigation action and solutions. Given the
uncertainties surrounding potential losses,
and the need to generate reasonable
returns in the near term, it is necessary to
balance the protection afforded with any
economic costs of such measures. These
questions are debated at the Board and
with senior management:
• What sort of action to take to mitigate
climate change?
• Over what timeframe?
• And with what cost?
In Q4 2021, Pharos undertook a review
of our Vietnamese operations and assets
with the assistance of an independent
energy consultant focusing on the
potential application CO
2
reduction
technologies. Besides considering the
application of simpler technologies like
the installing solar panels and hydrogen
storage batteries to power our operations
thus reducing our own produced gas
as fuel, a number of more advanced
technologies such as the injector
technology and gas to liquid process will
be investigated further in 2022/23.
These feasibility studies will be progressed
during 2022 to further assess their
technical applicability on the existing
infrastructure as there may be a number
of logistical constraints on the existing
infrastructure. Once the studies support
that the technical hurdles can be
overcome and potential CO
2
reduction
will ensue a more detailed cost/benefit
analyses will be undertaken - when an
investment case for a particular CO
2
reduction technology shows it has
potential for implementation into our
operations, Pharos will then try to get
partners’ approval to support the CO
2
reduction investment.
Commodity Price risk
One of the key uncertainties in the energy
world in 2021 was the extent and timing
of the recovery in demand for oil, natural
gas and electricity from lows earlier in the
pandemic. Then in Q4 2021, both Brent
and WTI oil spot prices climbed inexorably
causing geo-political and economic
tensions among some governments
forcing them to tap into their oil / gas
strategic reserves and boost supplies to
avoid excessive petrol rises at the pump
and further inflationary pressures. Europe
and Asia in the meantime faced a severe
gas shortage causing gas prices to
shoot up. Further energy shocks can be
expected as a result of the recent Ukraine/
Russia conflict.
A buoyant oil market and price is
sometimes perceived as an unconditional
positive for the oil and gas sector, but
the costs of material and services in this
capital intensive industry can lead to big
changes to predicted returns and stifle
cash flows.
Carbon Tracker, a London-based not-for-
profit think tank researching the impact
of climate change on financial markets,
warned oil producers they should not let
high prices today lure investments into
pricey new projects that will lose money
when the fever breaks and the energy
transition cripples fossil fuel demand over
coming years.
Commodity price uncertainty persists and
is factored into all stages of the planning
process. Please refer to the Viability
Statement on pages 56 to 57 for
more details of how the Group has stress
tested its assets and projected cash flows
against its principal risks.
Cyber risks
WFH also creates an increased
dependence on cloud-deployed services
and thus opening more vulnerabilities to
cyber-attacks. Pharos continues to its
focus on the robustness of its business
continuity and collaborate closely with its
IT partners to minimise disruption to our
business.
Insurance costs / pollution liability
The energy insurance premiums have
increased more or less in line with inflation
over the last twelve months. This year the
energy insurance markets may be more
difficult to tap into and significant premium
increases can be expected – selective
covers and reduced limits may have to be
evaluated to avoid excessive premiums
but this strategy can result in increased
exposure in the event of a loss. Some
other insurance markets have been badly
affected by the havoc caused by extreme
weather events across the globe and this
can lead to a shrinkage in the insurance
energy market capacity as climate change
risks will be high on insurers’ radar for
oil and gas assets. As ESG issues and
disclosures continue to dominate how
financial markets should operate, the
energy insurers may have to recalibrate
the portfolio and pricing to reflect the
increased risks of liability claims.
The cost of directors’ and officers’
liability insurance (D&O) has increased
dramatically over the last two years due to
reduced D&O capacity being offered and
an increase in liability claims during the
COVID-19 pandemic. The D&O market
is unlikely to ease off in 2022 as both
businesses and insurers face increased
uncertainty on many fronts.
Operational Cost risk
Rising operational costs may become
a big risk because they are directly
impacted by the other factors, particularly
our ability to meet capex commitments.
Generally speaking, the larger a project,
the greater the legal and regulatory
burden and associated costs. In addition,
higher oil prices result in services
companies increasing prices, creating
further inflationary pressure. With the
unpredictability of oil and other commodity
prices and owing to global manufacturing
beyond any one company’s control, there
are genuine cost concerns.
Additionally many oil and gas firms
struggle to find and keep skilled
employees during boom periods. Thus
payroll can rapidly grow to add another
expense to the total picture. The cost
of training employees in the oil and
gas sector has increased, reducing the
number of firms in the industry. As a result,
oil and gas have become a very capital-
intensive business with fewer participants
each year. Out--sourcing is becoming
more common in the industry, and while
this offers flexibility to operators, it also
results in greater exposure to increases
in daily rates for essential services, such
as drilling and well services, when the oil
price rises.
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The long-term ramifications of COVID-19
on labour and business practices to
ensure a safe working environment
and workforce welfare will likely lead to
further HSE regulations which can add
to operational costs. With heightened
scrutiny on environmental, social, and
governance (ESG) transparency, there
will be continuous and more onerous
regulatory challenges which oil and gas
companies must handle to sustain their
growth and purpose.
There has been a major organisation
re-structuring of the workforce through
a managed redundancy programme at
Head Office during 2021. In January
2022, Pharos announced directorate
changes reducing the size of the Board
from nine Directors to six (two Executive
Directors and four Non-Executive
Directors) upon completion of the farm-
out transactions with IPR and the 2022
AGM. The headcount reduction at all
levels will contribute to lower G&A costs.
Emerging Risks
As the pandemic persists into its second
year, it acts as a catalyst for many
changes and creates opportunities for
businesses to re-assess their resilience.
Other areas of emerging risks will be
around regulatory changes, digital
transformation, remote working, risks of
social disorders and the role of the Board
in crisis situations. The pandemic has
highlighted further existing inequalities
such as the disparity to access to digital
information and the unequal vaccine
rollout between high and low income
countries.
ESG activism continues to grow – the
COP26 summit in Glasgow in November
2021 highlighted that governments
around the world must reassess
and renew their commitments to the
Paris Climate Agreement to avert
catastrophic irreversible consequences.
However, the path to decarbonisation
must garner much more cohesive
participation and collaboration from
the highest CO
2
emitting countries, as
otherwise a disorderly climate transition
will exacerbate inequalities and lead
to significant economic and societal
hardships. With so much uncertainty,
severe short-term commodity shocks
may manifest more regularly and will
make business planning and cash flow
forecasting increasingly difficult.
Similar to our principal risks, emerging
risks are identified using our bottom
up approach with the regular risk
assessments with risk owners and
reporting to and discussing the emerging
trends at the quarterly management
risk meetings and the Audit and Risk
Committee meetings. Pharos is engaged
with the industry with organisations such
as BRINDEX and assesses news alerts
from such sources as Oil & Gas UK,
FT, Refinitiv (Eikon and Worldcheckone)
Bloomberg Green and World Economic
Forum. Pharos also conducts internal
benchmarking analyses with its industry
peers to better understand emerging
trends in the sector.
Opportunities
For the oil and gas sector the lack of
liquidity and increased scrutiny from
investors on fossil fuel producers to
decarbonise may create investment
opportunities for oil and gas independents
with a lower cost base than the oil majors
and which are more able to adapt to a
rapidly changing risk landscape. In the
short term, capital allocation and discipline
will be rigorously maintained while at the
same time exploring opportunities to
reduce our carbon footprint by adopting
different methods / processes to power
our operations, including the possibilities
of solar power, and other carbon
reduction technologies in the longer term.
Our asset base is operated by separate
independent Joint Operating Companies,
leaving our role in both Egypt and Vietnam
one of joint, rather than unilateral, control.
Board Responsibility
The Board fulfils its role in risk oversight
by developing policies and procedures
around risk that are consistent with the
organisation’s strategy and risk appetite,
taking steps to foster risk awareness
and encouraging a company culture of
risk adjusting awareness throughout the
Group. The Audit and Risk Committee
reports back to the Board regarding the
adequacy of risk management measures
so that the Board has confidence that
management can support them. The
Board periodically reviews the principal
and emerging risks facing the business,
including an annual review of the
effectiveness of the risk management
process in identifying, assessing and
mitigating any significant risks which may
affect the Group’s business objectives.
Risk management and the principal
financial risks and uncertainties facing the
Group are discussed in Note 3 and Note
36 to the Financial Statements. The
Group’s Risk Management Framework,
Policy and associated procedures are
further discussed in the Corporate
Governance Report on pages 86 to 91
and in the Audit and Risk Committee
Report on pages 97 to 101, where the
significant issues related to the 2021
Financial Statements are also reported.
The Group’s Business Management
System, which includes the Health, Safety,
Environmental and Social Responsibility
(‘HSES’) Management System, which
incorporates the Company’s internal
control mechanisms of policies,
procedures and guidelines through which
the Group assesses, manages and
mitigates its HSES risks and impacts, is
described more fully in the Corporate
Responsibility Report on pages 58 to 78.
The Board has carried out a review
of the uncertainties surrounding the
Group’s principal and emerging risks
and recognised that a potential adverse
event can have a material impact on the
Group’s future earnings and cash flows.
The fluctuating prices of crude oil and gas
remain a significant variable to monitor
closely for the Group. Flash events
are happening more frequently from
international trade tensions, geopolitical
tensions, sudden outbreak of diseases,
speed of climate change transition and
physical risks which may require changes
to our corporate price assumptions and
productions outlook which in turn may
trigger impairment of assets.
Pharos Energy Annual Report and Accounts 2021
49
Principal risks
Change in
likelihood Causes Risk Mitigation
STRATEGIC
1. Further
lockdowns
dampening oil
demand
• Sub-optimal pricing
on commodity sales
• Reduced revenue to
finance operations
• Emergence of new variants or other
viruses
• Waving efficacy of vaccinations and
boosters
• COVID-19 infections continue to go up
• The virus maintains its pandemic status
throughout 2022
• Social disorder as poorer nations /
populations fall behind on vaccination
programmes
• Continue to maintain and promote
precautionary measures to minimise disruption
to business
• Procure long lead items as early as possible
from reliable suppliers / contractors
• Tight cash management and forecasting
• Hold back on discretionary spend
• Oil price hedging
• The bulk of our output sold on the local
markets where demand remains strong
• Closely follow and comply with all applicable
law, regulation and public health guidance
relating to the COVID-19 pandemic
2. Insufficient
funds to meet
commitments
• Inability to invest
in line with growth
strategy
• Reallocation of capital away from oil
and gas
• Huge swings in oil and other
commodity prices
• Assets bubble bursts
• Global debt crises emerging
• Inadequate cost control
• Poor technical data to support
allocations
• High inflation
• Regular review of funding options
• Proactive dialogue with banks and other
providers of capital
• Opportunity screening
• Effective project management and
resourcing
• Cost carry by farm-in partner(s)
• Thorough capital allocation process
3. Volatility in
Production
levels
• Sub-Optimal well
performance
• Reduced drilling
• Inadequate waterflood responses
• Incorrect well placements
• Development wells uncommercial
• Poor reservoir models
• Lack of financing for drilling programme
• Develop a clear wells strategy, focusing
on performance improvement, regulatory
compliance and increased activity
• Increase drilling activity / plan-drill additional
injection wells / frac injection zone
• Reduce cost of well construction
• Increase surveillance and intervention rates
• Perform Target workovers on Producer /
injection wells
• De-risk best prospects / drill best prospects
• Improve Reservoir models
• Implement planned drilling programmes
Principal risks
and mitigations
RISKS
Key to change in likelihood
Increase No Change Decrease New Risk
A summary of the key risks affecting Pharos and how these are mitigated to enable
the Company to achieve its strategic objectives is as follows:
Pharos Energy Annual Report and Accounts 2021
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Principal risks
Change in
likelihood Causes Risk Mitigation
4. Health, Safety,
Environmental
and Social Risk
• Reputational
• Operational outages
leading to lower
production
• Business disruption due to workforce
affected by COVID-19
• Health and safety and environmental
risks of major explosions, leaks or spills
• High risk operating conditions and
HSES risks
• Climate change impacts on the sector,
such as extreme weather, sea level
rise and water availability affecting
production
• Gas venting and flaring hazards and
risks - well blow outs, land/water
contamination
• Non-alignment of new acquisitions
HSES practices with Pharos Corporate
standards
• Increased disparities and societal risks
in health, technology or workforce
opportunities
• Implement precautionary measures based
on WHO guidance, restrict business travel
and facilitate working from home, PCR
testing
• Improve structural and Asset Integrity
through strong operational and
maintenance processes which are critical to
preserving a safer environment
• Comply with all legislative / regulatory
frameworks and transitioning to a goal
based approach focused on improving
safety
• Promote a positive health and safety culture
where workers are given proper training
and incentives to work “safe” with a zero
tolerance for non-compliance
• Environmental and Social Impact
Assessments relating to, for example:
- climate impacts and need to adapt to
changing climate conditions over the life of
the asset
- regulatory developments
• Enhance emergency preparedness and spill
prevention plan
- Controlled venting
- Control and management of pressurised oil
and gas from boreholes
- Use of low impact extraction chemicals where
alternatives exist
- Water management - securing of a
sustainable water supply, recycling and reuse
wastewater
- Marine management plan - especially for
offshore drilling
- Carry out scenario exercises to improve
preparedness
• Maintaining adequate energy insurance for our
assets and operations
Pharos Energy Annual Report and Accounts 2021
51
RISKS - CONTINUED
Principal risks
Change in
likelihood Causes Risk Mitigation
5. Climate
Change –
transition and
physical risks
• Lack of Capital
• Reputational
• Increased capex and
operating costs
• Physical Damage to
Assets
• Lower oil prices
• Stranded assets
• Regulatory changes –
potential taxes
• Pressure on investors to divest / avoid
fossil fuel companies / projects
• Inability to find economically viable CO
2
reduction solutions
• Lack of alignment between our key
stakeholders’ priorities and climate
change concerns
• Global transition to a lower carbon
intensity economy
• Increased climate regulation and
disclosure
• Increase in carbon taxes /
decarbonisation charges
• transformational shifts leading to
reduced demand for fossil fuels
• Climate activists pressing prominent
institutions and investors to abandon
fossil investments - “greening” the
financial system
• Increased frequency of extreme
weather events
• Supply chain disruptions causing delay/
shutdowns to operations
• Lack of partner alignment on
decarbonisation initiatives
• Transparent reporting and participation in
Carbon Disclosure Project (CDP)and Water
questionnaire
• Continue alignment with TCFD
recommendations
• Further integrate climate risk management
within Pharos Risk Management
Framework
• Stress test our going concerns under a Net
Zero Emissions price scenario and carbon
tax
• Embed Climate change scenarios and
evaluate decisions on key business
operations / directions
• Continuous improvement of GHG emissions
management and get JOCs to support CO
2
emissions reduction initiatives
• Update our Climate Change Policy and
keep it fit for purpose and in line with
evolving decarbonisation developments
• Comprehensive insurance cover for
Physical Damage
• Regional close monitoring of extreme
weather developments so that evacuation
or shut-down are activated in good time
• Regular and timely control of inventories
to ensure essential spares are sourced in
advance
• Prepare business case or back pay study
to support decarbonisation initiatives
Pharos Energy Annual Report and Accounts 2021
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Additional InformationGovernance Report Financial StatementsStrategic Report
Principal risks
Change in
likelihood Causes Risk Mitigation
FINANCIAL
6. Commodity
Price risk
• Uncertainty on
planning
• Inability to fund work
programme / dividend
• On-going market volatility and
uncertainties from COVID-19
• Geo-political factors and international
conflicts
• Pressure on investors to divest / avoid
fossil fuel companies / projects
• Lower long-term prices tighten the
margin of error for investments
• Forecasting volatility swings are more
complex as it is challenging to gauge
what that means for the industry as
market dynamics are influenced by the
speed of recovery from COVID-19 and
growing ESG pressures
• Negative cash flows & earnings
degradation
• Market speculation and trading in oil
futures
• Resurgence of new COVID-19 variants
• Oil commodity Hedging
- Comply with RBL requirements
- Maintain robust processes around treasury,
governance, forecasting, credit and risk
• Close monitoring of business activities,
financial position cash flows
• Control over procurement costs / effective
management of supply chains derived from
third parties - suppliers, joint venture partners,
investors, and contractors
• Stress test scenarios and sensitivities via
principal compound risk analysis to ensure
a level of robustness to downside price
scenarios
• Capital discipline with focus on controlling and
managing costs
• Discretionary spend actively managed
• Maintain and cultivate good relationships with
lenders
7. Rising
operational
costs
• Reduced profits
• Strain on cash flows
• Shortages in skilled
labour
• Global inflation
• Turmoil in the energy markets causing
sharp price hikes
• Sudden unplanned rate increases for oil
and gas services
• Regular updates to yearly budgets and
forecasts
• Focus in discretionary spend
• Secure long-term contracts where appropriate
without lock-ins
• Explore applying new technological advances,
focus on prevention and early detection
• Headcount re-structure at all levels
Pharos Energy Annual Report and Accounts 2021
53
RISKS - CONTINUED
Principal risks
Change in
likelihood Causes Risk Mitigation
OPERATIONAL
8. Reserves Risk
• Future cash flows
and value depend
on producing our
reserves
• Inaccurate reserves estimates
• Subcontracting certain reserves
estimation work to independent reserve
engineers outside the direct control of
the Group
• Earlier impairment triggers due to low
commodity price
• Capital constraints jeopardise planned
exploration / development initiatives
• Inherent uncertainties in the evaluation
techniques to estimate the 2P reserves
• Increased DD&A costs
• Lower than expected well
performances and drilling results
• Slower drilling programmes
• Monitor and maintain standards of
reserves reporting by adhering to three key
considerations: of consistency, transparency
and utility, including disclosure of movements
in reserves on a country-by-country basis,
disclosure of material projects and moderation
of subjective judgements
• On-going evaluation of projects in existing and
potential new areas of interest and pursue
development opportunities
• Regular reviews of reserves estimates by
independent consultants (Lloyds Registered)
• Ensure continuing adherence to industry best
practice regarding technical estimates and
judgements
• Ensuring peer and independent verification of
future production profiles and reserve recovery
• RBL facility compliance - Vietnam Reserves
are audited independently by reserves
consultants approved by lenders
9. Partner
Alignment Risk
VIETNAM
• Misalignment at JV/
JOC level can delay
investment
• Adverse impact on
Production and Cash
flow
EGYPT
• Technical
Misalignment of JV
Company
• Adverse impact on
Production and Cash
flow
• Co-venturers divergent views on Drilling
and Upgrade programme 2021/22
• FPSO Tie-in Agreement from other
Operator
• Delay in the Field Development Plans
• Technical disagreement caused by
quality of JV staff, work ethic, low
productivity, competency issues
• Geological Modeling differences
resulting in sub-optimal well locations
• Incoming partner (IPR) and current
partner (EGPC) divergent views on
investments, and difference in value-
drivers.
• Active Participation in JOC management
• Direct secondment
• Build Senior Management level relationship
with local Partners
• Continue good relationship with other Foreign
Partner
• 2022 TGT Work Programme agreed in
principle and preliminary preparation of bid
packages
• Close collaboration with incoming and current
partner
• Support JV training initiatives
• Engage with new JV Exploration Manager.
Achieve technical buy-in to ERCE model
• Waterflood analogue success education
Pharos Energy Annual Report and Accounts 2021
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Principal risks
Change in
likelihood Causes Risk Mitigation
10. Cyber risk
• Major cyber security
breach may result
in loss of key
confidential data
• Unavailability of key
systems
• Sophistication and frequency of cyber-
attacks increasing
• Heavy reliance on and disruption to
critical business systems
• Infiltration of spam emails corrupting
our systems
• Critical reliance on remote working
in light of COVID-19 pandemic and
expectation of longer term hybrid
working practices
• Update Service level agreement with IT
providers
• Offsite Installation of back-up system and
Business Recovery / continuity Plan in place
• Enhance our Cloud back-up data and
solutions
• Prevention & detection of cyber threats via a
programme of effective continuous monitoring
• Plan for staged integration (new acquisition)
and upgrade of IT systems
11. Human
Resource Risk
• Good skilled people
are essential to ensure
success
• Failure to recruit and retain high calibre
personnel to deliver on and implement
growth strategy
• Challenges in the recruitment &
integration of additional technical
expertise for any new acquisition
• Negative view of the oil and
gas industry amongst younger
professionals, particularly in light of
climate change impacts
• High costs of recruiting experienced
workforce
• Weakened corporate culture and
collegiate responsibility due to remote
working
• Restructuring workforce
• Board re-composition and retirements
• Remuneration Committee retains independent
advisors to test the competitiveness of
compensation packages for key employees
• On-going succession planning
• Maintain a competitive remuneration mix re
bonus, long-term incentive and share option
plans
• Build and use people networks in each
country and advertise vacancies in these
networks
• Maintain a programme for staff wellbeing
• Facilitate and encourage workforce
communication via employee surveys and
shared feedback
REPUTATION
12. Sub-optimal
capital
allocation
• Adverse reaction
from current / future
stakeholders
• Investment decisions
based on realistic /
achievable economic
assumptions
• Scarcity of capital for investment
projects
• A volatile macroeconomic environment
resulting in significant differences to key
assumptions underpinning investment
decisions
• Pressure to invest and produce
growth and returns in the short term to
maintain dividend payments
• Shareholder focus on increasing
returns in conflict with wider strategic
considerations
• Inability to “switch-off” drilling /
investment commitments if economic
assumptions change rapidly
• Lack of partner/stakeholder alignment
on decarbonisation initiatives
• Carry out robust economic analyses based on
opportunities high-grading to support capital
allocation
• Key KPIs such as NPV, IRR and payback used
to compare across many project scenarios
• Rig count investment scenarios are stress-
tested against a range of Brent oil price
• Seeking to maximise influence to promote
best practice in non-operated ventures -
• Seek the views of stakeholders through direct
and indirect engagement
• Maintain a balanced investment portfolio
which allows a degree of resilience in adjusting
short-term investment commitments
• Prepare business case or back pay study to
support decarbonisation initiatives
Pharos Energy Annual Report and Accounts 2021
55
RISKS - CONTINUED
Principal risks
Change in
likelihood Causes Risk Mitigation
13. Political and
Regional risk
• Energy sector
exposed to a wide
range of political
developments which
may impact adversely
on operating costs,
compliance and
taxation
• Operations in challenging regulatory
and political environments
• Changes to fiscal regimes without
robust stabilisation protections
• Protracted approval processes causing
delays
• Government reform, political instability
and/or civil unrest
• Impact of economic and trading
sanctions on industry counterparties
(in particular, Russian state-controlled
entities as a result of the conflict in
Ukraine)
• Canvass support in risk management by using
both international and in-country professional
advisors
• Engage directly with the relevant authorities on
a regular basis
• Assess country risk profiles, trend analyses
and on-the-ground reports by journalists /
academics
• Thoroughly evaluate the risks of operating
in specific areas and assess commercial
acceptability
• Maintain political risk insurance at appropriate
levels of cover
• All operations are located outside of the EU
and USD is the main currency of our business
• Working group established for monitoring
sanctions arising from conflict in Ukraine and
mitigation planning underway in relation to a
small number of counterparties
14. Business
Conduct and
Bribery
• Reputational damage
and exposure to
criminal charges
• Present in countries with below average
score on the Transparency International
Corruption Index
• Lack of transparent procurement and
investment policies
• Non-compliance with Criminal Crime
Offences (CCO) and/or UK Bribery Act
• Corruption and human rights issues
• Ensure adequate due diligence prior to
on-boarding with a risk based approach,
including independent “Red flags” checks
• Annual training, testing and compliance
certifications by all associated persons
• Increase awareness of the Group’s Code of
Business Conduct and Ethics and related
policies for all employees and associated
persons
• Mandatory Gifts and Hospitality declaration
and register
• Group Whistleblowing Policy and confidential
ethics 24 hour hotline supported by
EthicsPoint with numbers displayed in all
offices
• CCO risk assessment and on-going
implementation of adequate procedures to
prevent facilitation of tax evasion across all
operations
• Comply with the principles of the Extractive
Industries Transparency Initiative
Pharos Energy Annual Report and Accounts 2021
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Viability Statement
In accordance with the UK Corporate
Governance code, the Board has
assessed the prospects of the company
over a period longer than the twelve
months required to support the Going
Concern Statement on page 42 of
the CFO’s statement. The Audit & Risk
Committee reapproved in December 2021
that the appropriate length which the
Viability Statement (“VS”) should cover is
3 years. A significant factor in the Group’s
forward cash position is the oil price
assumption, and as most of the source
data relates to a 3 year period this is
considered the appropriate lookout period
for the VS.
In undertaking this assessment, the
Board has carried out a robust review of
the principal and emerging risks facing
the Group, including those that would
threaten its business model, future
performance, solvency or liquidity, giving
particular attention to the principal and
emerging risks.
Our strategy and associated principal and
emerging risks underpin both the Group’s
three year base forecast and scenario
testing, plus our longer term prospects
and position.
Group’s current position
• Production assets in Vietnam and Egypt
with low operating cost base
• Carry in Egypt Concessions following
completion of farm down to IPR
• Flexibility in the capital expenditure
programme
• Operating cash flows in line with oil
prices and supported by hedging
programme
• Focus on capital discipline
• Excellent HSES standards
• Repayment of current RBL loan in the 3
year period of the VS
Strategy & business model
• Business model drawing on
geoscience, engineering, financial and
commercial talent
• Responsible and Flexible stewards of
capital
• Focus on stakeholders
The principal and emerging risks, which
are relevant to the assessment of the
Group’s prospects, are the same as those
used to stress test our viability over the
three-year period.
How we assess our viability
Our forecast is built on an asset by asset
basis using a bottom up model and is
stress tested by compounding downward
scenarios.
The three year period selected for testing
covers the Group’s medium term capital
plans and projections, in particular oil
price projections, a fundamental driver of
the groups operating cash flows, where
market consensus data becomes less
reliable for periods further ahead than
three years.
Although individual assets are often
modelled for periods longer than three
years, to reflect the return on investments
being considered over the life of field,
the three year period has been selected
by the Board as most appropriate
for the group as a whole. It provides
management and the Board with sufficient
and realistic visibility of the future industry
environment whilst capturing the Group’s
future expenditure commitments on its
licences, its near term drilling programmes
and Full Field Development Plans (FFDPs).
In assessing the Group’s viability over
the next three years, it is recognised that
all future assessments are subject to a
level of uncertainty which increases with
time and that future outcomes cannot be
guaranteed.
Key Assumptions
During the three year period the working
assumption is that Group will be
dependent on its two cash generating
assets in Vietnam and the El Fayum
concession in Egypt with the Farm down
of 55% working interest in Egypt’s assets.
The underlying oil and gas reserves in
both Vietnam and Egypt have been
certified by Reserves Auditors, RISC (for
Vietnam) and McDaniel (for Egypt). In
our model, we have used management’s
best estimate of future commodity
prices, resulting in a base oil price prior
to scenario testing of $73.9/bbl in 2022,
$70.2/bbl in 2023 and $67.8/bbl in 2024.
The base model also includes the Group’s
latest life of field production models and
expenditure forecasts.
The company has a Reserves Based
Lending (RBL) facility of $125 million over
its Vietnam producing assets taken out in
September 2018. In July 2021, the Group
completed the refinancing of its RBL that
now matures in July 2025. The current
borrowing levels and the repayment
schedules in the model is based on the
RBL’s economic and technical assumption
as of the December 2021 redetermination.
In the current VS period, the majority of
the RBL loan is forecast to be repaid.
Pharos Energy Annual Report and Accounts 2021
57
RISKS - CONTINUED
Stress testing linked to Principal Risks
As well as the base model, the Group also considers other scenarios and has stress tested the forecast for a combination of a number of
severe but plausible events (linked to the majority of the Group’s principal risks) that could impact its ability to fund planned activities and/
or comply with the covenants and undertakings within its reserves based lending (RBL) facility agreement. These events include:
• A material reduction in the oil price putting pressure on the Group’s capital available for investment
• A material reduction in production
• An unfavourable event resulting in lost production and oil price shock
The oil price sensitivity reflects a level of price reductions broadly similar to 2020 as a result of the global outbreak of the COVID-19 virus,
to reflect the similar risk of the oil price crash during the 3 year VS period.
Base Forecast flexed for
combinations of the
following scenarios
Link to Principal Risks
and Uncertainties Level of Severity Tested Conclusion
Base Forecast flexed for
combinations of the following
scenarios
Link to Principal Risks
and Uncertainties
Level of Severity Tested Conclusion
Sustained and sharp drop in oil
price
1, 2, 5, 6
Sharp drop in the oil price, down by
a third to $49/bbl rising gradually
over a year till in line with base
price
Company remains viable with
mitigating actions
Reduction in production 2,3,4,8,9,12,13,7
5% drop in production over the
period of testing
Company remains viable with
mitigating actions
Unfavourable event leading to
lost production and price shock
1,2,3,4, 5, 6,7 8,9,11,
12,13
Combination of tests above
Company remains viable with
mitigating actions
Climate Change
We have also taken into consideration
the risk that climate change pressures
could reduce oil prices during the 3
year VS window. In doing so, we have
considered the price curve as an output
of a Net Zero Emissions by 2050 (NZE)
based on IEA’s World Outlook 2021
report, which is consistent with achieving
1.5 °C stabilisation in global average
temperatures and a net zero CO
2
emission
by 2050. The nominal Brent prices used
in this scenario is similar to our base case
oil price assumptions over the 3 year VS
period. Nevertheless, we have concluded
that the stress testing outlined above
adequately takes into consideration the
risk of any downside adjustments to our
revenue base over the 3 year VS period
due to climate change pressures.
To date there is no official carbon tax
determined in both jurisdictions where our
operations are i.e. Vietnam and Egypt.
Furthermore, the imposition of carbon
taxes would likely to uplift the Brent prices
as some of the burden will be passed to
the consumer.
As a sensitivity test, we have run the effect
of carbon tax from 2024 on Base case
without assuming any increment in Brent
price and the Group remains viable over
the 3 year VS period.
It should be noted that majority of the
existing RBL facility is within the 3-year
viability statement window, we currently
have some protection from the risk that
Climate Change concerns begin to restrict
the availability of capital.
In all combinations tested, the Group had
access to mitigating actions, including
hedging and deferring non-committed
capital expenditure beyond the 3-year
window of the VS.
Directors have reviewed the realistic
mitigating actions that could be taken
to reduce the impact of the underlying
risk. The forecast cash flows are regularly
monitored and reviewed to provide
early warnings of any issues and to give
sufficient time to take any necessary
mitigating actions.
The potential impact of each of the other
principal risks on the viability of the group
during the assessment period has also
been considered. Such risks include the
inability to attract and retain appropriately
skilled people, Cyber risk and Business
Conduct and Bribery risk. The Board has
considered the risk mitigation strategy
for each of these risks and believes that
the mitigation strategies are sufficient to
reduce the impact of each risk to make it
unlikely to jeopardise the Group’s viability
during the three-year period.
Based on all of these assessments,
including the availability of actions
which could be taken in the event of
plausible negative scenarios occurring,
the Directors confirm that they have a
reasonable expectation that the Group will
continue to operate and meet its liabilities
as they fall due for the three year period to
31 December 2024.
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58
Additional InformationGovernance Report Financial StatementsStrategic Report
Responsibility
framework
Oil sold domestically in Egypt and Vietnam in 2021, contributing
to host country development goals and access to energy
Business
People
Environment
Society
Ethics
100%
El Fayum oil
0 LTIs
Zero Lost Time Injury
events across Group
operations in 2021
316
Tonnes CO
2
e per 1,000
tonnes of hydrocarbon
produced in 2021
$500,000
Combined total training
levies in Vietnam and Egypt
for investment in industry
capacity building in 2021
$198.2m
Taxes and royalties to host
governments, includes
$146.7m host governments
share of production
entitlements in 2021
100%
TGT/CNV Oil
60%
Female employees at
corporate level in London
in 2021
3
Oil/chemical spills
(quantities greater than
100 litres) in Egypt in 2021
$ 265,000
Community and charitable
investments supporting 12
social projects in Vietnam
through the HLHVJOC
Charitable Donation
Programme in 2021
100%
Percentage of staff
receiving anti-bribery and
corruption training by 31
December 2021
CORPORATE RESPONSIBILITY
Our aim is to add value in
everything we do through
responsible, efficient and safe
energy production.
We take our role in society very
seriously. We are committed to open,
transparent communication, and taking
a rigorous, conscientious approach to
the environment, our role in society, our
business practices and ethics, and how
we relate to people.
That includes all our stakeholders: the
people who work with us directly and
indirectly, those who live where we
operate, and the host governments and
authorities that regulate our activities.
Corporate Responsibility
governance & management
A long-term goal of the Group is to be a
positive presence in regions in which it
operates by providing responsible and
sustainable development. The objective
of sustainability will apply equally to the
Company’s traditional reputation for
financial discipline and return of value
to shareholders as it will to the Group’s
objective of striving towards the goal
of establishing and maintaining the
highest operating standards across
Environmental, Social and Governance
(“ESG”) matters. To reflect the Group’s
ongoing commitment to operating a
sustainable business, the Board has
established an ESG Committee. The
ESG Committee has itself established a
separate ESG working group comprising
representatives from head offices Egypt
and Vietnam, to discuss, implement and
share ideas on ESG matters.
Pharos Energy Annual Report and Accounts 2021
59
CORPORATE RESPONSIBILITY - CONTINUED
Climate change risks
In January 2022, Pharos further advanced its alignment with the four TCFD pillars and disclosures on Governance, Strategy, Risk
Management and Metrics and Targets. A detailed analysis was commissioned with the help of an external climate expert consultancy
which produced in-depth assessments of the transition and physical climate risks followed by a hi-grading risk exercise based on the
Group internal risk matrix. These assessments were then discussed with the Senior Management Team and submitted to the ESG
committee of the Board.
Structure of the Group’s
Corporate Responsibility and
HSES Management System
1. Code of Business Conduct
and Ethics
2. Key CR/HSES policies
supporting the Code
Human Rights Policy
Health, Safety and Environment Policy
Security Policy
Social Responsibility Policy
Biodiversity and Conservation Policy
Tax Strategy Statement
Prevention of Modern Slavery
and Human Trafficking Policy
Climate Change Policy
3. Standards, procedures and
guidance support the policies
See https://www.pharos.energy/
responsibility/policy-statements/ for the
full text of the current versions of each of
these policies.
Stakeholder groups and corporate responsibility topics
Stakeholder group
How we engage with them and
understand any concerns
Key areas of concern
for stakeholder groups
Local communities
Environmental and social impact
assessments and grievance
mechanisms at project level
Community investment
Effluents and waste
management
Biodiversity
Transparency
National and host
governments
Regular dialogue Payments to
governments
Local capability building
Environmental
management
Health and safety
Employees and
contractors
Promote adherence to WHO
COVID-19 guidelines and
respective governments’ guidelines
Regular dialogue and grievance
mechanisms
Completed 2021 Employee Survey
Employee Focus Groups
Keep workforce safe
during
COVID-19 pandemic
Local capacity building
Contractor management
Staff wellbeing
Shareholders
Regular dialogue
Climate risk/energy
transition and other ESG
risks
HSES Health and Safety
HSES Management
System
Preventing corruption
International
community
Responding to inquiries
and media scanning
Climate risk/energy
transition
GHG emissions
Preventing corruption
Human rights
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The Constitution and Terms of Reference
of the ESG Committee sets the framework
to:
• Assist the Board in defining the Pharos
Group’s strategy relating to ESG
matters;
• Assess the effectiveness of the
Pharos Group’s policies, programmes,
practices and systems for identifying,
managing and mitigating or eliminating
ESG risks in connection with the
Pharos Group’s operations and
corporate activity;
• Provide oversight of the Pharos Group’s
management of ESG matters and
compliance with legal and regulatory
requirements, including applicable rules
and principles of corporate governance,
and applicable industry standards;
• Report on these matters to the
Board and, where appropriate, make
recommendations to the Board; and
• Report as required to shareholders of
the Company on the activities and remit
of the Committee.
The Board is also fully committed to
effective compliance with the 2018 UK
Corporate Governance Code, applicable
to the current financial year of the
Company ending 31 December 2021.
The Board’s objective is to be recognised
for meticulous governance, with a
considerate and pragmatic approach to
its business.
In terms of corporate responsibility and
community engagement, the Board is
committed to treating all stakeholders in
every area of operations with honesty,
fairness, openness, engagement and
respect, and to conducting all business
ethically and safely. The Group will only
work with parties that share these values.
Our Code of Business Conduct and Ethics
(“our Code”) sets out our expectations
for how we do business, clarifying our
commitments to ethical, social and
environmental performance. Our Group
CR and HSES policies described above
support our Code.
Our corporate standards, procedures and
guidelines support the policies. Project-
specific operational plans, programmes
and procedures set out the specific
approach to CR and HSES issues and
risks within each project.
The Pharos Health, Safety, Environmental
and Social Responsibility Management
System (“HSES MS”) describes the
Group’s internal processes to manage
risks and is consistent with the
requirements of internationally recognised
standards (ISO 14001, ISO 45001) and
aligned with the World Bank’s International
Finance Corporation (“IFC”) Environmental
and Social Performance Standards.
The Chief Executive Officer is accountable
to the Board for implementation of CR
policies and HSES performance. The
Board and the Audit and Risk Committee
oversee the adequacy and effectiveness
of our policies, standards and
management system for HSES. The ESG
Committee has responsibility, inter alia,
for defining the Group’s strategy related
to ESG matters, reviewing the Group’s
ESG policies, programmes and initiatives
and, more generally, has oversight of the
Group’s management of ESG matters.
CR objectives are defined annually
and reviewed quarterly in relation to:
our business, our ethics, our people,
environment and society.
Stakeholder engagement
In determining our CR strategy, we
consider issues that are important to
the successful delivery of our corporate
objectives and the matters that are
important to our stakeholders. We
have developed communication and
stakeholder guidance setting out the
controls and arrangements for effective,
timely and transparent processes. We
receive feedback from stakeholders
through a range of formal and informal
processes. This takes place at a project
and at a corporate level.
ESG materiality screening
Following an earlier screening of material
ESG factors relevant to the oil and
gas sector, in 2021 Pharos has been
referring to the Sustainability Accounting
Standards Board (SASB) materiality
map for Oil & Gas - Exploration and
Production, to ensure that the material
issues of importance to its activities are
appropriately managed and reported.
The Board will further reinforce the
integration of climate considerations
into its governance frameworks by
implementing the principles stated in
our Climate Change Policy. Further
TCFD alignment started in Q4 2021 and
culminated in early in January 2022 with
a detailed climate change physical and
transition risks analyses - the results
of this work have been discussed
internally and used to develop on-going
programmes, recognise best practice
and provide clear direction on our ESG
strategy during 2022. For further details
on our TCFD work, please refer to the
Risk Management report on pages 45
to 48.
Our approach on environmental and social
reporting in 2021 has taken into account
the Voluntary Sustainability Reporting
guidance (4th edition, published March
2020)” issued by IPIECA, the global not-
for-profit oil and gas industry association
for environmental and social issues, in
partnership with the American Petroleum
Institute and the International Association
of Oil and Gas Producers. In 2022, Pharos
will continue to review best practice to
further guide our ESG reporting. We report
on jointly operated companies in Egypt
and Vietnam.
Pharos Energy Annual Report and Accounts 2021
61
Business
Our objective is to provide responsible and sustainable development
throughout our operations.
Climate risks and global energy transition
Climate change is considered a principal
risk to the Group and its business over
the medium and long term, and this
is discussed in more detail in the Risk
Management and risk report on pages
43 to 57.
Both transition and physical climate
risks may further impact many of the
Group’s principal risks including those
associated with commodity price, access
to capital, reserves, operations, political,
stakeholders’ and reputational risks.
We recognise that the global energy
transition to a lower carbon intensity world
in response to climate change could
result in reduced demand for fossil fuels,
lower oil prices and increased operating
cost, increased capital cost, further
regulation and carbon taxation which
may significantly increase our operating
costs and reduce our revenue. Our overall
risk management framework integrates
climate change and carbon related risks
by stress-testing key a number of our
principal risks on key variables for the
Going Concern and Viability Testing.
Established management processes
include any physical risks associated with
climate change and our energy insurance
programmes cover to a large extent our
asset portfolio against the risks of extreme
weather events.
Pharos is cognisant of the potential
diminished role of fossil fuels in the
global energy mix as depicted in the IEA
Sustainable Recovery Plan. However,
at the same time, we also recognise
that energy demand for oil and gas will
continue to be an important component of
the global energy mix for many decades
to come.
In 2021, Vietnam remained one of the
most dynamic emerging countries in
East Asia region. Vietnam has become
a net energy and oil and gas importer
and most of the oil and gas produced
in Vietnam is consumed domestically,
with the HLHVJOCs continuing to
contribute to this economic success
story. Pharos will continue to develop
its oil and gas resources responsibly to
aid global economic development and
deliver value for all our stakeholders. We
believe that countries such as Egypt and
Vietnam can continue to have economic
and social benefits from the responsible
development of their natural resources
and we are committed to using our
influence within JOCs to ensure this is
undertaken in a sustainable way. We
will also continue to support our host
governments as they seek to use oil
revenues to promote sustainable and
inclusive economic development, and we
will support the actions that they take to
manage climate change. Egypt will host
COP27 in November 2022 and Pharos will
work closely with our partners to ensure
climate change risks are evaluated in our
processes and a decarbonisation plan is
implemented for the medium and long
term.
We report transparently and have
participated in the CDP (formerly Climate
Disclosure Project) Climate Change
Questionnaire over the past four years.
In 2021, we maintained our score of (C),
originally awarded in 2019. 2021 also
marks the first year that the Company
submitted their response to the CDP
Water Security Questionnaire. This
Questionnaire completed at a basic level
in 2021 and we plan to improve our level
of transparency on water usage and
protection by completing the full version
in 2022. Our greenhouse gas emissions
(“GHG”) are reported in the Environment
section on page 69 to 75 and on
page 78 of the Corporate Responsibility
report.
On-going commitment to align with
TCFD
Pharos is committed to implementing the
TCFD’s recommendations and a working
group consisting of personnel from the
London head office and the business units
in Egypt and Vietnam is now set up to
achieve this with the support of an outside
consultant. The project is on-going and
consists of two phases. Phase 1, which is
now completed, consisted of a thorough
peer benchmarking, internal document
review and gap analysis and culminated
in the development and approval by the
Board of the Group Climate Change Policy
in December 2020. As part of the Group’s
continued alignment with the TCFD
recommendations, Phase 2 started in 2H
2021 - an external climate consultancy
expert worked with our internal team to
draw up a long-list of climate-related risks
facing the business. The risk identification
process was undertaken in 2021 Q4 and
considered both the company’s asset
locations and primary markets, as well as
macro-scale socio-economic, political and
environmental trends. Specific operational
risks were out of scope for this study but
are still assessed, managed and reported
taking into consideration climate related
impact on our operations as part of the
Group’s Risk Management Framework.
CORPORATE RESPONSIBILITY - CONTINUED
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The risk ratings were assigned to each identified climate risk to represent an initial risk assessment (i.e. pre-mitigation) and were based
on the risk matrix detailed in the Group’s Risk Management policy. Risk ratings are assigned based on 5-year and 10-year timeframes
to help capture the evolution of risks in these periods to enable mitigation planning. While these time-horizons may be longer than a
‘typical’ business strategy, they are designed to highlight the importance of sustainability and climate-related issues in the longer-term.
Also, many climate-related risks are likely to manifest in the medium- and long-term, so longer time-horizons ensure these risks are not
excluded from consideration.
Assessment Approach under TCFD recommendations:
• A long-list of climate-related risks facing Pharos (as of 2021 Q4, post COP26), based on existing assessments from Pharos, peer
review, industry bets practice, grey literature and internal knowledge and expertise of the external climate consultancy
• The assessment considers Pharos’ asset locations and primary markets, as well as macro-scale socio-economic, political and
environmental trends. (Specific operational risks are out of scope of this study - for more details refer to the Risk Management Report)
Climate risks considered:
• Transition: regulatory, technology, financial, market, legal, reputation
• Physical: chronic, acute
GLOBAL TEMPERATURE (RELATIVE TO PRE-INDUSTRIAL) IN
0
C
6
5
4
3
2
1
0
2000 2010 2020 2030 2040 2050 2060 2070 2080 2090
SDS STEPS RCP2.6 RCP4.5 RCP8.5
Source: IPCC 2021, IEA 2021
PHASE 1 (2020):
ESTABLISHING GAPS AND LAYING THE GROUNDWORK
Task Description
1.1 Climate Policy
Horizon Scan: identify
current and future
climate change policy
trends in 4 countries of
operation (UK,Vietnam,
Egypt, Israel).
• Benchmark jurisdiction with Verisk
Maplecroft’s Carbon Policy Index.
• Identify current and emerging national (and
regional if relevant) legislation and regulation
pertinent to oil and gas industry.
• Qualitative analysis of key regulatory risk
drivers and medium-term (5yr) political
outlook.
1.2 Internal review:
assess existing
documentation
(policies, risk register,
CDP submission,
etc.) against TCFD
recommendations
• Review existing Pharos climate change
documentation (policies, risk register, CDP
submission, etc.)
• Conduct a gap analysis against TCFD
recommendations.
• Highlight key improvement areas and provide
recommendations on how to close gaps.
1.3 Peer
benchmarking:
compare climate risk
disclosure approaches
among peers
• Benchmark current TCFD approaches/best
practices among 4-5 peers.
• Assess peers against consistent framework.
1.4 Climate Change
Policy development
• Develop the content of Pharos Energy’s
Climate Change Policy (this will be agreed
with Pharos based on their position,
portfolio size, growth strategy, performance
management etc.)
PHASE 2 (2021): CLOSING GAPS
Task Description
2.1 Risk
identification
and high
grading
• Literature review to identify sector-specific actual
and potential risks for pharos with respect to climate
change
• Define climate change risks pertinent to revenues,
expenditures, assets, liabilities and capital
assessments frameworks (e.g. enterprise risk register)
• Provide recommendations to inform future risk
mitigation actions
2.2 Scenario
analysis: assess
physical and
transition risks
and opportunities
Transition Risk
• Qualitative assessment of how high-graded policy,
technology, market and reputational risks may vary
under different scenarios
Physical risk
• Screening of interests in Vietnam, Egypt and Israel
using Verisk Maplecroft physical risk datasets
• Quantify changes in key climate variables (e.g.
drought, rainfall, wave height) under 3 emissions
scenarios at mid-century
• Provide qualitative analysis regarding implications for
operations
2.3 Board
presentation
and discussion
• Review output from Steps 2.1, 2.2 and 2.3
• Discuss and agree management actions next steps
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63
CORPORATE RESPONSIBILITY - CONTINUED
Climate related Physical Risk
assessment:
A data-driven approach was used to
identify and analyse the most material
physical climate risks facing Pharos
Energy’s activities in Egypt, Israel and
Vietnam under three emissions scenarios
- see chart above re RCPs. The analysis
assesses acute and chronic risks (for
e.g. current climate extremes, such as
flooding, heat stress and storms, as well
as how long-term shifts such as sea level
rise):
• Regional profiles detail current risk
exposure across a range of dimensions,
including flooding, water stress and
heat stress
• Climate model projections are used to
assess how future climate may evolve
under different scenarios out to 2050
• Assessing the impacts under different
emissions scenarios, helps Pharos to
identify weaknesses, vulnerabilities
and opportunities and informs capital
allocation and resilience building.
Outputs:
• Provide inherent risk profiles of current
locations of interest
• Identify potential current and future
operational risks, existing and potential
weaknesses, vulnerabilities and
opportunities
• Inform capital allocation and supports
strategic decision-making around
resilience building
Climate related Transition Risk assessment:
Transition risks were assessed under the International Energy Agency’s (IEA) Sustainable
Development Scenario (SDS) and Stated Policies Scenario (STEPS):
• SDS assumes a rapid implementation of clean energy policies that set the planet on
course to meet the objectives of the Paris Climate Agreement. The SDS assumes that
all current net zero pledges are achieved, following significant efforts to realise near-
term reductions.
• STEPS is a more conservative view of the future, in which only current and planned
policies are enacted, and oil and gas play a greater role in the energy system for longer.
It considers specific policy initiatives that have already been put in place but also of
those that are under development. It assumes that policy proposals are implemented
in the near term, even if specific measures required for implementation have yet to be
specified.
The severity and likelihood associated with each transition risk identified is assessed
under baseline conditions, STEPS and SDS based on Pharos’ Risk Matrix.
The transition risk assessment focused on assessing the potential impacts of different
future scenarios on the key transition risks facing the company, and the oil and gas
industry more broadly, over the next 5-10 years. By undertaking this assessment, Pharos
can demonstrate how it tests portfolio resilience amid the uncertainty of the speed
and extent of the energy transition (in line with the recommendations of the TCFD).
Furthermore, a desktop assessment of the current political context in Egypt, Vietnam and
Israel was used to compliment the broader global trends depicted by the IEA in the SDS
and STEPS. Where appropriate, assumptions are made as to the future policy trajectory
in these countries under the two scenarios.
Pharos is fully committed to the TCFD’s recommendations and will continue its journey
of continuous improvement with transparent disclosures and reporting on how climate
related risks can impact on its operations and how our strategies and mitigating plans
evolve to ensure we maintain a sustainable business in line with our stakeholders’
expectations.
CLIMATE DISCLOSURE
IS JOURNEY OF
CONTINUOUS
IMPROVMENT
Approach
• Build a roadmap
• Adopt an integrated approach
• Approach as cyclical process
Benefits
• Demonstrates awarness of growing importance of climate-relations issues to
key stakeholders
• Staying ahead of mandatory disclosure requirements
• Creates efficiences and relieves reporting burden
STAKEHOLDER
ENGAGEMENT
GAP
ANALYSIS
INTERNAL
ALIGNMENT
REPORTING &
DISCLOSURE
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Business partners and influence
Relationships with business partners, host governments and local communities where we operate are critical for our business. Our Code
sets out our commitment to doing business honestly and ethically and to complying with all applicable laws and regulations. It sets out
our expectations to take steps to only do business with others who share our values.
Our ability to influence our business partners and JOCs depends on our degree of ownership and operatorship. Where we are the
designated operator, we fully apply the Pharos HSES MS. Where we are a joint operating partner or part of a JOC, we seek to influence
and ensure alignment with our systems. Where we have a minority interest, we seek to make our views heard and ensure that minimum
standards are met in accordance with our commitment to the IFC Performance Standards.
VIETNAM INTERESTS AND OPERATIONS
Degree of
influence Blocks Country
Pharos
ownership
Pharos
role
2021
field activity
Target HSES
outcome
High
Blocks 125 &
126
Vietnam 70% Operator
Completion of 3D seismic
acquisition programme
on Block 125. Seismic
processing underway
Full application of the
Pharos HSES MS
Moderate Block 16-1 Vietnam 30.5% *
Joint operating partner
(in Hoang Long Joint
Operating Company)
Completion of Phase 1
of TGT 4 well intervention
and development drilling
campaign
Influence to bring
alignment to the
Pharos HSES MS
Moderate Block 9-2 Vietnam 25%
Joint operating partner (in
Hoan Vu Joint Operating
Company)
Production of oil and gas
Routine well
maintenance and acid
stimulation for two wells
* Pharos has a 30.5% working interest in Block 16-1 which contains 97% of the Te Giac Trang (TGT) field and is operated by the Hoang Long Joint Operating
Company. The Group’s unitised interest in the TGT field is 29.7%
EGYPT INTERESTS AND OPERATIONS
Degree of
influence Blocks Country
Pharos
ownership
Pharos
role
2021
field activity
Target HSES
outcome
Moderate
El Fayum
Concession
Egypt 42.6%
Joint operating partner
(in Petrosilah)
Commencement of the
El Fayum Phase 1B
waterflood programme,
three-well development
drilling programme, and
Batran-1X commitment
well oil discovery
Commencement of
El Fayum Phase 1B
waterflood programme
Influence to bring
alignment to the
Pharos HSES MS
Moderate
North Beni Suef
Concession
Egypt 100%
Joint operating partner
(in Petrosilah)
Interpretation of pre-
existing 3D seismic
survey. Several low
risk drillable prospects
identified.
Influence to bring
alignment to the
Pharos HSES MS
* In September 2021, Pharos announced the farm-out and sale of a 55% working interest and operatorship in each of the El Fayum and North Beni Suef Concessions
to IPR Lake Qarun Petroleum Co, a wholly owned subsidiary of IPR Energy AG. Pharos and EGPC have finalised all necessary documents to be presented to the
Minister of Petroleum and Natural Resources to approve the transaction with IPR and this approval is expected shortly.
ISRAEL INTERESTS
Degree of
influence Blocks Country
Pharos
ownership
Pharos
role
2021
field activity
Target HSES
outcome
Low
Licences
39,40,47,48
(Zone A) and
45,46,52,53
(Zone C)
Israel 33.33% Non-operator
No field activity
Evaluation of all
reprocessed seismic
data has been finalised
with an assessment
of prospectivity being
undertaken ahead of a
Joint Venture drill or drop
decision on the licences
in Q3 2022.
Ensure minimum
standards during
ownership
Pharos Energy Annual Report and Accounts 2021
65
CORPORATE RESPONSIBILITY - CONTINUED
HSES Management System
We undertake a range of activities to continuously improve our
HSES MS to ensure that the Company’s policy commitments
are applied. We may work in countries that have different
standards and we review any potential gaps to ensure adherence
to our policies in dialogue with our business partners. Routine
monitoring is undertaken to assess and improve performance and
periodic audits are conducted.
HSE trainings and exercises
In Vietnam, the HLHVJOCs continued HSE induction to new staff,
maintained its HSE Training Matrix such as travel safely by boat,
firefighting and rescue, working at height and also conducted
training for offshore production team such as Personal Protective
Equipment training, refresh safety induction for contractors,
behavioural safety and tank inspection procedure.
In Egypt, HSES training focused on lifesaving rules, permit to
work, hot work hazards and safety requirements in confined
space entry and working at heights. All five staff HSE engineers
obtained Nebosh general certificates.
KEY PERFORMANCE INDICATORS
KPI Target 2021 2020 2019
HSES regulatory
non-compliances
Zero 0 0 0
1
1. Although three regulatory non-compliances were reported in our
Egyptian assets in 2019, these occurred in January, prior to the
completion of our acquisition.
Contractor management
Contractors are used throughout all aspects of our business.
Our Contractor Management Procedure sets out requirements
through all stages from selection through to management and
service delivery.
In HSES critical activities, bridging documents are put in place to
ensure Pharos and contractor alignment with our requirements.
Hours worked in Vietnam
and Egypt assets
Percentage
of total
Company staff: 779,216 25%
Contractors: 2,391,204 75%
Overall objective
To provide responsible and sustainable development
2021 Objectives 2021 Outcomes 2022 Objectives
Each asset to further enhance their own
HSES training programme.
In Egypt, training is currently suspended
on account of the COVID-19 pandemic.
In Vietnam offshore staff complete regular
HSE training; onshore staff training currently
limited due to working from home.
Further alignment with Pharos HSES Management
system
Confirm that outstanding recommendations
from gap analysis of Merlon HSES MS against
PHAROS Corporate HSES MS requirements
have been closed
Findings are 98 percent closed
Work closely with new partner HSES department
to ensure a similar HSES approach is shared
Implement recommendations from gap
analysis of Joint Operated Company (JOC)
Management system in Vietnam against
Pharos HSES MS requirements.
Completed Update Pharos HSES Management System
Further enhance in-country respective
Emergency Response Teams interface with
Head Office Crisis Management Response
Team.
Pharos new Crisis Management Plan rolled
out Pharos new Crisis Management Plan
rolled out
Corporate Crisis Response team training
conducted
Virtual Crisis Room setup
Pharos Energy to consider creating a single
easily accessible online repository for accessing
emergency response and relevant project
documentation to ensure this can be readily
sourced following an emergency.
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Preventing corruption
Pharos currently operates in Vietnam,
which is allocated a low score on
Transparency International’s most recently
published Corruption Perception Index
(“CPI”), and is ranked number 87 (104
in 2020) out of 180 countries in the
2021 CPI. Egypt is ranked at 117 on
the same CPI. Israel is ranked at 36
on the CPI, indicating a lower risk of
corruption. We recognise that, with both
areas of operation having a reputation
for a lack of transparency and relatively
high risk of corruption, it is vital that the
Group’s policies, procedures and working
practices are fit for purpose. Pharos
maintains internal control systems to
guide and ensure that our ethical business
standards for relationships with others are
achieved. The Audit and Risk Committee
and the Board have carried out a review
of the effectiveness the Group’s risk
management and internal control systems,
see the Audit and Risk report pages 97
to 101. Bribery is prohibited throughout
the organisation, both by our employees
and by those performing work on our
behalf. The Code of Business Conduct
and Ethics supports all businesses that
are conducted in an honest and ethical
manner across the organisation. Our
Anti-Bribery and Corruption (“ABC”)
programme is designed to prevent
corruption and ensure systems are in
place to detect, remediate and learn from
any potential violations. This includes due
diligence on new vendors, annual training
for all personnel, requisite compliance
declarations from all associated persons,
Gifts and Hospitality declaration and
comprehensive ‘whistleblowing’
arrangements.
Our Whistleblowing Policy and Procedure
ensures that employees are protected
from possible reprisals when raising
concerns in good faith. In addition to
internal reporting channels, we have a
confidential ethics hotlines supported by
EthicsPoint with numbers displayed in
local offices available 24 hours a day all
year round. Zero calls were made to the
EthicsPoint hotlines in 2021.
Payments to host governments
Wealth generated by natural resources
plays an important part in the growth
and development of countries in which
we operate. Revenues to governments
become payable by the Group due
to oil production entitlements, taxes,
royalties, licence fees and infrastructure
improvements.
During 2021, the total payments to
governments for the Group amounted
to $198.2m (2020: $150.9m), of which
$151.9m or 77% (2020: $104.9m or 70%)
was related to the Vietnam producing
licence areas, of which $102.6m (2020:
$72.5m) was for indirect taxes based on
production entitlement. Egypt was paid a
total of $44.7m (2020: $42.2m) of which
$44.1m (2020: $41.3m) relates to indirect
taxes based on production entitlement.
The breakdown of other contributions,
including payroll taxes and other taxes is
contained within the additional information
on pages 167 to 168. Our Code
prohibits contributions to political parties,
candidates or other political organisations.
Ethics
100%
Employees and relevant
contractors have undertaken
anti-bribery and corruption
training by 31 December 2021
Our objective is to conduct our business in an honest
and ethical manner.
Overall objective
To conduct our business in an honest and ethical manner
2021 Objectives 2021 Outcomes 2022 Objectives
All personnel to complete the annual ABC
programme including training, testing and
self-declaration statement.
Completed
All personnel to complete the annual ABC
programme including training, testing and
self-declaration statement
Continue to review ABC programme and
update as required.
No updates required
Continue to review ABC programme and
update as required
Update and republish the Modern Slavery
annual statement.
The annual statement on Modern Slavery has
been published on the Pharos website.
Update and republish the Modern Slavery
annual statement and all other corporate
policy statements
Pharos Energy Annual Report and Accounts 2021
67
People
CORPORATE RESPONSIBILITY - CONTINUED
Our objective is to ensure the health, safety, security and welfare of
our employees and those with whom we work and to ensure that
we have a workforce that is performing at its best.
Our Health, Safety and Environment
Policy and Code of Business Conduct
and Ethics commit us to protecting
the health and safety of our workforce,
to providing a workplace free of
discrimination where diversity is valued
and to ensure that we consult and
engage with our employees.
We value the contribution made by all
employees and strive to ensure that
we have training and development
opportunities for everyone.
During 2021, the Group maintained its
priority of keeping our workforce safe
during the global pandemic.
On-going monitoring and
precautionary / preventive
measures under COVID-19
The Group adhered to the requisite
precautionary procedures and restrictions,
in line with the government directives in
Egypt, Vietnam and the UK. At Petrosilah
and Pharos El Fayum, a vaccination
campaign for all employees in the main
offices and fields started in Q2 2021
and culminated to 97% (2 doses) of the
workforce being vaccinated at the end of
December 2021. In Vietnam, the HLHV
JOC strict 5-7 days quarantine regulations
are being applied for the workforce going
offshore, in addition to rapid and PCR
tests one day prior to offshore mobilisation
- 100% of the workforce are vaccinated
with 2 doses at the end of December
2021. For the office workforce at all
locations Pharos has continuously applied
a hybrid-working mode and will do so until
further notice.
Occupational health and safety
Safety is the highest priority in our
business and we are committed to
operating safely and responsibly at
all times and to providing a safe and
healthy working environment for staff and
contractors. Following from our Health,
Safety and Environment Policy and
Code of Business Conduct and Ethics,
our HSES MS provides the framework
for our approach and is implemented
at each stage of a project supported by
Occupational Health and Safety Guidance
and Standard Operating Procedures.
While Pharos had no field activity in
2021 in which we were the operator, we
continued to work with our partners in
Vietnam where the HLHVJOCs continued
to maintain a high level of safety. We
have worked to build and contribute
to improvements in the safety culture
in Vietnam and we are proud of that
record of achievement. HSES training,
drills, workshops and inspections are
conducted on an annual basis to ensure
that the zero target is maintained.
We are able to share our practices and
lessons learned with others in the industry
and are contributing to further capacity
building.
In Egypt, we are pleased to report no
recordable health and safety incident in
2021.
Safety of our workforce remains our
number one priority and Pharos has
reinforced the use of stop cards and
safety training across all of the Group’s
operations.
Critical Incident Risk Management
Pharos has emergency response plans
in place for all projects and assets.
The plans are communicated to the
workforce and response personnel receive
training to ensure they are competent
to carry out their emergency roles. This
is supplemented by periodic refresher
training. Drills and training exercises are
carried out. We ensure asset integrity and
control operations in order to effectively
manage all significant risks during all
stages of the operations.
During 2021, there were no Process
Safety Events classified Tier 1 or Tier
2 to be reported. All incidents were
investigated and lessons learned as
appropriate and actions to prevent
recurrence were implemented.
SAFETY RECORD
2021 2020 2019
KPI Target rates Pharos IOGP
4
Pharos IOGP Pharos IOGP
Fatal Accident Frequency Rate
1
Zero
0 34
0.55
0
0.82
Lost Time Injury (“LTI”) Frequency Rate
2
Zero
0 0.34
0.22
0
0.24
Total Recordable Injury Rate
3
<0.34
0 0.34
0.70
0.42
0.92
Million-man hours worked
3.17 2.97
2,544
2.35
3,038
1 Fatal accident frequency rate: Number of fatal accidents per hundred million man-hours for both employees and contractors
2 Lost time injury frequency rate: Number of lost time injuries per million man-hours for both employees and contractors
3 Total Recordable Injury rate; Number of recordable injuries per million man-hours for both employees and contractors
4 International Association of Oil and Gas Producers (“IOGP”) - Statistics not yet available for 2021
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Safety indicators (for both Pharos
employees and contractors)
Indicator 2021
Lost Time Injury frequency rate (“LTI”) 0
Fatal Accidents 0
Medical Treatment Cases 0
First Aid Cases 0
Number of Motor Vehicle Crashes 1
Roll-over 1
HSES Near Miss 9
HSES Inspections 797
HSES Audits 1,022
HSES Toolbox Talks 6,131
HSES Meetings 1,194
Safety indicators
Indicator 2021
Emergency Response Drills 102
Process Safety Events (Tier 1 or Tier 2) 0
Other minor events 49
Diversity and Inclusion
Greater diversity and inclusivity brings
greater understanding of people. Through
our Guiding Principles of ‘Openness
and Integrity’ and ‘Empowerment and
Capability’, we have demonstrated our
commitment to maintaining and building
a culture of diversity and inclusion in
meaningful ways.
We believe in a workforce with a diversity
of experience, nationalities, cultural
backgrounds and gender, to support our
business strategy of long-term sustainable
growth. It is crucial to the success of
our business that we retain and develop
the diversity of our workforce and have
diversity and inclusion at the heart of our
recruitment, development and promotion
processes.
Our Code of Business Conduct and
Ethics, associated Policies and the Pharos
Guiding Principles commit us to providing
a workplace free of discrimination where
all employees can fulfil their potential
based on merit and ability. They also
commit us to providing a fully inclusive
workplace, while providing the right
development opportunities to ensure
existing staff have rewarding careers.
The spirit of diversity, inclusion and trust
lies behind everything we do. In 2021,
four out of nine Board members were
women, and this will become four of six
Board members following completion of
the farm-out transactions with IPR and
the 2022 AGM. We are also proud that
women accounted for nearly 60% of
employees at our London head office.
Our offices across the organisation
recruit talents from diverse backgrounds,
ethnicity and experience. Most notably,
our London head office has 17 people
from 10 different nationalities, which
ensures that we cultivate a culture that
recognises and promotes diversity in all
forms and where every voice is heard.
2021 CORPORATE EMPLOYEES*
Non-Executive Directors
3 2
Executive Directors
2
2
Senior Management
Other Employees
5 9
Male
Female
3
* Figures correct as at 31 December 2021
Local capability building
We are committed to providing meaningful
opportunities for technical cooperation,
training and capacity building in host
countries. We have maintained a gender-
neutral recruitment process and, wherever
possible, are ensuring that we first look
to fill any vacancy internally with a local
candidate in London, Vietnam and Egypt.
In Egypt, under the El Fayum and North
Beni Suef Concession Agreements, the
Contractor party commits to a total of
$200,000 split equally between the two
Concessions for training and development
of employees. Additionally, in cooperation
with the Ministry of Higher Education and
Scientific Research, Petrosilah holds an
annual summer training programme for all
students applying from public and private
Egyptian universities for training in the
administrative office and the company’s
fields, from which they can obtain a
training certificate after completing the
programme.
In Vietnam, as part of the HLHVJOCs, we
contribute to local capability building. A
training levy of $150,000 for each JOC
goes into a fund which is ring-fenced to
support the development of future talent
in Vietnam in the industry. The HLHVJOCs
also invest in staff development and
training.
Overall objective
To ensure the health, safety, security and welfare of our employees and those
with whom we work; to sustain and grow a global cultural of diversity and
inclusion such that diversity is at the core of who we are and where inclusion
drives innovation and solutions
2021
Objectives
2021
Outcomes
2022
Objectives
Build an action plan based
on the areas that employees
identified as requiring
improvement in the employee
engagement survey.
Further enhance
understanding of different
cultures and sharing of ideas
through training sessions and
focus groups made up of cross
c o u n t r y g r o u p s
Survey completed and
feedback reviewed and
discussed with senior
management
Close gaps and
initial improvements
identified in employee
surveys
Maintain and implement
procedures to ensure a COVID-
safe workplace and practices
Maintained
p r e c a u t i o n a r y m e a s u r e s
WFH where applicable
Coordinated a
successful vaccination
programme
Focus on maintaining
safe working
environment
Pharos Energy Annual Report and Accounts 2021
69
Environment
CORPORATE RESPONSIBILITY - CONTINUED
We recognise the potential impacts of our business on the
environment. Our Health, Safety and Environment Policy sets out
our commitment to conduct all business activities in a responsible
manner. In setting the Group’s corporate responsibility priorities, our
objective is to protect the environment and conserve biodiversity.
Greenhouse gas emissions
(“GHG”)
GHGs associated with energy use and
with natural gas flaring and venting are a
key issue for the Group.
In 2021, we continued to monitor
our emissions and disclose them in
accordance with industry requirements
and standards, participated in the
Carbon Disclosure Project (“CDP”), with
further work completed in Q1 2022 on
implementing the TCFD recommendations
and alignment.
TCFD alignment
The physical risk assessment focused
on screening our interests in Vietnam,
Egypt and Israel using the consultant’s
physical risks datasets and an attempt to
quantify changes in key climate variables
(e.g. drought, rainfall, wave height) over a
5 and 10-year timeframe under the three
emissions scenarios - Representative
Concentration Pathways (RCPs). The
transition analysis focused on the potential
impacts of different future scenarios on
the key transition risks facing the Group
and the oil and gas sector more broadly
over the next 5-10 years. By undertaking
this assessment, Pharos demonstrated
how it evaluated its portfolio resilience
amid the uncertainty of the speed and
extent of the energy transition. Transition
risks were assessed by Pharos’ TCFD
consultant under the International Agency
(IEA) Sustainable Development Scenario
(SDS) and Stated Policies Scenario
(STEPS). Additionally, Pharos has
considered the risk that climate change
pressures could reduce oil prices during
the 3 year Viability Statement window
(please refer to the Viability Statement
from pages 56-57 under the
recommended IEA’s Net Zero Emissions
scenario.
Pharos Energy plc has complied
with the requirements of LR 9.8.6R
by including climate-related financial
disclosures consistent with the TCFD
recommendations and recommended
disclosures Pharos is compliant with 9
out of 11 of the TCFD recommended
disclosure. The two exceptions are
Strategy (b) and Metrics and Targets (c),
details of which are noted below.
Strategy (b) Describe the impact of
climate-related risks and opportunities
on the organisation’s strategy and
financial planning
To date Pharos has not yet formulated
its decarbonisation plan as part of our
corporate strategy as the physical and
transition scenario risk analyses were
completed in February 2022 and further
assessments/discussions will take place
during 2022 to consider adaptation
strategies to mitigate the identified climate
risks. Pharos has a comprehensive
portfolio of climate related risks under
multiple scenarios which will be regularly
tracked, re-assessed and re-calibrated
regularly to reflect the evolving climate
landscape. Risk mitigation is already being
considered in financial planning as part
of our going concern and viability testing
on oil future price curve based on the
recommended IEA’s NZE scenario. Also,
some stress testing has been carried
out on a carbon tax impact on our future
base cash balance and the impact was
deemed not material. The risks and
opportunities were assessed over a 5
and 10 year timeframe. A comprehensive
decarbonisation/ climate mitigation
plan will be formulated by our Senior
Management by Q1 2023 to embed the
mitigation plan into our medium and long-
term corporate strategy.
Metrics and Targets (c) Describe the
targets used by the organization to
manage climate-related risks and
opportunities and performance against
targets
The baselines for GHG emissions for
2021 are disclosed in the Corporate
Responsibility section under Environment
(please refer to pages 69 to 75
and page 78 but no carbon reduction
target has been set yet. During the
course of 2022, Pharos will progress
further feasibility studies on CO
2
reduction
technologies, improve our management
of flaring and venting, explore where
operational processes can be altered
and evaluate the use of greener energy
sources to replace the use of our own
produced gas as fuel for our operations.
By the end of 2022, Pharos will be in a
better position to set a specific carbon
footprint reduction targets against the
2021 GHG baselines.
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The Group’s status - TCFD pillars and disclosures
Recommended Disclosures Pharos status
GOVERNANCE
a) Describe the board’s oversight of
climate-related risks and opportunities
Our ESG Committee oversees climate-related risks and opportunities and reports to the Board.
The Chair of the Board, John Martin, is also the Chair of the ESG Committee.
For more information on Board oversight and composition of the ESG Committee, please see
page 82 and pages 86 to 91 of the Corporate Governance Report. For more information
on the ESG Committee meetings, please see the ESG Committee report on pages 92 to 94
of the Governance Report
(b) Describe management’s role in
assessing and managing climate-related
risks and opportunities
ESG issues and reporting remain a key element of Pharos.
For more information on how ESG issues are considered at Board and management level, please
see page 92 to 94 for the ESG Committee report of the Governance Report.
STRATEGY
(a) Describe the climate-related risks
and opportunities the organization has
identified over the short, medium and
long-term
High grading of key transition and physical risks over multiple time-horizons and scenarios
For more information, please see pages 45 to 48 in the Risk Management report, and
pages 61 to 63 for the ‘On-going commitment to align with TCFD’ section in the Corporate
Responsibility Report in the Strategic Report.
(b) Describe the impact of climate-
related risks and opportunities on the
organisation’s strategy and financial
planning
Transition risks will impact on oil price volatility, demand for oil & gas and availability and cost of
capital causing earlier impairment / risk of stranded assets and rising operating costs
Physical risks will potentially cause damage to our assets, increase insurance costs and force
unexpected shutdowns of our operations.
For more information on Transition and Physical risk, please refer to the On-going commitment to
align with TCFD section on pages 61 to 63 in the Strategic Report.
A decarbonisation plan will assist the company to gain the confidence of the investors and also
have better access to sources of capital.
In Q4 2021, Pharos undertook a review of our Vietnamese operations and assets with the
assistance of an independent energy consultant focusing on the potential application CO
2
reduction technologies. For more information on our consideration, please refer to page 47 in the
Risk Management Report.
(c) Describe the resilience of the
organisation’s strategy, taking into
consideration different climate-related
scenarios, including a 2 degree or lower
scenario
Risk registers are maintained across all functions and locations
Internal quarterly risk assessments with all risk owners
Principal and emerging risks, including climate-related risks are reported to the ESG Committee.
For more information, please refer to pages 49 to 57 of the Risk Report and pages 61 to 63 in the
Strategic Report.
Pharos Energy Annual Report and Accounts 2021
71
CORPORATE RESPONSIBILITY - CONTINUED
Recommended Disclosures Pharos status
RISK MANAGEMENT
(a) Describe the organisation’s processes
for identifying and assessing climate-
related risks
Climate-related risks were assessed over multiple time-horizons, external data-sets and
recommended scenarios and the risks categorised / calibrated and hi-graded using Pharos Risk
Matrix
For more information, please see pages 45 to 48, 51, 57 and pages 61 to 63 of the Strategic
Report.
(b) Describe the organisation’s processes
for managing climate-related risks
Continuous monitoring / reporting of key performance indications including CO
2
emissions levels
and intensity in our quarterly HSES reports
Yearly GHG reporting and certification
ESG targets, including GHG reduction targets as part of the Directors’ remuneration policy.
For more information on our ESG targets and performance, please see the 2022 KPI in the
Directors’ Remuneration report on page 112.
Stress-testing oil price volatility in various climate-related scenarios
Assess the impact of carbon pricing on our going concern and viability tests
For more information for going concern and viability testing, please see the Viability Statement on
pages 56 to 57 in the Strategic Report.
For more information on the Group’s process for managing climate-related risk, please see page
51 in the Strategic Report.
(c) Describe how the processes for
identifying, assessing and managing
climate-related risks are integrated
into the organisation’s overall risk
management
Risk registers are maintained across all functions and locations
Internal quarterly risk assessments with all risk owners
Principal and emerging risks, including climate-related risks are reported to the ESG Committee.
For more information, please refer to pages 49 to 57 of the Risk Report and 61 to 63 in the
Strategic Report.
METRICS AND TARGETS
a) Disclose the metrics used by the
organization to assess climate-related
risks and opportunities in line with risk
management process
Measure and report our CO
2
emissions across all operations
Calculate and report our carbon intensity
GHG metrics and climate change are now included as part of our remuneration policy.
For more information, please see pages 69 to 75 and page 78 of the Strategic Report.
(b) Disclose Scope 1, Scope 2 and if
appropriate, Scope 3 GHG emissions,
and the related risks
Both Scope 1 and Scope 2 are measured and reported. For more information on Scope 1 and 2,
please refer to page 78 in the Non-Financial Disclosures in the Corporate Responsibility report.
Scope 3 emissions are currently not being reported but Pharos is planning to review in 2022 the
various categories of its scope 3 emissions. The company is cognisant that TCFD advocates and
decide on the reporting of scope 3 and the Group will endeavour to follow this route, in line with
TCFD recommendations going forward.
For more information, please see pages 69 to 75 and 78 in the Strategic Report.
c) Describe the targets used by the
organization to manage climate-related
risks and opportunities and performance
against targets
Please see the Metrics and Targets (c) paragraph on page 69 for more information.
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GHG reported
Pharos reports carbon dioxide (CO
2
),
methane (CH
4
), and nitrous oxide (N
2
O)
combined into carbon dioxide equivalent
(CO
2
e) based on the gases’ 100-year
Global Warming Potential (GWP). These
three gases are produced through
combustion, although N
2
O quantities
produced via combustion is relatively
small.
In addition to emissions resulting from
combustion, in 2021, Pharos has started
to report its direct methane emissions
from routine venting.
The other greenhouse gases, HFCs, PFCs
and SF6, are not closely associated with
the petroleum industry. Their respective
emitting activities are not core parts of
Pharos operations. The total emission of
these gases is therefore expected to be
small and has not been calculated.
Emissions scope
Reported Scope 1 direct emissions
comprise direct GHG emissions resulting
from equipment or other sources owned
(partly or wholly) and/or operated by
the Company (for example, gas flaring
operations and fuel gas/diesel use to
generate power or for vehicle use, as well
as venting). Reported Scope 2 indirect
emissions comprise those arising from
purchased energy already transformed
into electricity, heat or steam generation.
For Pharos activities, Scope 2 emissions
comprise electricity supplied by the
national grid in our Cairo office (Egypt)
and in Ho Chi Minh City (Vietnam). No
Scope 3 emissions (indirect emissions
created in the value chain) are reported.
Scope 3 emissions are currently not being
reported but Pharos is planning to review
in 2022 the various categories of its scope
3 emissions. The company is cognisant
that TCFD advocates and decide on the
reporting of scope 3 and the Group will
endeavour to follow this route, in line with
TCFD recommendations going forward.
Reporting boundary
Pharos has elected to report its emissions
of GHGs from Egypt and Vietnam
operations on the basis of equity share.
Under equity share reporting, Pharos
reports a pro-rata share of the emissions
from partnerships or assets over which
the Group has operational control (i.e.,
Vietnam Blocks 125 &126) and a pro-rata
share of the emissions from partnerships
or assets it does not control (i.e., Vietnam
Blocks 9-2 and 16-1 and Egypt, all
of which are operated through JOCs)
according to its ownership interest. Note
that although Pharos has interest in Israel,
to date, no operations have taken place
in country. In addition, in December 2020,
the lease for the Pharos London Office
at 48 Dover Street was assigned to a
new tenant and the associated emissions
have therefore not been reported in 2021.
Since the middle of July 2021, Pharos
has rented flexible office space consisting
of six desks at WeWork based in Soho,
London. The electricity consumption from
this office is not included in the figures
discussed thereafter.
Pharos Energy commits to making all
efforts to minimise all GHG Emissions
during its ongoing exploration activities
in Blocks 125 & 126, where it has
operational control. Where we are a joint
operating partner, we seek to influence
and ensure alignment with our systems
to promote best practice. Where we have
a minority interest, we seek to make our
views heard and ensure that minimum
standards are met in accordance with
our commitment to the IFC Performance
Standards and TCFD recommendations.
Methodology
Pharos applies the expectations set by
the ISO 14064-1 standards in terms of
Relevance, Completeness, Consistency,
Transparency and Accuracy which are
endorsed by IPIECA, the Greenhouse
Gas Protocol Initiative and Part 7 of The
Companies Act 2006 (Strategic Report
and Directors’ Report) Regulations 2013.
Emission factors for GHG calculations
were taken from UK Government GHG
Conversion Factors for Company
Reporting (BEIS, 2021) and EEMS, 2008,
Atmospheric Emissions Calculations;
for the calculation of associated gas
consumed as fuel and flared in Vietnam,
the emission factors were calculated
based on the carbon content of gas
analysed of a blend of TGT and Hai Su
Trang Den (HSTD) export gas for the TGT
field, and of the CNV Field by the Vietnam
Petroleum Institute in 2021, and for the
calculation of gas consumed, vented and
flared in Egypt, the emissions factors were
calculated based on the carbon content
of gas analysed at the North Silah Deep,
North East Tersa, South Silah and Silah
Base Separators (EPRI Central Analytical
Labs, 2018).
In 2021 we have again reported our GHG
emissions intensity in tonnes of GHG
per 1,000 tonnes of oil produced by
equity share to align with the International
Association of Oil and Gas Producers
(“IOGP”) benchmarks.
Key sources of our emissions are from
flaring and use of associated gas as
fuel to generate power on our offshore
production sites in Vietnam and likewise
for our onshore production in Egypt. In
2021, in addition to our emissions from
combustion which have been the focus
of Pharos reporting until now, we have
started to report our direct methane
emissions resulting from venting. In 2021,
gas fuel and gas flaring in TGT remain the
largest single contributor to Pharos total
emissions. Venting represented 9 percent
of our gross emissions.
The Group’s total CO
2
e emissions for
2021 is 372,151 tonnes of CO
2
equivalent
(120,628 tonnes of CO
2
equivalent based
on equity share). This corresponds to
a decrease of 5 percent compared to
2020 (3 percent based on equity share).
Pharos overall reported emissions have
decreased due to a lower level of drilling
activities, which counterbalanced potential
causes for increase, namely inclusion of
routine venting emissions and compressor
issues resulting in increased flaring in
Block 16-1 in Vietnam,
Activity data pertaining to GHG emissions
by the HLHVJOCs and Egypt is reported
to Pharos. Telos NRG assisted with data
collation and GHG emissions calculations.
Verification was undertaken by RPS
Planning and Environment.
Approaches to reducing emissions
The restaging of two gas compressors
on the TGT FPSO was finally completed
in 1H 2021 and this has contributed
to better gas flaring management.
Unfortunately, in November 2021 one of
the two gas compressors overheated and
had to be shut down and returned to the
manufacturer in the US for diagnostics
and repairs. This incident resulted in an
increase in flaring levels.
During 2021, Pharos carried out a high-
level review of the Vietnamese assets with
the assistance of an external consultant
to investigate the main CO
2
emission
contributors, to understand what solutions
have been implemented or discounted
by the JOC and focusing on possible
CO
2
emissions reduction options. A
number of CO
2
reduction technologies
such as ejector technology, gas to liquid,
hydrogen storage unit may have potential
to reduce our Scope 1 emissions, but
further study work and cost benefit
analysis comparisons including a CO
2
reduction benefit versus CAPEX payback
analysis will be required to pursue any
of these solutions. Additionally putting
costs of these technologies aside, there
are significant logistical constraints – for
example, the current FPSO infrastructure
configuration has to be examined in
details and partners’ backing has to be
obtained.
Pharos Energy Annual Report and Accounts 2021
73
CORPORATE RESPONSIBILITY - CONTINUED
Annual Environmental Measurements - in accordance with the requirements of the Egyptian Environmental Law 4 for year 1994, the
Company carried out annual environmental measurements, and all environmental measurements resulted in less than the threshold limit
in the law.
Environmental permit non-compliances - the company achieved zero Legal Environmental Violation during 2021 and did not obtain
any violations from the Environment Authority in Egypt in 2021. The Company obtained 6 Environmental Approvals from the Ministry of
Environment during 2021.
GHG emissions and activity data
Scope One and Two emissions from the Group’s operated and joint-operated projects on an equity share basis calculated pro-rata to its
ownership interest.
In 2021, 43 tonnes of gas were flared for every 1,000 tonnes of total hydrocarbon production from Group assets on a gross basis (not
equity share adjusted). This is a slight increase from 39 tonnes in 2020.
Venting
Routine venting emissions have been included for the first time in GHG report in 2021. Routine venting only occurs in Egypt. Although
there is no routine venting in Vietnam, accidental leaks can occur. In addition, some activities do occasionally require depressurisation of
differing process systems. In these instances, the system(s) will be isolated, and depressurised to as low as possible, and then drained
to a closed drain tank. A minor amount of gas commingled with liquid will evacuate out through cold vent line to a safe area. Associated
emissions are expected to be negligible and are not included in the 2021 report, but Pharos is committed to include them within the
report from 2022.
Although venting in Egypt was not recorded before 2020, quantities involved are likely to have been lower, as the oil production decrease
in 2021 meant the amount of gas produced has become insufficient to operate flare or power gas generators and has been vented
instead.
The Group’s energy use from grid electricity was 311,692 kWh in 2021 for overseas offices in Egypt and Vietnam. In 2020, the Group’s
energy use was 309,942 kWh; 24,559 KWhs for London and 285,383 KWh for oversea. Pharos assigned the leasehold interest in the
former London head office at 48 Dover Street in December 2020. Since the middle of July 2021, Pharos has rented a flexible six-desk
office space in London, the electricity consumption of which is not included in the report.
GHG DATA - TONNES OF CO
2
EQUIVALENT FOR 2019 TO 2021
CARBON INTENSITY OF PRODUCTION (TCO
2
e PER 1,000
TONNES OF OIL EQUIVALENT PRODUCED)
GREENHOUSE GAS EMISSIONS CONTRIBUTIONS
(TOTAL CO
2
e (T)) FOR 2021 - VIETNAM (BASED ON
TOTAL FIELD EMISSIONS)
GREENHOUSE GAS EMISSIONS CONTRIBUTIONS
(TOTAL CO
2
e (T)) FOR 2021 - EGYPT (BASED ON TOTAL
FIELD EMISSIONS, INCLUDING VENTING)
EGYPTVIETNAM
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
500,000
2019
(year round)
2020 2021
(Venting excluded)
2021
(with Venting)
0
50
100
150
200
250
300
350
2019
(year round)
2020 2021
(Venting excluded)
2021
(with Venting)
458,129
390,944
338,705
372,151
291
287 287
287
147,173
124,218
106,380
120,628
274
245
179
328
287
276
277
316
Gross GHG Emissions (CO e (t)
2
Net GHG Emissions (CO e (t)
2
Vietnam Egypt Overall
Gas Fuel
149,361 (50.4%)
Gas Flared
115,962 (39.1%)
Marine Gasoil
25,384 (8.6%)
Diesel
5,595 (1.9%)
149,361
115,962
5,595
25,384
Venting
33,445 (44.2%
)
Gas Fuel
17,989 (23.8%
)
Gas Flared
10,590 (14%)
Diesel
13,063 (17.2%
)
33,445
17,989
13,063
Petrol
Diesel (Vehicle)
Electricity from Grid
10,590
(0.4%)
(0.2%)
(0.2%)
Pharos Energy Annual Report and Accounts 2021
74
Additional InformationGovernance Report Financial StatementsStrategic Report
Effluents and waste
During 2021, Pharos maintained its record of no spills into the environment in Vietnam. In Egypt, there were three environmental spills as
follows:
Date Location Description Estimated Quantity (bbls)
Jan 2021 Egypt - Aboud-1x
High salinity water drained on the ground by oil tanker
A full cleaning up of the contaminated soil and disposal
by Petrotrade company
3
Jan 2021 Egypt – Saad-2x
Minor oil spill around the shipping pump due to failure of
its mechanical seal
2
August 2021
Egypt - El Fayum fields to Suez oil
processing company, about 2 km away
from Suez city
Crude oil shipping truck overturned on regional road
causing a leak in tank– no injury
372
Water is extracted along with hydrocarbon reservoir fluids as part of normal production operations. In 2021 we generated 6.1 million
cubic metres of produced water. In Vietnam, the produced water is cleaned by separating the hydrocarbon phase before discharging to
the sea in line with national standards.
In Egypt, our produced water is all disposed of in disposal wells. The company has three Produced Water Treat Facilities, PWTF, two
of them are in-service at SILAH GS & N. Silah Deep GS and the third is yet to be used at N. E Tersa-1. The produced water is being
collected in both PWTF (SILAH & NSD) and then disposed into A/R “E” formation in (+/- 5,000 bbl water disposed into SILAH-15 & +/-
6,000 – 6,500 bbl water disposed into NSD-1-1) disposal wells respectively.
In Vietnam, waste is generated from both our production operations as well as from our offshore drilling activities. Drilling waste includes
cuttings, used oil and other materials. We work to recycle as much non-hazardous waste as possible. We have a third-party contract for
the disposal of hazardous waste, with a reporting system into the specific Vietnamese authorities for checking, audit, and approval.
In Egypt, waste generated is segregated into hazardous and non-hazardous waste and disposed of in a licensed facility. Freshwater is
used to support our operations.
In 2021, freshwater consumption for both Vietnam and Egypt amounted to 58,525 cubic metres. Our use of freshwater has been
almost halved compared to 2020, due to the limited number of drilling activity carried out through the year, as the business continued to
respond to the low oil price and impact of COVID-19.
TONNES (T) OF CO
2
E EQUIVALENT FOR 2021 OPERATIONS
CO
2
e (t)
CO
2
e (t) per 1000 tonnes of oil
produced by equity share
3
Country
Reported
operations
Operational
phase Overall
1
Based on equity
share
1,2
Per field
Per
country
UK Rented flexible office space
- not reported
Administration (office – electricity usage) - - - -
Israel No activity - - - -
Egypt Office Administration support for exploration 409 174 - -
El Fayum Concession Production 73,458 31,293 328 328
Field development 1,874 1,874 - -
Vietnam Cuu Long
Basin (offshore)
Office Administration (electricity usage) 1 1 - -
Blocks 125 & 126 Seismic exploration 2,755 1,929 - -
Block 9-2 – Ca Ngu Vang
(CNV) field
Production 16,640 4,160 59 258
Field development 0 0 - -
Block 16-1 – Te Giac Trang
(TGT) field
Production 266,734 79,220 359 -
Field development 10,280 3,053 - -
Total 372,151 120,628 316 -
1. Figures include rounding to the nearest whole number.
2. Under equity share, Pharos reports a share of the emissions from the partnerships pro-rata its ownership interest.
3. GHG emission intensity is calculated, per field, and at country level, based on equity share, and gross/net boepd produced in 2021 in the CNV and TGT
fields as well as in El Fayum Concession.
Pharos Energy Annual Report and Accounts 2021
75
CORPORATE RESPONSIBILITY - CONTINUED
Biodiversity
The Group’s Biodiversity and
Conservation Policy commits us to meet
the objectives of the Convention on
Biological Diversity (1992). We identify
whether a project is located in modified,
natural or critical habitats, or a legally
protected or internationally recognised
area; and whether the project may
potentially impact on, or be dependent
on, ecosystems services over which
Pharos has direct management control
or significant influence. In Egypt, the El
Fayum Concession borders the multiple-
use management area and the natural
protectorate area of Lake Qarun which
includes important bird habitats. It is
adjacent to the Wadi El Rayan protected
area, which includes the Wadi Al-Hitan
World Heritage Site. In Vietnam, Blocks
125 & 126 are approximately 50km
offshore to the Nha Trang Bay Protected
Area and the Thuy Trieu Marine Protected
Area. Consistent with the Biodiversity and
Conservation Policy, Pharos does not
operate in any UNESCO designated World
Heritage Site and ensures that activities
in buffer zones around these sites do
not jeopardise the Outstanding Universal
Value (as defined by UNESCO) of these
sites.
In Vietnam, safe practices were adhered
to ensure the surrounding environment is
protected at all times:
• The oil in water content of produced
water were continuously monitored
• Hazardous wastes have been strictly
managed, with hazardous wastes
manifests completed and submitted to
the relevant authorities
• All waste waters and sewage generated
on the drilling rigs, supply vessels
and FPSO have been treated before
discharge
• All solid wastes were collected,
segregated and transported to shore
and sent to the appointed contractors
who provided waste treatment system
In Egypt, similar safe practices were in
place:
• For normal waste, handling and
disposal was undertaken in compliance
with applicable environmental law
and regulatory requirements, involving
contracting with local units.
• Handling, transportation and disposal
of hazardous waste was undertaken as
follows:
- solid hazardous waste to approved
landfill
- liquid and solid hydrocarbon waste to
approved landfill
- waste water to ULTRA EXTRACT
treatment factory
- water-based mud cutting waste to the
Fayum Governorate landfill.
An annual environmental monitoring was
conducted over Petrosilah work locations
by IMS Company to assess compliance
with applicable environmental law and
regulation.
We are committed to developing site-
specific biodiversity action plans in the
event that operational sites are within
sensitive areas, incorporating country-
specific strategies and action plans and
working in association with external
advisers to ensure that best practice
conservation priorities are achieved.
NON-FINANCIAL KPIS (HSES)
Target - 2022 2021 2020 2019
Spills to the environment* 0
3
4 2
*Number of spills reported.
Target 2021 2020 2019
Solid non-hazardous waste produced (tonnes) Set per project
111
94 104
Percentage of non-hazardous waste reused or recycled Set per project
24
25 15
Solid hazardous waste (tonnes) Set per project
48
41 3,112
Percentage of hazardous waste reused or recycled Set per project
<1
4 <1
OVERALL OBJECTIVE
To protect the environment and conserve biodiversity
2021 Objectives 2021 Outcomes 2022 Objectives
Commission all necessary EIAs before start
of activities or projects
All environmental permits obtained prior to
starting operational activities
Obtain all necessary environmental permits for all
drilling programmes / seismic studies
Complete gap analysis and fully implement
Pharos standards
Work in progress
Improve methane emissions management and
reporting
Implementation of the new country entry
procedure prior to any acquisition.
There has been no new country entry in
2021
To be applied if there is a new country entry
Flaring in Vietnam is better managed with
re-staged compressors
Partly achieved – one GTC was shut down
in mid-Nov 21 this caused an increase in
daily flaring levels
Carry out further feasibility studies / cost benefit
analysis on a few CO
2
reduction technologies
Look to resume at the appropriate time
Continue Phase 2 TCFD implementation
Project GOO - Greening our Operations
Phase 2 of TCFD implementation
completed
Project GOO has been placed on hold due
to lack of funding
Continue with TCFD alignment - disclosure & reporting
Map out Pharos decarbonisation plan
Pharos Energy Annual Report and Accounts 2021
76
Additional InformationGovernance Report Financial StatementsStrategic Report
Society
Our Social Responsibility and Human Rights Policies set our
requirements for social responsibility, community engagement
and human rights.
Human rights
The Group Human Rights Policy commits
Pharos to conducting its business
in accordance with the fundamental
principles of human rights set out in the
Universal Declaration of Human Rights
and reflects the terms of both the OECD
Guidelines for Multinational Enterprises
and the United Nations Guiding Principles
on Business and Human Rights. Together
with our Social Responsibility Policy, it
sets out our commitments to align with
the Voluntary Principles on Security and
Human Rights. We respect indigenous
rights and cultures of the communities
where we operate.
Our human rights due diligence includes
processes to address, monitor and
communicate actual or potential impacts.
For Egypt, all Group corporate policies
including the Human Rights Policy and
the Social Responsibility Policy, have been
translated into Arabic for dissemination
locally.
In accordance with the UK Modern
Slavery Act, Pharos reports annually on
the steps it has taken to mitigate the risk
of modern slavery occurring in any part
of its business. The Group’s Statement
on Modern Slavery is available on the
Company’s website at https://www.
pharos.energy/modern-slavery-act/.
Community and social investment
Pharos remains committed to creating
value for host countries and local
communities as well as for staff and
shareholders. We understand that our
success is reliant upon building strong
relationships and being welcomed as a
responsible partner in our host countries
and communities. In recent years, we
have structured our social investment
programme to align more with the United
Nations Sustainable Development Goals
(UN SDGs).
In Vietnam, in 2021, we worked closely
with the JOCs in order to make sure
that our social initiatives in the region
continue to have positive impacts on the
region. In addition to the training levy of
$300,000 per year in a ring-fenced fund
to support developing future Vietnamese
expertise in the industry, a further
$265,000 was invested in 12 community
projects. The JOCs actively inquired and
listened to locals to identify which areas
of the country would need the greatest
assistance in order to ensure that we
were investing in local projects that
would bring the most sustainable positive
impact to the community. For instance,
in Q1 2021, the Group provided financial
support for autistic children at Anh Dao
Specialised Educational Centre in Ha
Tinh province, with additional donations
towards providing therapy for children with
disabilities at An Tue Social Assistance
Centre, Thua Thien Hue province (UN
SDG 3: Good health & wellbeing and UN
SDG 4: Quality education). In Q2 2021,
the Donation Programme helped fund
the construction of a community culture
house in Hop Hung commune, Vu Ban
district, Nam Dinh province which, once
finishes, will act as a communal education
house for children in the area for years
to come (UN SDG 4 Quality education
and UN SDG 9: Industry, innovation and
infrastructure).
As at 2021, Pharos has invested c.$1.2
billion in the exploration, appraisal and
development of oil and gas projects
located offshore Vietnam since inception,
of which $6.2 million was for training levy
and charity donation projects, making
Pharos one of the largest British investors
in the country.
In Egypt, under the El Fayum and North
Beni Suef Concession Agreements, the
Company contributes a total of $200,000
split equally between the two Concessions
to support long-term training and
development of talents within the industry
(UN SDG 9: Industry, innovation and
infrastructure). Additionally, in cooperation
with the Ministry of Higher Education and
Scientific Research, Petrosilah holds an
annual summer training programme for all
students applying from public and private
Egyptian universities for training in the
administrative office and the company’s
fields, of which they can obtain a training
certificate from the company (UN SDG 4:
Quality education).
Social projects like these have been part
of Pharos since inception, and we have
always sought to invest sustainably so
that the initiatives that we helped set up,
stay in place, and have lasting impacts for
many generations.
Local capacity
We support local capacity building during
the exploration or development phases of
a project to ensure a positive imprint and
legacy. All our licence agreements include
a high degree of local content, which
commits us to hire locally where possible
and provide training to develop new
skills. Our policy commits us to provide
meaningful opportunities for technical co-
operation, training and capacity building
within any host country in which we
operate.
Community projects in Vietnam
2021 via the HLHVJOC Donation
Programme
While the yearly contributions from
HLHVJOC Foreign Partners for community
and social projects are set at $200,000,
historically, HLHVJOC charitable
donations have been in excess of this. The
additional contributions were raised by
staff through fundraising event and from
various donations by expat members,
anytime during the year when there are
unforeseen typhoons or national disasters
that cause widespread devastation, such
as flooding and landslides destroying
infrastructure, houses, livestock, and
crops. Additionally, staff donations are
matched by HLHVJOC and then added to
the total budget.
We look to replicate this in the future with
our community and social investment
programmes in Egypt and London.
Pharos Energy Annual Report and Accounts 2021
77
CORPORATE RESPONSIBILITY - CONTINUED
UN SDG 1 – NO POVERTY
End poverty in all its forms everywhere
• Financial support for low-income households in Tran Hung Dao commune,
Ha Nam province and Son Binh commune, Ha Tinh province in 2021 Lunar
New Year
• Financial support for low-income households in Doan Ket commune, Bu
Dang district, Binh Phuoc province on 2021 Lunar New Year
• Financial support the House of Grace Orphanage (Hồng Ân House) in Thu
Duc city, Ho Chi Minh city, Viet Nam
• Financial support to green summer volunteers to build roads for the low-
income community in Dong Thap province
• Financial support towards children in areas hit hardest by the COVID-19
pandemic
• Financial support to Agent Orange victims in the central provinces in Quang
Tri and Thai Binh province
UN SDG 3 – GOOD HEALTH & WELL-BEING
Ensure healthy lives and promote well-being for all
at all ages
• Financial support for Tran Hai Nam, our Vietnamese employee, and his
mother for cancer treatment
• Financial support the COVID-19 epidemic prevention fund through the
HLHV JOCs Labor Union
• Funding to support the Government’s COVID-19 Vaccine Fund through
PVEP
UN SDG 4 – QUALITY EDUCATION
Ensure inclusive and equitable quality education and
promote lifelong learning opportunities for all
• Financial support to Autistic Children at Anh Dao Specialised Educational
Center – Ha Tinh Province
• Financial support to therapy for children with disabilities at An Tue Social
Assistance Center – Thua Thien Hue province.
• Financial support construction funding community education culture house
in Hop Hung commune, Vu Ban district, Nam Dinh province
$265,000
Total
SOCIETY CASE STUDY
Engaging with host
communities
VIETNAM
$30,400
Charitable donation from the HLHVJOCs
to autistic children at Anh Dao
Specialised Educational Centre in Ha
Tinh province, with additional $30,400
donations towards providing therapy
for children with disabilities at An Tue
Social Assistance Centre, Thua Thien
Hue province.
$100,000
Charitable donation to fund the
construction of a community culture
house in Hop Hung commune, Vu Ban
district, Nam Dinh province which,
once finishes, will act as a communal
education house for children in the area
for years to come.
$25,400
In financial support for the COVID-19
pandemic prevention fund through
the HLHVJOCs’ Labour Union and the
Government’s COVID-19 Vaccine Fund
through PVEP.
EGYPT
In cooperation with the Ministry of Higher
Education and Scientific Research,
Petrosilah holds an annual summer
training programme for all students
applying from public and private
Egyptian universities for training in the
administrative office and the company’s
fields, of which they can obtain a training
certificate from the company.
Overall objective
To consult with and contribute into our host communities
2021 Objectives 2021 Outcomes 2022 Objectives
Country managers to implement recommendations from
human right due diligence exercise prior to any operation
On target
Continuation of the social investment programme in
Vietnam, with further alignment to UN SDGs
Honour social obligations under production sharing
agreements.
On target
Improvement in social investment programmes in
Egypt and London
Review and implement recommendation from human rights
due diligence report for Israel
Pharos Energy Annual Report and Accounts 2021
78
Additional InformationGovernance Report Financial StatementsStrategic Report
Corporate Responsibility
Non-Financial Indicators
2021
2020 2019
Hours worked (million)
3.1
2.97 2.35
Lost Time Injury Frequency Rate (number of lost time injuries per million man-hours)
0
0.34 0
Fatal Accident Frequency Rate (number of fatal accidents per hundred million man-hours)
0
34 0
Fatal Accidents
0
1 0
Total Recordable Injury Rate (number of recordable injuries per million hours worked)
0
0.34 0.42
Total GHG emissions (tCO
2
e) by equity
6
120,628
124,218
1
147,173
1
Scope 1 total GHG emissions (tCO
2
e) by equity
120,561
124,151
1
147,101
1
Scope 2 total GHG emissions (tCO
2
e) by equity
67
67
1
72
1
Scope 3 total GHG emissions (tCO
2
e) by equity Not measured
GHG intensity by production (tonnes of CO
2
e per 1,000 tonnes of oil produced by equity share)
3161
276
2
287
2
Total hydrocarbons flared (Tonnes of hydrocarbons flared for every 1,000 tonnes of production on
a gross basis)
43
39
2
38
2
Energy use (grid electricity kWh)
311,692
309,942 335,873
Total energy consumption (from fuel combustion, other operations and purchased electricity)
in MWh
3
285,942
256,913 266,884
Non-hazardous waste produced (tonnes)
111
94 104
Hazardous waste produced (tonnes)
48
41 3,112
4
Percentage non-hazardous waste recycled
24
25 15.05
Percentage hazardous waste recycled
<1
4 0.12
Spills to the environment (>100 litres)
3
4 2
Oil in produced water content (Vietnam Blocks 16-1/9-2)
28
29 28
Freshwater use (cubic metres)
58,525
102,820 202,453
HSES regulatory non-compliance
0
0 0
5
Community investment spend ($)
265,000
245,191 245,379
Community investment spend ($)
245,191
245,379 209,408
Note 1: Pharos normalised emissions in 2021 include emissions from venting in Egypt, whilst they were not included in 2019 and 2020.
Note 2: Pharos equity in Vietnam TGT field changed from 30.04 % in 2019 to 29.7 % in 2020. The equity variation is not significant compared to Pharos
total emissions, and therefore data of 2019 and 2020 provide a meaningful comparison.
Note 3: In line with the UK government’s Streamlined Energy and Carbon Reporting (SECR) policy, energy consumption from fuel combustion
Note 4: During 2019, in Egypt, many open drain pits were cleaned and backfilled, resulting in the disposal of a significant volume of hydrocarbon
contaminated soil.
Note 5: Although three regulatory non-compliances were reported in our Egyptian assets in 2019, these occurred in January, prior to the completion of our
acquisition.
Note 6: Under Section 385(2) of the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations, 2013 and in line with the requirements
of the Climate Change Act (2008), carbon reporting for UK-listed companies in directors’ annual reports is mandatory for reports published after 30th
September 2013. The regulations cover the six Kyoto Protocol GHG cited in Section 92 of the Climate Change Act: carbon dioxide (CO
2
), methane (CH
4
),
nitrous oxide (N
2
O), hydrofluorocarbons (HFC), perfluorocarbons (PFC) and sulphur hexafluoride (SF6). The Companies Act 2006 regulation does not state
which methodology a company has to use but requires that this methodology is clearly disclosed.
Approval of the Strategic Report
This report was approved by the Board of Directors on 15 March 2022 and is signed on its behalf by
JANN BROWN
Managing Director
Pharos Energy Annual Report and Accounts 2021
79
Focus on delivering
full potential
CHAIR’S INTRODUCTION TO GOVERNANCE
JOHN MARTIN
Non-Executive Chair
Dear shareholders
2021 was a transformative year for
Pharos Energy. In the first half of 2021
we completed the equity placing,
subscription and retail offer to raise
finance for the El Fayum waterflood
programme, followed in the second
half of the year by the restructuring of
the organisation due to the industry
downturn. This was a necessary action
to reposition the business on a path to
growth with careful cost reduction and
capital allocation in the best interests of
all stakeholders. The restructuring realised
significant efficiencies and reductions in
overheads, allowing the Group to meet
future challenges with a leaner structure.
There has been significant progress this
year in both Egypt and Vietnam; Pharos
has successfully managed the impacts of
the global COVID-19 pandemic and the
resultant oil price crash and is creating the
right opportunities to thrive in the future.
In particular, 2021 saw the successful
conclusion of the process to seek
a partner for our Egyptian assets.
In December 2021, the Company
announced that shareholders had
approved the farm-out of 55% of the
Group’s operated interest in each of our
Egyptian Concessions, El Fayum and
North Beni Suef, to IPR, an integrated
energy services group with extensive
experience in Egypt. Following completion
of the farm-out and the transfer of
operatorship, IPR is set to embark on
a multi-year investment waterflood and
drilling campaign on El Fayum. As part
of the transaction, IPR will fund Pharos’s
retained 45% share of the costs of the
future work programme on the Egyptian
assets to a maximum of $33.425m (to be
adjusted for working capital and interim
period adjustments from the effective
economic date of 1 July 2020). This is
in addition to the deposit at signing of
the farm-out agreements of US$2 million
and receipt of a further US$3 million in
cash on completion. This investment
programme should result in an increase
in production on El Fayum and will
also fulfil work commitments under the
concessions.
In March 2021, the Company announced
that we had reached agreement with
EGPC, the industry regulator and
state oil company in Egypt, to various
amendments to the El Fayum Concession
(known collectively as “The Third
Amendment”) the most important effect
of which was an improvement in the fiscal
terms backdated to November 2020.
The improved terms were subjected to
parliamentary and presidential approval,
which were obtained in January 2022.
As a result of this Third Amendment,
Contractor share of revenues increased
by 20%, from c.42% to c50% whilst in full
cost recovery mode.
In Vietnam, we were pleased to announce
in July 2021 the completion of the 3D
seismic programme on the western part
of Block 125 in the Phu Khanh Basin,
and in September 2021 the Government
approval for a 2-year extension to the
initial exploration period of the Block
125 & 126 PSC. There is a commitment
to drill one well on these Blocks within
this period and we will look to bring in
a partner pre-drill following processing
and interpretation of the newly acquires
seismic data. The gathered 3D data will
be critical to attracting an investment
partner for any subsequent drilling phase,
and exposure to acreage with such
material potential will offer significant
growth opportunity for the future. On
TGT, the TGT four-well well intervention
and development drilling programme
commenced in July 2021. Phase 1 of the
campaign was successfully completed in
November 2021, ahead of schedule and
c.$20 million below the JV gross budget.
Two further TGT wells are planned to be
drilled in 2022, plus one well on CNV.
The JOC is now progressing work on
submitting licence extension requests for
both TGT & CNV, with a Revised Full Field
Development Plan for both fields to be
submitted by Q4 2022.
Pharos Energy Annual Report and Accounts 2021
80
Additional InformationGovernance Report Financial StatementsStrategic Report
The Board approved a restructure of
the head office organisation, realising
significant efficiencies and reductions in
the overhead costs of the company and
allowing the Company to meet future
challenges with a leaner structure. In July
2021 we also completed the refinancing
of the Group’s RBL facility secured by the
producing assets in Vietnam, providing
access to a committed $100m facility
with a further $50m is available on an
uncommitted accordion basis. The
refinancing also extended the tenor of
the facility by 22 months, providing useful
funding flexibility.
Pharos continues to manage its
operations carefully in light of the
COVID-19 pandemic and associated legal
and regulatory restrictions and public
health guidance. The Group is adhering
closely to applicable procedures, rules
and requirements within all host countries.
Throughout the year, the Board devoted
considerable time to supporting and
challenging the executive team in
assessing farm-down opportunities,
portfolio management and capital
allocation. The Board received regular
detailed updates from the executive team
and other key members of staff and time
was allocated to strategic, operational,
ESG and corporate matters. In pursuit
of the best interests of shareholders,
the Non-Executive Directors (“NEDs”)
brought constructive challenge to the
executives’ proposals and direction,
offering direction and support. Key areas
of focus for the NED’s discussions in 2021
were overseeing the reorganisation of the
head office, farm out of Egypt, succession
planning, ESG, effective implementation
of Group strategy and oversight of
operational, financial performance and
KPIs.
Safety has remained a top priority for the
Group. In 2021, we delivered an excellent
performance from a health and safety
perspective. There were zero Lost Time
Injuries (LTIs) across all Group operations
throughout the year.
The ESG Committee continues to focus
on its stakeholders’ health and safety
during the COVID-19 pandemic. The
development of ESG KPIs including
climate change and health and safety
metrics demonstrate that the Group
takes its responsibilities in this area very
seriously. Further focus has been around
approval and oversight of the work on
Phase of 2 of TCFD, ongoing social
project investments in Vietnam and a
review and discussion on ESG practices
across industry peers and CO
2
reduction
options for Pharos.
During 2021 the Nominations Committee
(see the report on pages 95 to 96)
focused on reviewing our Board
composition, succession planning for key
roles at Executive level, a review of annual
Board evaluation, and annual Director
re-appointments. The Board ensured full
compliance with the 2018 Corporate
Governance Code.
I am delighted that we were able to fill the
position of Chief Financial Officer (“CFO”)
with an internal candidate - Sue Rivett,
who took on the role from 1 July 2021
and joined the Board at that time. Further
changes to the Board were discussed
towards the end of 2021, and these were
finalised and announced on 13 January
2022 to take effect when the farm-out
transaction with IPR is completed. On
completion of that transaction, Jann
Brown will assume the role of Chief
Executive Officer (“CEO”) as one of two
Executive Directors alongside CFO Sue
Rivett. Jann has been a member of the
Board since 2017 and was formerly
Managing Director and CFO. Also on
completion, Ed Story will step down
from the Board as CEO, after leading
the Company for over 20 years since
its admission to the main market of the
London Stock Exchange in 1997. Ed
will remain as President of the Vietnam
business, which provides both cash flow
and growth potential to the Group. In
addition, as part of the post transaction
restructuring, Dr Mike Watts will step
down from the Board on completion.
Mike has been actively involved with the
Company for over 25 years, since its pre-
IPO inception, and has been instrumental
in building its international portfolio during
this period including its current projects
in Vietnam and Egypt. I thank Mike for his
strong contribution.
Finally, in support of the succession policy
to slim down the Board and having served
as Non-Executive Director, Senior Non-
Executive Director and Deputy Chairman
in his nearly 9 years on the Board, Rob
Gray has indicated that he will not be
putting his name forward for re-election
as a Director at the AGM in May 2022.
We thank Rob for all his commitment and
support over the years.
Looking ahead to 2022 the result of these
changes will be to reduce the size of the
Board from nine Directors (four Executives
and five NEDs) to six (two Executives
and four NEDs), which will be more
appropriate to the size and shape of the
Company.
The Executive Directors at the start of
the year continued to take a reduction of
35% of their salaries for the first quarter
and then further reduced this by another
15% (to a total reduction of 50%) from
1 April 2021 for the Executive Directors
in office at that date. These reductions
were in place for the remainder of the
year. The Chairman, who had reduced
his fee by 25% on assuming the role in
March 2020, also took an additional 25%
reduction along with the other Non-
Executive Directors as from 1 May 2020,
which reductions continued throughout
the full year 2021. The Executive Directors
volunteered to reduce significantly their
LTIP award for 2021, the second year of
a reduced award. The policy limit is 200%
of salary but existing Executive Directors
received an award in 2021 equivalent to
29% of contractual entitlement, whilst
Sue Rivett, as the new CFO, received an
award of 35% of contractual entitlement.
Additionally, the bonus award for 2021
was voluntarily reduced by 20% from
72.5% to 58% for the Executive Directors.
As set out in the Directors’ Remuneration
Report from pages 102 to 116, an
updated Remuneration structure has been
put in place effective upon completion
of the transaction with IPR to reflect the
scale of the business.
Finally, I look forward to continuing to
work closely with the Board and senior
management as we focus on delivering
the full potential of the Company’s
opportunities and a return to growth built
on all of the work that has been done to
refresh the Company, its governance and
its Board. A priority for 2022 will be to
ensure a smooth transition of operatorship
in Egypt to IPR. Looking ahead, we
intend to focus on the Company’s
existing asset portfolio, and to continue
to carefully manage the cost base and
capital structure to balance the need for
efficiency in the short term with the need
for investment in the long term. I am
excited about the prospects for Pharos
Energy and look forward to the year
ahead.
JOHN MARTIN
Non-Executive Chair
Pharos Energy Annual Report and Accounts 2021
81
CHAIR’S INTRODUCTION TO GOVERNANCE - CONTINUED
Board Members
John Martin*
Non-Executive Chair and Chair of
Nominations Committee and ESG
Committee
Ed Story
President and Chief Executive Officer,
Nominations Committee member
and ESG Committee member (retiring
from Board upon completion of IPR
transaction)
Jann Brown
Managing Director (also CFO until 30
June 2021) and ESG Committee member
(Appointed as CEO upon completion of
the IPR transaction)
Dr Mike Watts
Managing Director and ESG Committee
member (retiring from Board upon
completion of the IPR transaction)
Rob Gray*
Deputy Chair, Non-Executive Director and
Senior Independent Director, Audit and
Risk Committee member, Remuneration
Committee member, Nominations
Committee member and ESG Committee
member (retiring from Board at the
conclusion of the 2022 AGM)
Geoffrey Green*
Non-Executive Director, Chair of
Remuneration Committee, Nominations
Committee member, Audit and Risk
Committee member and ESG Committee
member
Lisa Mitchell *
Non-Executive Director, Chair of Audit and
Risk Committee, Nominations Committee
member and ESG Committee member
Marianne Daryabegui*
Non-Executive Director, Audit and Risk
Committee member, Remuneration
Committee member, Nominations
Committee member and ESG Committee
member
Diversity of skills, backgrounds and experience
The Board places importance on the diversity of approach, experience, knowledge, skills, and professional, educational and cultural
backgrounds. This diversity has brought an international and global outlook which has been particularly beneficial to the Board’s
discussions about the strategic positioning of its current and new business ventures.
As at 31 December 2021, the Group had a Board of nine Directors.
Meeting attendance
During each Director’s respective term of office during 2020
Director
Board meeting
(scheduled
quarterly)
Board meeting
(additional)
Audit and Risk
Committee
meeting
Remuneration
Committee
meeting
Nominations
Committee
meeting
Environmental,
Social and
Governance
Committee meeting
John Martin
++++ ++++ ***** *** +++ ++++
Ed Story
++++ ++++ ***** * * ++++
Jann Brown
++++ +#++ * * * ++++
Dr Mike Watts
++++ +#++ ** * * ++++
Sue Rivett (appointed
director 1 July 2021)
(1)
**++ ++++ ***** * **++
Rob Gray
++++ +#++ +++++ +++ +++ ++++
Geoffrey Green
++++ ++++ +++++ +++ +++ +++
Lisa Mitchell
++++ ++++ +++++ ** +++ +++
Marianne Daryabegui
++++ +#++ +++++ +++ +++ ++++
+ Attended as member
* Attended as invitee
# Not attended
In addition to the four scheduled quarterly meetings, the Board met in 2021 on an additional four occasions to deal with specific
business matters which required Board approval. One of the additional meetings included a Board strategy meeting in October 2021,
which was fully attended.
Notes:
(1) Sue Rivett was invited to attend two Board meetings prior to her appointment on 1 July 2021.
Following the Government guidance and the Company’s health and safety considerations in response to the COVID-19 pandemic, it was
not possible for Directors to attend the 2021 AGM in person – this meeting was attended by the Chair and another Pharos designated
shareholder representative present in order to meet the meeting quorum requirements.
* Independent Non-Executive Directors.
Pharos Energy Annual Report and Accounts 2021
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Additional InformationGovernance Report Financial StatementsStrategic Report
* Retiring from Board and all Board committees with effect from the conclusion of the 2022 AGM
** Retiring from Board and all Board committees upon completion of IPR transaction.
Management
Board of Directors
Executive leadership teamManagement Committees
Audit and Risk Committee Remuneration Committee Nominations Committee
Environmental, Social and
Governance Committee
Principal Committees of the Board
Further support the Board and comprise the
following key committees:
• Disclosure
• Treasury
• Bid Defence
Responsible for day-to-day management of our
business and operations and for monitoring detailed
performance of all aspects of our business.
L Mitchell (Chair)
R Gray*
M Daryabegui
Geoffrey Green
Responsible for the
integrity of the Financial
Statements and narrative
reporting, including annual
and half year reports.
G Green (Chair)
M Daryabegui
R Gray*
Responsible for the
design, development and
implementation of the
Company’s remuneration
policy.
J Martin (Chair)
E Story**
R Gray*
M Daryabegui
L Mitchell
G Green
Responsible for ensuring
the leadership needs
of the Company are
sufficiently appropriate to
ensure continued ability to
compete effectively in the
marketplace.
J Martin (Chair)
R Gray*
E Story**
M Watts**
J Brown
M Daryabegui
L Mitchell
G Green
S Rivett
Responsible for defining
the Group’s strategy
related to ESG matters,
review of the Group’s ESG
policies, programmes
and initiatives and, more
generally, oversight of the
Group’s management of
ESG matters.
Pharos Energy Annual Report and Accounts 2021
83
Experienced leaders
guiding our future
BOARD OF DIRECTORS
1
4
7
2
5
8 9
3
6
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84
Additional InformationGovernance Report Financial StatementsStrategic Report
1: John Martin
Non-Executive Chair
Appointed: October 2019
John has more than 30 years’ experience in international banking in the oil and gas industry and was a Senior Managing Director in the
Oil and Gas team at Standard Chartered Bank. Prior to joining Standard Chartered in 2007, John worked for ABN Amro for 26 years,
specialising in the energy sector. John has served as the Senior Vice President of the World Petroleum Council, and as an Independent
Non-Executive Director of Rockhopper Exploration plc. He was previously Chairman of Falkland Oil and Gas Limited, an Independent
Non-Executive Director on the board of Bowleven plc and, an Independent Non-Executive Director and Chair of the Audit Committee of
Total E&P UK Limited.
2: Ed Story
President and Chief Executive Officer
Appointed: April 1997 (retiring as Chief Executive Officer and a member of the Board upon completion of IPR transaction)
Ed was a founding Director of the Group. Under his leadership, the Group acquired its principal assets in Vietnam and progressed the
assets from initial exploration through to being one of the largest producing fields in Vietnam.
Ed has over 50 years’ experience in the oil and gas industry, beginning with various roles at Exxon Corporation, including seven years
resident in the Far East. He was formerly the Vice President and CFO of The Superior Oil Company, a co-founder and Vice Chairman
of Conquest Exploration Company and a co-founder and President of Snyder Oil Corporation’s international subsidiary, which merged
its Australian-controlled entity, Command Petroleum, into Cairn Energy. Ed was a Non-Executive Director of Cairn Energy plc until 2008
and Cairn India Limited until 2017. Ed is currently a Non-Executive Director of Vedanta Resources plc and a founder and member of the
Cleveland Clinic International Leadership Board.
3: Jann Brown
Managing Director
Appointed: November 2017 (Managing Director and Chief Financial Officer November 2017 – July 2021; Managing Director from July
2021 – present; and Chief Executive Officer upon completion of IPR transaction)
Jann served as co-head of the Company’s Business Development group between February 2017 and November 2017 before her
appointment to the Board. Jann currently serves as an Independent Non-Executive Director and Chair of the Audit Committee of Troy
Income and Growth Trust plc and of the Scottish Ballet. She is also an Independent Non-Executive Director of RHI Magnesita N.V. Jann
previously served as an Independent Non-Executive Director and Chair of the Audit Committee of John Wood Group P.L.C. and was
formerly the Managing Director, Chief Financial Officer and Executive Director of Cairn Energy PLC (now Capricorn Energy PLC) where
she had responsibility for project managing Cairn India Limited’s initial public offering. Jann also previously served as the Joint Chief
Executive Officer and Chief Financial Officer at Magna Energy Limited, of which she was also co-founder and is a past president of the
Institute of Chartered Accountants of Scotland.
4: Dr Mike Watts
Managing Director
Appointed: November 2017 (retiring as member of Board post completion of IPR transaction)
Mike served as co-head of the Company’s Business Development group between February 2017 and November 2017, and as an
Independent Non-Executive Director of the Board between August 2009 and January 2017. He was formerly the Deputy Chief Executive
of Cairn Energy PLC (now Capricorn Energy PLC) and the Chief Executive Officer and Managing Director of the Amsterdam listed
Holland Sea Search Holding NV. Mike joined Royal Dutch Shell in 1980 and has nearly 40 years of oil industry experience. He has been
associated with over 50 oil and gas discoveries. Mike was also the architect of the South Asia strategy at Holland Sea Search and
Cairn, which led to the creation of a >200,000 boepd business. Mike has held senior technical and management roles with Premier Oil,
Burmah and Shell.
5: Sue Rivett
Chief Financial Officer
Appointed: July 2021
Sue Rivett, formerly Group Head of Finance and UK General Manager, has been with the Company for over six years. Prior to joining
Pharos, Sue held senior finance roles with Conoco, ARCO British (subsidiary of Atlantic Richfield Company), JKX Oil & Gas plc and
Seven Energy. Sue’s various roles have included heading up full FTSE finance functions including finance, taxation, treasury, IT, corporate
planning and Company Secretary. She was Head of ARCO British trading arm’s back office and mid office and has considerable joint
venture experience and numerous years M&A experience. Sue is a Fellow of the Chartered Institute of Management Accountants
(“FCMA”) with international experience and over 38 years in the energy business.
Pharos Energy Annual Report and Accounts 2021
85
BOARD OF DIRECTORS - CONTINUED
6: Rob Gray
Deputy Chair, Non-Executive Director and Senior Independent Director
Appointed: December 2013 (retiring May 2022 on conclusion of the 2022 AGM)
Rob has been an adviser to the natural resources sector for more than 30 years. Rob qualified as a solicitor in 1981 at Allen & Overy
and then went on to help establish James Capel & Co. Petroleum Services, a successful advisory and Mergers & Acquisitions practice.
Rob’s experience includes 13 years at Deutsche Bank where he was latterly a Senior Advisor having been Chairman of UK Investment
Banking for five years and formerly Global Head of Natural Resources. Rob was previously a Director and Head of the Natural Resource
Group at Robert Fleming & Co. Ltd. for four years, a group which he established. Between 2000 and 2010, Rob was an Advisory Board
Member for Heerema Marine Contractors. Rob was a co-founder of RegEnersys, a natural resources investment entity and is currently
the principal of ReVysion LLP. In 2018 Rob was appointed an adviser to the T2 Energy Transition Fund of Tikehau Capital.
7: Marianne Daryabegui
Non-Executive Director
Appointed: March 2019
Marianne is currently the Chief Financial Officer of Lithium de France, a renewable company focused on geothermal energy and
lithium extraction. She was Head of Natural Resources at BNP Paribas and then Managing Director at Natixis in the Energy sector.
She has extensive experience in corporate transactions and capital markets and has advised majors, independent E&Ps and national
oil companies. Prior to leading the Oil and Gas Corporate Finance Team in 2006 at BNP Paribas, Marianne headed the Commodity
Structure Finance team for the Middle East and Africa. Before joining the banking sector Marianne spent eight years at TOTAL. Marianne
has a Master’s degree in Finance and Capital Markets from Sciences Po University, Paris and a Masters in Tax and Corporate Law.
8: Lisa Mitchell
Non-Executive Director
Appointed: April 2020
Lisa is currently the Chief Financial Officer of Orca Energy Group Inc. a TSX-V listed company, and also serves as a Non-Executive
Director of Wiluna Mining Corporation Limited, a company listed on the Australian Securities Exchange (“ASX”). Lisa is an experienced
CFO with over 25 years’ international experience, across the oil and gas, mining and the pharmaceutical industries. She was most
recently CFO of San Leon Energy plc and was previously CFO and Executive Director of Lekoil Limited, the African-focused oil and gas
exploration and production company with interests in Nigeria. Prior to this, Lisa was CFO and Executive Director at Ophir Energy plc,
formerly a FTSE 250 company where she was responsible for contributing to the overall business strategy of Ophir; leading the finance
function including all financial, taxation, treasury and funding requirements and investor relations. Lisa’s previous roles include CSL
Limited, and Mobil Oil Australia. Lisa is a Certified Practicing Accountant (FCPA Australia) and holds a Bachelor of Economics (major
in Accounting) from La Trobe University, Melbourne and a Graduate Diploma in Applied Corporate Governance from the Governance
Institute of Australia.
9: Geoffrey Green
Non-Executive Director
Appointed: May 2020
Geoffrey has many years of legal and commercial experience in advising UK listed companies on corporate governance, mergers and
acquisitions and corporate finance. He retired as a partner of Ashurst LLP, a major international law firm, in 2013 after 30 years as a
partner including 10 years of service as the firm’s elected senior partner and chair of its management board. He then served as head
of Ashurst’s Asia practice from 2009 to 2013, based in Hong Kong, and was responsible for leading the firm’s strategy and business
development throughout the Asia region. Until 31 December 2020 Geoffrey was the Non-Executive chair of the Financial Reporting
Review Panel, one of the main subsidiary bodies of the Financial Reporting Council, and is currently a member of the FRC’s Conduct
Committee. He is also a Non- Executive director of a Hong Kong based private equity fund and was until recently a Non-Executive
director of Vedanta Resources plc, formerly a FTSE 250 natural resources company, where he was also chair of the Remuneration
Committee. He has a degree in Law from Cambridge University and qualified as a solicitor at Ashurst LLP.and investor relations.
Lisa’s previous roles include CSL Limited, and Mobil Oil Australia. Lisa is a Certified Practicing Accountant (FCPA Australia) and holds
a Bachelor of Economics (major in Accounting) from La Trobe University, Melbourne and a Graduate Diploma in Applied Corporate
Governance from the Governance Institute of Australia.
Pharos Energy Annual Report and Accounts 2021
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Additional InformationGovernance Report Financial StatementsStrategic Report
Corporate governance report
CORPORATE GOVERNANCE REPORT
2021 statement of compliance with
the 2018 Code
We are committed to the highest
standards of corporate governance and
to compliance with the UK Corporate
Governance Code 2018 which sets out
the principles that emphasise the value of
good corporate governance to long-term
sustainable success. The Company was
in full compliance with the provisions of
the 2018 Code throughout the year.
The section below demonstrates our
application of the Principles of the 2018
Code.
Board Leadership and Company
Purpose
Purpose and Culture
It has been important to the Board
to preserve and enhance a corporate
culture of honesty, fairness, transparency,
engagement and respect. The Board
schedule format has been adjusted to
give space for increased engagement
amongst the NEDs, including the
Senior Independent Director and the
Chair, without the presence of the
Executive Directors, and to provide
further opportunity to raise and discuss
concerns. Our purpose is to continue
to provide energy for communities
around the world and fuel their lives and
businesses.
Stakeholder engagement
• Colleague engagement
The Board understand that the strategy
and long-term success of the Group
is dependent on a strong culture and
set of values that is clear and guide
everything we do. Our approach
is driven by the strength, skills and
imagination of our people, and our
shared purpose to make a positive
impact in everything we do. The way
we work and do business is based on
five guiding principles which we call
the Pharos Way: Safety & Care, Energy
& Challenge, Openness & Integrity,
Empowerment & Accountability,
and Pragmatism & Focus. They are
reinforced by our Code of Conduct
and Business Ethics. The Board
has responsibility for assessing and
monitoring the culture of the Group and
ensuring that the Group’s policies and
practices are aligned with this. There
are a number of ways in which the
Board monitor and assess the culture,
which is detailed in our colleague
engagements below.
The Board placed great importance
on the level of engagement with senior
management and other colleagues.
The Board remains passionate about
workforce engagement and fostering
a genuine dialogue between the
Company and staff. Throughout
the year, we ran a dedicated
Monday weekly meeting to ensure
all colleagues were continuously
informed about important business
developments in the Company and
have channels through which they
can ask questions and provide input.
Additionally, there was increased use
of video camera during virtual calls to
maintain visibility and connection. The
recent reorganisation of the Group
has instituted a flatter organisational
structure, allowing for shorter lines
of management and more direct,
accessible channels of communication
with leadership. During the year, the
designed Non-Executive Director
responsible for workforce engagement
carried out town hall meetings with
staff in the UK, Egypt and Vietnam
offices, during which everyone could
share their feedback and views about
the Company. Outcomes of these
meetings were then communicated
back to the Board.
The Executive Directors received
regular updates on colleague
engagement to understand any
complaints or troubles from the
changing work environment. Following
feedback from various anonymous
staff surveys, the Executive Directors
organised an off-site away day for the
London team to better understand
employees’ working preferences and
to explore any concerns arising from
working from home in the past year. Ed
Story, who was CEO at the time, could
not travel to the UK due to COVID-19
travel restrictions, but joined the off-site
meeting virtually via Microsoft Teams
in order to participate in the session
with the rest of the team. Ed also used
the opportunity to communicate the
Company’s long-term strategy going
forward, which was an additional area
of feedback from the anonymous
surveys.
In another survey, colleagues gave
views on future working patterns.
Regardless of location, there was
a clear preference for permanently
blending office with home working
in the future. This has informed the
development of our balanced working
programme and led to our rental of a
small serviced office space in central
London, which seeks to address UK
employees’ working needs and provide
greater flexibility in how and from where
those employees want to work after
removal or relaxation of travel and
public gathering restrictions introduced
in response to the COVID-19
pandemic.
Additionally, there has been other forms
of engagement including extending
participation in the Company’s share
schemes and other feedback channels,
including through the Group’s
Whistleblowing Policy and access to a
dedicated, anonymous and confidential
ethics hotline.
• Shareholder engagement
The Board as a whole has responsibility
for ensuring that a satisfactory dialogue
with shareholders takes place. The
Executive Directors are responsible for
ensuring that effective communication
is maintained with key stakeholders
and partners, including an appropriate
level of contact with major shareholders
and ensuring that their views are
communicated to the Board. The Chief
Financial Officer has management
responsibility for investor relations.
To maintain a clear understanding of
the views of shareholders, all Directors
receive a quarterly investor relations
report, which includes market updates,
brokerage and communications
reports, share register and share
performance analysis and comments
and notes from research analysts and
proxy agencies.
Pharos had an open and active
dialogue with its institutional, private
and retail shareholders throughout
the year. The Company uses its online
Pharos Energy Annual Report and Accounts 2021
87
CORPORATE GOVERNANCE REPORT - CONTINUED
presence to post and disseminate
key information promptly to a wide
audience. The Company’s website is
regularly used by shareholders and
stakeholders for email communication
with management. The official Twitter
and LinkedIn accounts of Pharos
continue to be used actively. The
Company uses a PR agency to provide
assistance in the dissemination of
information to shareholders and the
general public and also to solicit active
feedback as to the effectiveness of
such efforts. Additionally, in 2021,
for the first time ever, the Company
embedded an analyst research feed
on to its corporate website at https://
www.pharos.energy/investors/
analyst-research/. This was to allow
a wider audience of private and retail
shareholder free access to analyst
research notes about the Company.
Also in 2021, the Company engaged
with an online platform Investor Meet
Company to host an online meeting
with a Q&A session in April to allow
the wider public a free platform
to raise questions directly to the
Executive Directors. During the year,
the Executive Directors and investor
relations colleagues met and engaged
with 29 different institutions and family
offices in over 40 meetings.
The NEDs are each responsible for
taking sufficient steps to understand
shareholder views, including any
issues or concerns. This includes
being available to major institutional
shareholders and responding to
requests for additional communication
with the Chair, Senior Independent
Director or other NEDs. The delegated
role of the Senior Independent Director
includes being available to shareholders
if they have concerns which cannot be
fully or appropriately addressed by the
Chair or the Executive Directors.
Additionally, both before and after
the formal proceedings of each
AGM, and subject to travel or public
gathering restrictions in response to
the COVID-19 pandemic, all Directors
and senior management, including
the Chairs of the Audit and Risk,
Remuneration and Nominations
Committees, make themselves
available to answer shareholder
questions and respond to any specific
queries.
• Local communities, governments
and employees
Our goal is to have a responsible and
positive presence in the regions in
which we operate, resulting in value
for host countries, local communities,
employees, contractors, suppliers and
shareholders, and we engage with
them on a regular basis. Additionally,
the requirements in the Modern Slavery
Act are dealt with through our due
diligence and on boarding processes
with suppliers.
In Vietnam, commitment to local
sourcing, employment, training
and industry capacity building has
continued with a training levy of
$300,000 per year in a ring-fenced
fund to support developing future
Vietnamese expertise in the industry. In
Egypt, under the El Fayum and North
Beni Suef Concession Agreements,
the Contractor contributes a total
of $200,000 per year split equally
between the two Concessions to
support training and development in
industry.
In recent years, we have structured
our social investment programme to
align more with the United Nations
Sustainable Development Goals (UN
SDGs). In Vietnam, in 2021, in addition
to the training levy mentioned above,
a further $265,000 was invested in
12 community projects. The JOCs
actively inquired and listened to locals
to find out which areas of the country
would need the greatest assistance in
order to ensure that we were investing
in local projects that would bring the
most sustainable positive impact to the
community. For instance, in Q1 2021,
the Group provided financial support for
autistic children at Anh Dao Specialised
Educational Centre in Ha Tinh province,
with additional donations towards
providing therapy for children with
disabilities at An Tue Social Assistance
Centre, Thua Thien Hue province (UN
SDG 3: Good health & wellbeing and
UN SDG 4: Quality education). In Q2
2021, the Donation Programme helped
fund the construction of a community
culture house in Hop Hung commune,
Vu Ban district, Nam Dinh province
which, once finishes, will act as a
communal education house for children
in the area for years to come (UN SDG
4 Quality education and UN SDG 9:
Industry, innovation and infrastructure).
For full details of all the projects the
JOCs have invested in 2021, please
see our Corporate Responsibility report
on pages 58 to 78.
• Conflicts of interests & Ethics hotline
Our Whistleblowing Policy and
associated procedures ensure that
employees are protected from possible
reprisals when raising concerns in good
faith. In addition to internal reporting
channels, we have a dedicated,
anonymous and confidential ethics
hotline supported by EthicsPoint with
numbers displayed in local offices
available 24 hours a day all year round.
Zero calls were made to the EthicsPoint
hotline in 2021.
Division of Roles & Responsibilities
Responsibilities of the Board
The statutory duty of the Directors is to
act in what they consider to be in the
best interests of the Company and, as
a unitary Board, they are responsible for
the long-term success of the Company.
The Board determines and develops the
strategy for the business and provides
it with the necessary entrepreneurial
leadership. It ensures the Company is
adequately resourced to meet its strategic
objectives and can meet its obligations
to its stakeholders. The Board sets the
values, standards and controls necessary
for risk to be effectively assessed and
managed. Some of its responsibilities
have been delegated to committees
of the Board, including the Audit and
Risk, Remuneration and Nominations
Committees.
The roles of the Chair and Chief
Executive Officer are separated and their
responsibilities are clearly established, set
out in writing and agreed by the Board.
Both are collectively responsible for the
leadership of the Company. The Chair
chairs the Board meetings, leads the
NEDs in the constructive challenge of
the Executive Directors’ strategy and is
accountable for the Board’s effectiveness.
This includes encouraging an open and
frank boardroom culture, setting the
Board’s agenda, facilitating the NEDs’
contribution and ensuring sufficient time
and information to promote effective and
challenging discussions. The Chair has
been in his current role since March 2020.
The CEO is responsible for the everyday
management of the Company. The
CEO leads the Executive Directors and
management team in the implementation
of the Board’s strategy and management’s
performance in running the business.
The NEDs have a supervisory role that
contributes to the development of
the strategy through supportive and
challenging inquiry. They scrutinise the
Executive Directors’ performance in
meeting their agreed goals and objectives,
and play a key role in their appointment or
removal.
The Company Secretary is appointed
by the Board. He facilitates the
communications and processes of the
Board, the induction programme for new
Directors and provides advice through the
Chair as may be required in the ongoing
discharge of the Directors’ duties. This
includes ensuring that the Company
provides the necessary resources for
access to independent advice and
any individual professional training and
development needs agreed with each
Director.
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The Board operates within a framework
that distinguishes the types of decisions
to be taken by the Board, including
determination of strategy, setting the
principal operating policies and standards
of conduct, approval of overall financial
budgets and financing agreements,
approval for establishing key corporate
relationships and approval of any actions
or matters requiring the approval of
shareholders.
Board composition
As at December 2021, the Board
comprised of nine Directors including the
Chair, made up of four Executive Directors
and five Non-Executive Directors.
Tony Hunter was Company Secretary
throughout the year and his appointment
was approved by the Board as a whole.
Responsibilities & Composition of the
Committees
There are four principal committees of the
Board:
• The Audit and Risk Committee –
responsible for the integrity of the
Financial Statements and narrative
reporting, including annual and half year
reports
• The Environmental, Social and
Governance (ESG) Committee -
responsible for defining the Group’s
strategy related to ESG matters.
• The Nominations Committee –
responsible for ensuring the leadership
needs of the Company are sufficiently
appropriate to ensure continued
ability to compete effectively in the
marketplace
• The Remuneration Committee
– responsible for the design,
development and implementation of the
Company’s remuneration policy
Each principal Board committee has a
formal Terms of Reference (“TOR”), which
sets out the Committee’s delegated role
and authority and is approved by the
Board. The TOR as well as the Committee
members are available on the Company’s
website at https://www.pharos.energy/
about-us/governance/committees/.
Time commitment
The Board has four scheduled meetings
a year although additional meetings are
scheduled as required.
In 2021, in addition to the four scheduled
quarterly meetings, the Board also met on
an additional four occasions to deal with
specific business matters which required
Board approval. One of the additional
meetings included a Board strategy
meeting in October 2021, which was fully
attended.
Only Committee members are entitled
to attend their respective meetings.
Other Directors were invited to attend,
as determined appropriate or beneficial,
and committee chairs provide an update
at the full Board meeting. There was full
attendance of committee members at
the Audit and Risk, Remuneration and
Nominations and ESG Committees in
2021.
Composition, succession and
evaluation
Board composition and succession
The Nominations Committee ensures the
leadership needs of the Company are met
and maintained appropriately to allow it
to compete effectively in the marketplace.
Board appointments are made through
a formal process led by the Nominations
Committee. In relation to the recruitment
and appointment of Non-Executive
Directors, the Committee recognises the
emphasis placed by the 2018 Code on
the engagement of an external search
consultancy or the open advertising of
vacancies.
The Directors’ roles are established in
writing and approved by the Board.
Biographical details are provided on page
84 to 85.
Diversity and Inclusion
We believe in a workforce with a diversity
of experience, nationalities, cultural
backgrounds and gender, to support our
business strategy of long-term sustainable
growth. Our Code of Business Conduct
and Ethics, associated policies and
the Pharos Guiding Principles commit
us to providing a workplace free of
discrimination where all employees can
fulfil their potential based on merit and
ability. They also commit us to providing a
fully inclusive workplace, while providing
the right development opportunities to
ensure existing staff have rewarding
careers.
For more information on the gender
balance of our corporate employees and
senior management, please see page
68 of the Corporate Responsibility
report.
Annual re-election of Directors
All Directors annually retire and seek re-
election by shareholders at the Company’s
AGM. The Nominations Committee makes
its recommendation to the Board on
each re-election resolution. Pending the
Chair confirming his satisfaction that each
Director continues to perform effectively
and with the appropriate commitment to
the role, the full Board then determines its
own recommendation to shareholders in
relation to those resolutions.
The Committee formed its
recommendations regarding the re-
election resolutions at the 2022 AGM
following assessments of Board balance,
composition and independence.
Board effectiveness and evaluation
The Nominations Committee assesses
the Board’s balance of skills, experience,
independence, diversity, tenure and
knowledge of the Company and
the industry on an annual basis.
The assessment in 2021 included
consideration of the Company’s leadership
needs within the context of growth,
portfolio diversification and long-term
strategy. The discussions determined that
the current balance remains appropriate
and sufficient to effectively promote the
long-term success of the Company and
would be further enhanced through the
process already underway to increase the
number of Independent NEDs.
Remuneration
Remuneration principles
The Remuneration Committee is
responsible for the design, development
and implementation of the Company’s
Remuneration Policy.
In determining the remuneration packages
awarded to management, the Board
and the Remuneration Committee have
continued to aim at providing incentive
schemes that reflect the characteristics of
attractive rewards, fairness and restraint.
Appropriate advice on best practice is
taken from an independent advisor.
Remuneration Policy
Our overarching aim is to operate a
Remuneration Policy which rewards senior
management at an appropriate level for
delivering against the Company’s annual
and longer-term strategic objectives.
The policy is intended to create strong
alignment between Executive Directors
and shareholders.
In line with the requirements of applicable
law, requiring us to review our Directors’
remuneration policy every 3 years, the
policy was reviewed and proposed at
the 2020 AGM and will next be put to
shareholders for approval at the 2023
AGM. Few changes were proposed to the
policy, principally relating to developments
in best practice guidelines including the
introduction of post-cessation shareholder
guidelines. The new policy was approved
by 92.6% of our shareholders at the 2020
AGM.
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CORPORATE GOVERNANCE REPORT - CONTINUED
Pension and benefits
All eligible employees have the same
access to the same pension contribution
rate (15% of salary) and access to a
similar level of benefits.
Directors’ shareholdings and share
interests
The Board has a policy requiring Executive
Directors to build a minimum shareholding
of 200% of their annual salary.
Additionally, LTIP awards require a two-
year holding period following vesting. This
is intended to emphasise a commitment
to the alignment of Executive Directors
with shareholders and a focus on long
term stewardship.
Audit, Risk and Internal Control
Significant reporting and accounting
matters
During the first half of 2021, the Group’s
accounting policies, in accordance
with best practice, were reviewed by
management and the Audit and Risk
Committee to ensure that they remained
appropriate for the Group’s activities.
Following this review, the Group’s
accounting policies were judged to be fully
up-to-date and no significant changes
were recommended to the Board by the
Audit and Risk Committee.
Fair, balanced and understandable
The Audit and Risk Committee advised
the Board whether the annual report
and accounts taken as a whole are fair,
balanced and understandable and provide
the range of information necessary for
shareholders to assess the Group’s
performance, business model and
strategy. The Directors have confirmed
this in their Responsibility Statement
set out on page 121 of the Directors’
Report.
Viability statement and Going concern
Management completed their Going
Concern assessment which was
challenged and reviewed by the Audit
and Risk Committee. The assessment
included a “Base Case” for the Group,
including cash flow estimates for
both Egypt and Vietnam, as well as a
“Reasonable Worst Case” scenario, giving
particular regard to the commodity price
volatility.
Under these scenarios, management
has assessed, on a conservative basis,
the risks around commodity pricing,
operational risk and political and regional
risks... The assessments also took
into account the impact of potential
discretionary reductions in capital
expenditures, as well as the hedging of
production volumes to mitigate against
commodity price fluctuations.
Based on this detailed analysis,
management has concluded that the
Group will continue as a Going Concern
for 12 months from the date of signing of
the 2021 Financial Statements.
Following its review of management’s
paper to the Audit and Risk Committee
and in-depth walk through of
assumptions, the Committee is satisfied
that it is appropriate to prepare the
Financial Statements on a Going Concern
basis.
For more information, please see the
Viability Statement in the Strategic Report
on pages 56 to 57.
Internal controls and risk management
systems
The Group’s internal control framework
and risk management processes are
designed to ensure that risk identification,
assessment and mitigation is properly
embedded throughout the organisation.
The risk management approach is
designed to provide the Audit and Risk
Committee and the Board with reasonable
assurance that financial irregularities and
control weaknesses will be identified to
mitigate risks that could potentially have
a material adverse impact on the Group’s
operations, earnings, liquidity and financial
prospects.
The Board is primarily responsible for
the effectiveness of the Group’s internal
control systems which are monitored and
improved on an ongoing basis. The Audit
and Risk Committee has been delegated
the responsibility to monitor and assess
the effectiveness of the control systems
operated by management. The external
auditor, Deloitte, also provides feedback
and recommendations on controls which
are brought to the attention of the Audit
and Risk Committee.
Internal controls and risk management
issues are discussed in detail and
reviewed for effectiveness at each Audit
and Risk Committee meeting, with a
report being provided to the Board for
approval.
Internal audit
In previous years, based on the size and
scale of the Group’s activities, an Internal
Audit function could not be justified.
However, following the acquisition of the
Egyptian assets and the Group’s stated
growth strategy in 2020, the Audit and
Risk Committee had recommended and
the Board approved the appointment
of KPMG to carry out various internal
audits. The Committee discussed and
subsequently resolved that, following
the curtailment of the Group’s growth
plans in 2020 and 2021 as a result of the
COVID-19 pandemic, the detailed internal
audit plan should be rescheduled for 2022
start date. This internal audit plan will be
complementary but separate to the audit
work undertaken by the Group’s external
auditor, Deloitte.
In 2021, internal assurance has been
handled by the Group management. The
lack of an Internal Audit function in 2021
had no impact on the work of the external
auditor.
The Board is responsible for maintaining
a sound system of internal controls to
safeguard shareholders’ investment and
the assets of the Company. There is an
effective internal control function within
the Company which gives reasonable
assurance against any material
misstatement or loss. The Board and
management will continue to review the
effectiveness and the adequacy of the
Company’s internal control systems and
update such as may be necessary.
External auditor
Deloitte was appointed as external
auditor in 2002 and no tender has
been conducted since that date. In
accordance with the Code’s guidance
concerning external audit tendering and
rotation, a competitive tender process
is required at least once every 10 years
typically. However, taking into account
the transitional provisions of Statutory
Auditors and Third Country Auditors
Regulation 2016 the Group plans to
conduct a competitive tender process
during 2022.
The Committee assesses the
performance of the auditor based on
their experience, the quality of their
written and oral communication and input
from management, prior to making any
recommendation as to the re-appointment
of the auditor at the AGM. The Committee
also assesses the independence of the
external auditor once a year and the lead
partner is required to be rotated every five
years. On completion of David Paterson’s
term Anthony Matthews succeeded
him and is compliant with the rotation
requirements. Other senior audit staff are
also rotated every five to seven years.
Principal and emerging risks
On page 43, we set out our
assessment of the principal risks
facing the business. The Group Risk
Management framework requires that all
business units within the Group conduct
on-going risk management and reporting
to the Audit and Risk Committee and
the Board. The Group Risk Management
Policy defines the specifics of the risk
management process, describes the risk
tools (for example, the preparation and
maintenance of a Group risk matrix and
risk register) and outlines the reporting
process and responsibilities in order
to meet the Group’s risk governance
framework.
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BOARD LEADERSHIP AND COMPANY PURPOSE
Page(s)
Purpose and Culture 02, 09, 12, 86
Colleague engagement 12, 17, 35, 86
Shareholder engagement 17, 35, 36, 37, 79, 80, 86, 87
Local communities, government and employees 16, 18, 24, 36, 59, 66, 77, 87
Conflicts of interests & Ethics hotline 09, 36, 66, 87
DIVISION OF ROLES & RESPONSIBILITIES
Responsibilities of the Board 82, 87, 88
Board composition 88
Responsibilities & Composition of the Committees 82, 88
Time commitment 88
COMPOSITION, SUCCESSION AND EVALUATION
Board composition and succession 88
Diversity and Inclusion 09, 36, 68, 88
Annual re-election of Directors 88, 96
Board effectiveness and evaluation 88, 96
REMUNERATION
Remuneration principles 102, 103
Remuneration policy 115-116
Pension & Benefits 89, 104, 112, 115
Directors’ shareholdings and share interests 108, 109
AUDIT, RISK AND INTERNAL CONTROL
Significant reporting and accounting matters 98
Fair, balanced and understandable 98
Viability statement and going concern 42, 56, 57, 89, 98
Risk management and internal controls 98-101
Internal audit 89, 100, 101
External auditor 89, 101
Principal and emerging risks 43
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CORPORATE GOVERNANCE REPORT - CONTINUED
ACCOUNTABILITY STATEMENT PAGE REFERENCES
Accountability
statements Report Page(s)
Business model and
Strategic objectives
Strategic Report 17-20
Directors’ responsibility
statement
Directors’ Report 121
Auditor’s statement Independent Auditor’s Report 123 to 131
Going concern
statement
CFO’s statement 42
Directors’ Report 121
Viability statement Risk Management Report 56-57
Critical judgements and
accounting estimates
Note 4 to the Financial
Statements
139-140
Risk Management and
Internal Control
Risk Management Report 43
Corporate Governance Report 89
Audit and Risk Committee
Report
98-99
Audit and Risk
Committee
Corporate Governance Report 89
Audit and Risk Committee
Report
97-101
Nominations
Committee
Corporate Governance Report 88
Nominations Committee
Report
95-96
CHANGES DURING THE YEAR 2021
The Board
Members 9
Execs 4 (from 1 July 2021, previously 3)
NEDs 5
Independent NEDs
Rob Gray
John Martin
Geoffrey Green
Lisa Mitchell
Marianne Daryabegui
Appointed
Sue Rivett (1 July 2021)
Retired
Audit and Risk Committee
Members 4
Appointed
Retired
Remuneration Committee
Members 3
Appointed
Retired
Nominations Committee
Members 6
Appointed
Retired
Environmental, Social and Governance Committee
Members 9
Appointed Sue Rivett (1 July 2021)
Retired
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Environmental, Social & Governance
(‘ESG’) committee report
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (‘ESG’) COMMITTEE REPORT
JOHN MARTIN
ESG Committee Chair
MEETING ATTENDANCE
Committee member
2021
attendance
John Martin (Chair) ++++
Rob Gray (Deputy Chair) ++++
Ed Story (President & CEO) ++++
Jann Brown
(Managing Director & CFO)
++++
Mike Watts (Managing Director) ++++
Marianne Daryabegui * ++++
Lisa Mitchell * ++++
Geoffrey Green * ++++
Sue Rivett *
1,2
++
+ Attended.
* Independent NED.
1 Appointed as a Director 1 July 2021
2 Sue Rivett attended two additional meetings
during the year as a non-committee member
DEAR SHAREHOLDERS,
Membership and responsibilities
During 2021, the Environmental, Social
and Governance (‘ESG’) Committee
was comprised of myself as Chair, Rob
Gray, Ed Story, Jann Brown, Mike Watts,
Marianne Daryabegui, Lisa Mitchell
and Geoffrey Green. I was delighted to
welcome Sue Rivett to the Committee
from her appointment to the Board
on 1 July 2021. Rob, Marianne, Lisa,
and Geoffrey are all Independent Non-
Executive Directors each having recent
and relevant financial and legal experience
in the energy sector.
As Chair of the Committee, I convene
meetings on a regular basis and report to
the Board throughout the year.
The ESG Committee has a formal
document outlining its responsibilities,
which is reviewed and updated as
appropriate by the Board on an annual
basis.
The ESG Committee Terms of Reference
are available on our website, https://www.
pharos.energy/about-us/governance/
committees/ .
Key responsibilities
The Committee is constituted by the
Board to:
• Assist the Board in defining and
implementing the Pharos Group’s
strategy relating to ESG matters;
• Review the policies, programmes,
practices and initiatives of the Pharos
Group relating to ESG matters ensuring
they remain effective and up to date;
• Oversee the Pharos Group’s
management of ESG matters and
compliance with legal and regulatory
requirements, including applicable
rules and principles of corporate
governance, and applicable industry
standards;
• Report on these matters to the
Board and, where appropriate, make
recommendations to the Board; and
• Report as required to shareholders of
the Company on the activities and remit
of the Committee, and in achieving
ESG targets.
ESG Committee meetings in 2021
The Committee met four times during
2021. These meetings were regularly
scheduled Committee meetings held in
March, May, September and December.
The Committee examines and discusses
at each meeting:
• Review of inventory of current ESG
social projects in Vietnam, and
proposed carbon-reduction investment
projects in Egypt and Vietnam
• Review of HSES policies and
procedures, CDP climate change
reporting, annual Corporate
Responsibility (“CR”) Report, Annual
Health, Safety, and Environmental and
Social (“HSES”) Plan
• Review of the development of ESG
KPIs including climate change and
health and safety metrics
• Review of ESG practices across the
Group’s industry peers
• Review of the work on Phase 2 of
TCFD alignment
In addition to members of the Committee,
additional non-committee members, such
as Risk Manager, Reservoir Engineer and
Investor Relations Analyst were invited
to attend Committee meetings. Internal
ESG working group meetings were also
held separately from ESG Committee
meetings. There was noted to be buy-in
on ESG matters across the Group.
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ENVIRONMENTAL, SOCIAL AND GOVERNANCE (‘ESG’) COMMITTEE REPORT - CONTINUED
During 2021, the following additional
areas were discussed at meetings of the
Committee:
March
Review and discussion on:
• Progress for the ESG KPIs, noting
these could not be finalised for Egypt
until the farm-out terms had been
agreed
• Ongoing work on the reduction of GHG
emissions, noting these were likely to
increase as the capital development
work proceeded
• Draft ESG Committee report to be
included in the Annual Report
• Ongoing work on TCFD
• Group’s GHG emissions reporting
compared to peer groups
• Group’s Health, Safety, Environment
and Social (HSES) matters performance
to date, noting 2020’s sub-contractor
fatality and four spills in Egypt and
actions taken to prevent a recurrence.
Major disruptions to operations from
COVID-19 have been avoided, noting
the precautions taken.
• Inventory of social projects to date
May
Review and discussion on:
• The new format of Annual Report,
noting it had worked well and that
ESG matters had been appropriately
incorporated in this
• Ongoing work on TCFD
• Group’s HSES matters and
performance, noting no H&S incidents
to report in the period and one minor
spill
• Peer and industry ESG reporting
• Submission of CDP Climate Change
and Water Security questionnaires,
noting its previous rating of ‘C’ and
ways to improve this rating
September
Review and discussion on:
• Group’s HSES matters and
performance. GHG emissions were
noted to be at par with last year despite
reduced activities and ways in which
emissions could be reduced were
commented upon. Spills in Egypt were
reviewed and discussed including
whether another service company
or better training could be used to
improve matters, albeit this was dealt
with at a JV level
• Update on social projects in Vietnam in
H1 2021
• The alignment towards TCFD
recommendations. The proposal
from Verisk Maplecroft, an external
TCFD consultant company, to review
and develop a roadmap to carbon
reductions, was approved
• Improvements in flaring both in Vietnam
and in Egypt
• Future meeting on potential actions that
could be taken in relation to climate
change, taking account of input from
consultants and examples in other
companies
December
Review and discussion on:
• The development of corporate ESG
targets for management incentives,
to be reported to the Remuneration
Committee
• Group’s HSES matters, noting the
reparation of the faulty compressor
in Vietnam, flaring would again be
reduced, which would determine
whether there would be an
improvement on prior year performance
• KPIs for both safety and environmental
matters
• CO
2
reduction options, noting that cost
benefit analysis of this would be looked
at
• ESG practices across Pharos industry
peers, noting more research to look into
what Vietnam and Egypt had signed up
to at COP26
During the year the Committee
focused on the following matters:
The Committee and its working group
focused on its stakeholders’ health and
safety during the COVID-19 pandemic;
the development of ESG KPIs including
climate change and health and safety
metrics; approval and oversight of the
work on Phase of 2 of TCFD; oversight
and approval of the Group’s CDP
Climate Change and Water Security
Questionnaires; ongoing social project
investments in Vietnam; review and
discussion on ESG practices across
industry peers and CO
2
reduction options
for Pharos.
COVID-19 precautionary measures
The health, safety and welfare of our
staff, contractors and host communities
across our business remains the highest
priority on the Board agenda, especially
during this global pandemic. The Group
adhered to the requisite precautionary
procedures and restrictions, in line with
the government directives in Egypt,
Vietnam and the UK. At Petrosilah and
Pharos El Fayum, a vaccination campaign
for all employees in the main offices and
fields started in Q2 2021 and culminated
to 97% of the workforce being double
vaccinated at the end of December 2021.
In Vietnam, the HLHVJOC strict 5-7
days quarantine regulations are being
applied for the workforce going offshore,
in addition to rapid and PCR tests one
day prior to offshore mobilisation. 100%
of our workforce in Vietnam are double
vaccinated at the end of December 2021.
For office staff at all locations, Pharos
has implemented ongoing facilitation of
Working From Home (WFH) measures
where possible until further notice.
Health & Safety
In 2021, the Company has delivered
an excellent performance from a health
and safety perspective. There were
zero Lost Time Injuries (LTIs) across all
our operations through-out the year. In
Vietnam, the JOCs continue to deliver
an exceptional record of safety, reporting
zero LTIs since operational inception,
representing ten production years on
TGT and 13 production years on CNV.
In Egypt, we continually reinforce and
implement safe working procedures
such as inspection of all instruments
and equipment, obtaining the requisite
permit to work applications, providing
training and awareness sessions and
above all implementing checks to ensure
risks are reduced to acceptable levels
and encourage the immediate use
of stop-cards. In Vietnam, the JOCs
conducted over 200 and 100 HSE training
sessions and emergency response drills
respectively during 2021 to ensure safety
and preparedness remain a top priority.
HSES performance of the Group was
reviewed and discussed at every
ESG Committee meetings in 2021.
All spillage incidents during the year
were investigated and lessons learned
as appropriate and actions to prevent
recurrence were implemented.
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ESG KPIs
The Committee reviewed and discussed
the progress of ESG KPIs. However, after
careful consideration, the Committee
agreed that these could not be finalised
for Egypt until the farm-out terms had
been agreed. ESG KPIs for Vietnam
are noted in the 2022 KPI in the
Remuneration Report on page 112.
TCFD
The Company commenced Phase 2 of
the project to bringing our disclosures in
line with the requirements of the Task
Force on Climate-Related Financial
Disclosures (“TCFD”). These efforts had
been interrupted by the impact of the
pandemic in 2020 but Phase 2 of the
project was approved in Q3 2021 and
commenced in Q4 2021, after careful
considerations and review from the ESG
Committee and ESG working group.
Results of the completion of Phase 2 can
be found in the Corporate Responsibility
Report on page 60 to 63.
CDP
Over the past four years, the Company
have participated in the CDP Climate
Change Questionnaire. In 2021, we have
maintained our score of (C), originally
awarded in 2019 and which is also the
industry average. Most notably, 2021
marks the first year that the Company
submitted their response to the Water
Security Questionnaire, in addition to and
at the same time as the Climate Change
Questionnaire. The Water Security
Questionnaire was completed at a basic
level in 2021, and we plan to improve our
level of transparency on water usage and
protection by completing the full version
in 2022.
Both Questionnaires were completed
through collaborative efforts across
multiple disciplines and functions within
the Group and after thorough discussions
within the ESG working group, with
oversight and approval from the ESG
Committee before submission
ESG peer benchmarking and CO
2
reduction options
During the year, the Committee reviewed
various CO
2
reduction options, such
as ejector technology and gas to liquid
technology. There were inputs from HSE
Country Managers, Reservoir Engineers
and Risk Managers during the process.
The Committee have taken this into
consideration, noting that further cost
benefit analysis would be looked at in
further depth.
ESG best practices and reporting
standards across the Group’s industry
peers were also discussed in 2021. The
Committee noted that more research
would be done to understand what the
Company could do, and to look into the
commitments made by Vietnam and
Egypt at COP26.
Social
In recent years, we have structured our
social investment programme to align
more with the United Nations Sustainable
Development Goals (UN SDGs).
In Vietnam, in 2021, we worked closely
with the JOCs in order to make sure that
our social initiatives in the region continue
to bring more positive impacts to the
region. In addition to the training levy of
$300,000 per year in a ring-fenced fund
to support developing future Vietnamese
expertise in the industry, a further
$265,000 was invested in 12 community
projects. The JOCs actively inquired and
listened to locals to find out which areas
of the country would need the greatest
assistance in order to ensure that we
were investing in local projects that
would bring the most sustainable positive
impact to the community. For instance,
in Q1 2021, the Group provided financial
support for autistic children at Anh Dao
Specialised Educational Centre in Ha
Tinh province, with additional donations
towards providing therapy for children with
disabilities at An Tue Social Assistance
Centre, Thua Thien Hue province (UN
SDG 3: Good health & wellbeing and UN
SDG 4: Quality education). In Q2 2021,
the Donation Programme helped fund
the construction of a community culture
house in Hop Hung commune, Vu Ban
district, Nam Dinh province which, once
finishes, will act as a communal education
house for children in the area for years
to come (UN SDG 4 Quality education
and UN SDG 9: Industry, innovation and
infrastructure).
In Egypt, under the El Fayum and North
Beni Suef Concession Agreements, the
Contractor contributes a total of $200,000
split equally between the two Concessions
to support long-term training and
development of talents within the industry
(UN SDG 9: Industry, innovation and
infrastructure). Additionally, in cooperation
with the Ministry of Higher Education and
Scientific Research, Petrosilah holds an
annual summer training programme for all
students applying from public and private
Egyptian universities for training in the
administrative office and the company’s
fields, of which they can obtain a training
certificate from the company (UN SDG 4:
Quality education).
For full details of all the projects the JOCs
have invested in 2021, please see our
Corporate Responsibility report on pages
76 to 77.
Focus for 2022
• Continue to work with JOC’s for
continued improvements and trainings
with respect to GHG’s emissions
reductions, initiative’s to reduced
emissions and spillages
• Maintain current work programme
through the JOC’s social project
investment and review outcomes of
local indicative’s that benefit local
communities and host countries
• Proposal and review of ESG metrics in
Remuneration and KPI
• Continue engagement and dialogue
with the ESG working group as it
progresses during 2022
JOHN MARTIN
Environmental, Social and Governance
(ESG) Committee Chair
Pharos Energy Annual Report and Accounts 2021
95
Nominations committee report
JOHN MARTIN
Nominations Committee Chair
MEETING ATTENDANCE
Committee member
2021
attendance
John Martin * (Chair) +++
Ed Story (President and CEO) +
Rob Gray * (Deputy Chair and
Senior Independent Director)
+++
Marianne Daryabegui* +++
Lisa Mitchell * +++
Geoffrey Green* +++
+ Attended.
* Independent NED.
Jann Brown and Mike Watts attended as
non-committee members for the first meeting
of the year.
NOMINATIONS COMMITTEE REPORT
Membership
During the year, the Committee comprised John Martin as Chair, the Chief Executive
Officer Ed Story and the four Independent Non-Executive Directors (‘NEDs’), Rob Gray,
Marianne Daryabegui, Lisa Mitchell and Geoffrey Green.
The qualifications of each of the Chair and members are set out on pages 84 to 85.
Meetings
The Committee conducted its duties through three meetings held during 2021. During the
year the following areas were discussed at the Committee meetings:
Meeting Matter
Q1
Finalisation of Sue Rivett as a Director and CFO
Review and approval of Nominations Committee report for inclusion in
the 2020 Annual Report and Accounts
Annual review of conflicts of interest register
Annual Director reappointment
Q2
No Meeting
Q3
Ongoing succession planning
Q4
Succession planning continued
As at 31 December 2021, the Board comprised four Executive Directors and five NEDs,
including the Chair. All of those NEDs were considered independent for the purposes
of the 2018 Code. John Martin remains Chair of the ESG Committee, and Chair of the
Nominations Committee.
Board refreshment and succession
planning
Board refreshment and succession
planning continue as ongoing processes.
In 2021, the priority was to maintain the
independent component of the Board and
to fully comply with the 2018 Code.
In March 2021 we announced the
appointment of Sue Rivett to the Board
as Chief Financial Officer (“CFO”)
effective 1 July 2021. Jann Brown, who
was Managing Director (“MD”) and
CFO, remained as MD following Sue’s
appointment, focused on delivering the
next phase of the Group’s strategic plan.
Appointments process
During 2021, the Committee assessed the
suitability of Sue Rivett for appointment
to the Board, taking into account her
previous sector experience and work
history, and concluded that her expertise
and track record in oil and gas, would
complement and enhance the skills and
experience of the current Board.
Independence
All NEDs are independent in full
compliance with the provisions of the
2018 Code.
Board balance
The Committee assesses the
Board’s balance of skills, experience,
independence, diversity, tenure and
knowledge of the Company and
the industry on an annual basis.
The assessment in 2021 included
consideration of the Company’s leadership
needs within the context of growth,
portfolio diversification and long-term
strategy. The discussions determined
that following the recent changes in
the business the current balance is
appropriate and sufficient to effectively
promote the long-term success of the
Company.
The Board’s current balance and
composition are shown on page 82.
Role of the Committee
Ensuring the composition of the
Company’s leadership remains effective
and competitive
Leading the process for Board and
committee appointments and making
recommendations to the Board
Annually reviewing the Board balance,
structure, composition, diversity and
succession planning
Establishing an ongoing process for
evaluating the Board’s performance and
effectiveness
The Committee has continued to ensure
that Board independence was evident
during 2021 and will continue into 2022
taking into account the Board composition
requirements of the 2018 UK Corporate
Governance Code.
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Additional InformationGovernance Report Financial StatementsStrategic Report
Diversity
Our approach to diversity and
inclusiveness is embedded within the
Group’s Human Rights Policy available on
the Company’s website at https://www.
pharos.energy/responsibility/policy-
statements/. A key aim of the Policy is a
workplace that is inclusive and free from
discrimination.
In applying the Human Rights Policy
to Board composition, the Committee
pursues diversity of approach, experience,
knowledge, skills, and professional,
educational and cultural backgrounds.
The international and global perspective
achieved has enhanced the Board’s
discussions on business development,
M&A and operational and financial
integration.
In its annual review of diversity, the
Committee noted diversity of gender,
age, demographics, skills, professional
backgrounds, experience and education
amongst the Board and senior
management.
Board evaluation
In early 2022, having delayed the process
to ensure that this incorporated all the
events of 2021, the Board carried out its
annual evaluation of its own performance
and effectiveness and that of its principal
Committees, the Chair and the individual
Directors. In doing so, the outcomes of
last year’s review and recently agreed
actions in connection with succession
planning and Board changes were also
considered. The Committee Chair led
the process which was facilitated by the
Company Secretary and followed a similar
format to that of prior years. Directors
completed confidential questionnaires
covering the key areas as set out below.
The questions were structured to
encourage full, in-depth responses on
each area of focus.
• Strategy and risk, including how
the Board has handled risk and
opportunities
• Shareholder and Stakeholder Relations
• The performance of the Chair
• Board effectiveness and operation
• The operation of the principal Board
committees
• Board training and development needs
• Any other general matters Directors
wished to raise
The results were reported on an
unattributed basis and discussed by the
Committee, led by the Committee Chair,
then shared with the whole Board. The
results of the Chair’s performance review
were discussed with the other NEDs,
led by the Deputy Chair and Senior
Independent Director, and communicated
to the Chair. Following the evaluation
process, a number of areas were identified
for ongoing focus in 2022 including:
• Continued focus on strategy
• Maintaining review of key risks
• Ongoing communications to
shareholders and other stakeholders
• Evolution of reporting in line with
development of the Group
• Continued focus on Climate Change
and ESG Agenda
Re-election
All Directors annually retire and seek
re-election by shareholders at the
Company’s AGM. The Committee makes
its recommendation to the Board on
each re-election resolution. Pending the
Chair confirming his satisfaction that each
Director continues to perform effectively
and with the appropriate commitment to
the role, the full Board then determines its
own recommendation to shareholders in
relation to those resolutions.
The full Board retired and offered itself
for re-election by shareholders at the
Company’s AGM in June 2021. All
Directors were duly re-elected at the 2021
AGM, each receiving more than 97% of
the proxy votes submitted in advance of
the meeting.
Ed Story and Dr Mike Watts will retire as
Directors upon completion of the farm-out
transaction with IPR. In addition, Rob
Gray will not seek re-election as a Director
at the 2022 AGM and will accordingly
retire with effect from the close of that
meeting. The remaining six Directors will
retire and will offer themselves for re-
election at the 2022 AGM.
The Committee is satisfied that each
individual Director’s performance
continues to be effective and
demonstrates commitment to the role
and, accordingly, has recommended
to the Board that each such Director
remains in office subject to re-election by
shareholders at the AGM.
The Committee formed its
recommendations regarding re-election
following assessments of Board balance,
composition and independence.
Workforce engagement
In November 2021, the Chair joined
head office staff for the afternoon during
an offsite staff meeting, at which staff
members were able to discuss matters
of interest. This engagement has proved
an effective communication route for the
employees and demonstrates the values
of openness and integrity to which we are
committed.
Board development, information
and support
Throughout 2021, all Directors received
ongoing access to resources for the
update of their skills and knowledge; both
on an individual and a full Board basis.
Comments are solicited in the annual
Board evaluation and discussed with the
Chair.
Conflicts of interest
The Board has the power, subject to
certain conditions, to authorise, where
appropriate, a situation where a Director
has, or can have, a direct or indirect
interest that conflicts, or possibly may
conflict, with the Company’s interests.
Such authority is in accordance with
section 175 of the Companies Act 2006
and the Company’s articles of association.
Procedures are in place for ensuring that
the Board’s powers to authorise conflicts
are used effectively and appropriately.
Directors are required to notify the
Company of any conflicts of interest or
potential conflicts of interest that may
arise, before they arise, either in relation to
the Director concerned or their connected
persons. The decision to authorise each
situation is considered separately on its
particular facts.
Only Directors who have no interest in
the matter are able to take the relevant
decision to authorise a conflict and
must act in a way they consider, in good
faith, will be most likely to promote the
Company’s success. The Directors
will impose such limits or conditions
as they deem appropriate when giving
authorisation or when an actual conflict
arises. These may include provisions
relating to confidential information,
attendance at Board meetings and
availability of Board papers, along
with other measures as determined
appropriate.
Each Director has notified the Board of
either the potential for or the absence
of conflicts. The Board assesses every
notification of a conflict on its own
merits, including the implementation of
appropriate limits and conditions, prior
to giving authorisation for any specific
conflict or potential conflict to exist.
The Board assesses its conflict
authorisations on an ongoing basis
throughout the year and additionally
performs a scheduled review in
December.
JOHN MARTIN
Nominations Committee Chair
Pharos Energy Annual Report and Accounts 2021
97
Audit and risk committee report
AUDIT AND RISK COMMITTEE REPORT
LISA MITCHELL
Audit and Risk Committee Chair
MEETING ATTENDANCE
Committee member
2021
attendance
Lisa Mitchell * +++++
Rob Gray* +++++
Marianne Daryabegui* +++++
Geoffrey Green * +++++
+ Attended.
* Independent NED.
Ed Story, Jann Brown, Mike Watts, Sue Rivett and
John Martin also attended most of the meetings as
non-committee members/ guests
DEAR SHAREHOLDERS,
Membership and responsibilities
During 2021, the Audit and Risk
Committee comprised myself as Chair,
Rob Gray, Marianne Daryabegui and
Geoffrey Green. Marianne, Rob, Geoffrey
and I are all Independent Non-Executive
Directors each having recent and relevant
financial experience in the energy sector.
As Chair of the Committee, I convene
meetings on a regular basis and report to
the Board throughout the year.
The Audit and Risk Committee has
a formal document outlining its
responsibilities, which is reviewed and
updated as appropriate by the Board on
an annual basis.
The Audit and Risk Committee Terms of
Reference are available on our website,
https://www.pharos.energy/about-us/
governance/committees/.
Key responsibilities
Reviewing key financial, operational and
corporate responsibility risk management
processes with strong focus on
Environmental, Social and Governance
(“ESG”) issues
Reviewing and testing the integrity of the
Group’s financial statements to ensure
full compliance with international financial
reporting standards and requirements
Overseeing the planning and execution
of the ongoing external audit programme
including a detailed review of audit quality
and results
Reviewing the effectiveness of internal
control processes and systems, including
IT control platforms
Audit and Risk Committee
meetings in 2021
The Committee met five times during
2021. These meetings were the regularly
scheduled Committee meetings held in
March, May, September and December,
with the March meeting split into 2, firstly
to review the internal Committee papers
and the second to review the final 2020
year-end release and the auditor’s paper.
The Committee examines and discusses
at each meeting:
Detailed review of internal controls and
implementation of upgrades
Review of risk register and risk
management reports
In addition to members of the Committee,
all members of the Board, the finance
management team, operational
management and the Group’s external
auditor, Deloitte, attended each of the
Audit and Risk Committee meetings.
During 2021, the following additional
areas were discussed at meetings of the
Committee:
March (2 meetings)
Update and review of Modern Slavery and
Human Trafficking Statement, HSE Policy,
Social Responsibility Policy, Biodiversity
and Conservation Policy, Human Rights
Policy and Code of Business Conduct and
Ethics
Finance update including the Internal
Controls Report, Reserves Update,
Impairment Analysis, review of the IFRS
16 Lease paper, Royalty paper and
Treasury review
Review and approval of 2020 financial
statements, including reviews that they
were fair, balanced and understandable,
reviews of Going Concern and Viability
Statements
Review of 2020 external audit status,
including analyses of findings of the
external audit and key judgemental areas
Review and update of the Audit and Risk
Committee governance matters, with
attention to internal controls processes
and systems, and a detailed review of
Risk management issues and mitigation
May
Review and update of Internal Controls
Report including Financial review
Status update on Treasury activities
including the RBL and hedging status
Review and assessment of Risks and
mitigations
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Additional InformationGovernance Report Financial StatementsStrategic Report
September
Finance update including the Internal
Controls Report, Reserves Update,
Impairment Analysis, review equity placing
paper and insurance review
Review and Approval of 2021 Interim
Accounts, including presentation by
external auditor, Deloitte, and Audit and
Risk Committee comments
Review and approval of the Going
Concern Paper, including stress testing
and mitigations
An update on financing, covenant
compliance monitoring and commodity
hedging
December
Review and update on Internal Controls
and Risk Report including: Finance review
and Treasury update
Review of the Group Budget and capital
allocation
Annual Review and Approval of Terms
of Reference of the Audit and Risk
Committee
Review of 2021 year-end planning
Review and discussion of Significant
Risks particularly around the impact of
COVID-19 and Climate Change and the
impact on Going Concern and Impairment
of assets
Review and discussion on Section 172 of
the Companies Act 2006
Review of external audit scope, review of
audit quality and 2021 audit plan
Review of recent developments in
relation to FRC requirements, proposed
developments in relation to external
auditors’ responsibilities, and other related
regulatory and compliance matters
Financial reporting and significant
accounting issues
During the first half of 2021, the Group’s
accounting policies, in accordance
with best practice, were reviewed by
management and the Committee to
ensure that they remained appropriate
for the Group’s activities. Following this
review, the Group’s accounting policies
were judged to be fully up-to-date and no
significant changes were recommended to
the Board by the Committee.
Significant issues related to the
2021 Financial Statements
The Committee met twice in March to
go through the significant issues that
should be taken into consideration in
relation to the Financial Statements for
the year ended 31 December 2021,
being key issues which may be subject to
heightened risk of material misstatement.
These key issues are set out below.
Fair, balanced and understandable
The Committee advised the Board
whether the annual report and accounts
taken as a whole are fair, balanced and
understandable and provide the range of
information necessary for shareholders
to assess the Group’s performance,
business model and strategy. The
Directors have confirmed this in their
Responsibility Statement set out on page
121 of the Directors’ Report.
Going Concern
Management completed their Going
Concern assessment which was
challenged and reviewed by the
Committee. The assessment included
a “Base Case” for the Group, including
cash flow estimates for both Egypt and
Vietnam, as well as a “Reasonable Worst
Case” scenario, giving particular regard to
the continuing impact of commodity price
volatility. A further assessment was also
undertaken to show the impact of a farm
down of the Egyptian concessions.
Under these scenarios, management
has assessed, on a conservative basis,
the risks around commodity pricing,
operational risk and political and
regional risks, particularly in Egypt. The
assessments also took into account
the impact of potential discretionary
reductions in capital expenditures, as well
as the hedging of production volumes
to mitigate against commodity price
fluctuations.
Based on this detailed analysis,
management has concluded that the
Group will continue as a Going Concern
for 12 months from the date of signing of
the 2021 Financial Statements.
Following its review of management’s
Committee paper and in-depth walk
through of assumptions, the Committee
are satisfied that it is appropriate to
prepare the 2021 Financial Statements on
a Going Concern basis.
Oil and gas reserves
The Group’s estimates of oil and gas
reserves have a crucial impact on the
Financial Statements, especially in relation
to DD&A and impairment of PP&E assets.
Oil and gas reserves, as discussed in the
Viability Statement on pages 56 to 57 are
calculated using best practice and
industry evaluation techniques which have
uncertainties in their application.
The Committee reviewed, in conjunction
with management the results of
independent third party assessments
conducted by ERCe during 2021 for
Vietnam assets TGT and CNV, and
subsequently audited by the Group’s
reserves auditor, RISC Advisory Pty Ltd
(“RISC”) which are described in the review
of operations on pages 32 to 34.
In addition, the Committee reviewed,
in conjunction with management and
Deloitte, the reserves assessment
conducted by McDaniel for the El Fayum
Concession in Egypt.
The various reserves estimates have
been scrutinised by management,
taking into account the status of each
field’s development, to be satisfied that
reserves estimates are appropriate, that
DD&A calculations are correct and that
rigorous impairment testing has been
carried out. Management also reviewed
its estimates of future costs (including
decommissioning costs) associated with
producing reserves. Reserve estimates are
inherently uncertain, and are revised over
the producing lives of oil and gas fields as
new reserves estimates become available
and economic conditions evolve.
Internal controls and risk
management systems
The Group’s internal control framework
and risk management processes are
designed to ensure that risk identification,
assessment and mitigation is properly
embedded throughout the organisation.
The risk management approach is
designed to provide the Committee and
the Board with reasonable assurance
that financial irregularities and control
weaknesses will be identified to mitigate
risks that could potentially have a
material adverse impact on the Group’s
operations, earnings, liquidity and financial
prospects.
During 2021, the Group continued to
carry out comprehensive reviews of the
overall effectiveness of its internal controls
framework and continued to work on
improvements.
The Board is primarily responsible for
the effectiveness of the Group’s internal
control systems which are monitored
and improved on an ongoing basis.
The Committee has been delegated
Pharos Energy Annual Report and Accounts 2021
99
AUDIT AND RISK COMMITTEE REPORT - CONTINUED
the responsibility to monitor and assess
the effectiveness of the control systems
operated by management. The external
auditor, Deloitte, also provides feedback
and recommendations on controls
which are brought to the attention of the
Committee.
Internal controls and risk management
issues are discussed in detail and
reviewed for effectiveness at each
Committee meeting, with a report being
provided to the Board for approval.
Reserve Based Lending Facility
(RBL)
During 2021, the Group completed the
refinancing of its RBL facility providing
access to a committed $100m facility
based solely on the Vietnam assets, of
which $78.1m was drawn at December
2021. A further $50m is available on
an uncommitted accordion basis. The
refinanced facility has a four-year term
that matures in July 2025. The refinancing
extended the tenor of the facility by 22
months, allowing for a rephasing of the
repayment schedule and provision of
additional funds available for general
corporate purposes.
Under the revised RBL facility agreement,
the Group is required to be compliant with
certain debt covenants for each half year
ending 30 June and 31 December, as set
out on page 163.
The Committee has reviewed
management’s assessments of debt
covenant calculations and is satisfied that
the Group is fully compliant.
Commodity hedging – treasury
management
During the year, the Group actively
managed its exposure to commodity
price risk by entering into an ongoing
programme of hedging. The objectives
of the hedging programme have been
to protect the Group’s Reasonable
Worst case and the Working Capital Test
required for the farm down of its Egyptian
concessions to any downward commodity
price movements and to provide certainty
for cash flows, ensure compliance with
the terms of the RBL Facility Agreement,
and to help mitigate the redetermination
risk implicit with any RBL.
A Treasury Committee, comprising the
Chief Financial Officer as Chair and senior
members of the Group’s finance team,
convene on a regular basis to review the
Group’s strategy and the open hedge
positions to ensure that these are still
fit for purpose in light of current market
conditions. Over the course of 2021,
the hedged positions were out of the
money by $29.7m, the hedge position
having been taken out to satisfy the 35%
minimum Vietnam production hedge
required under the RBL and hedges to
mitigate the impact on Reasonable Worst
Case for Going Concern and the Working
Capital Test for the Egypt farm down.
In 2022, the Group seeks to extend this
coverage further to protect budgetary
cash flow and ensure compliance with
and help mitigate redetermination risk on
the RBL.
KEY JUDGEMENTS AND ESTIMATES IN FINANCIAL REPORTING
Key judgements and estimates in
financial reporting
Audit and Risk
Committee review Outcomes
Asset carrying values and
impairment testing – including
judgements on future oil pricing,
discount rates, production profiles,
reserves and cost estimates
Reviewed the Group’s oil price assumptions
The Group’s short and long-term price
assumptions were increased in line with the
improvement in commodity prices
Upstream impairment charges were reviewed twice
during the year
Impairment reversal of assets
Significant risks that could potentially
impact on financial statements –
including DD&A estimates, override
management controls
Reviewed DD&A estimates, based on reserves reports,
units of production and future development costs
Management’s assessments of DD&A
judged to be reasonable based on prudent
assumptions
Reviewed override of management controls
Under ISA 240 management override of
controls is presumed significant risk. No
breaches were found
Oil reserves accounting – including
management’s assumptions for
future oil prices which have a
direct impact on the estimate of
the recoverability of asset values
reported in the Financial Statements
Reviewed the Group’s guidelines and policy for
compliance with oil reserves disclosure regulations;
including governance and control
Reviewed exploration charges
Costs held in Vietnam pending future work
programme and costs in Israel impaired due to
no substantive future work programme
Reviewed at each Committee meeting an update on the
status of all updated estimates
Updated third party estimates and independent
audit completed, with results disclosed in the
2021 Financial Statements
Exploration and evaluation assets and impairment review
The Committee reviewed the Group’s
intangible exploration and evaluation
assets individually in Egypt, Israel and
Vietnam for any indications of impairment,
including the various indicators specified
in paragraphs 18 to 20 as set out in IFRS
6 – “Exploration for and Evaluation of
Mineral Resources”. Please refer to Note
4 (b) to the Financial Statements for more
information on climate change and energy
transition.
At both the half year and year end 2021,
the Committee considered whether
various indicators of impairment existed,
and also whether there were issues arising
from the results of impairment reviews by
management. Such reviews are carried
out in relation to both exploration and
evaluation assets, with the role of the
Committee being focused on challenging
management’s underlying assumptions
and estimates and to judge whether
they are realistic and justified. Following
the impairment testing, the Committee
recommended to the Board that following
3D seismic acquisition on Block 125 in
Vietnam and the forward programme
of work that no impairment had been
triggered. The minor commitment
programme of work in Israel will be
completed in 1H 2022, but there being
no major work budgeted or planned the
Group have impaired the assets.
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Producing assets, property, plant
and equipment (“PP&E”) and
impairment review
The Committee reviewed individually the
Group’s oil and gas producing assets
classified as PP&E on the balance sheet
for impairment with reference to IAS 36
– “Impairment of Assets”. During 2021,
the Group’s PP&E oil and gas assets
comprised its two Vietnam producing
licences, TGT and CNV, as well as its El
Fayum Concession in Egypt. These are
described in the operations review on
pages 32 to 34.
This review focused on an updated
assessment of the recoverable amount
of each asset compared to their carrying
value in the accounts. If the recoverable
amount dropped below the carrying
value, there would have been an
impairment charge to reduce the carrying
value. The Committee considered the
various assumptions underpinning the
assessment of the recoverable amount,
including underlying reserves, commodity
prices, production rates and discount
rates. Based on the Group’s approved
economic assumptions, the Committee
recommended to the Board that
impairment reversals were made on the
2two Vietnam fields, and small impairment
charge on the El Fayum Concession in
Egypt.
On our CNV field in Vietnam, a pre-tax
impairment reversal of $3.8m has been
reflected in the Income Statement with an
associated deferred tax charge of $1.4m.
As at 31 December 2021, the carrying
amount of the CNV oil and gas producing
property is $84.2m.
On our TGT field in Vietnam, a pre-tax
impairment reversal of $49.1m has been
reflected in the Income Statement with an
associated deferred tax charge of $17.1m.
As at 31 December 2021, the carrying
amount of the TGT oil and gas producing
property is $266.0m.
For our El Fayum concession in Egypt,
an impairment reversal of $1.7m, no tax
applicable, is reflected in the Income
Statement. As at 31 December 2021,
the carrying amount of the El Fayum oil
producing property is $109.3m, pre-
reclassification to Assets held for sale.
After the reclassification to assets held
for sale, the Egypt oil and gas producing
property amounts to $49.2m.
Asset Held for Sale (AHFS)
In December 2021, it was announced that
shareholders had approved the farm-out
of 55% of the Group’s operated interest
in each of our Egyptian Concessions, El
Fayum and North Beni Suef, to IPR, a
group that has extensive experience in
Egypt.
As part of the transaction, IPR will fund
Pharos’s share of the costs to a maximum
of $33.425m (to be adjusted for working
capital and interim period adjustments
from the effective economic date of 1 July
2020). This is in addition to the deposit
at signing of the farm-out agreements of
US$2 million and a further US$3 million
payable on completion. This investment
programme should result in an increase
in production and also fulfil commitments
under the concessions. In addition,
the Group will be entitled to contingent
consideration depending on the average
Brent Price each year from 2022 to the
end of 2025, capped at a maximum
total payment of US$20 million. We have
calculated the contingent consideration
using our Brent oil price curve as at 31
December 2021 (not recognised the full
$20m).
$$53.5m net assets were reclassified as
held for sale. Details on the calculation of
the AHFS net assets are set out in Note
37 to the Financial Statements.
Concession Agreement
Amendment El Fayum area
On 19 January 2022, the Third
Amendment to the El Fayum Concession
Agreement was signed by His Excellency
Eng. Tarek El Molla (Minister of Petroleum
& Mineral Resources of the Arab Republic
of Egypt), EGPC and the Company.
Signature of the Third Amendment
was a key Condition Precedent for the
transfer of a 55% participating interest
(and operatorship) in the El Fayum and
North Beni Suef Concessions to IPR Lake
Qarun.
Under the terms, the cost recovery
percentage will be increased from 30%
to 40% allowing Pharos a significantly
faster recovery of all its past and future
investments. In return, Pharos has agreed
to waive its rights to recover a portion
of the past costs pool ($115 million) and
reduce its share of Excess Cost Recovery
Petroleum from 15% to 7.5%. While in full
cost recovery mode, Contractor’s share of
revenue increases from 42.6% to 50.8%
as from November 2020 (corresponding
to additional net revenues to Contractor of
$7.0m to the date of signature).
The relevant final approvals from the
Egyptian Government had not been
obtained at 31 December 2021 and
so this has been accounted as a non-
adjusting balance sheet event, as per
Note 38 to the Financial Statements.
Assuming conditions at 31 December
2021, the discounted cash flows from the
remaining 45% share held and calculated
for impairment purposes would increase
from $49.2m to $77.4m.
Internal controls focus for 2021
In previous years, based on the size and
scale of the Group’s activities, an Internal
Audit function could not be justified.
However, following the acquisition of the
Egyptian asset and the Group’s stated
growth strategy in 2020, the Committee
had recommended and the Board
approved the appointment of KPMG
to carry out various internal audits. The
Committee discussed and subsequently
approved that following the curtailment
of the Group’s growth plans in 2020
and 2021 as a result of the COVID-19
pandemic that the detailed internal audit
plan should be rescheduled for 2022. This
internal audit plan will be complementary
but separate to the audit work undertaken
by the Group’s external auditor, Deloitte.
In 2021, internal assurance has been
handled by the Group management. The
lack of an Internal Audit function in 2021
had no impact on the work of the external
auditor.
The Treasury Committee will continue
to meet regularly to review the RBL
covenants compliance and to review the
Group’s liquidity, hedging requirements
and investment strategy.
The Committee reviewed and approved
the related compliance statements set
out in the Risk Management Report.
The Committee has also reviewed and
approved the statements regarding
compliance with the 2018 Code, in
the Corporate Governance Report on
page 86. The Committee reviewed
and discussed with management and
the external auditor the Company’s
relevant financial information prior to
recommendation for Board approval.
This included the Financial Statements
and other material information presented
in the annual and half year reports. The
Committee considered the significant
financial reporting issues, accounting
policies and judgements impacting the
Financial Statements, and the clarity of
disclosures. The Committee conducted
a review of its Terms of Reference for
best practice, which were approved by
the Board in early 2021. These will be
reviewed again during 2022.
The Audit and Risk Committee and
the Board have carried out a review of
the effectiveness of the Group’s risk
management and internal control systems.
Overall, the control environment was
considered to be operating effectively.
We recognise the oil and gas industry
faces many challenges ahead, including
the technical, financial, environmental
and political challenges of accessing an
increasingly scarce resource base and at
the same time coping with the opposing
dual challenges of production growth
but managing transition to a low carbon
Pharos Energy Annual Report and Accounts 2021
101
AUDIT AND RISK COMMITTEE REPORT - CONTINUED
future. The pressure to move to a low
carbon future have been brought to the
forefront during the pandemic.
Our Strategic Framework takes into
consideration the range of potential
risks and the nature of their impact on
the business. The strategic ambitions of
the Group, achieving our financial and
ESG objectives, maintaining operational
effectiveness, ensuring our reputation to
markets, partners, and stakeholders are
all assessed in the context of our appetite
for risk.
The Board is responsible for maintaining
a sound system of internal controls to
safeguard shareholders’ investment and
the assets of the Company. There is an
effective internal control function within
the Company which gives reasonable
assurance against any material
misstatement or loss. The Board and
management will continue to review the
effectiveness and the adequacy of the
Company’s internal control systems and
update such as may be necessary.
Risk assessment
The Committee carried out a detailed
risk assessment in which it reviewed
existing risks and identified new risks
as appropriate. The likelihood and
significance of each risk was evaluated
along with proposed mitigating factors
and was reported to the Board. All
new risks or changes to existing risks
were monitored throughout the year
and discussed at each Committee
meeting. The Committee maintains a
comprehensive bribery risk assessment
and mitigation procedure to ensure that
the Group has procedures in place to
eliminate bribery, and that all employees,
agents, contractors, and other associated
persons are made fully aware of the
Group’s robust policies and procedures
on a regular basis.
We recognise the sad situation ongoing in
Ukraine. We have no direct business in the
region but are taking steps and carrying
out due diligence checks to assess if there
are any parts of the business likely to be
directly affected and will devise mitigating
actions if needed.
External auditor
Deloitte was appointed as external
auditor in 2002 and no tender has been
conducted since that date. In accordance
with the 2018 Code’s guidance
concerning external audit tendering and
rotation, a competitive tender process
is required at least once every 10 years
typically. However, taking into account
the transitional provisions of Statutory
Auditors and Third Country Auditors
Regulation 2016 the Group plans to
conduct a competitive tender process
during 2022.
The Committee assess the performance
of the auditor based on their
experience, the quality of their written
and oral communication and input
from management, prior to making
any recommendations as to the re-
appointment of the AGM. The committee
also assesses the independence of the
external auditor once a year and the lead
partner is required to be rotated every five
years. On completion of David Paterson’s
term Anthony Matthews succeeded
him and is compliant with the rotation
requirements. Other senior audit staff are
also rotated every five to seven years.
External auditor – non-audit
services
The external auditor is appointed primarily
to carry out the statutory audit and their
continued independence and objectivity
is crucial. In view of their knowledge of
the business, there may be occasions
when the external auditor is best placed
to undertake other services on behalf of
the Group. The Committee has a policy
which sets out those non-audit services
which the external auditor may provide
and those which are prohibited. Within
that policy, any non-audit service must be
approved by the Committee.
Before approving a non-audit service,
consideration is given to whether the
nature of the service, materiality of
the fees, or the level of reliance to
be placed on it by the Group would
create, or appear to create, a threat to
independence. If it is determined that such
a threat might arise, approval will not be
granted unless the Committee is satisfied
that appropriate safeguards are applied to
ensure independence and that objectivity
is not impaired. The auditor is prohibited
from providing any services which might
result in certain circumstances that have
been deemed to present such a threat,
including auditing their own work, taking
management decisions for the Group or
creating either a mutuality or conflict of
interest. The Company has taken steps
to develop resources and relationships in
order to establish availability of alternate
advisers for financial and other matters.
External audit fees
Total audit and non-audit fees in 2021
were $0.5m and $0.3m respectively.
The Committee approved all non-
audit services provided by the external
auditor in 2021.The principal non-audit
fees during 2021 were $0.1m for the
interim review and $0.1m for reporting
accountant services associated with the
Class 1 Circular relating to the farm down
of its Egyptian concessions.
The Committee reviews its non-audit
services policy on an annual basis and
current policy requires all non-audit
services to be pre-approved by the
Committee. It is noted that the Group’s
policy sets out the permitted services and
those that are prohibited.
Review of the effectiveness of the Audit
and Risk Committee
During the year, the Committee has
undergone a comprehensive review of its
effectiveness and results were reported
to the Board. The Committee was
considered by the Board to be operating
effectively and in compliance with the
2018 Code and associated guidance.
LISA MITCHELL
Audit and Risk Committee Chair
Pharos Energy Annual Report and Accounts 2021
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Directors’
remuneration report
DIRECTORS’ REMUNERATION REPORT
GEOFFREY GREEN
Remuneration Committee Chair
TABLE A: REMUNERATION COMMITTEE
MEETING ATTENDANCE DURING 2021
Committee member
2021
attendance
Rob Gray ++++
Marianne Daryabegui ++++
Geoffrey Green (Chair) ++++
+ Attended.
Ed Story, Jann Brown, Mike Watts, John Martin,
Lisa Mitchell and Sue Rivett attended some of the
meetings as non-committee members
Role of the Committee
The Remuneration Committee is
responsible for setting the remuneration
of the Chair and the Executive Directors
and has oversight of pay more generally,
and is responsible for appointing any
consultants it may engage in carrying out
its duty.
DEAR SHAREHOLDERS,
On behalf of the Board, we are pleased to present the Directors’ Remuneration Report
for the financial year ended 31 December 2021. This report has been prepared in
accordance with section 421 of the Companies Act 2006 and Schedule 8 of the Large
and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (as
amended).
Highlights of Committee actions in
2021
2021 represented a year of considerable
challenge, with much progress made
in both our operational and strategic
objectives. In terms of remuneration,
we wish to draw your attention to the
following matters:
1. Reduction in Salary – the Executive
Directors at the start of the year
continued to take a reduction of 35%
of their salaries for the first quarter and
then further reduced this by another
15% (to a total reduction of 50%) from
1 April 2021 for the Executive Directors
in office at that date. These reductions
have remained in place for the
remainder of the year. The Chairman,
who had reduced his fee by 25% on
assuming the role in March 2020, also
took an additional 25% reduction along
with the other Non-Executive Directors
as from 1 May 2020 which reductions
continued throughout the full year
2021.
2. 2021 LTIP awards – The Executive
Directors volunteered to reduce their
LTIP awards significantly in 2021,
the second year of a reduced award.
The policy limit is 200% of salary but
existing Executive Directors received
an award in 2021 equivalent to 29%
of contractual entitlement, whilst Sue
Rivett, as the new Chief Financial
Officer, received an award of 35% of
contractual entitlement.
3. Board changes – Sue Rivett joined
the Board on 1 July 2021 as Chief
Financial Officer. As announced on 13
January 2022, following the expected
completion of the transaction with
IPR, Ed Story and Mike Watts will step
down from the Board and Jann Brown
will assume the role of Chief Executive
Officer. In support of the policy to slim
down the Board and having served
as Non-Executive Director, Senior
Non-Executive Director and Deputy
Chairman for nearly 9 years on the
Board, Rob Gray will not put his name
forward for re-election as a Director
at the 2022 AGM. The result of these
changes will be to reduce the size of
the Board from nine Directors (four
Executive Directors and five NEDs) to
six (two Executive Directors and four
NEDs)
How performance was reflected in
the pay of our Executive Directors
As reported throughout the Strategic
Report, 2021 has been a year of
significant change for the business,
not least dealing with the continued
impact of the COVID-19 virus and the
volatility in oil prices. Continued strong
leadership of the Company by the
Executive Directors and other senior
management has meant that once again
we have not had to furlough any staff,
nor have we borrowed any Government
m o n e y u n d e r t h e l o a n s c h e m e s .
Strategic
The Company successfully completed an
equity placing and retail offering in January
2021 which raised gross proceeds of
approximately $11.7m.
The farm-out of the Egypt concessions
received overwhelming shareholder
support at a General Meeting in
December 2021. Pharos and EGPC have
finalised all necessary documents to be
presented to the Minister of Petroleum
and Natural Resources to approve the
transaction with IPR and this approval is
expected shortly.
These strategic milestones have
strengthened the medium-term outlook for
the Company in terms of a return to free
cash flow and ultimately to distributions to
shareholders in due course.
Pharos Energy Annual Report and Accounts 2021
103
Operational
On an operational basis, the Company
performed well across a broad range of
metrics. Production levels in Vietnam were
in line with guidance, whilst maintaining
strong safety and environment outcomes
and retaining focused cost discipline
across the business.
The strong performance despite
challenging market conditions were
reflected in the KPI assessment and pay
out-turn for 2021, with no bonuses having
been paid the previous year. Following a
robust assessment of the performance
criteria the Committee determined the
formulaic outturn for bonuses at 72.5% of
the maximum potential. However, given
the wider stakeholder experience, the
Committee decided it was appropriate
to reduce the outcome by 20% to 58%
of maximum. Bonus outcomes for the
wider workforce also reflect corporate
KPIs achieved as well as personal
performance but were not subject to the
discretionary reduction applied to the
Executive Directors and therefore paid in
full. The average bonus outturn across the
workforce was 78.7% of maximum. The
2019 LTIP awards due to vest in March
2022 are expected to lapse through a
failure to meet the required relative TSR
performance conditions.
Outlook for 2022
Upon completion of the farm-down
of our Egypt concessions to IPR, the
Executive Directors will be Jann Brown,
Chief Executive Officer and Sue Rivett,
Chief Financial Officer. Jann’s base salary
will be £420,000, which represents a
c.21% reduction on her previous salary
as Managing Director and is intended to
represent the new size of the business
and her expanded role. Jann has also
voluntarily proposed to invest a third of her
after tax salary in Pharos shares, subject
to share dealing restrictions. Sue’s base
salary will be £280,000, a 7.7% increase,
reflecting her responsibilities in the
changed structure of the business since
she joined the Board. Sue has volunteered
to invest an amount equal to her after tax
salary increase in Pharos shares, subject
to the same share dealing restrictions.
It is intended that Non-Executive Director
fees, having been reduced by 25%
from 1 May 2020, will also return to
their previously agreed level following
completion of the Egypt farm-down to
IPR.
Annual bonus potential and LTIP award
levels permitted under the remuneration
policy remain unchanged. The main
elements of the 2021 bonus plan will
be unchanged as regards structure,
measures for performance (safety and
environment, operational, financial,
governance and licence to operate –
albeit with a reduction the weighting
for operational management and a
corresponding increase in safety and
environment weighting) and deferral
requirements. The Committee intends
to develop and update certain specific
objective criteria during the course of the
year, given the changing structure of the
business.
The LTIP performance metrics will be a
mixed weighting of TSR (40%) relative
and (15%) absolute and 15% weighting
to each of cash flow from operations,
return to capital employed, and emission
reduction targets. These changes reflect
feedback from major shareholders in
recent years that the LTIP should be
subject to a balanced scorecard of
performance measures.
Conclusion
The continued disruption of the COVID-19
pandemic has made the last financial year
extremely difficult to navigate, but our
progress is down to the exceptional efforts
of all our employees. The Remuneration
Committee feels that the remuneration
outcomes for 2021 are a fair reflection of
the context in which decisions had to be
made.
We look forward to receiving your support
at the upcoming AGM and to working
with you face to face when circumstances
allow.
GEOFFREY GREEN
Remuneration Committee Chair
DIRECTORS’ REMUNERATION REPORT - CONTINUED
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Single total figure of remuneration
The table below sets out the total remuneration in respect of qualifying services for both Executive and Non-Executive Directors for the
financial year 2021. It also provides comparative figures for 2020:
2021
Fees/salary
$000’s
Benefits
$000’s
Bonus
$000’s
LTIP
$000’s
Pension
$000’s
Total
$000’s
Fixed
$000’s
Variable
$000’s
Executive Directors1
E Story 377 60 611 - 57 1,105 434 671
J Brown
2
394 54 638 - 59 1,145 453 692
M Watts
2
394 73 638 - 59 1,164 453 711
S Rivett
2 4
173 5 155 - 27 360 200 160
Non-Executive Directors²
R Gray 137 - - - - 137 137 -
J Martin 173 - - - - 173 173 -
M Daryabegui 62 - - - - 62 62 -
L Mitchell 85 - - - - 85 85 -
G Green 85 - - - - 85 85 -
Total 1,880 192 2,042 - 202 4,316 2,082 2,234
The benefits receivable by Executive Directors include private medical insurance, permanent health insurance, life assurance cover, critical illness cover,
travel and car benefits. E Story also receives expatriate benefits including tax protection or equalisation for any travel to the UK. The benefits column
for Non-Executive Directors includes taxable travel and accommodation expenses to attend Board functions in the year, and the tax payable thereon, in
accordance with HMRC guidance.
1. The near-term average exchange rate at the end of the performance period of 1.3707 has been used to convert share price from GB pounds to US
dollars.
2. Executive Directors’ fees and the salaries of Jann Brown, Dr Mike Watts and Sue Rivett are set in GB pounds and are reported in US dollars at the
annual average exchange rate.
3. Ed Story, Jann Brown and Dr Mike Watts agreed to a reduction of 35% of their salary from 1 August 2020 and a further 15% reduction from 1 April 2021
for the remainder of the year. Non-Executive Directors agreed to a 25% reduction of their fee throughout 2021. The figures above reflect the reductions
in salary and fees.
4. Sue Rivett was appointed to the Board on 1 July 2021.
5. The total Directors’ bonuses include the following: a) Cash bonus paid in December 2021 of $986k; b) Deferred bonus of $493k to be granted under the
Deferred Share Bonus Scheme; c) Deferred bonus until completion of the Egypt farm-out ($375k of which will be paid in cash and $188k of which will be
in the DBSP).
* Fees and/or salaries paid to the Directors are in proportion with their dates of service.
2020
Fees/salary
$000’s
Benefits
1
$000’s
Bonus
$000’s
LTIP
$000’s
Pension
$000’s
Total
$000’s
Fixed
$000’s
Variable
$000’s
Executive Directors
3
E Story 556 188 – – 83 827 639 188
J Brown
2
544 48 – – 82 674 626 48
M Watts
2
544 54 – – 82 680 626 54
Non-Executive Directors²
R de Sousa* 59 1 – – – 60 59 1
E Contini* 29 - – – – 29 29
R Gray 145 1 – – – 146 145 1
J Martin 161 – – – – 161 161 –
M Daryabegui 64 – – – – 64 64 –
L Mitchell* 64 – – – – 64 64 –
G Green* 46 – – – – 46 46 –
Total 2,212 292 – – 247 3,430 2,458 292
The benefits receivable by Executive Directors include private medical insurance, permanent health insurance, life assurance cover, critical illness cover, travel and car
benefits. E Story also receives expatriate benefits including tax protection or equalisation for any travel to the UK . The benefits column for Non-Executive Directors
includes taxable travel and accommodation expenses to attend Board functions in the year, and the tax payable thereon, in accordance with HMRC guidance.
1. The near-term average exchange rate at the end of the performance period of 1.28 has been used to convert share price from GB pounds to US dollars.
2. Executive Directors’ fees and the salaries of Jann Brown and Dr Mike Watts are set in GB pounds and are reported in US dollars at the annual average exchange
rate.
3. Executive Directors agreed to a reduction of 25% of their salary from 1 May 2020 and a further 10% from 1 August 2020. Non-Executive Directors agreed to a 25%
reduction of their fee from 1 May 2020. The figures above reflect the reductions in salary and fees
* Fees paid to the Executive and Non-Executive Directors are in proportion with their dates of service.
The aggregate emoluments of all Directors during the year was $4.3m.
Annual Report on Remuneration (Audited section)
Pharos Energy Annual Report and Accounts 2021
105
DIRECTORS’ REMUNERATION REPORT - CONTINUED
Notes to the single figure table
Annual bonus
Setting measures
The Company seeks to set challenging, yet achievable, performance measures designed to link pay to performance against its core
strategic objectives.
The performance measures were chosen to ensure that Executive Directors are focused on the near-term objectives that build the long-
term delivery of value to shareholders, which results in a combination of measures being used covering strategic, operational, financial,
business development and CR goals. While we monitor the Group’s performance with a broader mix of financial and non-financial KPIs,
the measures impacting the annual bonus emphasise those deemed most relevant to management performance and take into account
the annual budget and the prevailing economic environment. The performance measures and targets for 2021 were set prior to the full
impact of the COVID-19 pandemic becoming evident. No subsequent adjustments have been made to the targets.
2021 annual bonus measures and out-turns
Metric Weight Performance Bonus awarded
SAFETY AND ENVIRONMENT
15% 9%
Zero LTIs
6 % 6%
Link to strategy
• Safety of our people
• Sound oil field
practices
Target
• Zero LTIs
Performance
• Zero LTIs
Outcome
• Achieved
TRIR Target of 0.8
3% 3%
Link to strategy
• Safety of our people
• Sound oil field
practices
Target
• 0.8
Performance
• Zero TRIR recorded to date
Outcome
• Achieved
Zero environmental spills
3% 0%
Link to strategy
• Sound oil field
practices
• Management of our
carbon footprint
wherever we work
Target
• Zero environmental spills
Performance
• 3 environmental spills recorded in
Egypt.
Outcome
• Not Achieved
Carbon footprint improvements
3% 0%
Link to strategy
• Management of our
carbon footprint
wherever we work
Target
• Maintain or reduce GHG
emissions against 2020
baseline.
• Implement second stage of
work towards compliance with
the G20 Financial Stability
Board’s Task Force on Climate
-Related Financial Disclosures
(TCFD)
Performance
• HG emissions dropped by 14.4% in
2021 or 3% if venting included.
• GHG intensity was at par with
2020 at 36kg of CO
2
e per BOE
of hydrocarbon produced (excl.
Venting).or 41kg of CO
2
e per BOE if
venting included.
• Phase 2 TCFD alignment
Transition risks were assessed
over a 5-10 year period under IEA’s
recommended SDS and STEPS
scenarios Physical risks were
assessed against physical risk
datasets under the three emissions
scenarios over a 5 and 10 year
timeframe.
Continued commitment to disclose
and report in line with TCFD
recommendations.
Outcome
• Achieved
• Partially Achieved
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Metric Weight Performance Bonus awarded
OPERATIONAL/PORTFOLIO MANAGEMENT
40% 30.5%
Reserves replacement of production
2.5% 2.5%
Link to strategy
• Replace produced
reserves and add to
reserve base
Target
• Reserves audit Q1 2021
to confirm replacement of
produced reserves
Performance
• Q1 2021 Reserves audit confirmed
addition over and above production
Outcome
• Achieved
Production
12.5% 3%
Link to strategy
• Prudent
Management in
a low oil price
environment
Target
• Vietnam production volumes
5,200 – 6,200 boepd
• Egypt production volumes
4,100 – 4,700 boepd
Performance
• Vietnam production outturn was
5,560 boepd
• Egypt production outturn year was
3,318 boepd.
Outcome
• Part Achieved for Vietnam
• Not Achieved for Egypt
Secure extension on Blocks 125/126
5% 5%
Link to strategy
• Continued
development of
Vietnam assets
Target
• Secure extension on Phase 1
Performance
• Two-year extension secured in
September 2021
Outcome
• Achieved
Farm Out
20% 20%
Link to strategy
• Effective portfolio
management
Target
• Completion of farm down of
Egypt
Performance
• Approvals announced in December
2021 with completion expected in
Q1 2022
Outcome
• Expected to achieve in Q1 2022
and payment of this element to be
paid on completion
FINANCIAL
30% 25%
Opex per bbl for each producing asset
5% 0%
Link to strategy
• Control expenditure
Target
• Vietnam cash opex bbl
<$13.80
• Egypt cash opex bbl <$12.90
Performance
• Vietnam cash opex bbl $15.28
• Egypt cash opex bbl $17.34
Outcome
• Not Achieved for Vietnam
• Not Achieved for Egypt
Overall reduction in cost base
10% 10%
Link to strategy
• Control expenditure
• Maintain strong
balance sheet
Target
• Maintain cost base reductions
achieved in 2020.
Performance
• Full year administrative expenses
lower by 10%, inclusive of
employee bonuses which were not
paid in 2020.
• Cash at bank has increased
from $24.6m to $27.1m and net
assets have risen from $293.7m to
$304.4m.
Outcome
• Achieved
Pharos Energy Annual Report and Accounts 2021
107
DIRECTORS’ REMUNERATION REPORT - CONTINUED
Metric Weight Performance Bonus awarded
Net debt
15% 15%
Link to strategy
• Access affordable
sources of funding
• Return to
shareholders
Target
• Net debt/EDITDAX of <2
• All Bank Covenants met
• Funding plan in place for all
activities covered by cash/
available debt plus headroom
of $10m
Performance
• Net debt/EDITDAX of 1.00
• •All bank covenants have been met
• In July 2021, RBL secured against
the Group’s producing assets in
Vietnam with a four-year term that
matures in July 2025.
Outcome
• Achieved
GOVERNANCE/LICENCE TO OPERATE
15% 8%
Skills gap analysis
5% 5%
Link to strategy
• Develop talent
throughout our
business
Target
• Skills gap analysis to map and
deliver forward strategy
Performance
• Head Office restructure and Board
refreshment
Outcome
• Achieved
Compliance review
5% 0%
Link to strategy
• Strong governance
and personal codes
of conduct
Target
• Complete independent review
of key policy compliance
across the Group
Performance
• Programme delayed by COVID-19,
but we look to resume the review
in 2022.
Outcome
• Not Achieved
Social Investment
5% 3%
Link to strategy
• Strong governance
and personal codes
of conduct
Target
• Social investment plan
approved and implemented
Performance
• In Vietnam, commitment to local
sourcing, employment, training
and industry capacity building
has continued with a training levy
of $300,000 per year in a ring-
fenced fund to support developing
future Vietnamese expertise in the
industry. In addition to the training
levy mentioned above, a further
$265,000 was invested in 12
community projects.
• In Egypt, under the El Fayum
and North Beni Suef Concession
Agreements, the Contractor party
contributes a total of $200,000
per year split equally between
the two Concessions to support
training and development within the
industry. Additionally, in cooperation
with the Ministry of Higher
Education and Scientific Research,
Petrosilah holds an annual summer
training programme for all students
applying from public and private
Egyptian universities for training in
the administrative office and the
company’s fields, from which they
can obtain a training certificate after
completing the programme.
Outcome
• Achieved in part
Overall 100%
Total assessment
Discretionary adjustment
Final outturn
72.5%
(14.5%)
58%
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As noted in the Chair’s statement, notwithstanding that the Executive Directors delivered a number of the KPIs in challenging
circumstances, the Committee felt that the overall performance and the experience of stakeholders in 2021 should be reflected in
the overall bonus outcome. Therefore, discretion was used to reduce the bonus from 72.5% of maximum to 58% of maximum. The
Committee also noted that the Executive Directors who had served on the Board throughout the year had waived c.46% of their salary
over the year and the CFO’s salary had been set at a much lower level.
Executive Directors receive a third of any bonus as awards under the Deferred Share Bonus Plan. This ensures their interests remain
closely aligned with shareholders. For 2021, the total Directors’ bonuses include the following: a) Cash bonus paid in December 2021 of
$986k; b) Deferred bonus of $493k to be granted under the Deferred Share Bonus Scheme; c) Deferred bonus until completion of the
Egypt farm-out $563k ($375k of which will be paid in cash and $188k of which will be in the DBSP).
Date of grant No. of shares Face value of award Award as % of salary
E Story
6 October 2021 1,550,855 £310,171 58%
M Watts
6 October 2021 1,550,855 £310,171 58%
J Brown
6 October 2021 1,550,855 £310,171 58%
S Rivett
6 October 2021 909,317 £181,630 70%
Based on contractual salaries at time the award was made
Face value based on share price at the time of awards were determined on 4 October 2021 (being £0.20)
Awards are subject to relative TSR performance over a three-year period from date of grant. The awards vest at 25% for a median
ranking rising on a straight-line basis to full vesting for an upper quartile ranking.
Directors’ interests as at 31 December 2021
The Board has a policy requiring Executive Directors to build a minimum shareholding of 200% of their annual salary. Additionally, LTIP
awards require a two–year holding period following vesting. This is intended to emphasise a commitment to the alignment of Executive
Directors with shareholders and a focus on long term stewardship.
The table below sets out the Directors’ interests as at 31 December 2021 and any subsequent changes to their beneficially owned
shares are shown as at the date of this report:
Shareholding requirement
Beneficially owned
shares as at 31
December 2021
Beneficially
owned shares
as at the date of
this report
Awards subject
to performance
conditions as at 31
December 2021
1,2
Awards subject
to Option
Price 120
pence as at
31 December
2021
Awards subject to
service conditions
as at 31 December
2021
1
(% of salary)
Achieved
(Yes/No)
Executive
E Story
(step down
from the Board upon
completion of the IPR
transaction)
200% Yes 16,087,407
3
16,271,613
3
5,316,028 - 317,971
J Brown
5
200% No 716,612 1,536,692 4,519,507 - 438,171
M Watts
5
(stepped
down from the Board
upon completion of the
IPR transaction)
200% No 851,533 1,083,348 4,519,507 - 438,171
S Rivett
(appointed
to the Board on 1 July
2021)
200% No 1,775 1,775 1,405,546 90,000 267,779
Non-Executive
J Martin - - 130,000 130,000 - - -
M Daryabegui - - 36,757 36,757 - - -
R Gray - - - - - - -
G Green - - - 95,000 - - -
L Mitchell - - - 51,9584
-
- -
1. Figures include accrued dividend equivalents.
2. LTIP awards potentially vesting in March 2022 in respect of awards made in 2019 lapsed and are excluded from the above table.
3. Of these shares, 14,596,613 shares are held through The Story Family Trust, a closely associated person to Ed Story.
4. These shares are held by Alexander Barblett (husband of Lisa Mitchell), and a closely associated person to Lisa Mitchell.
5. At the date of this report, J Brown, M Watts and S Rivett are yet to reach the 200% shareholding requirement.
While the Executive Directors, as potential beneficiaries, are technically deemed to have an interest in all ordinary shares held by the
Company’s EBT, the table above only includes those ordinary shares held by the EBT which are potentially transferable to the Directors
pursuant to Options granted to them under the Company’s incentive schemes. Details of the EBT and its holdings are set out in Note 28
to the Financial Statements.
There have been no changes to the Directors’ interests subsequent to 31 December 2021 other than as set out above and as described
in the notes to the table above.
Pharos Energy Annual Report and Accounts 2021
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DIRECTORS’ REMUNERATION REPORT - CONTINUED
Share awards outstanding at 31 December 2021
Type of
award
7
As at
1 Jan 2021
Granted/
awarded
1
Adjusted
2
Lapsed
4
Released
3
As at
31 Dec 2021
Date
potentially
vested
3,4
Expiry date
E Story
5,6
LTIP 1,564,899 - - 1,564,899 - - - -
LTIP 2,214,318 - - - - 2,214,318 07.03.22 -
LTIP 1,550,855 - - - 1,550,855 12.05.23 -
LTIP - 1,550,855 - - - 1,550,855 06.10.24 -
DSBP 383,792 - - - 383,792 - 03.01.21 -
DSBP - 317,971 - - - 317,971 09.01.22 -
J Brown
5,6
LTIP 1,078,649 - - 1,078,649 - - - -
LTIP 1,417,797 - - - - 1,417,797 07.03.22 07.03.29
LTIP 1,550,855 - - - 1,550,855 12.05.23 12.05.30
LTIP - 1,550,855 - - - 1,550,855 06.10.24 06.10.31
DSBP 235,469 - - - - 235,469 03.01.21 03.01.29
DSBP 202,702 - - - - 202,702 09.01.22 -
M Watts
5,6
LTIP 1,078,649 - - 1,078,649 - - - -
LTIP 1,417,797 - - - - 1,417,797 07.03.22 07.03.29
LTIP 1,550,855 - - - 1,550,855 12.05.23 12.05.30
LTIP - 1,550,855 - - - 1,550,855 06.10.24 06.10.31
DSBP 235,469 - - - - 235,469 03.01.21 03.01.29
DSBP 202,702 - - - 09.01.22 09.01.22
-
- - - 202,702 09.01.22 -
S Rivett
(appointed to the
Board on 1 July
2021)
3,6,8
LTIP 496,229 - - - - 496,229 07.03.22 07.03.29
LTIP 267,779 - - - - 267,779 12.05.23 12.05.30
LTIP - 909,317 - - - 909,317 06.10.24 06.10.31
DSOP 25,000 - - - - 25,000 31.05.19 31.05.26
DSOP 65,000 - - - - 65,000 31.05.19 31.05.26
1. The face value of awards:
- granted to E Story, J Brown and M Watts in the year was c.58% of salary, or c.29% of contractual entitlement.
- granted to S Rivett was c.70% of salary, or c.35% of contractual entitlement.
2. Outstanding awards under the Company’s share schemes were adjusted for dividend equivalents in accordance with plan rules (see Note 31 to the Financial
Statements).
3. LTIP awards vest subject to Pharos’s relative TSR performance against a group of comparator companies and subject to a further holding requirement. DSBP
awards vest subject to continued service over a two-year vesting period. S Rivett’s 2020 LTIP award prior to being appointed to the board is not subject to
TSR performance, but is instead based on continuous employment and effective performance ratings for the vesting period.
4. LTIP awards with a potential vest date of 7 March 2022 did not achieve the performance threshold and lapsed.
5. DSBP Awards granted in 2020 to E Story, M Watts and J Brown were structured as conditional awards.
6. LTIP Awards to E Story were structured as conditional awards. Awards to M Watts, J Brown and S Rivett were structured as nil cost options.
7. LTIP awards vest at 25% when the threshold is met.
8. DSOP awards have an exercise price of 120 pence and do not have any performance conditions.
Payments for loss of office and payments to former Directors
There have been no payments for loss of office during the year nor any payments to former Directors.
As announced on 13 January 2022, Ed Story and Dr Mike Watts will step down from the Board on completion of the farm-out of the
Egyptian assets to IPR. Ed Story will remain employed as President of the Vietnam business and remuneration arrangements have been
adjusted to reflect this role. Dr Mike Watts will continue to be paid base salary (on a pre-waiver level), benefits and pension provision for his
notice period and continue to be eligible for a bonus in relation to 2022 for the period actively worked. He will not be eligible for any further
LTIP awards and he will be treated as a good leaver for the purposes of his outstanding LTIP awards, which shall remain subject to the
original performance conditions and time pro-rating.
The full terms of the leaver arrangements will be detailed in next year’s Directors’ Remuneration Report.
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Unaudited Section
Historical TSR performance and CEO outcomes
TSR performance
The chart below illustrates Pharos’ ten-year TSR performance against the FTSE All Share Oil & Gas Index, being a broad market index
which is sector specific. In addition, we have shown a comparison against the current TSR comparator group used for the LTIP award.
Note that this does not represent either the comparator group or time period against which performance is assessed under the LTIP
which was assessed in relation to the performance period ending in March 2022
TOTAL SHAREHOLDER RETURN (TSR) (£)
250
200
150
100
50
0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
2021
Pharos Energy FTSE All Share Oil & Gas TSR Comparator Group
CEO outcomes
The table below shows the total remuneration paid to the CEO over the same ten-year period. In addition, the annual bonus and LTIP
awards vesting are set out in respect of each year as a percentage of the maximum:
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
2021
CEO single figure of remuneration ($000s)
1
2,362
2,992
3,154 3,659 2,875 2,018 2,122 2,262 1,938 827
1,105
Annual bonus pay-out (% of maximum) 100% 100% 100% 80% 75% 35% 65% 105% 50% 0%
58%
LTIP vesting (% of maximum) 53% 71% 66% 100% 96% 46% 0% 0% 0% 0%
0%
1. The current year annual average exchange rate has been applied to convert GB pounds to US dollars for all periods to ensure consistency between
periods.
Pharos Energy Annual Report and Accounts 2021
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DIRECTORS’ REMUNERATION REPORT - CONTINUED
Percentage change in remuneration of the Directors
The table below illustrates the percentage change in salary, benefits and annual bonus for each Director and all other employees.
% change
in salary
(2021/2020)
3
% change
in salary
(2020/2019)
% change in
benefits
(2021/2020)
1
% change in
benefits
(2020/2019)
2
% change in
annual bonus
(2021/2020)
2
% change in
annual bonus
(2020/2019)
2
E Story
-32.1% -39.9% -67.8% 4.4% 100.0% -100.0%
M Watts
-32.1% -5.9% 26.4% 4.5% 100.0% -100.0%
J Brown
-32.1% -5.9% 5.5% 3.3% 100.0% -100.0%
S Rivett
4
N/A N/A N/A N/A N/A N/A
J Martin
5
N/A N/A N/A N/A N/A N/A
M Daryabegui
-10.0% 5.2% 0.0% 0.0% – –
R Gray
-11.2% -16.7% -100.0% -31.1% – –
L Mitchell
6
N/A N/A N/A N/A N/A N/A
G Green
7
N/A N/A N/A N/A N/A N/A
All other employees
7.0% -4.4% -25.8% 10.0% 100% -100.0%
1. The decrease in benefits for CEO is due to a decrease in UK taxable benefits.
2. Bonuses are normally awarded in respect of the calendar year. No bonuses were awarded in relation to 2020.
3. The figures detailed above reflect the salary reductions that have been taken by the Directors. The Executive Directors at the start of the year continued
to take a reduction of 35% of their salaries for the first quarter of 2021 and then further reduced this by another 15% (to a total reduction of 50%) from
1st April 2021 for the Executive Directors in office at that date. These reductions stayed in place for the remainder of the year. The Chairman, who had
reduced his fee by 25% on assuming the role in March 2020, also took an additional 25% along with the other Non-Executive Directors from 1st May
2020 which continued through the full year 2021.
4. S Rivett was appointed to the Board on 1 July 2021.
5. J Martin was appointed as Chair in March 2020 on a lesser remuneration of £150,000 per annum.
6. L Mitchell was appointed to the Board on 1 April 2020.
7. G Green was appointed to the Board on 20 May 2020.
Chief Executive Officer’s pay ratio
The Company currently has 21 UK employees and therefore has no statutory requirement to publish a CEO pay ratio. Given the relatively
few employees, the Committee is aware of pay levels and does not feel the need to produce a ratio. The Committee will continue to
review the appropriateness of publishing pay ratios in the future.
Relative importance of spend on pay
The chart below illustrates the year on year change in total remuneration as per Note 11 to the Financial Statements compared to the
change in shareholder returns, which would include capital returns, dividends and share buybacks.
2021 2020
2021: 0
14.3
10.9*
2020: 0
0 161412108642
* In 2020 no bonuses were awarded.
External appointments
With prior approval of the Board, Executive Directors are allowed to accept non-executive appointments on other boards and to retain
the associated directors’ fees. Under this Policy:
• Ed Story serves on the boards of Vedanta Resources PLC and Essar Exploration and Production Limited Mauritius, for which he
retained associated fees for 2021 in the amounts of $35,932 (2020: $79,995) and $23,757 (2020: $nil) respectively; and
• Jann Brown serves on the boards of Troy Income and Growth Trust and RHI Magnesita, for which she retained associated fees for
2021 in the amounts of £28,625 (2020: £28,297) and €52,566 (2020: €nil) respectively.
• Implementation for 2022
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Base salary
The following table shows the Executive Director pre-waiver base contractual salary levels.
2022 Base salary 000s 2021 Base salary 000s* Increase from 2021 %
E Story
$702
$702 –%
J Brown
£535 /£420
£535 –%
M Watts
£535
£535 –%
S Rivett
£280
£260 7.7%
* The figures given above do not include the temporary reduction in salary that the Executive Directors volunteered to take in 2020 and which remain in
place.
As noted in the Chair’s Statement, on completion of the farm down, Jann Brown’s salary as Chief Executive Officer will be reset to
£420,000 and the waivers will cease. Jann voluntarily proposes to invest a third of her after tax salary into buying shares in the Company,
subject to share dealing restrictions. Furthermore, Sue Rivett voluntarily proposes to invest an after tax salary equivalent to £20,000
gross pay into buying shares, subject to the same share dealing restrictions.
Benefits
For 2022, benefits available to Executive Directors will be consistent with those set out in the Directors’ Remuneration Policy approved at
the 2020 AGM and as summarised further below.
Pension
For 2022, a pension benefit at 15% of salary will be provided to each Executive Director through contributions to the Company’s money
purchase plan up to plan limits or a cash supplement. Our Pension Policy for Executive Directors is already consistent with that for all
employees (as a percentage of salary).
Annual bonus
It is intended that annual bonus awards will be considered for Executive Directors in December 2022. The maximum total bonus
opportunity for an Executive Director in each year is 150% of salary, including cash and deferred components in accordance with the
approved Policy. The table below sets out the weighted performance measures which will be applied in determining annual bonus
awards for 2022, and identifies the link from each of these measures to our core strategy of:
2022 KPI’S
Metric Weight Performance criteria which will be considered
Safety & environment
18%
Strategic objectives; to preserve the safety of all
our people, staff and contractors and preserve the
environment through sound oil field practices and
management of our own carbon footprint wherever we
work.
• Zero LTIs
• TRIR target – 0.8
• Zero environment spills
• Carbon footprint improvements
• GHG emissions lower than baseline 2020
• TCFD Phase 2
Operational/ portfolio management
37%
Strategic objectives: to replace produced reserves and
add to the reserve base in a way which value and/or
cashflow accretive.
• Production volumes for all producing assets
• Complete farm down of Egypt and execute initial development drilling
programme
• Seek farm in partner for 125/126 commitment well
• Secure extension on NBS
• Complete 2 well Development drilling campaign on TGT and 1 well on CNV
Financial
30%
Strategic objectives: to control expenditure and access
affordable sources of funding in order to maintain a
strong balance sheet with sufficient liquid resource to
fund planned activities.
• Opex per bbl for each producing asset
• Maintain cost base reductions achieved in 2020/2021
• Net debt to EBITDAX
• All bank covenants met
• Funding plan in place to cover commitments
Governance/ licence to operate
15%
Strategic objectives: to instil a way of working that is
strong on governance and personal codes of conduct;
to develop talent throughout our business to support
overall performance and succession planning.
• Streamline Board structure
• Social investment plan approved and implemented
• Complete independent review of key policy compliance across the Group
Pharos Energy Annual Report and Accounts 2021
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DIRECTORS’ REMUNERATION REPORT - CONTINUED
Details of how the Committee assessed performance against these weighted measures will be set out in next year’s report. The
Committee retains discretion over the amount of bonus paid out to ensure that appropriate consideration is given to the relative
importance of the achievements in the year and the actual contribution of these towards furthering the Group’s strategy, as well as the
prevailing economic environment.
LTIP
The LTIP grant level for 2020 and 2021 was reduced substantially and the Committee will take this and all other relevant circumstances
into account in considering the appropriate grant level for 2022.
The performance conditions for the 2022 awards are expected to be a mixed weighting as follows: of TSR (40%) relative and (15%)
absolute and 15% weighting to each of cash flow from operations, return on capital employed, and emission reduction targets.
Metric Weight Targets
TSR – Relative
As above.
40% Same criteria
TSR – Absolute
Achieve 20% growth over the 3 year period awards 3.75%
sliding scale to 30% for the full 15%
15% 20% to 30%
ESG medium term measures (base 2021)
Achieve 10% reduction over a 3 year period awards 3.75%
sliding scale to 15% for the full 15%.
15% 10% to 15% reduction in emissions.
Cash flow from operations
Achieve $150m cash flow from operations over the 3 year period
awards 5% sliding scale to $200m for the full 15%
15% $150m to $200m
Return on Capital Employed
Achieve over 6% average per year for the 3 year period to
achieve 3.75% sliding scale to 10% for the full 15%
15% 6% to 10%
Shareholder dilution
Pharos monitors the number of shares issued under employee share plans and their impact on dilution limits. These will not exceed the
limits set by The Investment Association Principles of Remuneration currently in force, in respect of all share plans (10% in any rolling
ten-year period).
Malus and clawback provisions
All variable pay arrangements for Executive Directors are subject to provisions which enable the Committee to reduce vesting, or recover
value delivered if certain circumstances occur. These circumstances include serious misconduct, an error in calculation, misstatement
of the Company’s financial results, fraud, insolvency of the Company or serious reputational damage to the Company. In each case the
occurrence of those circumstances and the effect on variable pay arrangements will be determined by the Committee.
Non-Executive Director remuneration
Non-Executive Director fees, which have been set within the aggregate limits set out in the Company’s articles of association and
approved by shareholders, are set out in the table below:
Fee from 1 January 2022 Fee from 1 January 2021
Chair of the Company
£150,000
£150,000
Deputy Chair & Senior Independent Director*
£120,000
£120,000
Non-Executive Director
£60,000
£60,000
Additional fee: Chair of Audit and Risk Committee
£15,000
£15,000
Additional fee: Chair of Remuneration Committee
£15,000
£15,000
Additional fee: Workforce Engagement Nominated Director
£5,000
£5,000
* Includes fees for any Committee role
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The Chair fees were reviewed and approved by the Remuneration Committee. The Non-Executive Director fees were reviewed and
approved by the Board, excluding the Non-Executive Directors. The fees of all Non-Executive Director are expected to return to May
2020 pre-waiver levels upon completion of the farm-down of the Egypt concessions.
For 2022, benefits available to Non-Executive Directors will be consistent with those set out in the Policy approved at the 2020 AGM.
Non-Executive Directors are not eligible for participation in the Company’s incentive or pension schemes.
Service Contract (reference Table A: Directors Contract on page 118.
Consideration by Committee of matters relating to Executive Directors’ remuneration
The Directors who were members of the Remuneration Committee when matters relating to Directors’ remuneration for the year were
being considered were Rob Gray, Marianne Daryabegui and Geoffrey Green.
The Committee received assistance from Ed Story, Jann Brown and Sue Rivett subsequently, except when matters relating to their
own remuneration were being discussed. The Committee additionally received assistance from other Non-Executives Directors when
required.
The Committee has appointed FIT Remuneration Consultants LLP (“FIT”) as its remuneration advisers, and fees of £19,913 were paid in
2021 for their advisory services. FIT is a member of the Remuneration Consultants Group and complies with their professional code of
conduct. FIT do not provide any other services to the Group which, along with FIT’s credentials and proven performance, contributes to
the Committee’s view that the advice received has been appropriate, objective and independent.
The Committee reviews all aspects of remuneration on an annual basis and with respect to individual and corporate performance during
the year. The review is aided by comparison to published data on executive pay in the sector and in similar sized companies. More
detailed benchmarking may be conducted, such as upon an indication of a change in market ranges, with results being monitored for
indications of potential unwarranted upward ratcheting. The Committee receives regular updates on evolving regulatory and market
practice including market trends, key developments, and a broad range of published principles and guidelines. The Committee takes
into account pay conditions elsewhere in the Company, and considered matters related to Group remuneration.
Shareholder voting
The binding resolution on the Directors’ Remuneration Policy was passed at 2020 AGM. The advisory vote on the Directors’
Remuneration Report was approved at last years’ AGM. The table below shows votes from shareholders on the relevant resolutions:
Directors’ Remuneration Report (2021 AGM)
Directors’ Remuneration Policy (2020 AGM)
Votes %
Votes %
Votes in favour
210,985,269 96.56%
217,778,159 92.62%
Votes against
7,526,738 3.44%
17,354,025 7.38%
Total votes
218,512,007 100.00%
235,132,184 100.00%
Votes withheld
4,136 –
3,773 –
Pharos Energy Annual Report and Accounts 2021
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DIRECTORS’ REMUNERATION REPORT - CONTINUED
Policy Report (Unaudited)
This Directors’ Remuneration Policy became effective from the date of the 2020 AGM. This section provides a summary of the Policy
approved. The full Policy can be viewed in the 2020 Annual Report on our website at: https://www.pharos.energy/investors/results-
reports-and-presentations/.
Operation Maximum Performance criteria
• Contractual fixed cash amount paid monthly
• Particular care is given in fixing the appropriate salary
level considering that incentive pay is generally set at
a fraction or multiple of base salary
• The Committee takes into account a number of
factors when setting salaries, including (but not
limited to):
• Size and scope of individual’s responsibilities
• Skills and experience of the individual
• Performance of the Company and the individual
• Appropriate market data.
• Pay and conditions elsewhere in Pharos
• Base salaries are normally reviewed annually
• Results of benchmarking exercises are monitored
for indications of potential unwarranted upward
ratcheting
• Any salary adjustments will normally be in line
with those of the wider workforce
• The Committee retains discretion to award
higher increases in certain circumstances
such as increased scope and responsibility
of the role, or in the case of new Executive
Directors who are positioned on a lower
salary initially, as they gain experience over
time. In these circumstances a base salary
increase will not exceed the CEO’s previous
salary of $924,000
• N/A
Operation Maximum Performance criteria
• Executive Directors receive benefits which may
include (but are not limited to) medical care and
insurance, permanent health insurance, life assurance
cover, critical illness cover, travel benefits, expatriate
benefits, car benefits and relocation expenses
• Reasonable business related expenses will be
reimbursed (including any tax payable thereon)
• Benefits are positioned at an appropriate
market level for the nature and location of the
role. Whilst the actual value of benefits may
vary from year to year based on third party
costs, it is intended that the maximum annual
value will not exceed $250,000 or £200,000,
per Directors’ base currency
• In addition to the above cap, the Company
may contribute to relocation expenses up to
100% of salary
• N/A
• Pension benefits are delivered through contributions
to the Company’s money purchase plan up to
relevant plan limits and/or a cash supplement
• 15% of base salary per annum • N/A
Operation Maximum Performance criteria
• Payments are based on performance in the relevant
financial year.
• At the beginning of the year, the Committee sets
objectives which it considers are critical to the delivery
of the business strategy.
• Performance against these key strategic objectives is
assessed by the Committee at the end of the year.
• The Committee retains the discretion to amend the
bonus pay-out (negatively or positively) to ensure it
reflects the performance of either the individual or the
Company.
• One-third of any bonus pay-out is subject to deferral
into Pharos shares under the Deferred Share Bonus
Plan.
• 150% of base salary per annum, including
cash and deferred components at the
discretion of the Committee.
• The annual bonus is based
on individual and corporate
performance during the year.
• Corporate goals are set annually
and may include monitored
measures for particular projects;
portfolio objectives; corporate
strategic goals; safety, social
and environmental measures;
financial measures; and other
measures as may be deemed
appropriate and relevant to
the period for delivery of the
business strategy.
• If the Committee determines
that a minimum level of
performance has not been
achieved, no bonus will be
payable. Thereafter the bonus
will begin paying out, up to the
maximum of 150% of salary.
• The Committee determines the
appropriate weighting of the
metrics each year.
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Operation Maximum Performance criteria
• Typically a conditional award of shares or a nil price
option is made annually, normally in December, in the
course of the annual review cycle
• Vesting of the awards is dependent on the
achievement of performance targets, which are
typically measured over a three-year performance
period
• Awards (post of tax) will also be subject to a two-year
post-vesting holding period during which they cannot
be sold (except in exceptional circumstances and
with the Committee’s prior approval)
• Usually 200% of base salary per annum
• In circumstances which the Committee
determines to be exceptional, annual awards
of up to 400% of base salary per annum may
be made
• Awards vest based on
performance against financial,
operational and/or share
price measures, as set by the
Committee, which are aligned
with the long-term strategic
objectives of Pharos
• No less than 50% of the award
will be based on share price
measures. The remainder
will be based on financial,
operational measures
• For ‘threshold’ levels of
performance, 25% of the award
vests. 100% of the award will
vest for maximum performance.
Pro-rating applies between
these points and between
ranking positions
• The Committee may reduce
LTIP vesting outcomes
(including to zero), based
on the result of testing the
performance condition, if it
considers the potential outcome
to be inconsistent with the
performance of the Company,
business or individual during
the performance period. Any
use of such discretion would be
detailed in the Annual Report on
Remuneration
Operation Maximum Performance criteria
• The Board has a policy of requiring Executive
Directors to build a minimum shareholding in Pharos
shares equivalent to 200% of salary
• A post cessation shareholding guideline will operate
from the approval of this Policy. Executive Directors
will be expected to retain the lower of actual shares
held and shares equal to 200% of salary for one
year post-cessation and 100% of salary for up to
two years post-cessation (unless the Committee
exceptionally determines that it is appropriate to
release this requirement). Pharos shares which vest
from future deferred bonus and LTIP awards will be
retained until a sufficient holding has been built up
• N/A • N/A
This report was approved by the Board of Directors and signed on its behalf by:
GEOFFREY GREEN
Remuneration Committee Chair
15 March 2022
Pharos Energy Annual Report and Accounts 2021
117
Directors’ report
DIRECTORS’ REPORT
Annual Report of the Directors
The Directors present their annual report, along with the audited Financial Statements of the Group for the year ended 31 December
2021.
The following sections of this report are incorporated herein by reference and form part of this Directors’ report.
Strategic report pages 2 to 78
Board of Directors page 83 to 85
Corporate Governance report pages 86 to 91
ESG Committee report pages 92 to 94
Nominations Committee report pages 95 to 96
Audit and Risk Committee report pages 97 to 101
Directors’ Remuneration report pages 102 to 116
Financial Statements pages 123 to 162
Additional Information pages 163 to 171
Developments following the 2021
reporting period
An indication of the likely future
developments in the business of the
Group is included in the Strategic Report
on pages 2-78.
On 13 January 2022, the Company
announced Directorate Changes as
mentioned in Chairman’s Introduction to
Governance on page 80.
On 19 January 2022, the Third
Amendment to the El Fayum Concession
Agreement was signed by His Excellency
Eng. Tarek El Molla (Minister of Petroleum
& Mineral Resources of the Arab Republic
of Egypt), EGPC and the Company.
Signature of the Third Amendment
was a key Condition Precedent for the
transfer of a 55% participating interest
(and operatorship) in the El Fayum and
North Beni Suef Concessions to IPR
Lake Qarun. The net assets of El Fayum
and North Beni Suef associated with the
55% participating interest have been
reclassified as assets held for sale at 31
December 2021.
Under the terms, the cost recovery
percentage will be increased from 30%
to 40% allowing Pharos a significantly
faster recovery of all its past and future
investments. In return, Pharos has agreed
to waive its rights to recover a portion
of the past costs pool ($115 million) and
reduce its share of Excess Cost Recovery
Petroleum from 15% to 7.5%. While in full
cost recovery mode, Contractor’s share of
revenue increases from 42.6% to 50.8%
as from November 2020 (corresponding
to additional net revenues to Contractor of
$7.0m to the date of signature).
Assuming conditions at 31 December
2021, the discounted cash flows from the
remaining 45% share held and calculated
for impairment purposes would increase
from $49.2m to $77.4m
Pharos and EGPC have finalised all
necessary documents to be presented
to the Minister of Petroleum and Natural
Resources to approve the transaction
with IPR and this approval is expected
shortly. The transaction is expected to
strengthen the Group’s balance sheet
and enable a more comprehensive and
quicker development of the El Fayum
Concession, as well as testing of the low
risk North Beni Suef Concession at low
cost to Pharos through a sustained drilling
programme.
Results and dividends
The audited Financial Statements for the
year ended 31 December 2021 are set
out on pages
123 to 162
. In 2021, the
Board had to make a difficult decision to
continue to suspend dividend payments
for the second year, given the continued
uncertainty in the macro environment
driven by COVID-19 and the pressure on
oil price against this backdrop.
The Board will continue to use the well-
documented capital allocation criteria to
assess where and how to apportion any
free cash flow generated. The key goals
are to preserve balance sheet strength, to
invest in growth opportunities in excess
of the cost of capital and to generate
sustainable returns to shareholders, as we
have done since 2006.
Pharos Energy Annual Report and Accounts 2021
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Additional InformationGovernance Report Financial StatementsStrategic Report
Directors
The business of the Company is managed
by the Directors who may exercise all
powers of the Company subject to the
articles of association of the Company
(“Articles”) and applicable law. The
Directors who held office during the
year, and up to the date of signing this
Annual Report, and the dates of their
current service contracts or letters of
appointment, which are available for
inspection, are listed in Table A of this
report. All Directors held office throughout
the year except as noted in the table. The
NEDs’ appointments are terminable at
the will of the parties. Executive Directors’
contracts are terminable by either party on
giving one year’s notice.
In accordance with the provisions of
the UK Corporate Governance Code,
all Directors will retire at the 2022 AGM
and, being eligible, offer themselves for
reappointment. As announced on 13
January 2022, Rob Gray confirmed his
intention not to stand for reappointment at
the 2022 AGM. Sue Rivett was appointed
to as a Director on 1 July 2021 Relevant
details of the Directors, which include their
Committee memberships, are set out in
the section headed ‘Board of Directors’
on pages 83 to 85.
Pharos provides liability insurance for its
Directors and Officers. The annual cost of
the cover is not material to the Group. The
Articles allow it to provide an indemnity
for the benefit of its Directors, which is
a qualifying indemnity provision for the
purpose of section 233 of the Companies
Act 2006 (“2006 Act”). The Company has
made such provisions for the benefit of its
Directors in relation to certain losses and
liabilities that they may incur in the course
of acting as Directors of the Company, its
subsidiaries or associates, which remain
in force at the date of this report.
No member of the Board had a material
interest in any contract of significance with
the Company or any of its subsidiaries at
any time during the year, except for their
interests in shares and in share awards
and under their service agreements
and letters of appointment disclosed
in the Directors’ Remuneration report
commencing on page 102.
TABLE A: DIRECTORS HOLDING OFFICE DURING 2021 AND UP TO THE DATE OF SIGNING OF THIS REPORT
Director Date of contract
John Martin - Chair* 23 August 2021
Edward Story - President and Chief Executive Officer (to step down from the Board upon
completion of the transaction with IPR) 14 May 1997
Jann Brown - Managing Director (from 1 July 2021) and Chief Executive Officer (upon
completion of the transaction with IPR) 6 December 2017
Mike Watts (to step down upon completion of transaction with IPR) 6 December 2017
Managing Director 6 December 2017
Rob Gray* Deputy Chair and Senior Independent Director 9 December 2013
Sue Rivett, Chief Financial Officer (appointed 1 July 2021) 21 September 2021
Marianne Daryabegui * 15 March 2019
Geoffrey Green* 16 April 2020
Lisa Mitchell* 10 March 2020
* Denotes those determined by the Board to be Independent Non-Executive Directors as described in the Corporate Governance report
on page 81.
Contributions
The Group’s policies prohibit political
donations.
AGM
An explanation of the resolutions to be
proposed at the 2022 AGM, and the
recommendation of Directors in relation
to these, is included in the circular to
shareholders which is available on the
Company’s website (www.pharos.energy).
Resolutions regarding the authority to
issue shares are commented upon in this
report under share capital.
A separate communication will be
sent to shareholders and published on
the Company’s website regarding the
Company’s AGM.
Share capital
Details of changes to share capital in
the period are set out in Note 27 to the
Financial Statements. The Company
currently has one class of shares in issue,
ordinary shares of £0.05 each, all of which
are fully paid. Each ordinary share in issue
carries equal rights including one vote
per share on a poll at general meetings
of the Company, subject to the terms
of the Articles and law. Shares held in
treasury carry no such rights for so long
as they are held in treasury. Votes may
be exercised by shareholders attending
or otherwise duly represented at general
meetings. Deadlines for the exercise
of voting rights by proxy on a poll at a
general meeting are detailed in the notice
of meeting and proxy cards issued in
connection with the relevant meeting.
Voting rights relating to the ordinary
shares held by the EBT are not exercised.
The Articles may only be amended by a
special resolution of the shareholders.
No shareholder, unless the Board decides
otherwise, is entitled to attend or to vote
either personally or by proxy at a general
meeting or to exercise any other right
conferred by being a shareholder if he
or she or any person with an interest in
ordinary shares has been sent a notice
under section 793 of the 2006 Act (which
confers upon public companies the power
to require information with respect to
interests in their voting shares) and he
or she or any interested person failed to
supply the Company with the information
requested within 14 days after delivery of
that notice.
The Board may also decide that no
dividend is payable in respect of those
default shares and that no transfer of
any default shares shall be registered.
These restrictions end seven days after
receipt by the Company of a notice of
an approved transfer of the shares or all
the information required by the relevant
section 793 notice, whichever is earlier.
Pharos Energy Annual Report and Accounts 2021
119
DIRECTORS’ REPORT - CONTINUED
The Directors may refuse to register
any transfer of any share which is not a
fully-paid share, although such discretion
may not be exercised in a way which the
Financial Conduct Authority regards as
preventing dealings in shares of that class
from taking place on an open or proper
basis. The Directors may likewise refuse
any transfer of a share in favour of more
than four persons jointly.
The Company is not aware of any other
restrictions on the transfer of ordinary
shares in the Company other than certain
restrictions that may from time to time
be imposed by laws and regulations
(for example, insider trading laws); and
pursuant to the Listing Rules whereby
certain employees of the Company require
approval of the Company to deal in the
Company’s shares.
The Company is not aware of any
agreements between shareholders that
may result in restrictions on the transfer
of securities or voting rights. Resolutions
will be proposed at the 2022 AGM, as
is customary, to authorise the Directors
to exercise all powers to allot shares
and approve a limited disapplication of
pre-emption rights. This authority will be
sought in line with institutional shareholder
guidance, and in particular with the
Pre-Emption Group’s Statement of
Principles (the “Pre-Emption Principles”),
the authority sought for disapplication
of pre-emption rights will be 10% on the
basis that 5% of this is only intended to be
used in accordance with the Pre-Emption
Principles. Further information regarding
these resolutions, which are based on
template resolutions published by the Pre-
Emption Group, is set out in the circular
to shareholders. A resolution will also be
proposed at the 2022 AGM, as is also
customary, to renew the Directors’ existing
authority to make market purchases of the
Company’s Ordinary Share capital, and
to limit such authority to purchases of up
to approximately 10% of the Company’s
issued Ordinary Share capital. Shares
purchased under this authority may either
be cancelled or held as treasury shares.
Auditor
A resolution to reappoint Deloitte LLP as
the Company’s auditor will be proposed
by the Directors at the 2022 AGM.
Deloitte also provide non-audit services
to the Group, and details of the non-
audit services provided in the year to 31
December 2021 are set out in Note 10
to the Financial Statements. All non-
audit services are approved by the Audit
and Risk Committee. The Directors are
currently satisfied, and will continue to
ensure, that this range of services is
delivered in compliance with the relevant
ethical guidance of the accountancy
profession and does not impair the
judgement or independence of the auditor.
Further details of the Group policy on non-
audit services are set out in the Audit and
Risk Committee Report on pages 97
to 101.
The Directors at the date of approval of
this report confirm that, so far as they
are each aware, there is no relevant audit
information, being information needed by
the auditor in connection with preparing its
report, of which the auditor are unaware.
Each Director has taken all steps that they
ought to have taken as a Director, having
made such enquiries of fellow Directors
and the auditor and taken such other
steps as are required under their duties
as a Director, to make themselves aware
of any relevant audit information and to
establish that the auditor is aware of that
information. This confirmation is given and
should be interpreted in accordance with
the provisions of section 418 of the 2006
Act.
Greenhouse gas emissions
reporting
Reporting on emission sources, as
required under the Companies Act
2006 (Strategic and Directors’ Reports)
Regulations 2013 and the Energy and
Carbon Report Regulations 2018, is
included in the Corporate Responsibility
report on pages 69 to 75 and 78.
Tax governance
The Company is committed to high
standards of tax governance and
strives to meet its tax obligations. Tax
contributions benefit the communities
in which we operate by providing a
framework within which the Company can
grow. Pharos’ Tax Strategy Statement,
which the Board has approved, defines
the key tax objectives of the Group and
is available on the Company’s website
(www.pharos.energy).
Risk management
The Directors carried out a robust review
of the principal and emerging risks
facing the Group that could threaten
the Company’s business model, future
performance, solvency and liquidity.
The Risk Management and Risk report
on pages 43 to 57 details how we
manage and mitigate these risks.
Substantial shareholdings
As at the date of this report, the Company
had been notified, in accordance
with Chapter 5 of the Disclosure and
Transparency Rules, of the voting rights as
a shareholder of the Company shown in
Table B of this report.
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120
Additional InformationGovernance Report Financial StatementsStrategic Report
TABLE B: SUBSTANTIAL SHAREHOLDINGS IN THE COMPANY
No of Ordinary Shares held as % of voting rights
1
Nature of holding
Lombard Odier Asset Management (Europe) Limited
4
44,557,978 10.070 Direct
Ettore Contini
2
32,613,577 7.369 Direct and indirect
Blue Albacore Business Ltd 31,617,359 7.144 Direct
Globe Deals Ltd 27,444,382 6.201 Direct
Aberforth Partners LLP 25,883,843 5.849 Direct
Chemsa Ltd 24,426,925 5.519 Direct
Yorktown Energy Partners VII, LP 22,982,393 5.193 Direct
Ed Story
3
16,087,407 3.635 Direct and indirect
1. As at 15 March 2022, the total voting rights attached to the issued share capital of the Company comprised 442,562,601 ordinary shares each of £0.05
n o m i n a l v a l u e , b e i n g 4 5 1 , 6 8 4 , 8 6 9 o r d i n a r y s h a re s i n i s s u e l e s s 9 , 1 2 2 , 2 6 8 o r d i n a r y s h a re s c u r re n t l y h e l d i n t r e a s u r y.
2. The Company has been notified that, of these shares 28,780,000 shares are held through Liquid Business Ltd, a closely associated person to Ettore
Contini.
3. Of these shares, 1,675,000 Shares are held through The Story Family Trust, a closely associated person to Ed Story, and the balance are held by Mr
Story personally.
4. As at 31 December 2021: Lombard Odier Asset Management (Europe) Limited held 22,117,521 Shares representing 4.998% of the voting rights in the
Company at that time.
During the period between 31 December 2021 and 15 March 2022, the Company did not receive any notifications under chapter 5 of
the Disclosure and Transparency Rules indicating a different whole percentage holding at 31 December 2021 other than as shown in the
footnotes to the substantial shareholder table above. For further information on Directors’ interests, please see page 108.
Requirements of the UK Listing Rules
Table C of this report provides references to where the information required by Listing Rule 9.8.4R is disclosed within this Annual Report:
TABLE C: LISTING RULES REQUIREMENTS
Listing Rule requirement
Details of any long term incentive schemes as required by Listing Rule 9.4.3 R.
Directors’
Remuneration Report
pages 102-116
Details of any arrangements under which a director of the company has waived or agreed to waive any emoluments from the
company or any subsidiary undertaking. Where a director has agreed to waive future emoluments, details of such waiver together
with those relating to emoluments which were waived during the period under review.
No such waivers
Details required in the case of any allotment for cash of equity securities made during the period under review otherwise than
to the holders of the company’s equity shares in proportion to their holdings of such equity shares and which has not been
specifically authorised by the company’s shareholders.
No such share
allotments
Details of any contract of significance subsisting during the period under review: (a) to which the listed company, or one of its
subsidiary undertakings, is a party and in which a director of the listed company is or was materially interested; and (b) between
the listed company, or one of its subsidiary undertakings, and a controlling shareholder.
Note 35 page 160
Details of any arrangement under which a shareholder has waived or agreed to waive any dividends, where a shareholder has
agreed to waive future dividends, details of such waiver together with those relating to dividends which are payable during the
period under review.
Note 29 page 156
Whistleblowing procedure
The Board has reviewed, and is satisfied
with, the Group’s Whistleblowing Policy
and associated procedures, enabling
employees to raise issues in confidence
concerning improprieties which would
be addressed with appropriate follow-up
action. The Group has in place an Ethics
Hotline using a dedicated, confidential and
anonymous telephone service available to
staff to report a suspected breach of the
Group’s Code of Business Conduct and
Ethics.
Business Relationships
In order to foster relationships with suppliers and customers, Pharos ensures a robust
engagement process before contracts are awarded. Every vendor is required to complete
due diligence so that the Company may ensure all corporate and banking details are
recorded and checked before invoices are issued; this allows for prompt and accurate
payment. Where possible, payment terms are 30 days from date of receipt of a validly
submitted invoice. A comprehensive contracts register is maintained to ensure that post
award contract management is addressed to consider delivery of appropriate notices of
renewal of termination.
We strive to work constructively with all our suppliers, customers and other business
partners to build and maintain productive relationships.
Pharos Energy Annual Report and Accounts 2021
121
DIRECTORS’ REPORT - CONTINUED
Going concern
It should be recognised that any
consideration of the foreseeable future
involves making a judgement, at a
particular point in time, about future
events which are inherently uncertain.
Nevertheless, at the time of preparation
of these accounts and after making
enquiries, the Directors have a reasonable
expectation that the Group has adequate
resources to continue operating for the
foreseeable future. For this reason, and
taking into consideration the additional
factors in the Strategic Report on pages
2 to 78 including the Going
Concern section of the CFO’s statement
on pages 38 to 42, they continue
to adopt the going concern basis in
preparing the accounts.
Directors’ responsibilities for the
Financial Statements
The Directors are responsible for
preparing the annual report and the
Financial Statements in accordance with
international accounting standards in
conformity with the requirements of the
Companies Act 2006 and International
Financial Reporting Standards adopted
pursuant to Regulation (EC) No
1606/2002 as it applies in the European
Union. The Financial Statements have
also been prepared in accordance
with International Financial Reporting
Standards as issued by the IASB. The
Directors are required to prepare Financial
Statements for each financial year that
give a true and fair view of the financial
position of the Company and of the
Group and the financial performance
and cash flows of the Group for that
period. In preparing those accounts the
Directors are required to select suitable
accounting policies and then apply them
consistently; present information and
accounting policies in a manner that
provides relevant, reliable and comparable
information; and state that the Company
and the Group have complied with
applicable accounting standards, subject
to any material departures disclosed and
explained in the accounts.
The Directors are responsible for keeping
proper accounting records which disclose
with reasonable accuracy at any time the
financial position of the Company and the
Group and enable them to ensure that the
accounts comply with relevant legislation.
They are also responsible for safeguarding
the assets of the Company and the Group
and hence for taking reasonable steps for
the prevention and detection of fraud and
other irregularities.
The Directors are responsible for the
maintenance and integrity of the corporate
and financial information included on
the Company’s website. Information
published on the internet is accessible
in many countries with different legal
requirements. Legislation in the United
Kingdom governing the preparation and
dissemination of Financial Statements
may differ from legislation in other
jurisdictions.
Directors’ responsibility statement
The Directors confirm that, to the best of
each person’s knowledge:
a) the Financial Statements set out on
pages 123 to 162, which have
been prepared in accordance with
international accounting standards in
conformity with the requirements of the
Companies Act 2006 and International
Financial Reporting Standards
adopted pursuant to Regulation (EC)
No 1606/2002 as it applies in the
European Union and in accordance
with International Financial Reporting
Standards as issued by the IASB,
give a true and fair view of the assets,
liabilities, financial position and loss of
the Company and the Group taken as
a whole;
b) this Directors’ Report along with the
Strategic Report, including each of the
management reports forming part of
these reports, includes a fair review of
the development and performance of
the business and the position of the
Company and the Group taken as a
whole, together with a description of
the principal risks and uncertainties
that they face and how these are being
managed and mitigated as set out in
the Risk Management and Risk Report
on pages 43 to 57; and
c) the annual report and the Financial
Statements, taken as a whole, are fair,
balanced and understandable and
provide the information necessary for
the shareholders to assess the Group’s
position, performance, business model
and strategy.
Approved by the Board and signed on its
behalf.
SUE RIVETT
Chief Financial Officer
15 March 2022
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Additional InformationGovernance Report Financial StatementsStrategic Report
Independent Auditor’s Report 123
Consolidated Income Statement 132
Consolidated Statement of Comprehensive Income 132
Balance Sheets 133
Statements of Changes in Equity 134
Cash Flow Statements 135
Notes to the Consolidated Financial Statements 136
Financial
Statements
Pharos Energy Annual Report and Accounts 2021
123
INDEPENDENT AUDITOR’S REPORT
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PHAROS ENERGY PLC
Report on the audit of the financial statements
1. Opinion
In our opinion:
• the financial statements of Pharos Energy plc (the ‘parent company’) and its subsidiaries (the ‘group’) give a true and fair view of
the state of the group’s and of the parent company’s affairs as at 31 December 2021 and of the group’s loss for the year then
ended;
• the group financial statements have been properly prepared in accordance with United Kingdom adopted international accounting
standards and International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board
(IASB);
• the parent company financial statements have been properly prepared in accordance with United Kingdom adopted international
accounting standards and as applied in accordance with the provisions of the Companies Act 2006; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements which comprise:
• the consolidated income statement;
• the consolidated statement of comprehensive income;
• the consolidated and parent company balance sheets;
• the consolidated and parent company statements of changes in equity;
• the consolidated cash flow statement; and
• the related notes 1 to 38.
The financial reporting framework that has been applied in their preparation is applicable law, United Kingdom adopted international
accounting standards and IFRSs as issued by the IASB. The financial reporting framework that has been applied in the preparation of the
parent company financial statements is applicable law and United Kingdom adopted international accounting standards and as applied
in accordance with the provisions of the Companies Act 2006.
2. Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the auditor’s responsibilities for the audit of the financial statements section of our report.
We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our audit of
the financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed public
interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. The non-audit services
provided to the group and parent company for the year are disclosed in note 10 to the financial statements. We confirm that we have not
provided any non-audit services prohibited by the FRC’s Ethical Standard to the group or the parent company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
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Additional InformationGovernance Report Financial StatementsStrategic Report
3. Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
• Impairment of producing oil & gas assets
Within this report, key audit matters are identified as follows:
Newly identified
Increased level of risk
Similar level of risk
Decreased level of risk
Materiality
The materiality that we used for the group financial statements was $3.2 million which was determined
on the basis of the 3-year average of earnings from continuing activities before interest, tax, DD&A,
impairment of PP&E and intangibles, exploration other/expenditure and Other/restructuring expense
“EBITDAX”. Management’s calculation of EBITDAX is provided on page 164 to the financial statements.
Scoping
We focused primarily on the group’s key business units, being Vietnam and Egypt, as well as the parent
company which is based in London. These locations were all subject to full scope audit and account for
98% of the group’s total assets, 83% of the group’s revenue and 100% of the group’s loss before tax
from loss making entities. Specified audit procedures were then performed on the remaining 2% of the
group’s total assets, 17% of the group’s revenue and 100% of the group’s profit before tax from profit
making entities.
Significant changes in
our approach
The Going concern basis of accounting was included as a key audit matter in the prior year. As the
business performance working capital and commodity prices have improved, this is not considered a
key audit matter in the current year.
We have changed the materiality benchmark from Net assets and EBITDAX in 2020 to a 3-year average
of EBITDAX in 2021. See section 6.1 below for details.
No other changes were noted to the key audit matters or our overall audit approach as compared to the
prior year.
4. Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
Our evaluation of the directors’ assessment of the group’s and parent company’s ability to continue to adopt the going concern basis of
accounting included:
• assessed that the forecasts incorporated in the base case model are consistent with the budget
• approved by the Board;
• compared the key assumptions in the base case forecast to those used in the impairment models for
• oil & gas producing assets and understood the basis for any differences;
• assessed the historical accuracy of budgets prepared by Management;
• compared the oil prices in the aggregated downside scenario with both the spot oil price and publicly available forward curves as of the
date of approval of the financial statements;
• assessed and recalculated the impact of the aggregated downside scenario on the financial covenants included in the reserve based
lending (RBL) during the going concern period;
• assessed the ability of management to execute the mitigating actions in its aggregated downside scenario, including the extent to
which the adjustments made to capital expenditure are uncommitted as of the date of this report;
• assessed the results of the oil price reverse stress test, by comparing to currently prevailing prices;
• tested the going concern model for mechanical accuracy; and
• assessed whether the disclosures relating to going concern are appropriate.
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125
INDEPENDENT AUDITOR’S REPORT - CONTINUED
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually
or collectively, may cast significant doubt on the group’s and parent company’s ability to continue as a going concern for a period of at
least twelve months from when the financial statements are authorised for issue.
In relation to the reporting on how the group has applied the UK Corporate Governance Code, we have nothing material to add or draw
attention to in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate to
adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this
report.
5. Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements
of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we
identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the
audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and
we do not provide a separate opinion on these matters.
5.1. Impairment of producing oil & gas assets
Key audit matter
description
The value of property, plant and equipment relating to the group’s producing oil and gas assets as at
31 December 2021 was $399.7 million (2020: $434.6 million). Impairment of producing oil & gas assets
is considered a key audit matter due to the significant judgements and estimates involved in assessing
whether any impairment charges or reversals have arisen at year-end, and in quantifying any such
impairment charges or reversals. In addition, we considered that there was a risk of impairment due to
the potential impact of climate change on long term oil prices. Given the importance of producing oil &
gas assets to the group and the judgemental nature of the inputs used in determining the recoverable
amounts, we also considered there to be a potential for fraud in this area. We have assessed an
increased risk in 2021 as compared to 2020 as a result of the increasing risk of reserves estimates
coupled with the significant change in oil prices in 2022.
Management reviewed its two producing assets in Vietnam, being Te Giac Trang (‘TGT’) and Ca Ngu
Vang (‘CNV’), and its one producing asset in Egypt, being El Fayum, for indicators of impairment. As
a result of the steady growth of the oil prices in 2021 compared to the volatility in 2021, Management
revised their oil price assumptions upwards during 2021 compared to the prior year assumptions, as set
out in note 16 of the financial statements. Given the significance of the revision, together with changes
to estimates of oil & gas reserves, Management concluded that there was an indicator of impairment
reversals for all three of those fields. Management have estimated the recoverable amount of each field,
being its Value-in-Use “VIU”, and compared this to its balance sheet carrying amount.
Management recorded pre-tax impairment reversal of $3.8 million on CNV (2020: pre-tax impairment
charges of $23.3 million), pre-tax impairment reversal of $49.1 million on TGT (2020: pre-tax impairment
charges of $81.8 million) and pre-tax impairment reversal of $1.2 million on El Fayum (2020: pre-tax
impairment charges of $105.4 million).
Management’s recoverable amount estimates were based on key assumptions which included:
• oil price forecasts, being $73.9/bbl in 2022, $70.2/bbl in 2023, $67.8/bbl in 2024, $68/bbl in 2025
plus inflation of 2% thereafter;
• reserves estimates and production profiles; and,
• pre-tax nominal discount rates of 11.4% for TGT and CNV, and 14% for El Fayum
In relation to reserves estimates and production profiles, Management have engaged third party
reservoir engineering experts to provide an independent report on the group’s reserves estimates using
standard industry reserve estimation methods and definitions for each of the CNV, TGT and El Fayum
fields. Management have explained the scope of work of the third party experts and their findings in the
operations review, as well as highlighting oil and gas reserves as a key source of estimation uncertainty
in note 4(b) to the financial statements.
As referenced in note 4(b) of the financial statements, the impairment of producing oil & gas assets is
considered by management as a key source of estimation uncertainty.
Further details of the key assumptions used by management in their impairment evaluation are provided
in note 16 of the financial statements and in the Report of the Audit & Risk Committee on pages
97-101. The disclosures in note 16 include the sensitivity of the impairment reversals to changes in
key assumptions, including the impact of adopting an oil price from a third party forecaster described
as being compliant with achieving the Paris agreement goal to limit temperature rises to well below 2°C
(“Paris 2°C Goal”).
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How the scope of our
audit responded to the
key audit matter
For the TGT, CNV and El Fayum impairment assessments, we obtained an understanding of the
management’s relevant key controls related to the valuation of each producing oil & gas asset. We
evaluated management’s assessment of whether or not impairment reversals or charges indicators
were present in respect of each producing oil & gas asset, and thus the completeness of management’s
impairment tests. Where indicators were identified, we assessed the methods and models used for
consistency with the requirements of IAS 36 “Impairment of Assets”. We evaluated the key assumptions
made by management in the measurement of recoverable amounts by performing the following
substantive procedures:
Oil prices:
We assessed group’s forecast oil price assumptions by:
• Independently developing a reasonable range of forecasts based on a variety of reputable external
forecasts, peer information and market data, against which we compared the group’s future oil price
assumptions in order to challenge whether they are reasonable;
• In developing our range we also considered a certain scenario that was described as meeting the Paris
goals which aligns with the goals to limit temperature rises to well below 2°C. We also considered the
impact of COVID on energy supply and demand and whether that had been appropriately taken into
account.
• We assessed management’s current ‘best estimate’ of future oil prices including consideration of third
party forecasts under scenarios that we interpreted to be consistent with this measurement objective.
Reserves estimates and production profiles:
Through working with our internal oil and gas reserve specialists, we:
• Understood the process used by management to derive their reserves estimates and associated
production profiles and how they provide information to, and interact with, the external third party
reserve experts;
• Assessed the competence, capability and objectivity of the company’s internal and external third party
reserve experts, through obtaining their relevant professional qualifications and experience;
• Reviewed the external third party experts’ reports on Pharos’ reserves estimates as summarised in
the operations review and evaluated whether these estimates were used consistently throughout the
accounting calculations reflected in the financial statements;
• Communicated directly with the external third party reserves experts to discuss their scope of work
and assess their methodologies used and outputs;
• Compared the production forecasts used in the impairment tests with management’s approved
reserves and resources estimates;
• Assessed the cash flow forecasts to determine the significant assumptions to which the impairment
outcome was most sensitive;
• Substantively tested the hydrocarbon production and cost forecasts used in the impairment tests,
including challenging the significant assumptions;
• Compared the production and cost forecasts with similar forecasts from the prior year and challenged
significant changes;
• Assessed the reasonableness of the production and cost forecasts relative to each other;
• Performed a retrospective review to check for indications of estimation bias over time; and
• Where relevant, assessed the company’s historical forecasting accuracy and whether the estimates
had been determined and applied on a consistent basis.
Discount rates:
• We assessed the Group’s discount rates by working with our internal valuation specialists to develop
independent estimates using independent third party information for TGT, CNV and El-Fayum and
comparing those assumptions to management’s assumptions.
Other procedures:
• We assessed management’s other assumptions by reference to third party information, our knowledge
of the group and industry and also budgeted and forecast performance.
• We assessed whether the Group’s impairment methodology was acceptable under IFRS and tested
the integrity and mechanical accuracy of the impairment models.
• We assessed whether management’s presentation and disclosures relating to impairment and
associated estimation uncertainty were adequate.
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Key observations
Oil prices:
For the purpose of Impairment of producing oil & gas assets, management is required under IAS 36 to
apply its current “best estimate” of future oil prices.
We observed that in the short-term, the Group’s oil price assumptions sit comfortably within our range,
albeit towards the lower end. For the long-term, the Group’s oil price assumptions sit comfortably within
our range albeit towards the higher end. Accordingly, we found the Group’s oil price assumptions to be
within our range, and therefore we determined that the Group’s “best estimate” oil price assumptions are
reasonable.
We also observe that the forecast oil price assumptions aligned with the Paris goals to be generally lower
than the Group’s oil price assumptions. The disclosures in note 16 to the financial statements includes
the impact of adopting an oil price described as being compliant with achieving the Paris agreement goal
to limit temperature rises to well below 2°C (“Paris 2°C Goal”).
Discount rates:
The Group’s discount rate used for impairment testing, was within our independent range and therefore
considered reasonable.
Reserves estimates and production profiles:
We found that the reserves estimates and production profiles used in the impairment tests to have been
appropriately prepared, and found the underlying assumptions we tested to be reasonable.
Other procedures:
We concluded that the impairment reversals recorded by management are appropriate. We are also
satisfied that appropriate disclosures relating to Management’s impairment assessment and sensitivities
have been provided in note 16.
6. Our application of materiality
6.1. Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions
of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work
and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements Parent company financial statements
Materiality
$3.2 million (2020: $3.0 million) $2.3 million (2020: $2.7 million)
Basis for
determining
materiality
4% of the 3-year average of EBITDAX (2020: 1% of
net assets and 4.4% of EBITDAX)
Management’s calculation of EBITDAX is provided
on page 164 to the financial statements.
Parent company materiality equates to 1.5% of net
assets, which is capped at 90% of group materiality.
(2020: 0.8% of net assets)
Rationale for
the benchmark
applied
In the prior year, materiality was based on net
assets and EBITDAX. However, in the current year
we concluded that a 3-year average of EBITDAX
is the most relevant benchmark given the volatility
in oil prices, the majority of the group’s oil & gas
assets are now at the producing stage and the
group is in its second full year of operations in
Egypt. This reflects the group’s performance,
noting that EBITDAX is also an input to one of
the covenants under the group’s RBL facility. The
net assets metric is still considered relevant as
it is reflective of the long term value of the group
through its portfolio of producing and exploration
assets (in the current year, our determined
materiality represents 1% of net assets).
Consistent with prior year, as the primary nature
of this holding company is to hold investments in
subsidiaries, we have concluded that net assets
represents the most appropriate benchmark.
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Group materiality $3m
Component materiality
range $1m to $2m
Audit Committee r
eporting
threshold $0.16m
3-year average
EBITDAX $78m
$3m
$78m
6.2. Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected
misstatements exceed the materiality for the financial statements as a whole.
Group financial statements Parent company financial statements
Performance
materiality
70% (2020: 70%) of group materiality 70% (2020: 70%) of parent company materiality
Basis and
rationale for
determining
performance
materiality
In determining performance materiality, we considered the following factors:
a) the controls environment within which the group operates, including that related to IT, is not considered to be
complex;
b) the responsibility for all key accounting judgements and critical sources of estimation uncertainty is centralised
and conducted in the head office in London;
c) the limited number of changes to the business during the year; and
d) the history of a low number of corrected and uncorrected misstatements identified in previous periods.
6.3. Error reporting threshold
We agreed with the Audit & Risk Committee that we would report to the Committee all audit differences in excess of $0.16 million (2020:
$0.15 million), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to
the Audit & Risk Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.
7. An overview of the scope of our audit
7.1. Identification and scoping of
components
Our group audit was scoped by obtaining
an understanding of the group and
its environment, including group-wide
controls, and assessing the risks of
material misstatement at the group level.
Based on that assessment, we scoped in
the group’s key business units, Vietnam
and Egypt, which are accounted for partly
in the local country of operation and
partly in London, together with the parent
company which is also accounted for in
London. The Vietnamese component,
the Egyptian component and the parent
company, which are all subject to full
scope audits, accounted for 98% (2020:
98%) of the group’s total assets, 88%
(2020: 83%) of the group’s revenue and
100% (2020: 100%) of the group’s loss
before tax from loss making entities.
Specified audit procedures were then
performed on the remaining 2% (2020:
2%) of the group’s total assets, 12%
(2020: 17%) of the group’s revenue and
100% (2020: 100%) of the group’s profit
before tax from profit making entities.
The Vietnamese component materiality
was $2.016 million (2020: $1.575 million)
and the Egyptian component materiality
was $1.120 million (2020: $1.155 million).
We also audited the consolidation of the
group’s business units.
In both the current and the prior year, all of
the key audit matters that had the greatest
effect on our audit strategy, as described
above, were audited directly by the group
audit team in London.
At the group level, we also tested the
consolidation process, impairment
of producing oil & gas assets, going
concern, accounting for leases,
borrowings and intercompany. We also
carried out analytical procedures to
support our conclusion that there were no
significant risks of material misstatement
of the aggregated financial information of
the remaining components not subject
to audit or audit of specified account
balances.
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INDEPENDENT AUDITOR’S REPORT - CONTINUED
7.2. Our consideration of climate-
related risks
Climate change is considered a principal
risk to the Group and its business over
the medium and long term. Further details
are disclosed in the Strategic report of the
2021 Annual Report pages 2 to 78.
Through working with our internal climate
specialists, we:
• Obtained an understanding of
management’s process for considering
the impact of climate-related risks and
relevant controls through enquiries
performed with the Audit & Risk
committee, enquiries and observations
of relevant documentation with the ESG
committee as well as regular meetings
with management;
• To ensure the completeness and
consistency of climate related risks
identified by management with our
understanding of the entity and risk
assessment, we obtained and reviewed
management’s assessment of climate
related risks, read the minutes of
meeting of the ESG committee and
specifically inquired management of
any climate-related litigations or claims
involving the group.
As disclosed in note 4(b) to the financial
statements, Management identified
that the group’s producing oil & gas
properties are short-term in nature and
none are being depleted over a period
that extends beyond 2036. Therefore,
due to the relatively short-time frame,
Management concluded that the impact
of climate change on the group’s oil &
gas properties depletion, economic useful
lives and decommissioning not to be
material. Management further identified
that the impact of climate change on the
group’s Exploration & Evaluation assets is
similar to the group’s producing oil & gas
properties, but the potential longevity of
those assets has not yet been determined
for further consideration. Accordingly,
the related principal risks that we have
identified for our audit is the forecast
oil assumptions used in the fair value
estimates of group’s producing oil & gas
properties may not appropriately reflect
changes in supply and demand due to
climate change and the energy transition
(see the key audit matter in section ‘5.1
Impairment of producing oil & gas assets’
above).
In order to address the risk identified,
we performed the following procedures
through working with our climate
specialist:
• We read the climate change related
disclosures presented in the Strategic
Report to consider whether they are
materially consistent with the financial
statements and our knowledge
obtained in the audit;
• We challenged management’s forecast
oil price assumptions to assess
whether they are reasonable and
present management’s current ‘best
estimate’ in accordance with IAS 36
(see the key audit matter in section
‘5.1 Impairment of producing oil & gas
assets’ above); and
• We evaluated the accuracy and
appropriateness of the disclosures
addressing the impact of climate
and energy transition on the financial
statements in note 4(b) and the key
assumptions and calculated sensitivities
showing the impact on impairment of
producing oil & gas assets included in
note 16 of the financial statements.
7.3. Working with other auditors
The group audit team assesses each
year how best to be appropriately
involved in the audit work undertaken in
Vietnam and Egypt. In the current year,
as a result of travel restrictions due to the
Covid-19 pandemic, this was achieved
by regular interaction and review through
correspondence, telephone and other
electronic media as well as performing a
remote review of the underlying work of
the component auditors in selected key
areas by a senior member of the audit
team.
In addition to our direct interactions,
we sent detailed instructions to our
component audit teams, and reviewed
their audit working papers.
8. Other information
The other information comprises the
information included in the annual report,
other than the financial statements and
our auditor’s report thereon. The directors
are responsible for the other information
contained within the annual report.
Our opinion on the financial statements
does not cover the other information and,
except to the extent otherwise explicitly
stated in our report, we do not express
any form of assurance conclusion thereon.
Our responsibility is to read the other
information and, in doing so, consider
whether the other information is materially
inconsistent with the financial statements
or our knowledge obtained in the course
of the audit, or otherwise appears to be
materially misstated.
If we identify such material inconsistencies
or apparent material misstatements, we
are required to determine whether this
gives rise to a material misstatement in
the financial statements themselves. If,
based on the work we have performed,
we conclude that there is a material
misstatement of this other information, we
are required to report that fact.
We have nothing to report in this regard.
9. Responsibilities of directors
As explained more fully in the directors’
responsibilities statement, the directors
are responsible for the preparation of
the financial statements and for being
satisfied that they give a true and fair
view, and for such internal control as the
directors determine is necessary to enable
the preparation of financial statements
that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the
directors are responsible for assessing the
group’s and the parent company’s ability
to continue as a going concern, disclosing
as applicable, matters related to going
concern and using the going concern
basis of accounting unless the directors
either intend to liquidate the group or the
parent company or to cease operations,
or have no realistic alternative but to do
so.
10. Auditor’s responsibilities
for the audit of the financial
statements
Our objectives are to obtain reasonable
assurance about whether the financial
statements as a whole are free from
material misstatement, whether due to
fraud or error, and to issue an auditor’s
report that includes our opinion.
Reasonable assurance is a high level
of assurance, but is not a guarantee
that an audit conducted in accordance
with ISAs (UK) will always detect a
material misstatement when it exists.
Misstatements can arise from fraud or
error and are considered material if,
individually or in the aggregate, they could
reasonably be expected to influence the
economic decisions of users taken on the
basis of these financial statements.
A further description of our responsibilities
for the audit of the financial statements is
located on the FRC’s website at: www.
frc.org.uk/auditorsresponsibilities. This
description forms part of our auditor’s
report.
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11. Extent to which the audit
was considered capable
of detecting irregularities,
including fraud
Irregularities, including fraud, are instances
of non-compliance with laws and
regulations. We design procedures in line
with our responsibilities, outlined above, to
detect material misstatements in respect
of irregularities, including fraud. The extent
to which our procedures are capable of
detecting irregularities, including fraud is
detailed below.
11.1. Identifying and assessing
potential risks related to
irregularities
In identifying and assessing risks of
material misstatement in respect of
irregularities, including fraud and non-
compliance with laws and regulations, we
considered the following:
• the nature of the industry and sector,
control environment and business
performance including the design of
the group’s remuneration policies, key
drivers for directors’ remuneration,
bonus levels and performance targets;
• results of our enquiries of management
and the audit committee about their
own identification and assessment of
the risks of irregularities;
• any matters we identified having
obtained and reviewed the group’s
documentation of their policies and
procedures relating to:
- identifying, evaluating and complying
with laws and regulations and whether
they were aware of any instances of
non-compliance;
- detecting and responding to the
risks of fraud and whether they have
knowledge of any actual, suspected or
alleged fraud
- the internal controls established
to mitigate risks of fraud or non-
compliance with laws and regulations
• the matters discussed among the
audit engagement team including
significant component audit teams and
relevant internal specialists, including
tax, valuations and reserves specialists
regarding how and where fraud might
occur in the financial statements and
any potential indicators of fraud.
As a result of these procedures, we
considered the opportunities and
incentives that may exist within the
organisation for fraud and identified
the greatest potential for fraud in
management’s assessment of the
impairment of producing oil & gas assets.
In common with all audits under ISAs
(UK), we are also required to perform
specific procedures to respond to the risk
of management override.
We also obtained an understanding of the
legal and regulatory frameworks that the
group operates in, focusing on provisions
of those laws and regulations that had
a direct effect on the determination of
material amounts and disclosures in the
financial statements. The key laws and
regulations we considered in this context
included the UK Companies Act, the
Listing Rules, tax legislation in the UK,
Vietnam and Egypt.
In addition, we considered provisions
of other laws and regulations that do
not have a direct effect on the financial
statements but compliance with which
may be fundamental to the group’s ability
to operate or to avoid a material penalty.
These included the group’s operating
licences and environmental regulations.
11.2. Audit response to risks
identified
As a result of performing the above,
we identified impairment of producing
oil & gas assets as a key audit matter
related to the potential risk of fraud. The
key audit matter section of our report
(‘5.1 Impairment of producing oil & gas
assets’ above) explains the matter in more
detail and also describes the specific
procedures we performed in response to
that key audit matter.
In addition to the above, our procedures
to respond to risks identified included the
following:
• reviewing the financial statement
disclosures and testing to supporting
documentation to assess compliance
with provisions of relevant laws and
regulations described as having a direct
effect on the financial statements;
• enquiring of management, the audit
& risk committee and in-house and
external legal counsel concerning actual
and potential litigation and claims;
• performing analytical procedures to
identify any unusual or unexpected
relationships that may indicate risks of
material misstatement due to fraud;
• reading minutes of meetings of those
charged with governance; and
• in addressing the risk of fraud through
management override of controls,
testing the appropriateness of journal
entries and other adjustments;
assessing whether the judgements
made in making accounting estimates
are indicative of a potential bias; and
evaluating the business rationale of
any significant transactions that are
unusual or outside the normal course of
business.
We also communicated relevant identified
laws and regulations and potential
fraud risks to all engagement team
members including internal specialists
and significant component audit teams,
and remained alert to any indications of
fraud or non-compliance with laws and
regulations throughout the audit.
Report on other legal and
regulatory requirements
12. Opinions on other
matters prescribed by the
Companies Act 2006
In our opinion the part of the directors’
remuneration report to be audited has
been properly prepared in accordance
with the Companies Act 2006.
In our opinion, based on the work
undertaken in the course of the audit:
• the information given in the
strategic report and the directors’
report for the financial year for
which the financial statements are
prepared is consistent with the
financial statements; and
• the strategic report and the
directors’ report have been
prepared in accordance with
applicable legal requirements.
In the light of the knowledge and
understanding of the group and
the parent company and their
environment obtained in the course
of the audit, we have not identified
any material misstatements in the
strategic report or the directors’
report.
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13. Corporate Governance
Statement
The Listing Rules require us to review the
directors’ statement in relation to going
concern, longer-term viability and that part
of the Corporate Governance Statement
relating to the group’s compliance with
the provisions of the UK Corporate
Governance Code specified for our review.
Based on the work undertaken as
part of our audit, we have concluded
that each of the following elements
of the Corporate Governance
Statement is materially consistent
with the financial statements and our
knowledge obtained during the audit:
• the directors’ statement with
regards to the appropriateness of
adopting the going concern basis
of accounting and any material
uncertainties identified (as set out
on page 89);
• the directors’ explanation as to
its assessment of the group’s
prospects, the period this
assessment covers and why the
period is appropriate (as set out on
page 89);
• the directors’ statement on fair,
balanced and understandable (set
out on page 121);
• the board’s confirmation that it has
carried out a robust assessment
of the emerging and principal risks
(set out on page 89);
• the section of the annual report
that describes the review of
effectiveness of risk management
and internal control systems (set
out on page 89); and
• the section describing the work
of the audit committee (set out on
page 89).
14. Matters on which we
are required to report by
exception
14.1. Adequacy of explanations
received and accounting
records
Under the Companies Act 2006 we are
required to report to you if, in our opinion:
• we have not received all the information
and explanations we require for our
audit; or
• adequate accounting records have not
been kept by the parent company, or
returns adequate for our audit have
not been received from branches not
visited by us; or
• the parent company financial
statements are not in agreement with
the accounting records and returns.
We have nothing to report in respect
of these matters.
14.2. Directors’ remuneration
Under the Companies Act 2006 we
are also required to report if in our
opinion certain disclosures of directors’
remuneration have not been made or the
part of the directors’ remuneration report
to be audited is not in agreement with the
accounting records and returns.
We have nothing to report in respect
of these matters.
15. Other matters which we are
required to address
15.1. Auditor tenure
Following the recommendation of the
audit committee, we were appointed
by the directors on 1 August 2002 to
audit the financial statements for the
year ending 31 December 2002 and
subsequent financial periods. The period
of total uninterrupted engagement
including previous renewals and
reappointments of the firm is 20 years,
covering the years ending 31 December
2002 to 31 December 2021.
15.2. Consistency of the audit
report with the additional
report to the audit committee
Our audit opinion is consistent with the
additional report to the audit committee
we are required to provide in accordance
with ISAs (UK).
16. Use of our report
This report is made solely to the
company’s members, as a body, in
accordance with Chapter 3 of Part 16 of
the Companies Act 2006. Our audit work
has been undertaken so that we might
state to the company’s members those
matters we are required to state to them
in an auditor’s report and for no other
purpose. To the fullest extent permitted
by law, we do not accept or assume
responsibility to anyone other than the
company and the company’s members as
a body, for our audit work, for this report,
or for the opinions we have formed.
As required by the Financial Conduct
Authority (FCA) Disclosure Guidance and
Transparency Rule (DTR) 4.1.14R, these
financial statements form part of the
European Single Electronic Format (ESEF)
prepared Annual Financial Report filed on
the National Storage Mechanism of the
UK FCA in accordance with the ESEF
Regulatory Technical Standard ((‘ESEF
RTS’). This auditor’s report provides
no assurance over whether the annual
financial report has been prepared using
the single electronic format specified in
the ESEF RTS.
ANTHONY MATTHEWS, FCA
(SENIOR STATUTORY AUDITOR)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
16 March 2022
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CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Income Statement for the year to 31 December 2021
Notes
2021
$ million
2020
$ million
Continuing operations
Revenue 5, 6
Cost of sales 7
(114.6 )
(123.8 )
Gross profit 19.5
Administrative expenses
(13.2 )
(14.7 )
Impairment charge – Intangible assets 6, 15
(2.2 )
(24.3 )
Impairment reversal/(charge) – Property, plant and equipment 6, 16
(210.5 )
Impairment charge – Assets classified as held for sale 6, 37
(10.4 )
Operating profit/(loss) 48.3
(231.3 )
Other/restructuring expense 8
(3.3 )
(5.8 )
Investment revenue 5
Finance costs 9
(6.4 )
(4.2 )
Profit/(Loss) before tax
6
(241.2 )
Income tax (charge)/credit 6, 12
(43.3 )
Loss for the year from continuing operations (4.7 )
(215.6 )
Discontinued operations
Loss post-tax for the year from discontinued operations
6
Loss for the year
30
(4.7 ) (215.8 )
Loss per share from continuing operations (cents)
14
Basic
(1.1 )
(54.6 )
Diluted
(1.1 )
(54.6 )
Loss per share from continuing and discontinued operations (cents)
Basic
(1.1 )
(54.6 )
Diluted
(1.1 )
(54.6 )
Consolidated Statement of Comprehensive Income for the year to 31 December 2021
Notes
2021
$ million
2020
$ million
Loss for the year 30 (4.7 ) (215.8 )
Items that may be subsequently reclassified to profit or loss:
Fair value (loss)/gain arising on hedging instruments during the year 25 (27.7 ) 20.0
Less: Loss/(gain) arising on hedging Instruments reclassified to profit or loss 25 29.7 (23.7 )
Total comprehensive loss for the year (2.7 ) (219.5 )
The above consolidated income statement and consolidated statement of comprehensive income should be read in conjunction with the
accompanying notes.
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CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Balance Sheets as at 31 December 2021
Group Company
Notes
2021
$ million
2020
$ million
2021
$ million
2020
$ million
Non-current assets
Intangible assets 15 12.4 1.5 – –
Property, plant and equipment 16 399.8 435.7 – –
Right-of-use assets 16, 33 – 0.1 – –
Investments 17 – – 278.7 268.1
Loan to subsidiaries – – 27.4 21.1
Other assets 18 48.1 45.9 – –
Current assets
Inventories 19 10.7 17.7 – –
Trade and other receivables 20 28.1 22.9 1.4 1.6
Tax receivables 1.5 0.6 0.4 0.6
Cash and cash equivalents 21 27.1 24.6 5.3 3.5
Assets classified as held for sale 37 62.0 – – –
Total assets 589.7 549.0 313.2 294.9
Current liabilities
Trade and other payables 22 (30.6 ) (35.6 ) (4.3) (2.7)
Borrowings 24 (33.3 ) (12.7 ) – –
Lease liabilities 33 – (0.4 ) – –
Tax payable (5.4 ) (6.7 ) (1.0) (0.4)
Liabilities directly associated with assets classified as held for sale 37 (8.5 ) – – –
(77.8 ) (55.4 ) (5.3) (3.1)
Non-current liabilities
Deferred tax liabilities 23 (91.2 ) (85.5 ) – –
Borrowings 24 (47.2 ) (41.0 ) – –
Long term provisions 26 (69.1 ) (73.4 ) – –
(207.5 ) (199.9 ) – –
Total liabilities (285.3 ) (255.3 ) (5.3) (3.1)
Net assets 304.4 293.7 307.9 291.8
Equity
Share capital 27 34.9 31.9 34.9 31.9
Share premium 27 58.0 55.4 58.0 55.4
Other reserves 28 250.5 243.0 202.4 197.6
Retained (deficit)/earnings 30 (39.0 ) (36.6 ) 12.6 6.9
Total equity 304.4 293.7 307.9 291.8
The above consolidated balance sheets should be read in conjunction with the accompanying notes.
The profit for the financial year in the accounts of the Company (Co number 3300821) was $1.9m inclusive of dividends from subsidiary
undertakings (2020: $264.5 loss). As provided by section 408 of the Companies Act 2006, no income statement or statement of comprehensive
income is presented in respect of the Company.
The financial statements were approved by the Board of Directors on 15 March 2022 and signed on its behalf by:
JOHN MARTIN Chair SUE RIVETT Chief Financial Officer
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Statements of Changes in Equity for the year to 31 December 2021
Group
Notes
Called up
share capital
(see Note 27)
$ million
Share
premium
(see Note 27)
$ million
Other reserves
(see Note 28)
$ million
Retained
earnings/(deficit)
(see Note 30)
$ million
Total
$ million
As at 1 January 2020 31.9 55.4 246.6 176.2 510.1
Loss for the year 30 – – – (215.8 ) (215.8 )
Other comprehensive loss 28 – – (3.7 ) – (3.7 )
Currency exchange translation differences 28 – – 0.8 – 0.8
Share-based payments 28 – – 2.3 – 2.3
Transfer relating to share-based payments 28, 30 – – (3.0 ) 3.0 –
As at 1 January 2021 31.9 55.4 243.0 (36.6 ) 293.7
Loss for the year 30 – – – (4.7 ) (4.7 )
Other comprehensive income 28 – – 2.0 – 2.0
Shares issued 27, 28 3.0 2.6 5.3 – 10.9
Share-based payments 28 – – 2.5 – 2.5
Transfer relating to share-based payments 28, 30 – – (2.3 ) 2.3 –
As at 31 December 2021 34.9 58.0 250.5 (39.0 ) 304.4
Company
Notes
Called up
share capital
(see Note 27)
$ million
Share
premium
(see Note 27)
$ million
Other reserves
(see Note 28)
$ million
Retained
earnings/(deficit)
(see Note 30)
$ million
Total
$ million
As at 1 January 2020 31.9 55.4 199.3 268.4 555.0
Loss for the year 13, 30 – – – (264.5) (264.5)
Currency exchange translation differences 28 – – 0.8 – 0.8
Share-based payments 28 – – 2.3 – 2.3
Transfer relating to share-based payments 28, 30 – – (4.8) 3.0 (1.8)
As at 1 January 2021 31.9 55.4 197.6 6.9 291.8
Profit for the year 13, 30 – – – 1.9 1.9
Shares issued 27, 28 3.0 2.6 5.3 – 10.9
Currency exchange translation differences 28, 30 – – 0.1 1.5 1.6
Share-based payments 28 – – 2.5 – 2.5
Transfer relating to share-based payments 28, 30 – – (3.1) 2.3 (0.8)
As at 31 December 2021 34.9 58.0 202.4 12.6 307.9
The above consolidated statements of changes in equity should be read in conjunction with the accompanying notes.
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135
CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Cash Flow Statements for the year to 31 December 2021
Group Company
Notes
2021
$ million
2020
$ million
2021
$ million
2020
$ million
Net cash from (used in) operating activities 32 10.8 56.4 (7.1) (16.9)
Investing activities
Purchase of intangible assets (15.2 ) (3.5 ) - -
Purchase of property, plant and equipment (24.4 ) (35.5 ) - -
Payment to abandonment fund 18 (2.2 ) (2.3 ) - -
Advance consideration on farm out of Egyptian assets 2.0 - - -
Other investment in subsidiary undertakings - - (8.4) (5.4)
Dividends received from subsidiary undertakings - - 6.1 21.8
Net cash (used in) from investing activities (39.8 ) (41.3 ) (2.3) 16.4
Financing activities
Repayment of borrowings 24 (12.5 ) (42.8 ) - -
Proceeds from borrowings 24 39.9 - - -
Interest paid on borrowings 24 (6.8 ) (4.6 ) - -
Lease payments 33 (0.4 ) (1.1 ) - (0.5)
Net proceeds from issue of share capital 27 10.9 - 10.9 -
Net cash from (used in) financing activities 31.1 (48.5 ) 10.9 (0.5)
Net increase (decrease) in cash and cash equivalents 2.1 (33.4 ) 1.5 (1.0)
Cash and cash equivalents at beginning of year 24.6 58.5 3.5 4.5
Effect of foreign exchange rate changes 0.4 (0.5 ) 0.3 -
Cash and cash equivalents at end of year 21 27.1 24.6 5.3 3.5
The above consolidated cash flow statements should be read in conjunction with the accompanying notes.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. General information
address of the registered office is given on
the inside back cover. The nature of the
Group’s operations and its principal
activities are set out in Note 6, in the
Operations Review and CFO’s statement
on pages 26 to 37 and 38 to 42,
respectively. Pharos Energy plc is the
ultimate parent company of the Group and
except where otherwise indicated the
following accounting policies apply to both
the Group and the Company.
2. Significant accounting
policies
a) Basis of preparation
The financial statements have been
prepared in accordance with international
accounting standards in conformity with
the requirements of the Companies Act
2006 and International Financial Reporting
Standards as issued by the International
Accounting Standard Board (IASB).
The Financial Statements have also been
prepared on a going concern basis of
accounting for the reasons set out in the
Directors’ Report on page 121 and in the
CFO’s statement on page 42.
The Financial Statements have been
prepared under the historical cost basis,
except for the valuation of hydrocarbon
inventories and the revaluation of certain
financial instruments. The Financial
Statements are presented in US dollars as
it is the functional currency of each of the
Company’s subsidiary undertakings and is
generally accepted practice in the oil and
gas sector.
The principal accounting policies adopted
are set out below.
b) New and amended standards
adopted by the Group
A number of new or amended standards
became applicable for the current
reporting period. The group did not have
to change its accounting policies or make
retrospective adjustments as a result of
adopting these standards.
• COVID-19-Related Rent Concessions –
amendments to IFRS 16, and
• Interest Rate Benchmark Reform –
Phase 2 – amendments to IFRS 9, IAS
39, IFRS 7, IFRS 4 and IFRS 16.
c) New standards and interpretations
not yet adopted
Certain new accounting standards and
interpretations have been published that
are not mandatory for 31 December 2021
year end and have not been early adopted
by the Group. These standards are not
expected to have a material impact on the
Group in the current or future reporting
periods nor on foreseeable future
transactions.
d) Basis of consolidation
The Group Financial Statements
consolidate the accounts of Pharos
Energy plc and entities controlled by the
Company (its subsidiary undertakings)
drawn up to the balance sheet date.
Control is achieved where the investor is
exposed or has rights to variable returns
from its involvement with the investee
and has the ability to affect those returns
through its power over the investee.
The Company reassesses whether or
not it controls an investee if facts and
circumstances indicate that there are
changes to one or more of the elements
of control. The results of subsidiaries
acquired or sold are consolidated for
the periods from or to the date on which
control passed.
Where necessary, adjustments are made
at the Group level to align the accounting
policies of the subsidiaries to the Group’s
accounting policies.
All intragroup assets and liabilities, equity,
income, expenses and cash flows relating
to transactions between the members of
the Group are eliminated on consolidation
e) Assets held for sale
Non-current assets are classified as
held-for-sale if it is highly probable that
they will be recovered primarily through
sale rather than through continuing use.
This condition is regarded as met only
when the sale is highly probable and the
asset is available for immediate sale in its
present condition subject only to terms
that are usual and customary for sales
of such assets. Management must be
committed to the sale, which should be
expected to qualify for recognition as a
completed sale within one year from the
date of classification as held for sale, and
actions required to complete the plan of
sale should indicate that it is unlikely that
significant changes to the plan will be
made or that the plan will be withdrawn.
Such assets are measured at the lower
of their carrying amount and fair value
less costs to sell. Impairment losses
on initial classification as held for sale
and subsequent gains or losses on re-
measurement are recognised in profit and
loss.
Once classified as held for sale, intangible
assets and property, plant and equipment
are no longer amortised or depreciated.
f) Investments
Non-current investments in subsidiaries
of the Company are shown at cost less
provision for impairment. An impairment
loss is recognised for the amount by
which the asset’s carrying amount
exceeds its recoverable amount. The
recoverable amount is the higher of an
asset’s fair value less costs of disposal
and value in use. Liquid investments
comprise short-term liquid investments of
between three to six months maturity.
g) Interests in joint arrangements
A joint arrangement is an arrangement
where two or more parties have joint
control. Joint control is the contractually
agreed sharing of control of an
arrangement, which exists only when
decisions about the relevant activities
require the unanimous consent of
the parties sharing control. Joint
arrangements where the Group has
the rights to assets and obligations for
liabilities of the arrangement are classified
as joint operations and are accounted
for by recognising the Group’s share of
assets, liabilities, income and expenses.
Joint arrangements where the Group
has the rights to the net assets of the
arrangement are classified as joint
ventures and are accounted for using the
equity method of accounting.
h) Revenue
Revenue represents the fair value of
the Group’s share of oil and gas sold
during the year on a liftings basis and is
recognised when the Group satisfies a
performance obligation by transferring
oil and gas to a customer. In accordance
with the Group’s sales agreements for oil
and gas, the title to oil and gas typically
transfers to a customer at the same
time as the customer takes physical
possession of the oil or gas. Typically,
at this point in time, the performance
obligations of the Group are fully satisfied.
Investment revenue is accrued on a
time basis, by reference to the principal
outstanding and at the effective interest
rate applicable.
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137
CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
i) Other/restructuring items
Other/restructuring items represent
income and expenses that arise from
events or transactions that are clearly
distinct from the ordinary activities of the
Group and, therefore, are not expected to
recur frequently or regularly. Refer to Note
8 for further details.
j) Intangible and tangible non-
current assets
Oil and gas exploration, evaluation and
development expenditure
The Group adopts the successful efforts
method of accounting for exploration
and evaluation costs. Pre-licence costs
are expensed in the period in which
they are incurred. All licence acquisition,
exploration and evaluation costs and
direct administration costs are initially
capitalised as intangible non-current
assets in cost centres by well (most
typically), field or exploration area,
as appropriate. Interest payable is
capitalised insofar as it relates to specific
development activities.
These costs are then written off as
exploration costs in the income statement
unless commercial reserves have been
established or the determination process
has not been completed and there are no
indicators of impairment.
All field development costs are capitalised
as property, plant and equipment.
Property, plant and equipment related
to production activities is amortised in
accordance with the Group’s depreciation,
depletion and amortisation accounting
policy.
Depreciation, depletion and amortisation
Depletion is provided on oil and gas
assets in production using the unit of
production method, based on proven and
probable reserves, applied to the sum of
the total capitalised exploration, evaluation
and development costs, together with
estimated future development costs
at current prices. Oil and gas assets
which have a similar economic life are
aggregated for depreciation purposes.
Impairment of value
Where there has been a change in
economic conditions or in the expected
use of a tangible non-current asset
that indicates a possible impairment
of an asset, management tests the
recoverability of the net book value of the
asset by comparison with the estimated
discounted future net cash flows based
on management’s expectations of future
oil prices and future costs. Any identified
impairment is charged/credited to the
income statement in the period in which it
is identified.
Intangible non-current assets are
considered for impairment at least
annually by reference to the indicators
specified in paragraphs 18 to 20 of IFRS
6. The impairment indicators in IFRS 6 for
each exploration asset are:
• The period for which the entity has the
right to explore in the specific area has
expired during the period or will expire
in the near future, and is not expected
to be renewed;
• Substantive expenditure on further
exploration for and evaluation of mineral
resources in the specific area is neither
budgeted nor planned;
• Exploration for and evaluation of
mineral resources in the specific
area have not led to the discovery
of commercially viable quantities of
mineral resources and the entity has
decided to discontinue such activities in
the specific area; and
• Sufficient data exist to indicate
that, although a development in the
specific area is likely to proceed, the
carrying amount of the exploration
and evaluation asset is unlikely to
be recovered in full from successful
development or by sale.
Other tangible non-current assets
Other tangible non-current assets are
stated at historical cost less accumulated
depreciation. Depreciation is provided on
a straight-line basis at rates calculated
to write off the cost of those assets, less
residual value, over their expected useful
lives of three to seven years.
Decommissioning
The decommissioning provision is
calculated as the net present value of the
Group’s share of the expenditure which is
expected to be incurred at the end of the
producing life of each field in the removal
and decommissioning of the production,
storage and transportation facilities
currently in place. The cost of recognising
the decommissioning provision is
included as part of the cost of the relevant
property, plant and equipment and is thus
charged to the income statement on a
unit of production basis in accordance
with the Group’s policy for depletion
and depreciation of tangible non-current
assets. Period charges for changes in the
net present value of the decommissioning
provision arising from discounting are
included in finance costs.
k) Changes in estimates
The effects of changes in estimates on
the unit of production calculations are
accounted for prospectively, from the
date of adoption of the revised estimates,
over the estimated remaining proven and
probable reserves.
l) Inventories
Inventories, except for inventories of
hydrocarbons, are valued at the lower
of cost and net realisable value. Cost is
determined on a weighted average cost
basis and comprises direct purchase
costs. Net realisable value is determined
by reference to prices existing at the
balance sheet date.
Physical inventories of hydrocarbons
are valued at net realisable value in line
with well-established industry practice.
Underlifts and overlifts are valued at
market value and are included in accrued
income and prepayments, and accruals
and deferred income, respectively.
Changes in hydrocarbon inventories,
underlifts and overlifts are adjusted
through cost of sales.
m) Leases
On inception of a contract, the Group
assesses whether the contract is, or
contains, a lease. The contract is, or
contains, a lease if it conveys the right
to control the use of an identified asset
for a period of time in exchange for
consideration. To determine whether
the contract conveys the right to control
the use of an identified asset, the Group
assesses whether the contract involves
the use of an identified asset, the Group
has the right to obtain substantially all of
the economic benefits from the use of the
asset throughout the period of use, and
the Group has the right to direct the use
of the asset.
For short-term leases (lease term less
than 12 months) and leases for which the
underlying asset is of low value assets,
the Group has opted to recognise a lease
expense on a straight-line basis.
Right-of-use assets are measured at the
amount of the corresponding lease liability
on the date of initial adoption (adjusted for
any prepaid or accrued lease expenses).
Lease liabilities are measured at the
present value of the remaining lease
payments, discounted using the interest
rate implicit in the lease (if available), or
the incremental borrowing rate at start of
the lease.
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n) Share-based payments
Equity-settled awards under share-
based incentive plans are measured at
fair value at the date of grant. The fair
value determined at the grant date of the
equity-settled share-based payments
is expensed on a straight- line basis
over the vesting period, based on the
Group’s estimate of the number of equity
instruments that will eventually vest. At
each reporting date, the Group revises
its estimate of the number of equity
instruments expected to vest as a result
of the effect of non-market-based vesting
conditions. The impact of the revision of
the original estimates, if any, is recognised
in profit or loss such that the cumulative
expense reflects the revised estimate, with
a corresponding adjustment to reserves.
For cash-settled share-based payments, a
liability is recognised measured initially at
fair value. At each balance sheet date until
the liability is settled, and at the date of
settlement, the fair value of the liability is
measured, with any changes in fair value
recognised in profit or loss for the year.
o) Taxation
The tax expense represents the sum of
the tax currently payable and deferred tax.
The tax currently payable is based on
taxable profit for the year. Taxable profit
differs from net profit as reported in profit
or loss because it excludes items of
income or expense that are taxable or
deductible in other years and it further
excludes items that are never taxable or
deductible. The Group’s liability for current
tax is calculated using tax rates that have
been enacted or substantively enacted by
the balance sheet date.
Deferred tax is the tax expected to be
payable or recoverable on differences
between the carrying amounts of assets
and liabilities in the financial statements
and the corresponding tax bases, and is
accounted for using the balance sheet
liability method. Deferred tax liabilities
are generally recognised for all taxable
temporary differences and deferred tax
assets are recognised to the extent
that it is probable that sufficient taxable
profits will be available to recover the
asset. Deferred tax is not recognised
where an asset or liability is acquired in
a transaction which is not a business
combination for an amount which differs
from its tax value.
Deferred tax is calculated at the tax
rates that are expected to be applied in
the period when the liability is settled or
the asset is realised based on tax rates
that have been enacted or substantively
enacted by the balance sheet date.
Deferred tax is charged or credited in the
income statement, except when it relates
to items charged or credited directly to
equity, in which case the deferred tax is
also dealt with in equity.
p) Financial instruments
Financial assets and financial liabilities are
recognised on the Group’s balance sheet
when the Group becomes a party to the
contractual provisions of the instrument.
There are no material financial assets and
liabilities for which differences between
carrying amounts and fair values are
required to be disclosed. The classification
of financial instruments as required by
IFRS 7 is disclosed in Notes 20, 21, 22,
24, 33 and 36.
Financial asset at fair value through
profit or loss
Where a financial instrument is classified
as a financial asset at fair value through
profit or loss it is initially recognised at
fair value. At each balance sheet date
the fair value is reviewed and any gain or
loss arising is recognised in the income
statement. Changes in the net present
value of the financial asset arising from
discounting are included in other income
and expense. As at 31 December 2021
and 2020 no financial assets were
classified at fair value through profit or
loss.
Trade receivables
Trade receivables are recognised initially
at fair value and subsequently measured
at amortised cost, less expected credit
losses provision, when required.
Trade payables
Trade payables are generally stated at
amortised cost using the effective interest
rate.
Derivative and hedging instruments
Derivatives are initially recognised at
fair value on the date that a derivative
contract is entered into, and they are
subsequently re-measured to their fair
value at the end of each reporting period.
The accounting for subsequent changes
in fair value depends on whether the
derivative is designated as a hedging
instrument and, if so, the nature of the
item being hedged.
At inception of the hedge relationship,
the Group documents the economic
relationship between hedging instruments
and hedged items, including whether
changes in the cash flows of the hedging
instruments are expected to offset
changes in the cash flows of hedged
items. The Group documents its risk
management objective and strategy for
undertaking its hedge transactions.
Pharos entered into different commodity
(swap) hedges to protect the Brent
component of forecast oil sales and
to ensure future compliance with its
obligations under the RBL. Pharos has
designated the swaps as cash flow
hedges. For cash flow hedges, the
portion of the gains and losses on the
hedging instrument that is determined
to be an effective hedge is taken to
other comprehensive income and the
ineffective portion is recognised in the
income statement. The gains and losses
taken to other comprehensive income are
subsequently transferred to the income
statement during the period in which the
hedged transaction affects the income
statement.
Borrowings
Interest-bearing bank loans are recorded
at the proceeds received, net of direct
issue costs. Finance charges, including
any direct issue costs, are accounted
for on an accrual basis in the income
statement using the effective interest
method and are added to the carrying
amount of the instrument to the extent
that they are not settled in the year in
which they arise.
The effective interest method is a method
of calculating the amortised cost of a
financial liability and of allocating interest
expense over the relevant period. The
effective interest rate is the rate that
exactly discounts estimated future
cash payments (including all fees and
transaction costs) through the expected
life of the financial liability to the amortised
cost of a financial liability.
The Group derecognises financial liabilities
when, and only when, the Group’s
obligations are discharged, cancelled or
have expired. The difference between the
carrying amount of the financial liability
derecognised and the consideration paid
and payable is recognised in profit or loss.
When the Group exchanges with the
existing lender one debt instrument into
another one with substantially different
terms, such exchange is accounted
for as an extinguishment of the original
financial liability and the recognition of a
new financial liability. Similarly, the Group
accounts for substantial modification
of terms of an existing liability or part of
it as an extinguishment of the original
financial liability and the recognition of a
new liability. It is assumed that the terms
are substantially different if the discounted
present value of the cash flows under
the new terms, including any fees paid
net of any fees received and discounted
using the original effective interest rate
is at least 10 per cent different from
the discounted present value of the
remaining cash flows of the original
Pharos Energy Annual Report and Accounts 2021
139
CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
financial liability. If the modification is not
substantial, the difference between: (1)
the carrying amount of the liability before
the modification; and (2) the present
value of the cash flows after modification
is recognised in profit or loss as the
modification gain or loss within other gains
and losses.
Equity instruments
Equity instruments issued by the
Company are recorded at the proceeds
received, net of direct issue costs. Equity
instruments repurchased are deducted
from equity at cost.
q) Provisions
A contingent liability is disclosed unless
the possibility of an outflow of resources
embodying economic benefits is remote
or the amount of the liability cannot be
measured with sufficient reliability.
Contingent liabilities may develop in a way
not initially expected. Therefore, they are
assessed continually to determine whether
an outflow of resources embodying
economic benefits has become probable.
If it becomes probable that an outflow
of future economic benefits will be
required for an item previously dealt with
as a contingent liability, a provision is
recognised in the financial statements
of the period in which the change in
probability occurs.
Provisions are recognised when the
Group has a present obligation (legal or
constructive) as a result of a past event, it
is probable that the Group will be required
to settle that obligation and a reliable
estimate can be made of the amount of
the obligation.
The amount recognised as a provision
is the best estimate of the consideration
required to settle the present obligation
at the reporting date, taking into account
the risks and uncertainties surrounding the
obligation. Where a provision is measured
using the cash flows estimated to settle
the present obligation, its carrying amount
is the present value of those cash flows
(when the effect of the time value of
money is material).
When some or all of the economic
benefits required to settle a provision
are expected to be recovered from a
third party, a receivable is recognised
as an asset if it is virtually certain that
reimbursement will be received and
the amount of the receivable can be
measured reliably.
Decommissioning provisions:
Provisions for the costs to decommission
oil & gas properties are recognised when
the Group has an obligation required
by the terms and conditions of the
agreements and when a reliable estimate
can be made. The provision for the costs
of decommissioning oil & gas properties
at the end of their economic lives is
estimated using existing technology, at
future prices, depending on the expected
timing of the activity, and discounted
using the nominal discount rate. Estimates
are regularly reviewed and adjusted as
appropriate for new circumstances.
r) Foreign currencies
The individual financial statements of each
Group company are stated in the currency
of the primary economic environment
in which it operates (its functional
currency). Transactions in currencies
other than the entity’s functional currency
(foreign currency) are recorded at the
rate of exchange at the date of the
transaction. Monetary assets and liabilities
denominated in foreign currencies at the
balance sheet date are recorded at the
rates of exchange prevailing at that date,
or if appropriate, at the forward contract
rate. Any resulting gains and losses are
included in net profit or loss for the period.
For the purpose of presenting
consolidated financial statements
the results of entities denominated in
currencies other than US dollars are
translated at the daily rate of exchange
and their balance sheets at the rates
ruling at the balance sheet date. Any
resulting gains or losses are taken to other
comprehensive income.
s) Pension costs
The contributions payable in the year
in respect of pension costs for defined
contribution schemes and other post-
retirement benefits are charged to the
income statement. Differences between
contributions payable in the year and
contributions actually paid are shown
either as accruals or prepayments in the
balance sheet.
3. Financial risk management
The Board reviews and agrees policies for
managing financial risks that may affect
the Group. In certain cases the Board
delegates responsibility for such reviews
and policy setting to the Audit and Risk
Committee. The principal financial risks
affecting the Group are discussed in the
Risk Management and Risk Report on
pages 43 to 57.
4. Critical judgements and
accounting estimates
a) Critical judgements in applying
the Group’s accounting policies
In the process of applying the Group’s
accounting policies described in Note
2, management has made judgements
that may have a significant effect on
the amounts recognised in the financial
statements. These are discussed below:
Oil and gas assets
Note 2(j) describes the judgements
necessary to implement the Group’s
policy with respect to the carrying value
of intangible exploration and evaluation
assets.
Management considers these assets
for impairment at least annually with
reference to indicators in IFRS 6. Note 15
discloses the carrying value of intangible
exploration and evaluation assets along
with details of impairment charges that
arose during the year. Further, Note 2(j)
describes the Group’s policy regarding
reclassification of intangible assets to
tangible assets. Management considers
the appropriateness of asset classification
at least annually.
Going concern
The Financial Statements have been
prepared on the going concern basis of
accounting. A number of judgements
were taken in concluding that this basis
of preparation was appropriate and that
there were no material uncertainties in
this regard. These included applying
appropriate estimates of future production
and oil price together with ensuring that
the forecasts included all expenditure
that was either committed or expected
to be incurred in relation to estimated
production volumes. Consideration
was also given to the potential ongoing
impact of the COVID-19 pandemic.
During 2020, the pandemic did not
cause any interruptions to the group’s
producing assets in Vietnam and Egypt
and accordingly the primary impact to
the group’s cash generating ability due
to the pandemic in the next 12 months
is considered to be the risk of further oil
price reductions due to global supply
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and demand dislocations. This risk has
been taken into consideration through
downside oil price sensitivities, including
the application of a reverse stress test.
Further details in this area are provided in
the Directors’ Report on page 121 and
in the CFO’s Statement on pages 38 to
42.
Asset held for sale
There are certain criteria that should be
actively considered in assessing whether
that for the farm-down and sale of a
55% working interest and operatorship in
the Egyptian concessions to IPR should
be treated as an Asset held for sale. In
particular that it should be highly probable
and available for sale in its present
condition subject to terms that are usual
and customary for sales of such assets.
The sale was considered highly probable
given the commitment to sell in place from
the Board of Directors and that a buyer
and price had been agreed with IPR.
Shareholder approval had been obtained
and the process of negotiation in obtaining
regulatory approvals for the disposal were
well advanced. Accordingly the key criteria
were considered met in December 2021
and the relevant assets and liabilities were
treated as held for sale.
Treatment of the Third Amendment to
the El Fayum Concession Agreement
At 31 December 2021 it was not certain
that the Third Amendment to the El Fayum
Concession Agreement would be agreed.
Whilst some preliminary approvals
occurred in December 2020 the final
approvals had not been received. Until
these had arisen it was not considered
appropriate to recognise these revised
terms until these final approvals had been
obtained reflecting the risks of political
change or potential for subsequent
change and renegotiation.
The agreement post year end of the Third
Amendment to the El Fayum Concession
Agreement, with retroactive application of
the improved fiscal terms from November
2020 and a three and a half year
extension to the exploration period, was
accordingly treated as a non-adjusting
post balance sheet event. An impairment
reversal of $28.2m utilising the changed
circumstances of 31 December 2021
as the basis has been calculated on the
remaining 45% share held and will be
factored into the impairment reviews going
forward.
b) Key sources of estimation
uncertainty
The key assumptions concerning
the future, and other key sources of
estimation uncertainty at the balance
sheet date, other than those mentioned
above, that may have a significant risk
of causing a material adjustment to the
carrying amounts of assets and liabilities
within the next financial year are discussed
below:
Oil and gas reserves and DD&A
Note 2(j) sets out the Group’s accounting
policy on DD&A. Proven and probable
reserves are estimated using standard
recognised evaluation techniques and are
disclosed on page 166. The estimate
is reviewed at least twice a year and is
audited by third party reservoir engineers
at year end. Future development costs
are estimated taking into account the
level of development required to produce
the reserves by reference to operators,
where applicable, and internal engineers.
As discussed in the Operations Review
on pages 32 to 34, the Vietnam
fields, TGT and CNV proved and probable
reserves estimates have been revised
based on ongoing work of ERCE and
audited by our Reserves Auditors, RISC
Advisory Pty Ltd. Egypt proved and
probable reserves estimates have been
revised based on ongoing work of ERCE
and audited by McDaniels. Reserves
estimates are inherently uncertain,
especially in the early stages of a field’s
life, and are routinely revised over the
producing lives of oil and gas fields as
new information becomes available and
as economic conditions evolve. Such
revisions may impact the Group’s future
financial position and results, in particular,
in relation to DD&A and impairment
testing of oil and gas property, plant and
equipment.
Impairment of producing oil and gas
assets
If impairment indicators are identified in
relation to a producing oil and gas field,
management is required to compare
the net carrying value of the assets
and liabilities which represent the field
cash generating unit (CGU) with the
estimated recoverable amount of the
field. Management generally determines
the recoverable amount of the field
by estimating its value in use, using a
discounted cash flow method. Calculating
the net present value of the discounted
cash flows involves key assumptions
which include commodity prices, 2P
reserves estimates and discount rates.
Other assumptions include production
profiles, future operating and capital
expenditures and the relevant fiscal terms.
Further information relating to the specific
assumptions and uncertainties relevant to
impairment tests performed in the year are
discussed in Note 17.
Climate change and the energy transition
Climate change and the transition to a
low carbon economy were considered
in preparing the consolidated financial
statements. In particular, the energy
transition is likely to impact future oil
and gas prices which in turn may affect
the recoverable amount of the group’s
property, plant and equipment (PP&E).
Management’s best estimate of future oil
prices was revised down significantly in
2020 but upwards in 2021, in part due to
expectations of the impact of the energy
transition. In developing these price
assumptions, consideration was given to
a range of third party forecasts, including
a number that were described as being
consistent with achieving the goal to
reach net zero by 2050 and align with
COP26 (the “Net Zero price scenario”).
Management’s best estimate of oil prices,
although higher, was within $5/bbl of the
average of the Net Zero price scenario.
Further details of the key assumptions
in this area have been provided in Note
16, including sensitivity analysis outlining
the impact on the impairment charges of
using the average of the Paris compliant
scenarios. In addition to impairment,
climate change pressures could curtail
the expected useful lives of the group’s
oil and gas PP&E, thereby accelerating
depreciation charges. However, the
group’s producing fields are likely to be
fully depreciated within 15 years, during
which timeframe it is expected that
global demand for oil will remain robust.
Accordingly, the impact of climate change
on expected useful lives is not considered
to be a significant judgement or estimate.
In addition to PP&E, climate change
could: (1) adversely impact the future
development or viability of exploration
and evaluation (E&E) prospects. However,
the impact of the climate change will
be taken into consideration when the
field is transferred from exploration to
development stage; (2) bring forward the
date of decommissioning of the group’s
producing oil and gas assets in Vietnam,
thereby increasing the net present value
of the associated provision. However,
decommissioning is currently forecast to
occur within the next 10-11 years and,
due to the relatively short timeframe, it
is not considered that any reasonably
possible acceleration in the timing of
decommissioning will have a material
impact on the provision, assuming
the underlying cost estimates remain
unchanged.
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5. Total revenue
An analysis of the Group’s revenue is as follows:
2021
$ million
20204596
$ million
Oil and gas sales (see Note 6) 163.8 118.3
Realised (losses)/gains on commodity hedges (see Note 6 and Note 25) (29.7) 23.7
Investment revenue – 0.1
134.1 142.1
6. Segment information
located in South East Asia and Egypt (the Group’s operating segments). Africa has been classified as a discontinued operation for all
years shown, as the Group disposed of all of its interests in that geographical area in previous years. There are no inter-segment sales.
South East Asia and Egypt form the basis on which the Group reports its segment information.
2021
SE Asia
$ million
Egypt
$ million
Africa
2
$ million
Unallocated
$ million
Group
$ million
Oil and gas sales (see Note 5) 131.0 32.8 – – 163.8
Realised loss on commodity hedges (see Note 5 and Note 25)
– – – (29.7) (29.7)
Total revenue 131.0 32.8 – (29.7) 134.1
Depreciation, depletion and amortisation - Oil and gas
(see Note 7 and Note 16)
(43.0) (8.0) – – (51.0)
Depreciation, depletion and amortisation - Other (see Note 16) – (0.4) – – (0.4)
Impairment charge – Intangibles (see Note 15)
3
– – – (2.2) (2.2)
Impairment reversal – PP&E (see Note 16) 52.9 1.7 – – 54.6
Impairment charge – Assets classified as held for sale (see Note 37) – (10.4) – – (10.4)
Profit/(loss) before tax from continuing operations
1
98.8 (10.1) – (50.1) 38.6
Loss (post-tax) from discontinued operations – – – – –
Tax charge on operations (see Note 12) (24.8) – – – (24.8)
Tax charge on impairment reversal (see Note 12) (18.5) – – – (18.5)
2020
SE Asia
$ million
Egypt
$ million
Africa
2
$ million
Unallocated
$ million
Group
$ million
Oil and gas sales (see Note 5) 87.7 30.6 – – 118.3
Realised gain on commodity hedges (see Note 5 and Note 25) – – – 23.7 23.7
Total revenue 87.7 30.6 – 23.7 142.0
Depreciation, depletion and amortisation - Oil and gas
(see Note 7 and Note 16) (47.8) (15.5) – – (63.3)
Depreciation, depletion and amortisation - Other (see Note 16) – (0.5) – (0.7) (1.2)
Impairment charge – Intangibles (see Note 15)
4
(19.0) (5.3) – – (24.3)
Impairment charge – PP&E (see Note 16) (105.1) (105.4) – – (210.5)
(Loss)/profit before tax from continuing operations
1
(121.8) (124.6) – 5.2 (241.2)
Loss (post-tax) from discontinued operations – – (0.2) – (0.2)
Tax charge on operations (see Note 12) (11.1) – – – (11.1)
Tax credit on impairment charge (see Note 12) 36.7 – – – 36.7
1) Unallocated amounts included in profit/(loss) before tax comprise corporate costs not attributable to an operating segment, investment revenue, other gains and
losses and finance costs.
2) Africa operations in Congo and Angola were disposed of on 24 June 2018 and 5 October 2018 respectively.
3) Includes $2.2m write-off of seismic costs relating to Israel exploration Zones A and C.
4) Includes $1.1m write off of Block 125&126 tax receivable (other receivable - current) which was dependent on the E&E being developed.
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The accounting policies of the reportable segments are the same as the Group’s accounting policies as described in Note 2.
Included in revenues arising from South East Asia and Egypt are revenues of $128.3m and $32.8m which arose from the Group’s two
largest customers, who contributed more than 10% to the Group’s oil and gas revenue (2020: $61.3m and $30.6m in South East Asia
and Egypt from the Group’s two largest customers).
Geographical information
The Group’s oil and gas revenue and non-current assets (excluding other receivables) by geographical location are separately detailed
below where they exceed 10% of total revenue or non-current assets, respectively:
Revenue
All of the Group’s oil and gas revenue is derived from foreign countries. The Group’s oil and gas revenue by geographical location is
determined by reference to the final destination of oil or gas sold.
2021
$ million
2020
$ million
Vietnam 131.0 64.4
Egypt 32.8 30.6
China – 9.4
Malaysia – 9.2
Other – 4.7
163.8 118.3
Non-current assets
2021
$ million
2020
$ million
Vietnam 360.8 330.5
Egypt 51.4 105.3
Israel (see Note 15) – 1.5
412.2 437.3
Excludes other assets.
7. Cost of sales
2021
$ million
2020
$ million
Depreciation, depletion and amortisation (see Note 16)
51.0
63.3
Production based taxes
10.1
7.0
Production operating costs
53.6
51.2
Inventories
(0.1)
2.3
114.6
123.8
8. Other/exceptional expense
2021
$ million
2020
$ million
Egypt acquisition cost – royalty
–
4.9
Redundancy loss/(gain)
3.0
(0.1)
Premium – lease transfer (see Note 33)
0.3
1.0
3.3
5.8
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CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
9. Finance costs
2021
$ million
2020
$ million
Unwinding of discount on provisions (see Note 26)
0.8
0.8
Interest expense payable and similar fees (see Note 24)
3.8
4.5
Interest on lease liabilities (see Note 33)
-
0.3
Amortisation of capitalised borrowing costs (see Note 24)
2.4
(1.5)
Net foreign exchange (gains)/losses
(0.6)
0.1
6.4
4.2
In 2021 $0.8m relates to the unwinding of discount on the provisions for decommissioning (2020: $0.8m). The provisions are based on
the net present value of the Group’s share of the expenditure which may be incurred at the end of the producing life of TGT and CNV
(currently estimated to be 9-10 years) in the removal and decommissioning of the facilities currently in place (see Note 26).
Following the June and December 2021 redeterminations, together with refinancing completed in July 2021 in relation to the Group’s
reserve based lending facility, there was a change in estimated future cash flows, as a result a one off gain of $0.5m and amortised cost
of $2.9m have been recognised in profit or loss.
10. Auditor’s remuneration
The analysis of the auditor’s remuneration is as follows:
2021
$000s
2020
$000s
Fees payable to the Company’s auditor and their associates for the audit of the Company’s annual accounts
385
317
Fees payable to the Company’s auditor and their associates for other services to the Group:
Audit of the Company’s subsidiaries
101
107
Audit of the Company’s subsidiaries relating to 2020 year end
63
-
Total audit fees 549
424
Audit related assurance services – half year review
130
129
Other assurance services
134
16
Total non-audit fees 264
145
The other assurance services for 2021 are associated primarily with the reporting accountant work in relation to the farm-out of the
Egypt concessions (of which $27,400 are required by UK law or regulation) and the agreed upon procedures relating to the Vietnam
region (2020: associated primarily with agreed upon procedures relating to the Vietnam region).
The non-audit fees during 2021 included the half year review and other assurance services associated primarily with agreed upon
procedures relating to the Farm-out of the Egypt concession and Vietnam region (2020: associated primarily with agreed upon
procedures relating to Vietnam region).
All non-audit fees were fully approved by the Audit and Risk Committee, having concluded such services were compatible with auditor
independence and were consistent with relevant ethical guidance in place.
Details of the Company’s policy on the use of auditors for non-audit services are set out in the Audit and Risk Committee Report on
pages 97 to 101.
Fees payable to Deloitte LLP for non-audit services to the Company are not required to be disclosed separately because the
consolidated financial statements disclose such fees on a consolidated basis.
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11. Staff costs
The average monthly number of employees of the Group including Executive Directors was 74 (2020: 71), of which 69 (2020: 66) were
administrative personnel and 5 (2020: 5) were operations personnel. Their aggregate remuneration comprised:
Group
2021
$ million
2020
$ million
Wages and salaries
9.1
6.9
Social security costs
0.8
0.6
Share-based payment expense (see Note 31)
2.7
2.2
Other pension costs under money purchase schemes
0.9
0.8
Other benefits
0.7
0.3
14.2
10.8
In accordance with the Group’s accounting policy $1.2m (2020: $1.3m) of the Group’s staff costs above have been capitalised, of which
$1.0m (2020: $0.9m) relates to our Vietnam assets and $0.2m (2020: $0.4m) relates to our Egypt assets.
In 2021, total staff costs were $14.2m (2020: $10.8m) and includes the costs of head office and Pharos’ subsidiary employees.
Excluding the impact of IFRS 2 share-based payment expense and bonuses paid to staff, the underlying costs have remained consistent
year on year - $8.5m (2020: $8.3m).
Restructuring costs of $3.0m for both the head office in London and the Egypt office in Cairo are disclosed in other/restructuring
expense in the Income Statement.
12. Tax
2021
$ million
2020
$ million
Current tax charge
37.6
26.7
Deferred tax credit on operations (see Note 23)
(12.8)
(15.6)
Deferred tax charge/(credit) on impairment (see Note 16 and 23)
18.5
(36.7)
Total tax charge/(credit) 43.3
(25.6)
The Group’s corporation tax is calculated at 50% (2020: 50%) of the estimated assessable profit for the year in Vietnam. In Egypt, under
the terms of the concession, any local taxes arising are settled by EGPC. During 2021 and 2020 both current and deferred taxation have
arisen in overseas jurisdictions only.
The charge for the year can be reconciled to the profit / (loss) per the income statement as follows:
2021
$ million
2020
$ million
Profit / (Loss) before tax (including discontinued operations)
38.6
(241.4)
Profit / (Loss) before tax at 50% (2020: 50%)
19.3
(120.7)
Effects of:
Non-taxable income
(8.0)
–
Non-deductible expenses
4.5
24.8
Tax losses not recognised
28.7
57.7
Non-deductible exploration costs written off
–
9.5
Adjustments to tax charge in respect of previous periods
(1.2)
3.1
Tax charge/(credit) for the year
43.3
(25.6)
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CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The prevailing tax rate in Vietnam, where the Group produces oil and gas, is 50%. The tax charge in future periods may also be affected
by the factors in the reconciliation above.
The effect of non-deductible exploration costs written off of $9.5m in 2020 related to the impairment of exploration assets in Vietnam.
Non-taxable income principally relates to Vietnam impairment reversal of $(8.0)m (2020: $nil). Non-deductible expenses primarily relate
to Vietnam DD&A charges for costs previously capitalised, which are non-deductible for Vietnamese tax purposes of $1.8m (2020:
$6.1m) and Vietnam net impairment charge of $nil (2020: $15.9m). A further $2.7m (2020: $2.0m) relates to non-deductible corporate
costs including share scheme incentives.
The Egypt concessions are subject to corporate income tax at the standard rate of 40.55%, however responsibility for payment of
corporate income taxes falls upon EGPC on behalf of our local subsidiary Pharos El Fayum (PEF). The Group records a tax charge,
with a corresponding increase in revenues, for the tax paid by EGPC on its behalf. However, this is only valid if PEF is in a profit making
position and no such tax has been recorded this year.
The effect from tax losses not recognised relates to costs, primarily of the Company, deductible for tax in the UK but not expected to be
utilised in the foreseeable future. It also includes losses arising in Egypt for which no future benefit can be obtained under the terms of
the concession agreement.
13. Profit/(loss) attributable to Pharos Energy Plc
The profit for the financial year in the accounts of the Company was $1.9m inclusive of dividends from subsidiary undertakings (2020:
loss of $264.5m). As provided by section 408 of the Companies Act 2006, no income statement or statement of comprehensive income
is presented in respect of the Company.
14. Earnings per share
The calculation of the basic and diluted earnings per share is based on the following data:
Group
2021
$ million
2020
$ million
Loss from continuing and discontinued operations for the purposes of basic loss per share (4.7) (215.8)
Effect of dilutive potential ordinary shares – Cash settled share awards and options – –
Loss from continuing and discontinued operations for the purposes of diluted loss per share (4.7) (215.8)
Group
2021
$ million
2020
$ million
Loss from continuing operations for the purposes of basic loss per share
(4.7)
(215.6)
Effect of dilutive potential ordinary shares – Cash settled share awards and options
–
–
Loss from continuing operations for the purposes of diluted loss profit per share
(4.7)
(215.6)
Number of shares (million)
2021 2020
Weighted average number of ordinary shares 437.8 395.1
Effect of dilutive potential ordinary shares – Share awards and options – –
Weighted average number of ordinary shares for the purpose of diluted loss per share 452.0 395.1
In accordance with IAS 33 “Earnings per Share”, the effects of $14.2m (2020: $1.3m) antidilutive potential shares have not been
included when calculating dilutive earnings per share for the year ended 31 December 2021 and 2020, as the Group was loss making.
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15. Intangible assets
Group Company
2021
$ million
2020
$ million
2021
$ million
2020
$ million
Exploration and evaluation expenditure
As at 1 January
1.5
20.4
–
0.3
Additions
15.2
4.3
–
–
Impairment – Intangibles
1
(2.2)
(23.2)
–
–
Reclassified as assets held for sale (see Note 37)
(2.1)
–
–
–
Transfer to subsidiary
–
–
–
(0.3)
As at 31 December
12.4
1.5
–
–
1) 2020 excludes $1.1m write-off of Block 125&126 tax receivable (other receivable – current) which was dependent on the E&E being developed.
Intangible assets at 2021 year-end comprise the Group’s exploration and evaluation projects which are pending determination. Included
in the additions is Blocks 125 & 126 in Vietnam $10.6m (2020: $2.0m), Egypt $3.9m (2020: $1.1m) of which $0.6m (2020: $0.3m)
relates to North Beni Suef, and $0.7m (2020: $1.2m) for Israel.
During 2021, $0.7m was spent in Israel on geoscience and geophysical studies (2020: $1.2m). Pharos continues to hold $2.7m (2020:
$2.7m) cash in relation to bank guarantees for the Israeli offshore exploration licenses. At 31 December 2021, the Group has decided to
write off the $2.2m in Israel as no substantive expenditure has been identified as indicated in IFRS 6.
At June 2020 and December 2020 an impairment indicator of IFRS 6 was triggered following the Group’s decision to defer all non-
essential investment in Vietnam and Egypt at this point. No substantive expenditure for its exploration areas in Vietnam and Egypt was
either budgeted or planned in the near future. Exploration costs including costs associated with Blocks 125 & 126 in Vietnam of $17.9m
and costs associated with Egypt projects in the amount of $5.3m were written off in the income statement in accordance with the
Group’s accounting policy on oil and gas exploration and evaluation expenditure. At 31 December 2021, interpretation of the seismic
data in relation to Blocks 125 & 126 in Vietnam is still ongoing and the carrying value of the Egypt exploration and evaluation expenditure
will be reviewed following the completion of the farm out of the Egypt concessions. Whilst ongoing costs for exploration are forecast and
funds available for future exploration, there is not sufficient certainty of recovery to justify the reversal of the past impairment made. This
will be kept under review as the exploration activity continues.
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CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
16. Property, plant and equipment and right of use assets
Group Company
Oil and gas
properties
$ million
Other
$ million
Total
$ million
Other
$ million
Cost
As at 1 January 2020 1,169.2 10.7 1,179.9 9.5
Additions 32.8 0.7 33.5 –
Revision in decommissioning asset 6.6 – 6.6 –
Disposal of other assets – (2.5) (2.5) (2.5)
De-recognition of right-of-use asset (see Note 33) – (7.0) (7.0) (7.0)
As at 1 January 2021 1,208.6 1.9 1,210.5 –
Additions 24.6 0.1 24.7 –
Revision in decommissioning asset (1.9) – (1.9) –
Disposal of other assets – – – –
De-recognition of right-of-use asset (see Note 33) – – – –
Reclassified as assets held for sale (see Note 37) (139.4) (1.1) (140.5) –
As at 31 December 2021 1,091.9 0.9 1,092.8 –
Depreciation
As at 1 January 2020 500.1 2.9 503.0 2.6
Charge for the year 63.3 1.2 64.5 0.7
Impairment charge 210.5 – 210.5 –
Disposal of other assets – (2.0) (2.0) (2.0)
De-recognition of right-of-use asset (see Note 33) – (1.3) (1.3) (1.3)
As at 1 January 2021 773.9 0.8 774.7 –
Charge for the year 51.0 0.4 51.4 –
Impairment (reversal) (54.6) – (54.6) –
Reclassified as assets held for sale (see Note 37) (77.8) (0.7) (78.5) –
As at 31 December 2021 692.5 0.5 693.0 –
Carrying amount
As at 31 December 2021 399.4 0.4 399.8 –
As at 31 December 2020 434.7 1.1 435.8 –
Property, plant and equipment 399.4 0.4 399.8 –
Right of use assets (see Note 33) – – – –
As at 31 December 2021 399.4 0.4 399.8 –
Property, plant and equipment 434.6 1.1 435.7 –
Right of use assets (see Note 33) 0.1 – 0.1 –
As at 31 December 2020 434.7 1.1 435.8 –
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As a result of the oil price volatility and movements in 2P reserves, we have tested each of our oil and gas producing properties for
impairment. The results of these impairment tests are summarised below. For each producing property, the recoverable amount has
been determined using the value in use method which constitutes a level 3 valuation within the fair value hierarchy. The recoverable
amount is supported by the fair value derived from a discounted cash flow valuation of the 2P production profile.
Vietnam
The key assumptions to which the fair value measurement is most sensitive are oil price, discount rate and 2P reserves (2020: oil price,
discount rate, capital spend and 2P reserves). As at 31 December 2021, the fair value of the assets are estimated based on a post-tax
nominal discount rate of 11.4% (2020: 11%) and a Brent oil price of $73.9/bbl in 2022, $70.2/bbl in 2023, $67.8/bbl in 2024, $68.0/bbl
in 2025 plus inflation of 2.0% thereafter (2020: an oil price of $57.0/bbl in 2022, $59.0/bbl in 2023, $61.0/bbl in 2024 plus inflation of
2.0% thereafter).
For CNV, a pre-tax impairment reversal in the amount of $3.8m has been reflected in the income statement with an associated deferred
tax charge of $1.4m. As at 31 December 2021, the carrying amount of the CNV oil and gas producing property, after additions ($0.9m
decrease in decommissioning asset offset by $0.3m in additions), DD&A ($10.2m) and impairment reversal ($3.8m), is $84.2m.
For TGT, a pre-tax impairment reversal in the amount of $49.1m has been reflected in the income statement with an associated deferred
tax charge of $17.1m. As at 31 December 2021, the carrying amount of the TGT oil and gas producing property, after additions ($1.0m
decrease in decommissioning asset offset by $11.4m in additions), DD&A ($32.8m) and after impairment reversal ($49.1m), is $266.0m.
Testing of sensitivity cases indicated that a $5/bbl reduction in long-term oil price used when determining the value in use method would
result in post-tax impairments charge (compare to new NBV) of $23.8m on TGT and a $4.5m on CNV. A 1% increase in discount rate
would result in post-tax impairments of $4.5m on TGT and $1.5m on CNV.
We have also run sensitivities utilising the IEA (International Energy Agency) scenarios described as being consistent with achieving the
COP26 agreement goal to reach net zero by 2050 (the “Net Zero price scenario”). The nominal Brent prices used in this scenario were
as follows; $73.9/bbl in 2022, $70.2/bbl in 2023, $67.8/bbl in 2024, $68.0/bbl in 2025, $64.0/bbl in 2026, $59.0/bbl in 2027, $54.0/
bbl in 2028, $49.0/bbl in 2029 and $44.0/bbl in 2030. Using these prices and an 11.4% discount rate would result in additional post-tax
impairments of $16.9m on TGT and $5.6m on CNV.
The impairment tests for TGT and CNV assume that production ceases in 2029 and 2030 respectively.
Egypt
The key assumptions to which the fair value measurement is most sensitive are oil price, discount rate, capital spend and 2P reserves
(2020: oil price, discount rate, capital spend and 2P reserves). As at 31 December 2021, the fair value of the assets are estimated based
on a post-tax nominal discount rate of 14% (2020: 14%) and a Brent oil price of $73.9/bbl in 2022, $70.2/bbl in 2023, $67.8/bbl in
2024, $68.0/bbl in 2025 plus inflation of 2.0% thereafter (2020: an oil price of $57.0/bbl in 2022, $59.0/bbl in 2023, $61.0/bbl in 2024
plus inflation of 2.0% thereafter).
An impairment reversal (pre and post-tax) of $1.7m arose on El Fayum as a result of the above impairment test. As at 31 December
2021, the carrying amount of the Egypt oil and gas producing property, after additions ($12.9m offset by $1.4m reclassified 100% to
assets held for sale), DD&A ($8.0m) and the impairment reversal, is $109.3m, pre-reclassification to Assets held for sale.
After the reclassification to assets held for sale, the Egypt oil and gas producing property amounts to $49.2m. Testing of sensitivity cases
indicated that a $5/bbl reduction in long term oil price used would result in an impairment of $18.1m (compare to new NBV). A 1%
increase in discount rate would result in an impairment charge of $3.1m. We have also run a sensitivity using a 14% discount rate and
the Net Zero price scenario which would result in an additional impairment of $24.1m.
Other considerations
It is not considered possible to provide meaningful sensitivities in relation to 2P reserves for any of the Group’s oil and gas producing
properties, as the impact of any changes in 2P reserves on recoverable amount would depend on a variety of factors, including the
timing of changes in production profile and the consequential effect on the expenditure required to both develop and extract the
reserves.
Other fixed assets comprise office fixtures and fittings and computer equipment.
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CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
17. Fixed asset investments and joint arrangements
The Company and the Group had investments in the following subsidiary undertakings as at 31 December 2021.
Country
of incorporation
Country
of operation Principal activity
Percentage
holding Footnotes
Registered
address
OPECO Vietnam Limited Cook Islands Vietnam
Oil and gas development and
production
100 2,5 e
SOCO Vietnam Ltd Cayman Islands Vietnam
Oil and gas development and
production
100 2,4 d
Pharos Exploration Limited Jersey – Investment holding 100 1 a
Pharos SEA Limited Jersey – Investment holding 100 1 a
SOCO Exploration (Vietnam) Limited Cayman Islands Vietnam Oil and gas exploration 100 2,6 d
OPECO, Inc USA – Investment holding 100 2,5 c
Pharos El Fayum Cayman Islands Egypt
Oil and gas development and
production
100 1 d
SOCO Management Services, Inc. USA USA Management services 100 2 c
Pharos Energy Israel Limited UK Israel Extraction of crude petroleum 100 1 b
Pharos Energy NBS Limited UK – Extraction of crude petroleum 100 1,3 b
Footnotes:
Group investments
1) Investments held directly by Pharos Energy Plc.
2) Investments held indirectly by Pharos Energy Plc.
3) Dormant
Joint operations
4) SOCO Vietnam Ltd holds a 28.5% working interest in Block 16-1, TGT Field. The Field operational base is development/production and is operated by
Hoang Long Joint Operating Company which is registered in Vietnam. SOCO Vietnam Ltd holds a 25% working interest in Block 9-2, CNV Field. The
Field operational base is development/production and is operated by Hoan Vu Joint Operating Company which is registered in Vietnam.
5) OPECO Vietnam Limited holds a 2% working interest in Block 16-1, TGT Field. The Field operational base is development/production and is operated
by Hoang Long Joint Operating Company which is registered in Vietnam.
6) SOCO Exploration (Vietnam) Limited holds a 70% working interest in Blocks 125 & 126 and is the Operator. The operating office is registered in
Vietnam. The main activity is exploration.
Registered addresses
a) 47 Esplanade, St Helier, Jersey, JE1 0BD, Channel Islands
b) Eastcastle House, 27/28 Eastcastle Street, London W1W 8DH, United Kingdom
c) Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801, USA
d) c/o The offices of Trident Trust Company (Cayman) Limited, One Capital Place, P.O. Box 847, Grand Cayman, KY1-1103, Cayman Islands
e) c/o Portcullis (Cook Islands) Ltd, Portcullis Chambers, Tutakimoa Road, Avarua, Rarotonga, Cook Islands
Divestments:
The following subsidiary undertakings were dissolved during the year:
• Pharos Finance (Jersey) Limited
• Pharos Oil and Gas Limited
• The Company’s investments in subsidiary undertakings include contributions to the Pharos Employee Benefit Trust (see Note 28) and
are otherwise held in the form of share capital.
• In 2021, the increase in investment value of $10.6m was due mainly to $2.1m funding of operating activities for Pharos Exploration
Limited group and funding flows and an impairment reversal in relation to Pharos SEA Limited of $13.1m, partially offset by $(0.9)m
exercise and disposal of shares in Pharos Employee Benefit Trust and $(5.2)m impairment of Pharos El Fayum.
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Audit exemptions for subsidiary company
The Group has elected to take advantage of the exemption from audit available under section 479A of the Companies Act 2006
in respect of its wholly owned subsidiary, Pharos Energy Israel Limited (incorporated in England and Wales with company number
12645819), for the year ended 31 December 2021. The exemption is available for qualifying subsidiaries that fulfil a set of conditions.
As a result, statutory financial statements will not be audited for Pharos Energy Israel Limited. In accordance with section 479C of the
Companies Act 2006, the Company will guarantee the liabilities and commitments of Pharos Energy Israel Limited. As at 31 December
2021, the total sum of these liabilities and commitments is $0.8m (2020: $2.6m).
18. Other non-current assets
Other non-current assets comprise the Group’s share of contributions made into two abandonment security funds which were
established to ensure that sufficient funds exist to meet future abandonment obligations on TGT and CNV fields. The funds are operated
by PetroVietnam and the JOC partners retain the legal rights to the funds pending commencement of abandonment operations. The
Group doesn’t expect to receive cash or another financial asset from PetroVietnam. During 2021, the Group has contributed $2.2m
(2020: $2.3m). As at 31 December 2021, the Group’s total contribution to the funds was $48.1m (2020: $45.9m).
19. Inventories
Group Company
2021
$ million
2020
$ million
2021
$ million
2020
$ million
Crude oil and condensate 5.9 5.6 – –
Warehouse stocks and materials 11.1 12.1 – –
Reclassified as assets held for sale (see Note 37) (6.3) – – –
10.7
17.7
–
–
Crude oil and condensate are valued at net realisable value in line with well-established industry practice with changes in hydrocarbon
inventories adjusted through cost of sales (see Note 7). The warehouse stock and materials inventory of $11.1m (2020: $12.1m) all
relates to Egypt.
20. Trade and other receivables
Group Company
2021
$ million
2020
$ million
2021
$ million
2020
$ million
Amounts falling due within one year
Trade receivables 23.8 14.8 – –
Other receivables 1.0 1.6 0.9 –
Prepayments and accrued income 5.3 6.5 0.5 1.6
Reclassified as assets held for sale (see Note 37) (2.0) – – –
28.1
22.9
1.4
1.6
There is no material difference between the carrying amount of trade and other receivables and their fair value.
Included in trade and other receivables arising from South East Asia and Egypt at 31 December 2021 are trade receivables of $16.3m
and $7.1m respectively, which arose from the Group’s two largest customers (2020: $5.9m and $6.5m from the Group’s two largest
customers in South East Asia and Egypt respectively).
In Vietnam, there are no amounts overdue or allowances for doubtful debts in respect of trade or other receivables (2020: nil). In Egypt,
the average credit period on sales is 78 days (2020: 126 days). No interest is charged on outstanding trade receivables.
Trade and other receivables are financial assets and measured at amortised cost. The Group applies the IFRS 9 simplified approach to
measuring expected credit losses (‘ECL’) which uses a lifetime expected loss allowance for all trade receivables. As mentioned above,
98% (2020: 84%) of our trade receivables are concentrated with two largest customers, one of them being a subsidiary of a government
regulated entity and the other being a major global oil & gas company. As of 31 December 2021 and 2020, we have concluded that the
ECL related to our trade receivables is immaterial.
Included in prepayments is $0.9m (2020: $1.2m) held by Sheppard & Wedderburn LLP on a ’quasi escrow’ basis to be released to the
new London office tenant over the next 12 months as the tenant makes payments to the landlord (see Note 33).
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CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
21. Cash and cash equivalents
As at 31 December 2021, cash and cash equivalents was $27.1m (2020: $24.6m). Of this balance, $0.7m (2020: $0.1m) were in Money
Market Funds that are valued at quoted prices of the funds in the active markets for the financial instruments. The Money Market Funds
were recorded at fair value at the year end.
The cash and cash equivalents in the Group and the Company include $2.7m (2020: $2.7m) of restricted cash, which is related to the
bank guarantees in place for the Israeli offshore exploration licences.
22. Trade and other payables
Group Company
2021
$ million
2020
$ million
2021
$ million
2020
$ million
Trade payables
7.9
18.4
–
–
Other payables
8.0
2.2
1.2
1.1
Derivative financial instruments (see Note 25)
6.5
6.8
–
–
Accruals and deferred income
16.7
8.2
3.1
1.6
Reclassified as liabilities associated with assets held for sale (see Note 37)
(8.5)
–
–
–
30.6
35.6
4.3
2.7
There is no material difference between the carrying value of trade payables and their fair value. The above trade and other payables are
held at amortised cost and are not discounted as the impact would not be material.
Trade and other payables are financial liabilities and are therefore measured at amortised cost.
In Vietnam, the average credit period for settlement of trade payables is standard 30 days or later if this falls within the agreed terms. In
Egypt, the average credit period for settlement of trade payables as at 31 December 2021 is 218 days (2020: 223 days).
The Group does not utilise any supplier financing (reverse factoring) arrangements. The Group has financial risk management policies in
place to ensure that all payables are paid within the pre-agreed credit terms. Further information relating to financial risks and how the
Group mitigate these risks are discussed in the Risk Management and Risk Report on pages 43 to 57.
Accruals and deferred income include $3.4m (2020: $nil) in respect of a royalty provision for Egypt and reflects the amount payable in
the next year. For further details, please refer to Note 26: Long-term provisions.
23. Deferred tax
The following are the major deferred tax liabilities recognised by the Group and movements thereon during the current and prior reporting
period:
Accelerated tax
depreciation
$ million
Other temporary
differences
$ million
Group
$ million
As at 1 January 2020 133.8 4.0 137.8
(Credit)/charge to income (see Note 12) (51.2) (1.1) (52.3)
As at 1 January 2021 82.6 2.9 85.5
Charge to income (see Note 12) 5.7 – 5.7
As at 31 December 2021 88.3 2.9 91.2
The charge to income includes a deferred tax charge of $18.5m (2020: $36.7m credit) that arises from the impairment of the TGT and
CNV producing assets as discussed in Note 16.
There are no unrecognised deferred taxation balances at either balance sheet date except in relation to gross losses that are not
expected to be utilised in the amount of $129.0m (2020: $181.5m). The gross losses have no expiry date.
A UK entity in the Group has entered into commodity swaps designated as cash flow hedges. In accordance with IAS 12, a deferred tax
asset has not been recognised in relation to the hedging losses of $29.7m recorded in the year as it is unlikely that the UK tax group will
generate sufficient taxable profit in the future, against which the deductible temporary differences can be utilised.
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24. Borrowings
Group
2021
$ million
2020
$ million
Borrowings:
Uncommitted Revolving credit facility
6.5
–
Reserve Based Lending Facility
78.1
57.2
Less unamortised issue costs and debt arrangement fees
(4.1)
(3.5)
Carrying value of total debt 80.5
53.7
Current
33.3
12.7
Non-current
47.2
41.0
Carrying value of total debt 80.5
53.7
less than 1 year
$ million
1-2 years
$ million
2-5 years
$ million
G r o u p
$ million
Maturity - borrowings:
Uncommitted Revolving credit facility 6.5 - - 6.5
Reserve Based Lending Facility 26.8 24.2 27.1 78.1
The maturity analysis for borrowings details the Group’s remaining contractual maturity for its borrowings with agreed repayment periods.
The tables have been drawn up based on the undiscounted cash flows of borrowings based on the earliest date on which the Group can
be required to pay. The reserve based lending facility is based on December 2021 redetermination.
Changes in liabilities arising from financing activities:
2021
$ million
2021
$ million
2021
$ million
2020
$ million
Credit facility* RBL
Total
Borrowings Total Borrowings
Carrying value as of 1 January
– 53.7 53.7
98.1
Proceeds from Uncommitted Revolving credit facility
18.1 – 18.1
–
Proceeds from RBL
– 21.8 21.8
–
Repayments of borrowings
(11.6) (0.9) (12.5)
(42.8)
Amortisation of capitalised borrowing costs (see Note 9)
– 2.4 2.4
(1.5)
Interest payable and similar fees (see Note 9)
0.3 3.5 3.8
4.5
Interest paid during the year
(0.3) (6.5) (6.8)
(4.6)
Carrying value as of 31 December 6.5 74.0 80.5
53.7
*The Group drew down on a new facility with the National Bank of Egypt in April 2021.
See Note 33 for movements in lease liabilities which, together with borrowings, represent the Group’s financing related liabilities.
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153
CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Reserve Based Lending facility (RBL)
In September 2018, the Group signed a $125m Reserve Based Lending facility (RBL) secured against the Group’s producing assets in
Vietnam. The RBL had a five-year term and was due to mature in September 2023. In July 2021, the Group completed the refinancing of
its RBL. The new RBL provides access to up to a committed US$100m with a further US$50m available on an uncommitted “accordion”
basis, has a four-year term that matures in July 2025 and bears a per annum interest rate of 4.75% plus USD LIBOR until July 2023 and
then 5.25% plus LIBOR until the final maturity date.
Extending the tenor of the facility by 22 months, allows for a re-phasing of the repayment schedule and the provision of additional funds
available for general corporate purposes. Immediately prior to the refinancing the outstanding loan balance on the original RBL stood at
$56.3m, following the refinancing this was increased to $78.1m.
As the terms of the refinanced RBL do not result in a substantially different discounted present value of cash flows from the original
facility (less than 10%), the refinancing of the RBL is considered as a modification rather than an extinguishment of the original facility.
Accordingly, the refinancing of the RBL is accounted for as a non-substantial modification and the fees paid to the lenders together with
legal fees, totalling $2.9m, related to the refinancing will be amortised over the remaining term of the modified liability along with the
remaining unamortised costs associated with the original facility.
The maximum borrowing base available under the RBL is revised every six months via a redetermination process by the relevant banks,
based on an estimate of the value of the Group’s reserves from its producing interests in Vietnam. The significant decrease in the oil
price in H1 2020 led to a much reduced borrowing base amount in the 30 June 2020 redetermination, resulting in principal repayments
during the year totalling $42.8m. For the year 2021, the only principal repayment made was for $0.9m in January 2021.
The $26.8m, categorised as current, is based on the outcome of the December 2021 RBL redetermination criteria and will likely change
following the June 2022 redetermination.
Discussions are ongoing with the RBL banking group to amend the reference benchmark interest rate of USD LIBOR to the Secured
Overnight Financing Rate (SOFR). The Group anticipates finalising this amendment in the first half of 2022.
The RBL is subject to a number of financial covenants, all of which have been complied with during the 2021 and 2020 reporting
periods.
Uncommitted revolving credit facility - National Bank of Egypt
In March 2021, Pharos El Fayum signed an uncommitted revolving credit facility for discounting (with recourse) of up to $20m with
the National Bank of Egypt (UK). This facility has been put in place to mitigate the risk of late payment of our debtors. Under this
arrangement, Pharos is able to access cash from the facility, of up to 60% of the value of each El Fayum oil sales invoice, presenting
the invoices as evidence to support its ability to repay the facility. The oil sales invoices remain due to Pharos and it retains the credit
risk. The Group therefore continues to recognise the receivables in their entirety in its balance sheet. Loans are available for up to one
year from the date of utilisation and bear a per annum interest rate of USD LIBOR plus 3.00% for initial advances and 3.50% for any
extensions beyond 180 days from the date of the utilisation. The amount repayable under the facility at 31 December 2021 was $6.5m
and it is presented as borrowings under current liabilities. The amount repayable under the agreement at 31 December 2021 was $6.5m
and it is presented as borrowing under current liabilities. Performance under the facility agreement is subject to a parent company
guarantee from Pharos Energy plc.
25. Hedge transactions
During 2021, Pharos entered into different commodity (swap and zero collar) hedges to protect the Brent component of forecast oil
sales and to ensure future compliance with its obligations under the RBL over the producing assets in Vietnam. The commodity hedges
run until December 2022 and are settled monthly. The hedging positions in place at the balance sheet date cover 23% of the Group’s
forecast production until December 2022, securing a minimum price for this hedged volume of $68.2 per barrel (2020: cover was 42%
of the Group’s forecast production until December 2021 securing an average price for this hedged volume of $44.7 per barrel).
Pharos has designated the swaps as cash flow hedges. This means that the effective portion of unrealised gains or losses on open
positions will be reflected in other comprehensive income. Every month, the realised gain or loss will be reflected in the revenue line of
the income statement. For the year end 31 December 2021 a loss of $29.7m was realised (2020: gain of $23.7m). The outstanding
unrealised loss on open position as at 31 December 2021 amounts to $4.3m (2020: loss of $6.3m).
The carrying amount of the swaps is based on the fair value determined by a financial institution. As all material inputs are observable,
they are categorised within Level 2 in the fair value hierarchy. It is presented in “Trade and other receivables” or “Trade and other
payables” in the consolidated statement of financial position. The liability position as of December 2021 was $6.5m (2020: liability
position $6.8m).
26. Long-term provisions
Group Company
2021
$ million
2020
$ million
20210
$ million
2020
$ million
Decommissioning provision
66.9
68.0
–
–
Royalty provision
2.2
5.4
–
–
69.1
73.4
–
–
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Movement in decommissioning
Group
2021
$ million
2020
$ million
As at 1 January
68.0
60.5
New provisions and changes in estimates
(1.9)
6.7
Unwinding of discount (see Note 9)
0.8
0.8
As at 31 December
66.9
68.0
The provision for decommissioning is based on the net present value of the Group’s share of the expenditure which may be incurred at the end
of the producing life of the TGT and CNV fields in Vietnam (currently estimated to be 9-10 years) in the removal and decommissioning of the
facilities currently in place. The provision is calculated using an inflation rate of 2.0% (2020: 2.0%) and a discount rate of 1.5% (2020: 0.9%).
The $1.9m decrease in provision in 2021 was driven by the increase in discount rate compared to prior year, partially offset by the increase
in abandonment costs relating to the TGT infill wells drilling programme completed during the year. The $6.7m increase in provision in 2020
primarily resulted from the reduction in the discount rate in 2020 offset by the change in JOC parties’ interest from 98.8822% to 97.2127%. No
decommissioning obligations exist in Egypt under the terms of the concession agreement.
The royalty provision relates to a historical arrangement granting a 3% royalty on Pharos’s share of profit oil and excess cost recovery from El
Fayum in Egypt. At both the date of acquisition of the Egypt assets (April 2019) and 31 December 2019 the risk of a material outflow in relation
to this arrangement was, based on legal advice, considered remote and therefore no provision was recorded. As a result of additional legal
advice obtained during 2020, it was considered probable that amounts are due under this arrangement and accordingly a provision of $5.4m
was recognised, which was anticipated to be settled in 1 to 3 years. During 2021, a further increase in the provision of $0.2m was recognised,
giving a total provision at the end of the year of $5.6m, $3.4m of which falls due for payment in 2022 and has been disclosed in current trade
and other payables in Note 22.
27. Share capital and Share premium
Share capital
Ordinary Shares of £0.05 each
Group and Company
2021
Shares
2020
Shares
2021
$ million
2020
$ million
Issued and fully paid
406,637,952
406,637,952
31.9
31.9
Share premium
Group and Company
2021
$ million
2020
$ million
As at 1 January
55.4
55.4
Premium arising on issue of equity shares
3.4
–
Share issue costs
(0.8)
–
As at 31 December 58.0
55.4
As at 31 December 2021 authorised share capital comprised 600 million (2020: 600 million) ordinary shares of £0.05 each with a total
nominal value of £30m (2020: £30m).
In January 2021, the Company announced the successful completion of an equity Placing, Subscription and Retail Offering (‘Placing’) to
fund Phase 1B of the waterflood programme in Egypt.
Pursuant to the Placing, which was significantly oversubscribed, a total of 30,733,682 Placing Shares have been placed with new
and existing investors at the Placing Price raising gross proceeds of approximately $8.1m (£5.9m). Concurrently with the Placing,
certain directors and existing shareholders have entered into subscription agreements with the Company to subscribe for 9,017,886
Subscription Shares at the Placing Price raising gross proceeds of approximately $2.3m (£1.7m). In addition, retail investors have
subscribed in the Retail Offer via PrimaryBid for 4,909,922 Retail Shares at the Placing Price raising gross proceeds of approximately
$1.3m (£0.9m).
Equity instruments issued by the Company are recorded at the proceeds received $11.7m, net of direct issue costs ($0.8m).
The Placing shares were issued for non-cash consideration by way of a ‘cash box’ structure involving a newly incorporated Jersey
subsidiary of the Company (Pharos Energy (Jersey) Limited - ‘JerseyCo’).
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155
CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
This structure involved the issue of ordinary and preference shares by JerseyCo to one of the investment banks advising the Company
in respect of the Placing. The Company subscribed for 89% of the ordinary shares and the Settlement Bank subscribed for 11% of the
ordinary shares in JerseyCo.
These preference and ordinary shares were subsequently acquired by the Company and the preference shares were redeemed by JerseyCo.
The acquisition by the Company of the ordinary shares in JerseyCo held by the investment bank resulted in the Company securing over 90% of
the equity share capital of JerseyCo. The Company was therefore able to rely on Section 612 of the Companies Act 2006, which provides relief
from the requirements under Section 610 of the Companies Act 2006 to create a share premium account. Therefore, no share premium was
recorded in relation to the Placing shares. The premium over the nominal value of the Placing shares was credited to a merger reserve ($5.3m).
Pharos Energy (Jersey) Limited was dissolved on 5 February 2021.
28. Other reserves
Group
Capital
redemption
reserve
$ million
Merger
reserve
$ million
Own shares
$ million
Hedging
reserve
$ million
Share-based
payments
$ million
Total
$ million
As at 1 January 2020 100.3 188.7 (47.1) (2.6) 7.3 246.6
Currency exchange translation differences – – – – 0.8 0.8
Other comprehensive loss – – – (3.7) – (3.7)
Share-based payments – – – – 2.3 2.3
Transfer relating to share-based payments – – 1.8 – (4.8) (3.0)
As at 1 January 2021 100.3 188.7 (45.3) (6.3) 5.6 243.0
Other comprehensive income – – – 2.0 – 2.0
Shares issued – 5.3 – – – 5.3
Share-based payments – – – – 2.5 2.5
Transfer relating to share-based payments – – 1.0 – (3.3) (2.3)
As at 31 December 2021 100.3 194.0 (44.3) (4.3) 4.8 250.5
Company
Capital
redemption
reserve
$ million
Merger
reserve
$ million
Own shares
$ million
Share-based
payments
$ million
Total
$ million
As at 1 January 2020 100.3 131.8 (40.3) 7.5 199.3
Currency exchange translation differences – – – 0.8 0.8
Share-based payments – – – 2.3 2.3
Transfer relating to share-based payments – – – (4.8) (4.8)
As at 1 January 2021 100.3 131.8 (40.3) 5.8 197.6
Currency exchange translation differences – – – 0.1 0.1
Shares issued – 5.3 – – 5.3
Share-based payments – – – 2.5 2.5
Transfer relating to share-based payments – – – (3.1) (3.1)
As at 31 December 2021 100.3 137.1 (40.3) 5.3 202.4
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The Group’s other reserves comprise reserves arising in respect of merger relief, upon the purchase of the Company’s own shares held in
treasury and held by the Trust, as well as hedging and share-based payments.
The number of treasury shares held by the Group and the number of shares held by the Trust at 31 December 2021 was 9,122,268
(2020: 9,122,268) and 1,764,757 (2020: 2,181,655) respectively. The market price of the shares at 31 December 2021 was £0.2600
(2020: £0.1800). The Trust, a discretionary trust, holds shares for the purpose of satisfying employee share schemes, details of which are
set out in Note 31 and in the Directors’ Remuneration Report on pages 102 to 116.
The trustees purchase shares in the open market which are recognised by the Company within investments and classified as other
reserves by the Group as described above. When award conditions are met, an unconditional transfer of shares is made out of the
Trust to Plan participants. The Group has an obligation to make regular contributions to the Trust to enable it to meet its financing costs.
Rights to dividends on the shares held by the Trust have been waived by the trustees.
29. Distribution to shareholders
The Company is focused on preserving balance sheet strength and has therefore decided to withdraw dividend payments during 2021
and 2020, given the continued uncertainty in the macro environment.
30. Retained (deficit) / earnings
Group
Retained
(loss)/profit
$ million
Unrealised currency
translation differences
$ million
Total
$ million
As at 1 January 2020 171.1 5.1 176.2
Loss for the year (215.8) – (215.8)
Distributions (see Note 29) – – –
Transfer relating to share-based payments 3.0 – 3.0
As at 1 January 2021 (41.7) 5.1 (36.6)
Loss for the year (4.7) – (4.7)
Transfer relating to share-based payments 2.3 – 2.3
As at 31 December 2021 (44.1) 5.1 (39.0)
Company
Retained
(loss)/profit
$ million
Unrealised currency
translation differences
$ million
Total
$ million
As at 1 January 2020 492.0 (223.6) 268.4
Loss for the year (264.5) – (264.5)
Transfer relating to share-based payments 3.0 – 3.0
As at 1 January 2021 230.5 (223.6) 6.9
Profit for the year 1.9 – 1.9
Transfer relating to share-based payments 2.3 – 2.3
Currency exchange translation differences – 1.5 1.5
As at 31 December 2021 234.7 (222.1) 12.6
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CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
31. Incentive plans
Details of the Group’s employee incentive schemes are set out below. Additional information regarding the schemes is included in the
Directors’ Remuneration Report on pages 102 to 116. The Group recognised total expenses of $2.7m (2020: $2.2m) in respect of the
schemes during the year, a proportion of which was capitalised in accordance with the Group’s accounting policies.
Long Term Incentive Plan
The Company operates a LTIP for employees of the Group. Awards vest over a period of three years, subject to criteria based on their
individual performance. Awards are normally forfeited if the employee leaves the Group before the award vests. Awards normally expire
at the end of 10 years following the date of grant, subject to the requirement to exercise certain awards prior to 15 March of the year
following vesting.
Awards would normally be part cash and part equity-settled through a transfer at nil consideration of the Company’s ordinary shares.
385,427 awards were exercised during 2021. The Company has no legal or constructive obligation to repurchase or settle awards in
cash. Details of awards outstanding during the year are as follows:
2021
No. of share
awards
2020
No. of share
awards
As at 1 January
17,996,007
18,680,757
Adjustments
–
–
Granted
6,220,882
6,349,803
Exercised
(385,427)
–
Forfeited during the year
(4,845,708)
(7,034,553)
As at 31 December
18,985,754
17,996,007
Exercisable as at 31 December
–
–
Awards outstanding at the end of the year have a weighted average remaining contractual life of 1.4 (2020: 1.4) years. The weighted
average market price and estimated fair value of the 2021 grants (at grant date) were £0.20 and £0.13, respectively.
The fair value of the LTIPs granted during 2021 and 2020 have been estimated using a Black Scholes model, based on the market price
at date of grant and a nil exercise price. The future vesting proportion in 2021 was 64% (2020: 68%).
The main assumptions for the calculation are as follows:
2021 2020
Volatility
34.46%
49.07%
Risk free rate of interest
1.30%
1.10%
Correlation with comparator group
n/a
n/a
Other Share Schemes
The Company operates a discretionary share option scheme for employees of the Group. Awards vest over a three-year period, and
are normally forfeited if the employee leaves the Group before the option vests. Vested options are exercisable at a price equal to the
average quoted market price of the Company’s shares on the date of grant and are expected to be equity-settled. The Company has no
legal or constructive obligation to repurchase or settle options in cash. Unexercised options expire at the end of a 10-year period.
Other than to Directors, the Company can also grant options with a zero exercise price or with an exercise price which is set below
the market price of the Company’s shares on the date of grant. Such options, which are included in the table below, are granted by
reference to the rules of the discretionary share option scheme and are expected to be equity-settled.
The Company can additionally grant awards under the Deferred Share Bonus Plan with a zero exercise price or with an exercise
price which is set below the market price of the Company’s shares on the date of grant. Awards vest over a two-year period, and are
normally forfeited if the employee leaves the Group before the option vests. Such awards, which are also included in the table below, are
expected to be cash-settled.
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2021 2020
No. of share
awards
Weighted average
exercise price
£
No. of share
awards
Weighted average
exercise price
£
As at 1 January
3,176,395 0.46
3,785,789 0.47
Adjustments
– –
– –
Granted
– –
963,105 –
Forfeited during the year
– –
(250,386) 4.85
Expired
– –
– –
Exercised
(558,213) –
(1,322,113) –
As at 31 December
2,618,182 0.43
3,176,395 0.46
Exercisable as at 31 December
1,245,077 0.67
2,151,638 1.10
The weighted average market price at the date of exercise during 2021 was £0.21 (2020: £0.17). Awards outstanding at the end of the
year have a weighted average remaining contractual life of 6.4 (2020: 7.5) years.
The fair value of the awards granted during 2021 and 2020 have been estimated using a Black Scholes model, based on the market
price at date of grant and a nil exercise price.
The main assumptions for the calculation are as follows:
2021 2020
Volatility n/a n/a
As no options were granted during 2021 and 2020, no volatility assumptions were disclosed.
32. Reconciliation of operating profit/(loss) to operating cash flows
Group Company
2021
$ million
2020
$ million
2021
$ million
2020
$ million
Operating profit/(loss)
47.7
(231.3)
(11.5)
(14.3)
Share-based payments
2.4
2.8
2.4
2.8
Depletion, depreciation and amortisation
51.4
64.5
–
0.7
Impairment (reversal)/charge
(41.4)
234.8
–
–
Operating cash flows before movements in working capital 60.1
70.8
(9.1)
(10.8)
Decrease/(increase) in inventories
0.8
(1.5)
–
–
(Increase)/decrease in receivables
(7.2)
19.6
0.4
(0.1)
Decrease in payables
(2.2)
(3.4)
2.2
(3.3)
Cash generated by (used in) operations 51.5
85.5
(6.5)
(14.2)
Interest (paid)/received
(0.1)
0.1
–
–
Other/restructuring expense outflow
(0.7)
(2.7)
(0.6)
(2.7)
Income taxes paid
(39.9)
(26.5)
–
–
Net cash from (used in) operating activities 10.8
56.4
(7.1)
(16.9)
During the year, a total of $8.3m (2020: $10.2m) of trade receivables due from EGPC in Egypt were settled by way of non-cash offset
against trade payables.
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CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
33. Lease arrangements
For short-term leases (lease term less than 12 months) and leases for which the underlying asset is of low value, the Group has opted to
recognise a lease expense on a straight-line basis as permitted under IFRS 16.
$ million
Lease liability recognised as at 1 January 2021 0.4
Interest expense (see Note 9) –
Principal repayments (0.4)
Lease liability recognised as at 31 December 2021 –
Of which are:
Current lease liabilities –
Non-current lease liabilities –
Right of use assets recognised as at 1 January 2021 0.1
Depreciation (0.1)
Right of use assets recognised as at 31 December 2021
Oil & Gas properties –
Other assets –
Lease liability recognised as at 1 January 2020 7.2
Derecognition of lease during 2020 (6.0)
Interest expense (see Note 9) 0.3
Principal repayments (1.1)
Lease liability recognised as at 31 December 2020 0.4
Of which are:
Current lease liabilities 0.4
Non-current lease liabilities –
Right of use assets recognised as at 1 January 2020 7.3
Depreciation (1.0)
Net derecognition of lease during 2021 (5.7)
Impairment of right of use asset (0.5)
Right of use assets recognised as at 31 December 2020
Oil & Gas properties 0.1
Other assets
On 4 December 2020 Pharos signed the transfer of the London office lease to a third party. Accordingly we derecognised the right of
use asset of $5.7m and the associated lease liability of $6.0m. The assets held for office furniture and fixture and fittings were also fully
depreciated, with a resulting charge of $0.4m. Pharos also paid a premium to the new tenant of $0.9m as an incentive for them to take
on the lease. The overall income statement charge of $0.3m (2020: $1.0m) has been recorded within Other/restructuring expense. In
2020, $1.2m was transferred to an escrow account held by a third party (recorded within prepayments) and will be paid to the new
tenant (and expensed to the income statement) over the next 21 months on the condition the new tenant pays the rent to the landlord. In
2021, $0.3 was released from the escrow account and paid to the new tenant.
34. Capital commitments
At 31 December 2021 the Group had exploration licence commitments not accrued of approximately $36.2m (2020: $40.9m).
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35. Related party transactions
During the year, the Company recorded a net cost of $0.01m (2020: net cost of $0.01m) in respect of services rendered between Group
companies.
Remuneration of key management personnel
The remuneration of the Directors of the Company, who are considered to be its key management personnel, is set out below in
aggregate for each of the categories specified in IAS 24 Related Party Disclosures. Further information about the remuneration of
individual Directors is provided in the audited part of the Directors’ Remuneration Report on pages 102 to 116.
2021
$ million
2020
$ million
Short-term employee benefits 4.5 2.7
Post-employment benefits 0.2 0.3
Share-based payments 3.1 1.8
7.8
4.8
Directors’ transactions
Pursuant to a lease dated 20 April 1997, Comfort Storyville (a company wholly owned by Mr Ed Story) has leased to the Group, office
and storage space in Comfort, Texas, USA. The lease, which was negotiated on an arm’s length basis, has a fixed monthly rent of
$1,000.
36. Financial instruments
Financial Risk Management: Objectives and Policies
The main risks arising from the Group’s financial instruments are commodity price risk, liquidity risk, credit risk, foreign currency risk
and interest rate risk. The Board of Pharos regularly reviews and agrees policies for managing financial risks that may affect the Group.
In certain cases, the Board delegates responsibility for such reviews and policy setting to the Audit Risk Committee. The management
of these risks is carried out by monitoring of cash flows, investment and funding requirements using a variety of techniques. These
potential exposures are managed while ensuring that the Company and the Group have adequate liquidity at all times in order to meet
their immediate cash requirements. There are no significant concentrations of risks unless otherwise stated. The Group does not enter
into or trade financial instruments, including derivatives, for speculative purposes.
The primary financial assets and liabilities comprise cash, short- and medium-term deposits, money market liquidity funds, intra group
loans, trade receivables and other receivables and financial liabilities held at amortised cost. The Group’s strategy has been to finance
its operations through a mixture of retained profits and bank borrowings. Other alternatives such as equity issues are reviewed by the
Board, when appropriate.
Commodity Price Risk
Commodity price risk arises principally from the Group’s Vietnam and Egypt production, which could adversely affect revenue and debt
availability due to changes in commodity prices.
The Group measures commodity price risk through an analysis of the potential impact of changing commodity prices. Based on this
analysis and considering materiality and the potential business impact, the Group may choose to hedge.
During 2021, Pharos entered into different commodity (swap and zero collar) hedges to protect the Brent component of forecast oil
sales and to ensure future compliance with its obligations under the RBL over the producing assets in Vietnam. The commodity hedges
run until December 2022 and are settled monthly. Details of current hedging arrangements and the categorisation of the swaps in the
fair value hierarchy can be found in Note 25.
Transacted derivatives are designated as cash flow hedge relationships to minimise accounting income statement volatility. The Group is
required to assess the likely effectiveness of any proposed cash flow hedging relationship and demonstrate that the hedging relationship
is expected to be highly effective prior to entering into a hedging instrument and at subsequent reporting dates.
Liquidity Risk
Pharos closely monitors and manages its liquidity risk using both short- and long-term cash flow projections, supplemented by debt
and equity financing plans and active portfolio management. Cash forecasts are regularly produced and sensitivities run for different
scenarios including, but not limited to, changes in asset production profiles and cost schedules.
The backdrop of the global COVID-19 pandemic persisted throughout 2021 and the ongoing climate of uncertainty remains the
dominant challenge in planning, forecasting and managing capital. The Group runs various sensitivities on its liquidity position
throughout the year. The refinancing of the RBL over the assets in Vietnam and the new uncommitted revolving credit facility with the
National Bank of Egypt raised additional liquidity for the Group, combined with the successful and oversubscribed equity placing during
the year. This has enabled Pharos to continue with a discretionary capital expenditure programme during 2021.
Details of the Group’s borrowings and debt facilities can be found in note 24. The Group is subject to half-yearly forecast liquidity tests
as part of the redetermination process for the RBL facility agreement. The Group has complied with the liquidity requirements of this test
at all times during the year.
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CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The Group invests cash in a combination of money market liquidity funds and term deposits with a number of international and UK
financial institutions, ensuring sufficient liquidity to enable the Group to meet its short and medium-term expenditure requirements.
Credit Risk
Credit risk arises from cash and cash equivalents, investments with banks and financial institutions, trade and other receivables and joint
operation receivables.
Customers and joint operation partners are subject to a risk assessment using publicly available information and credit reference
agencies, with follow-up due diligence and monitoring if required.
Investment credit risk for investments with banks and other financial institutions is managed by the Group Treasury function in
accordance with the Board-approved policies of the Group. These policies limit counterparty exposure, maturity, collateral and take
account of published ratings, market measures and other market information.
The Company’s policy is to invest with banks or other financial institutions that, firstly, offer the greatest degree of security in the view
of the Group and, secondly, the most competitive interest rates. The Board continually re-assesses the Group’s policy and updates as
required.
The maximum credit risk exposure relating to financial assets is represented by the carrying value as at the balance sheet date. The
Group’s trade receivables in Note 20, although 98% (2020: 84%) concentrated with two customers across both Vietnam and Egypt
producing assets, are predominantly with a major oil & gas company and the subsidiary of a government regulated entity. The credit risk
is therefore deemed to be negligible.
Foreign Currency Risk
Pharos manages exposures that arise from non-functional currency receipts and payments by matching receipts and payments in the
same currency and actively managing the residual net position. The Group does not hedge any foreign exchange exposure.
The Group also aims where possible to hold surplus cash, debt and working capital balances in the functional currency of the subsidiary,
thereby matching the reporting currency and functional currency of most companies in the Group. This minimises the impact of foreign
exchange movements on the Group’s Balance Sheet. Oil and gas sales in Vietnam are raised and settled through a combination of
Vietnamese Dong (VND) and US Dollars (USD), along with associated tax and royalty payments. The Group holds a number of VND and
USD bank accounts that provide a natural hedge against foreign exchange movements.
The Group’s UK head office contributes the majority of administrative costs which are denominated in GBP. The level of monetary
working capital balances denominated in GBP is relatively low and therefore the Group’s exposure to foreign currency changes for all
currencies is not considered to be material.
Interest Rate Risk
The replacement of benchmark interest rates such as LIBOR and other IBORs has been a priority for global regulators. The Group
has closely monitored the market and the output from the various industry working groups managing the transition to new benchmark
interest rates. This includes announcements made by LIBOR regulators (including the Financial Conduct Authority (FCA) and the US
Commodity Futures Trading Commission) regarding the transition away from LIBOR (including GBP LIBOR and USD LIBOR). In addition,
the current global high-inflationary economic environment means that interest rates could potentially rise in the short to medium-term,
thus increasing the cost of borrowing.
As at 31 December 2021, Pharos had total borrowings of $80.5m (2020: $53.7m) as described in Note 24. If interest rates increased
by 100 basis points, assuming the principal loans stayed constant, the annualised interest payable by the company would increase
by $0.8m which would translate through to profits and net assets. The Group’s interest received on cash and cash equivalents is
immaterial.
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37. Assets held for sale
In December 2021, the Company announced that shareholders had approved the farm-out of 55% of the Group’s operated interest in
each of our Egyptian Concessions, El Fayum and North Beni Suef, to IPR, a group that has extensive experience in Egypt.
As part of the transaction, IPR will fund Pharos’s share of the costs to a maximum of $33.425m (to be adjusted for working capital and
interim period adjustments from the effective economic date of 1 July 2020). This is in addition to the deposit at signing of the farm-
out agreements of US$2 million and a further US$3 million payable on completion. In addition, the Group will be entitled to contingent
consideration depending on the average Brent Price each year from 2022 to the end of 2025, capped at a maximum total payment of
US$20 million. We have calculated the contingent consideration using our Brent oil price curve as at 31 December 2021 (not recognised
the full $20m).
An impairment of $10.4m was recognised to bring the value of the net assets classified as held for sale down to the fair value less costs
to sell calculated as at 31 December 2021.
2021
$ million
Intangible assets 2.1
Property, plant and equipment – oil and gas properties - NBV 61.6
Impairment charge – Assets classified as held for sale (10.4)
Property, plant and equipment – oil and gas properties – after impairment 51.2
Property, plant and equipment – other - NBV 0.4
Inventories 6.3
Trade and other receivables 2.0
Assets classified as held for sale 62.0
Trade and other payables (8.5)
Liabilities directly associated with assets classified as held for sale (8.5)
Net assets classified as held for sale 53.5
38. Subsequent events
El Fayum Farm-out
Pharos and EGPC have finalised all necessary documents to be presented to the Minister of Petroleum and Natural Resources to
approve the transaction with IPR and this approval is expected shortly.
Concession Agreement Amendment El Fayum area
On 19 January 2022, the Third Amendment to the El Fayum Concession Agreement was signed by His Excellency Eng. Tarek El Molla
(Minister of Petroleum & Mineral Resources of the Arab Republic of Egypt), EGPC and the Company.
Signature of the Third Amendment was a key Condition Precedent for the transfer of a 55% participating interest (and operatorship) in
the El Fayum and North Beni Suef Concessions to IPR Lake Qarun.
Under the terms, the cost recovery percentage will be increased from 30% to 40% allowing Pharos a significantly faster recovery of all its
past and future investments. In return, Pharos has agreed to waive its rights to recover a portion of the past costs pool ($115 million) and
reduce its share of Excess Cost Recovery Petroleum from 15% to 7.5%. While in full cost recovery mode, Contractor’s share of revenue
increases from 42.6% to 50.8% as from November 2020 (corresponding to additional net revenues to Contractor of $7.0m to the date of
signature).
The relevant final approvals from the Egyptian Government had not been obtained at 31 December 2021 and so this has been
accounted as a non-adjusting balance sheet event.
Assuming conditions at 31 December 2021, the discounted cash flows from the remaining 45% share held and calculated for
impairment purposes would increase from $49.2m to $77.4m
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NON-IFRS MEASURES
Non-IFRS measures
The Group uses certain measures of performance that are not specifically defined under IFRS or other generally accepted accounting
principles. These non-IFRS measures include cash operating costs per barrel, DD&A per barrel, gearing and operating cash per share.
For the RBL covenant compliance, three Non-IFRS measures are included: Net debt, EBITDAX and Net debt/EBITDAX.
Cash operating costs per barrel
Cash operating costs are defined as cost of sales less DD&A, production based taxes, movement in inventories and certain other
immaterial cost of sales.
Cash operating costs for the period is then divided by barrels of oil equivalent produced. This is a useful indicator of cash operating
costs incurred to produce oil and gas from the Group’s producing assets.
2021
$ million
2020
$ million
Cost of sales 114.6 123.8
Less:
Depreciation, depletion and amortisation (51.0) (63.3)
Production based taxes (10.1) (7.0)
Inventories 0.1 (2.3)
Other cost of sales (1.6) (2.9)
Cash operating costs 52.0
48.3
Production (BOEPD) 8,878 11,373
Cash operating cost per BOE ($) 16.05 11.60
Cash operating costs per barrel
Vietnam
$ million
Egypt
$ million
Total
$ million
Cost of sales 84.3 30.3 114.6
Depreciation, depletion and amortisation (43.0) (8.0) (51.0)
Production based taxes (9.8) (0.3) (10.1)
Inventories 0.1 – 0.1
Other cost of sales (0.6) (1.0) (1.6)
Cash operating costs
31.0 21.0
52.0
Production (BOEPD) 5,560 3,318 8,878
Cash operating cost per BOE ($) 15.28 17.34 16.05
DD&A per barrel
DD&A per barrel is calculated as net book value of oil and gas assets in production, together with estimated future development costs
over the remaining 2P reserves. This is a useful indicator of ongoing rates of depreciation and amortisation of the Group’s producing
assets.
2021
$ million
2020
$ million
Depreciation, depletion and amortisation
(51.0)
(63.3)
Production (BOEPD)
8,878
11,373
DD&A per BOE ($)
15.74
15.21
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DD&A per barrel by segment (2021)
Vietnam
$ million
Egypt
$ million
Total
$ million
Depreciation, depletion and amortisation (43.0) (8.0) (51.0)
Production (BOEPD) 5,560 3,318 8,878
DD&A per BOE ($) 21.19 6.61 15.74
Net debt
Net debt comprises interest-bearing bank loans, less cash and cash equivalents.
2021
$ million
2020
$ million
Cash and cash equivalents 27.1 24.6
Borrowings * (84.6) (57.2)
Net Debt (57.5)
(32.6)
* Exclude unamortised capitalised set up costs
EBITDAX
EBITDAX is earnings from continuing activities before interest, tax, DD&A, impairment of PP&E and intangibles, exploration other/
expenditure and Other/restructuring expense items in the current year.
2021
$ million
2020
$ million
Operating profit/(loss) 48.3 (231.3)
Depreciation, depletion and amortisation 51.4 64.5
Impairment (reversal)/charge (42.0) 234.8
EBITDAX 57.7
68.0
Net debt/EBITDAX
Net Debt/EBITDAX ratio expresses how many years it would take to repay the debt, if net debt and EBITDAX stay constant.
2021
$ million
2020
$ million
Net Debt (57.5) (32.6)
EBITDAX 57.7 68.0
Net Debt/EBITDAX 1.0
0.48
Gearing
Debt to equity ratio is calculated by dividing interest-bearing bank loans by stockholder equity. The debt to equity ratio expresses the
relationship between external equity (liabilities) and internal equity (stockholder equity).
2021
$ million
2020
$ million
Total Debt * 84.6 57.2
Total Equity 304.4 293.7
Debt to Equity 0.28
0.20
* Exclude unamortised capitalised set up costs
Operating cash per share
Operating cash per share is calculated by dividing net cash from (used in) continuing operations by number of shares in the year.
2021
$ million
2020
$ million
Net cash from operating activities 10.8 56.4
Weighted number of shares in the year 437,512,648 397,515,684
Operating cash per share 0.02 0.14
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165
FIVE YEAR SUMMARY (UNAUDITED)
Five Year Summary (unaudited)
Year to
31 Dec 2021
$ million
Year to
31 Dec 2020
$ million
Year to
31 Dec 2019
$ million
(Restated)
Year to
31 Dec 2018
$ million
Year to
31 Dec 2017
$ million
Consolidated income statement
Oil and gas revenues 134.1 118.3 189.9 175.1 156.2
Commodity hedge (losses)/gains (29.7) 23.7 (0.2) – –
Gross profit 19.5 18.2 61.1 70.5 41.2
Operating profit/(loss) 48.3 (231.3) 38.0 79.9 22.9
(Loss)/profit for the year (4.7) (215.8) (24.5) 27.7 (157.3)
2021
$ million
2020
$ million
2019
$ million
(Restated)
2018
$ million
2017
$ million
Consolidated balance sheet
Non-current assets 460.3 483.2 740.9 553.6 546.6
Net current assets 51.6 10.4 45.6 236.3 133.3
Non-current liabilities (207.5) (199.9) (276.4) (289.1) (185.3)
Net assets 304.4 293.7 510.1 500.8 494.6
Share capital 92.9 87.3 87.3 27.6 27.6
Other reserves 250.5 243.0 246.6 246.6 245.9
Retained earnings (39.0) (36.6) 176.2 226.6 221.1
Total equity 304.4 293.7 510.1 500.8 496.6
Year to
31 Dec 2021
$ million
Year to
31 Dec 2020
$ million
Year to
31 Dec 2019
$ million
(Restated)
Year to
31 Dec 2018
$ million
Year to
31 Dec 2017
$ million
Consolidated cash flow statement
Net cash from operating activities 10.8 56.4 72.3 54.2 45.0
Capital expenditure 41.8 41.3 63.4 22.4 26.2
Distributions – – 27.4 23.3 21.0
* Restated in 2017 when adopted the successful efforts method.
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RESERVES STATISTICS (UNAUDITED)
Reserves Statistics (unaudited)
Net working interest, MMBOE
TGT CNV Vietnam
3
Egypt
4
Group
Oil and Gas 2P Commercial Reserves
1,2
As at 1 January 2021 13.0 4.9 17.9 40.8 58.7
Production (1.5) (0.5) (2.0) (1.2) (3.2)
Revision (0.6) (0.1) (0.7) (1.8) (2.5)
2P Commercial Reserves as at 31 December 2021 10.9 4.3 15.2 37.8 53.0
Oil and Gas 2C Contingent Resources
1,2
As at 1 January 2021 8.3 3.9 12.2 19.0 31.2
Revision
5
(0.7) (0.1) (0.8) (0.4) (1.2)
2C Contingent Resources as at 31 December 2021 7.6 3.8 11.4 18.6 30.0
Total of 2P Reserves and 2C Contingent Resources as
at 31 December 2021
18.5 8.1 26.6 56.4 83.0
1) Reserves and Contingent Resources are categorised in line with 2018 SPE/WPC/AAPG/SPEE /SWLA Petroleum Resource Management System.
2) Assumes oil equivalent conversion factor of 6,000 scf/boe.
3) Reserves and Contingent Resources have been independently audited by Risc Advisory Pty Ltd.
4) Reserves and Contingent Resources have been independently audited by McDaniels.
5) Revisions to the assets come from the approach taken by the reserves auditor.
6) Risks associated with reserves evaluation and estimation uncertainty are discussed in Note 4(b) to the Financial Statements.
Pharos Energy Annual Report and Accounts 2021
167
REPORT ON PAYMENTS TO GOVERNMENTS (UNAUDITED)
Report on Payments to Governments (unaudited)
Disclosure
In accordance with the Financial Conduct
Authority’s Disclosure and Transparency
Rule 4.3A in respect of payments made
by the Company to governments for
the year ended 31 December 2021
and in compliance with The Reports on
Payments to Governments Regulations
2014 (SI 2014/3209), Pharos presents
its disclosure for the year ending 31
December 2021.
Basis for preparation
Legislation
This report is prepared in accordance with
the Reports on Payments to Governments
Regulations 2014 as enacted in the UK
in December 2014 and as amended in
December 2015.
The Reports on Payments to Government
Regulations (UK Regulations) were
enacted on 1 December 2014 and require
UK companies in extractive industries
to publicly disclose payments they
have made to Governments where they
undertake extractive operations. The
aim of the regulations is to enhance the
transparency of the payments made by
companies in the extractive sector to
host governments in the form of taxes,
bonuses, royalties, fees and support for
infrastructure improvements. The UK
Regulations came into effect on 1 January
2015.
The payments disclosed for 2021 are
in line with the EU Directive and UK
Regulations and we have provided
additional voluntary disclosures on payroll
taxes, export duty, withholding tax and
other taxes.
In line with the UK Regulations, a payment
of a series of related payments which do
not exceed $112,780 (£86,000) has not
been disclosed. Where the aggregate
payments made in the period for a project
or country are less than $112,780,
payments are not disclosed for the project
or country.
All of the payments disclosed in
accordance with the EU Directive have
been made to National Governments,
either directly or through a Ministry or
Department, or to a national oil company,
who have a working interest in a particular
licence.
Payment
The information is reported under the
following payment types:
Production entitlements in barrels
These are the host government’s total
share of production in the reporting period
derived from projects operated by Pharos.
This includes the government’s non-cash
royalties as a sovereign entity or through
its participation as an equity or interest
holder in projects within its home country.
The figures produced are on a paid lifting
basis valued at realised sale prices.
Income Taxes
This represents cash tax calculated on the
basis of profits including income or capital
gains. Income taxes are usually reflected
in corporate income tax returns. The cash
payment of income taxes occurs in the
year in which the tax has arisen or up to
one year later. Income taxes also include
any cash tax rebates received from the
government or revenue authority during
the year. Income taxes do not include
fines and penalties. Consumption taxes
including value added taxes, personal
income taxes, sales taxes and property
taxes are excluded.
Royalties
These represent royalties during the year
to governments for the right to extract
oil or gas. The terms of these royalties
are set within the individual Production
Sharing Contracts & Agreements and
can vary from project to project within a
country. The cash payment of royalties
occurs in the year in which the tax has
arisen.
Dividends
These are dividend payments, other than
dividends paid to a government as an
ordinary shareholder of an entity, in lieu of
production entitlements or royalties. For
the year ending 31 December 2021, there
were no reportable dividend payments to
governments.
Bonuses
This represents any bonus paid to
governments during the year on
achievement of commercial milestones
such as signing of a petroleum agreement
or contract, achieving commercial
discovery, or after first production.
Licence Fees
This represents licence fees, rental fees,
entry fees and other consideration for
licences and/or concessions paid for
access to an area during the year (with
the exception of signature bonuses which
are captured within bonus payments).
Infrastructure improvement payments
This represents payments made in
respect of infrastructure improvements
for projects that are not directly related
to oil and gas activities during the year.
This can be a contractually obligated
payment in a Production Sharing Contract
or a discretionary payment for building/
improving local infrastructure such as
roads, bridges, ports, schools and
hospitals.
Payroll Taxes
This represents payroll and employer
taxes including PAYE and national
insurance paid by Pharos as a direct
employer.
Export Duty
This represents payments made to
governments during the year in relation to
the exportation of petroleum products.
Withholding Tax
This represents the amount of tax
deducted at source from third party
service providers during the year and paid
to respective governments.
Other Taxes
This represents business rates paid during
the year on non-domestic properties.
Pharos Energy Annual Report and Accounts 2021
168
Additional InformationGovernance Report Financial StatementsStrategic Report
TRANSPARENCY DISCLOSURE 2021 (UNAUDITED)
Transparency disclosure 2021 (unaudited)
UK Regulations Voluntary Disclosure
Production
entitlements
Production
entitlements
Income
Taxes Royalties Dividends
Bonus
Payments
Licence
fees
Infrastructure
improvement
payments
Total EU
Transparency
Directive
Payroll
Taxes
Export
Duty
With-
holding
Tax
Other
Taxes Total
Licence/
Corporate/ Area bbls (000) $ 000’s $ 000’s $ 000’s $ 000’s $ 000’s $ 000’s $ 000’s $ 000’s $ 000’s $ 000’s $ 000’s $ 000’s $ 000’s
Vietnam*
Block 16–1 1,047 67,846 28,629 7,949 – – 78 – 104,502 – – – – –
Block 9.2 550 34,731 11,065 1,484 – – 75 – 47,355 – – – – –
Total Vietnam 1,597 102,577 39,695 9,433 – – 153 – 151,858 – – – – –
Egypt
El Fayum 678 44,139 – – – – – – 44,139 382 – 140 – 522
North Beni Suef – – – – – – – – – 34 – – – 34
Total Egypt 678 44,139 – – – – – – 44,139 416 – 140 – 556
United Kingdom (UK)
Corporate – – – – – – – – – 1,365 – – – 1,365
Total UK – – – – – – – – – 1,365 – – – 1,365
United States of America (US)
Corporate – – – – – – – – – 265 – – – 265
Total US – – – – – – – – – 265 – – – 265
Pharos Total 2,275 146,716 39,695 9,433 – – 153 – 195,997 2,046 – 140 – 2,186
Transparency disclosure 2021 (unaudited)
UK Regulations Voluntary Disclosure
Production
entitlements
Production
entitlements
Income
Taxes Royalties Dividends
Bonus
Payments
Licence
fees
Infrastructure
improvement
payments Total
Payroll
Taxes
Export
Duty
With-
holding
Tax
Other
Taxes Total
Country/
Government bbls (000) $ 000’s $ 000’s $ 000’s $ 000’s $ 000’s $ 000’s $ 000’s $ 000’s $ 000’s $ 000’s $ 000’s $ 000’s $ 000’s
Vietnam*
Ho Chi Minh City
Tax Dept – – 39,695 9,433 – – – – 49,128 – – – – –
Customs Office – – – – – – – – – – – – – –
PetroVietnam
E&P Corp (PVEP) 1,597 102,577 – – – – 153 – 102,730 – – – – –
Total Vietnam 1,597 102,577 39,695 9,433 – – 153 – 151,858 – – – – –
Egypt
Egyptian General
Petroleum
Corporation
(EGPC) 678 44,139 – – – – – – 44,139 – – – – –
Tax department – – – – – – – – – 416 – 140 – 556
Total Egypt 678 44,139 – – – – – – 44,139 416 – 140 – 556
United Kingdom (UK)
United Kingdom
(UK)
Inland Revenue – – – – – – – – – 1,365 – – – 1,365
Total UK – – – – – – – – – 1,365 – – – 1,365
United States of America (US)
Internal Revenue
Service – – – – – – – – – 265 – – – 265
Total US – – – – – – – – – 265 – – – 265
Pharos Total 2,275 146,716 39,695 9,433 – – 153 – 195,997 2,046 – 140 – 2,186
* Joint Operating Company Project’s tax payments reported on Pharos Net Working Interest Basis
Pharos Energy Annual Report and Accounts 2021
169
GLOSSARY OF TERMS
A
ABC
Anti-Bribery and Corruption
AGM
Annual General Meeting
B
bbl
Barrel
blpd
Barrels of liquids per day
BMS
Business Management System
Bn
Billion
boe
Barrels of oil equivalent
BHCPP
Bach Ho Central Processing Platform
boepd
Barrels of oil equivalent per day
bopd
Barrels of oil per day
bwpd
Barrels of water per day
C
CASH or cash
Cash, cash equivalent and liquid
investments
CAPEX or capex
Capital expenditure
CDP
Formerly the Carbon Disclosure Project
CEO
Chief Executive Officer
CFO
Chief Financial Officer
CNV
Ca Ngu Vang field located in Block 9-2
CO
2
Carbon Dioxide
CO
2
e
Carbon Dioxide Equivalent
Company
Pharos Energy plc
Contingent Resources
Those quantities of petroleum to be
potentially recoverable from known
accumulations by application of
development projects but which are not
currently considered to be commercially
recoverable due to one or more
contingencies
Contractor
The party or parties identified as being, or
forming part of, the “CONTRACTOR” as
defined in the El Fayum Concession or,
as the case may be, the North Beni Suef
Concession
CR
Corporate Responsibility
D
DD&A
Depreciation, depletion and amortisation
E
E&P
Exploration & Production
EBITDAX
Earnings before interest, tax, DD&A,
impairment of PP&E and intangibles,
exploration expenditure and other/
exceptional items in the current year
EBT
Employee benefit trust
E&E
Exploration and Evaluation
EGP
Egyptian Pound
EGPC
Egyptian General Petroleum Corporation
El Fayum or the El Fayum Concession
The concession agreement for petroleum
exploration and exploitation entered
into on 15 July 2004 between the Arab
Republic of Egypt, EGPC and Pharos El
Fayum in respect of the El Fayum area,
Western Desert, as amended from time
to time
EU
European Union
F
FFDP
Full Field Development Plan
FPSO
Floating, Production, Storage and
Offloading Vessel
FY
Full year
G&A
General and administration
GHG
Greenhouse gas
Group
Pharos and its direct and indirect
subsidiary undertakings
H
H&S
Health and Safety
HLHVJOC
Hoang Long and Hoan Vu Joint Operating
Companies
HLJOC
Hoang Long Joint Operating Company
HSES
Health, Safety, Environmental and Security
HVJOC
Hoan Vu Joint Operating Company
I
IASB
International Accounting Standards Board
IFRS
International Financial Reporting
Standards
IMF
International Monetary Fund
IOGP
The International Association of Oil & Gas
Producers
IPIECA
The global oil and gas industry association
for environmental and social issues
IPR or IPR Energy Group
The IPR Energy group of companies,
including IPR Lake Qarun and IPR Energy
AG, or such of them as the context may
require
IPR Lake Qarun
IPR Lake Qarun Petroleum Co, an
exempted company with limited liability
organised and existing under the laws of
the Cayman Islands (registration number
379306), a wholly owned subsidiary of
IPR Energy AG
J
JOC
Joint Operating Company
JV
Joint venture
K
k
thousands
kbopd
Thousand barrels of oil per day
Km
Kilometre
km
2
Square kilometre
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170
Additional InformationGovernance Report Financial StatementsStrategic Report
L
Listing Rules
The Listing Rules of the UK Financial
Conduct Authority
LTI
Lost Time Injury
LTIF
Lost Time Injury Frequency
LTIP
Long Term Incentive Plan
M
m
million
M&A
Mergers and Acquisitions
MENA
Middle East and North Africa region
mmbbl
Million barrels
mmboe
Million barrels of oil equivalent
N
NBS, North Beni Suef or the North Beni
Suef Concession
The concession agreement for petroleum
exploration and exploitation entered into
on 24 December 2019 between the Arab
Republic of Egypt, EGPC and Pharos El
Fayum in respect of the North Beni Suef
area, Nile Valley
NBV
Net Book Value
NED
Non-Executive Director
NPV
Net Present Value
O
OOIP
Original Oil in Place
OPECO Vietnam
OPECO Vietnam Limited
Opex
Operational expenditure
P
PEF
Pharos El Fayum, (formerly named Merlon
Petroleum El Fayum Company), an
exempted company with limited liability
organised and existing under the laws of the
Cayman Islands (registration number 78257),
a member of the Group
Petrosilah
An Egyptian joint stock company held 50/50
between the Contractor parties (being the
Pharos Group and IPR Lake Qarun following
completion of the farm-out of the El Fayum
concession) and the Egyptian General
Petroleum Corporation
PSC
Production sharing contract or production
sharing agreement
Petrovietnam
Vietnam Oil and Gas Group
PTTEP
PTT Exploration and Production Public
Company Limited
R
Reserves
Reserves are those quantities of
petroleum anticipated to be commercially
recoverable by application of development
projects to known accumulations from
a given date forward under defined
conditions. Reserves must further satisfy
four criteria: they must be discovered,
recoverable, commercial and remaining
based on the development projects
applied
RBL
Reserve Based Lending facility
RISC
RISC Advisory Pty Ltd
S
Shares
Ordinary Shares
STOIIP
Stock Tank Oil Initially In Place
T
TOR
Terms of Reference
TCFD
Task-Force for Climate-related Financial
Disclosures
TGT
Te Giac Trang field located in Block 16-1
TSR
Total shareholder return
TIA
Tie-in Agreement
U
UK
United Kingdom
US
United States of America
W
WHP
Wellhead Platform
United States of America
Y
YTD
Year-to-date
$
United States Dollar
£
UK Pound Sterling
1C
Low estimate scenario of Contingent
Resources
1H
First half
1P
Equivalent to Proved Reserves; denotes
low estimate scenario of Reserves
2018 Code
The 2018 UK Corporate Governance
Code of the Financial Reporting Council
2C
Best estimate scenario of Contingent
Resources
2C Contingent Resources
Best estimate scenario of Contingent
Resources
2P Reserves
Equivalent to the sum of Proved plus
Probable Reserves; denotes best estimate
scenario of Reserves. Also referred to as
2P Commercial Reserves
Pharos Energy Annual Report and Accounts 2021
171
COMPANY INFORMATION
Registered office:
Pharos Energy
England T +44 (0)20 7747 2000 F +44
(0)20 7747 2001 Company No. 3300821
www.pharos.energy
Company Secretary
Tony Hunter
Financial Calendar
Group results for the year to 31 December
are announced in March. The Annual
General Meeting is held during the second
quarter. Interim Results to 30 June are
announced in September.
Advisers Auditor:
Deloitte LLP
London, United Kingdom
Bankers:
J.P. Morgan
125 London Wall London, EC2Y 5AY
United Kingdom
HSBC UK Bank plc
60 Queen Victoria Street London EC4N
4TR United Kingdom
BNP Paribas – Singapore Branch
10 Collyer Quay #33-01 Ocean Financial
Center 049315 Singapore
Financial Adviser and
Corporate Brokers:
Jefferies
100 Bishopsgate London, EC2N 4JL
United Kingdom
Peel Hunt
120 London Wall, London EC2Y 5ET
United Kingdom
Capital Markets Advisor:
Auctus Advisors
Robsacks, Long Barn Road, Weald,
Sevenoaks, Kent TN14 6NJ United
Kingdom
Registrar:
RD:IR Limited
9 Bridewell Place, London EC4V 6AW
United Kingdom
Solicitors:
Shepherd and Wedderburn LLP
1 Exchange Crescent, Conference
Square, Edinburgh EH3 8UL United
Kingdom
Designed and Produced by Presentation Graphics Design Ltd
Pharos Energy Annual Report and Accounts 2021
172
Pharos Energy (Head Office)
Eastcastle House
27/28 Eastcastle Street
London
W1W 8DH
United Kingdom
Registered in England
Company No. 3300821
T +44 (0)20 7747 2000
F +44 (0)20 7747 2001
www.pharos.energy