Annual Report

and Accounts

2022

STRATEGIC REPORT

Who we are 02

Pharos at a glance 03

Where we operate 05

Our strategy & purpose 06

Our strategic objectives 07

Investment case 09

- Capital discipline in the DNA 10

- Focused portfolio of diverse organic opportunities 11

- Operational capability 13

- Diverse & inclusive workforce 14

Chair’s statement 15

Market overview 17

Chief Executive Officer’s statement 19

Business model 23

Key metrics 24

Operational review 28

Section 172(1) Companies Act 2006 35

Chief Financial Officer’s statement 39

Risk management 47

Principal risks and mitigations 53

Corporate responsibility 61

TCFD 79

Corporate Responsibility Non-Financial Indicators 107

GOVERNANCE REPORT

Chair’s introduction to Governance 109

Leadership & Governance 111

Board of Directors 113

2018 UK Corporate Governance Code 115

Environmental, Social and Governance (ESG)

Committee report

122

Nominations Committee report 125

Audit and Risk Committee report 127

Directors’ Remuneration Committee report 134

Directors’ report 156

FINANCIAL STATEMENTS

Independent Auditor’s Report

162

Consolidated Financial Statements

171

- Consolidated Income Statement 171

- Consolidated Statement of Comprehensive Income 171

- Balance Sheets 172

- Statements of Changes in Equity 173

- Cash Flow Statements 174

Notes to the Consolidated Financial Statements

175

ADDITIONAL INFORMATION

Non-IFRS measures 203

Five year summary (unaudited) 205

Reserves statistics (unaudited) 206

Report on payments to governments (unaudited) 207

Transparency disclosure 2022 (unaudited) 208

Glossary of terms 209

Company information 211

Pharos Energy Annual Report and Accounts 2022

Governance Report Financial Statements

Additional Information

Strategic Report

Who we are

Pharos Energy is an independent energy company with a focus on

delivering long-term sustainable value for all stakeholders through

regular cash returns and organic growth, underpinned by a robust

cash flow and resilient balance sheet.

With a registered office in London and listed on the

premium segment of the main market of the London

Stock Exchange, we have production, development and

exploration interests in Egypt and Vietnam.

Our purpose is to provide energy to support the

development and prosperity of the countries,

communities and families wherever we work, in line with

recognised social and environmental practices.

VIETNAMEGYPT

www.pharos.energy

Pharos Energy Annual Report and Accounts 2022

Pharos Energy

at a Glance

PHAROS AT A GLANCE

As a business, our ability to deliver value is

key to our robust stakeholder investment case.

2022 KEY FIGURES

2022 GROUP HIGHLIGHTS

1997

Listed on London

Stock Exchange

17,839

Acreage km

Blocks

$16.36/boe

(2021: $16.05/boe)

$45.3m

(2021: $27.1m)

Cash operating costs * ($/boe)

Cash & cash equivalents ($m)

$53.4m

(2021: $10.8m)

Operating Cash Flow ($m)

$221.6m

(2021: $163.8m, prior to hedging loss of $29.7m)

Revenue ($m)

Prior to hedging loss of $22.5m

* Read More

Non-IFRS measures on page 203

Pharos Energy Annual Report and Accounts 2022

Strategic Report

Additional Information

Financial StatementsGovernance Report

Oil &

Gas fields

Global Employees

(2021: 65 employees)

Countries

7,166 boepd

Average net production (boepd)

RETURN TO SHAREHOLDERS

1p per share

$3m

(2021: 0p)

Share Buybacks

First Dividend Proposed on 2022 Earnings

(Subject to shareholder approval at 2023 AGM)

(2021: 8,878 boepd net, 7,533 boepd

net on a comparative basis)

Pharos Energy Annual Report and Accounts 2022

WHERE WE OPERATE

Focused portfolio of

complementary assets

We have a diversified mix of onshore and offshore producing,

development and exploration assets in two territories - Egypt and

Vietnam.

Operational Review on page 28

D: Development P: Production E: Exploration

EGYPT (D,P,E)

We have high quality onshore, low-cost oil production operations, development and

exploration assets in Egypt. Production is from 10 development leases in the El Fayum

Concession located in the Western Desert south west of Cairo and close to local energy

infrastructure. We hold further low-risk low-cost near-term exploration opportunities in the

North Beni Suef Concession to the south of El Fayum. In March 2022, Pharos completed

a farm-out transaction with IPR, following which IPR now holds a 55% working interest

and operatorship in each of the El Fayum and North Beni Suef Concessions, with the

Group holding the remaining 45% non-operated working interest.

VIETNAM (D,P,E)

We have valuable and long-established producing fields in Vietnam, with the first

discovery in 2004 and first oil production in 2008. Production is from two fields (TGT

in Block 16-1 and CNV in Block 9-2) in the Cuu Long basin. There is further potential

for organic growth from a basin-opening frontier play with a number of potentially

world class prospects and leads already identified in two exploration blocks in the Phu

Khanh basin (Blocks 125 & 126).

1,748 bopd*

2022 Average Production (net)

(2021: 3,318 bopd; or 1,973 bopd

on a comparative basis*)

5,418 boepd

2022 Average Production (net)

(2021: 5,560 bopd)

* The farm-down transaction and transfer of

operatorship of the Group’s Egyptian assets to

IPR completed on 21 March 2022. Although the

economic date of the transaction was 1 July 2020,

working interest production for Egypt in 2022 is

reported as 100% through to completion and 45%

thereafter. The comparative basis for 2021 is also

given as 100% working interest until 21 March

2022 and then 45% for the remainder of the year.

El Fayum Concession

Cairo

EGYPT

North Beni Suef Block

Block 125

Block 126

Block 9-2 CNV Field

Block 16-1 TGT Field

Ho Chi Minh City

VIETNAM

Pharos Energy Annual Report and Accounts 2022

Governance Report Financial Statements

Additional Information

Strategic Report

A focused strategy

to fulfil our purpose

OUR STRATEGY & PURPOSE

Our strategy has positioned the business for long-term value

creation, whilst building on a track record of

20+ years of shareholder returns.

Our Purpose

Our purpose is to provide energy to

support the development and prosperity

of the countries, communities and families

wherever we work, in line with recognised

social and environmental practices.

Our Strategy

We are committed to deliver long-term,

sustainable value for all our stakeholders

though regular cash returns and organic

growth, underpinned by a robust cash flow

and resilient balance sheet.

We invest in a balance of near-term

potential and longer-term value, with the

aim of enhancing value creation for all

stakeholders.

To achieve this, we focus on maximising

reserves from existing producing oil

and gas fields, such as from our El

Fayum Concession in Egypt and TGT &

CNV fields in Vietnam, through flexible

capital investment across oil price

cycles to unlock reserves upside and

improve operating performance. This is

complemented by organic growth activity

through further extensions in existing fields

and developments & explorations offshore

Vietnam on Blocks 125 and 126 and

onshore Egypt on both the El Fayum and

NBS Concessions, to unlock longer-term

value.

Our Stakeholders

To our investors:

Creating and returning value to

shareholders through a combination of

annual dividends and organic growth.

To our host countries:

Creating shared prosperity & helping

countries use oil revenues to promote

sustainable, inclusive economic

development, manage the impact of

climate change and achieve their COP

and other domestic and international

commitments.

To our people:

Providing an inclusive and diverse

workplace, empowering people with

differing backgrounds, skills, and

experiences to do meaningful work based

on the Pharos Way principles of openness,

safety and care, and mutual trust and

respect.

To all stakeholders:

Engaging and dealing with stakeholders

in a transparent and constructive manner

in accordance with applicable local and

international laws and otherwise aspiring

to the highest ethical standards of

business conduct.

Pharos Energy Annual Report and Accounts 2022

Our Strategic

Objectives

OUR STRATEGIC OBJECTIVES

Complementary

portfolio

Rigorous

approach to

cost control

Operational

efficiency &

production

growth

Value creation

per share

Responsible &

flexible stewards

of capital

Mutually

beneficial

partnerships

Transparency

in sustainability

Strong

balance sheet

Provide energy to support

the development and

prosperity of the countries,

communities and families

wherever we work

Pharos Energy Annual Report and Accounts 2022

Governance Report Financial Statements

Additional Information

Strategic Report

Complementary portfolio

Over the past years, we have built a

distinctive and complementary portfolio in

the energy regions of Asia and MENA, with

multiple organic growth opportunities and

value-adding activities that have potential

to generate near-term free cash flow.

Rigorous approach to cost

control

We focus on our cost base wherever we

are. As we have gone about reshaping

our business for the future, we have kept

a rigorous approach to drive down costs

and created a new, leaner Board and

organisational structure. This positions us

well to thrive throughout the commodity

price cycle.

Operational efficiency &

production growth

We apply our expertise locally with

operational teams in each region, working

closely with partners and joint operating

companies to achieve operational

efficiency and grow production. We

encourage dialogue and co-operation

between the different business assets

to ensure new ideas and solutions

are shared. Our stable operational

performance in 2022 has laid a strong

foundation for our future work programmes

to move forward with the growth potential

of our assets and support delivery of our

strategy.

Value creation per share

Our goal is to deliver a combination of

regular cash returns plus growth potential

for shareholders. We aim to maximise

value per share for all shareholders, and

we are not chasing scale for its own sake.

We are committed to delivering value on all

sides of the equation.

Responsible & flexible

stewards of capital

Capital discipline and financial stability

have always been key to the Group and

continue to underpin the business. The

Board and senior management team

maintain a clear focus on our capital

allocation goals: to balance regular returns

to shareholders with investment in our

assets to generate sustainable value and

cash flow, while preserving the resilience of

the balance sheet.

Mutually beneficial

partnerships

The operational successes the Company

had over the years would not have

been possible if not for the supportive

relationships we have with our valued

partners and stakeholders. Our assets

are operated predominantly through

JOCs, but we are actively involved in JOC

management and work collaboratively with

our partners to identify areas of mutual

sustainable benefits. A combination

of long-standing in-country presence

and focus on building relationships with

both host governments and regulatory

authorities have cultivated many

successes for the Group, our partners,

the JOCs and the local economies. We

also maintain good relationships with our

valued group of lenders to ensure financial

stability in times of uncertainties.

Transparency in

sustainability

Sustainability is a key value in our

business. In 2022, we made a formal

commitment to achieve Net Zero on our

Scope 1 (direct) and Scope 2 (indirect)

GHG emissions from all our current and

future assets by no later than 2050. We

recognise that the journey to Net Zero

and a more sustainable future will not be

simple nor straightforward, but we remain

committed to transparency in our reporting

and to keeping stakeholders updated on

our progress.

Strong balance sheet

In this prolonged period of uncertainty

in the macroeconomic environment, a

major priority for the Group has been

the preservation of cash in order to

protect balance sheet strength. Costs

and the balance sheet are actively

managed through maintaining positive

operational cash flow combined with a

focused approach to capital allocation,

an active hedging programme, a mix of

debt instruments in place, and a modest

gearing level.

OUR STRATEGIC OBJECTIVES - CONTINUED

Pharos Energy Annual Report and Accounts 2022

Our Investment

Case

INVESTMENT CASE

Energy &

Challenge

Openness

& Integrity

Pragmatism

& Focus

Safety &

Care

Empowerment

& Accountability

Capital

discipline in

the DNA

Portfolio of

diverse organic

opportunities

Long operational

history in

Asia-MENA

Excellent safety

record

Diverse

& inclusive

workforce

Complementary

portfolio

Rigorous

approach to

cost control

Operational

efficiency &

production

growth

Value creation

per share

Responsible

& flexible

stewards of

capital

Mutually

beneficial

partnerships

Transparency

in sustainability

Strong

balance sheet

Provide energy to support

the development and

prosperity of the countries,

communities and families

wherever we work

Pharos Energy Annual Report and Accounts 2022

Governance Report Financial Statements

Additional Information

Strategic Report

Capital discipline

in the DNA

INVESTMENT CASE – CAPITAL DISCIPLINE IN THE DNA

CASE 1

We have a culture of prudent financial management, capital

allocation and capital return.

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022

4.0

3.0

2.0

1.0

Market

cap ($bn)

Brent price

($/bbl)

140

105

Realising Value

Realising value through disposals and returns made over the decade

either through share buybacks, sepecial distributions or dividends

Asset disposals

UK onshore

$18m

Russia

$50m

Vietnam

farm-out

Tunisia

$25m

Mongolia

$93m

Yemen

$465m

Thailand

$105m

Total since

2006 when the first

returns were made

$529.2m

2006

$14m

2012

$33m

2014

$119m

2016

$17.5m

2011

$7m

2013

$213m

2015

$51m

2017

$21m

2018

$23.3m

2019

$27.4m

2022

$3m

Chief Financial Officer’s statement on page 39

We exhibit capital discipline through a focus on cost management and control, a part of our DNA, underpinned and enhanced by our

commitment to annual cash returns to shareholders. Capital allocation decisions are taken to make investments where they will generate

risk-adjusted full-cycle returns, with a focus on near term cash generation.

We use our expertise to:

A commitment to cash returns to shareholders remains a core element of our overall allocation framework. We aim to create value per

share, not chasing scale for its own sake. It is this approach that has allowed us to return significant amounts of capital to shareholders

since 2006, through a combination of dividends, share buybacks and capital growth.

ALLOCATE

capital to those assets which

offer a combination of cash flow,

growth and sustainability

FOCUS

on our cost base

wherever we are

ASSESS

and develop high grade

growth opportunities

PROVIDE

cash returns to

shareholders

Pharos Energy Annual Report and Accounts 2022

Focused portfolio of

diverse organic opportunities

INVESTMENT CASE – FOCUSED PORTFOLIO OF DIVERSE ORGANIC OPPORTUNITIES

CASE 2

Over the past years, we have reshaped the portfolio into a unique

and complementary mix of Asia-MENA assets, with a range of near-

term organic growth opportunities, ranging from low-cost low-risk

onshore producing assets to basin-opening world-class potential

offshore exploration.

Operational Review on page 28

EGYPT

Onshore, low cost,

in-fill drilling path to grow

production with exploration

upside

Egypt is a growing economy, hungry for

the energy provided by its domestic oil

and gas sector, which operates within a

well-established regulatory framework.

In 2022, Pharos completed a farm-down

transaction and transfer of operatorship

over our Egyptian assets to IPR. The

Group now has a 45% working interest in

two concessions in Egypt - El Fayum and

North Beni Suef. In 2022, a number of

factors combined to put us in a good place

to deliver cash flow from these assets:

IPR’s long track-record of success in

Egypt, the enhanced fiscal terms awarded

to us over the El Fayum Concession

early in 2022, a rig secured on long-term

contract to ramp up activities in El Fayum,

plus the carry over our remaining 45%

interest all helped to support our revenues.

However, the Egyptian economy suffered

during 2022 with high inflation and a

currency devaluation, which has led to

an increase in the level of our receivables

due from the sale of El Fayum crude to the

EGPC owned Suez refinery. The working

capital facility which we have in place with

National Bank of Egypt has helped to

alleviate this situation and there is now an

IMF package in place for Egypt which we

expect to flow through during 2023.

Upcoming catalysts in 2023

• Multi-well development drilling in El

Fayum continues in 2023, with nine

wells planned for the year.

• Two commitment exploration wells

expected to be drilled in the El Fayum

Concession.

• Drilling of first commitment exploration

well on NBS underway, with the

additional commitment exploration well

to follow later in the year. An additional

extension of the exploration period until

September 2023 was granted by EGPC

in March 2023.

• Acquisition of the c.110 km

additional 3D seismic at NBS has

started.

1,748 bopd

NET 2022 PRODUCTION

FROM EL FAYUM

(2021: 3,318 bopd; 1,973 bopd

on a comparative basis)

15 mmboe

2P RESERVES AS AT YEAR

END 2022

(2021: 37.8 mmboe)

45%

PHAROS WORKING INTEREST

AFTER TRANSACTION

WITH IPR

(2021: 100%)

DEVELOPMENT LEASES AT THE

EL FAYUM CONCESSION

Pharos Energy Annual Report and Accounts 2022

Governance Report Financial Statements

Additional Information

Strategic Report

VIETNAM

High net back producing

assets with further

significant exploration

potential

The Group’s current producing interests

in Vietnam, the Te Giac Trang (TGT) and

Ca Ngu Vang (CNV) fields in the Cuu Long

basin off the southern coast, together, are

amongst Vietnam’s largest oil producers.

Most notably, in June 2022, TGT officially

reached a production milestone of 100

million barrels of crude oil produced. We

have further potential for growth from two

deep-water basin-opening exploration

positions in Blocks 125 & 126 in the

Phu Khanh basin off the eastern coast,

where we see material world-class

frontier exploration potential, and we are

in discussions with a number of parties

interested in partnering with us in our plans

for drilling.

Upcoming catalysts in 2023

• Work on submitting Revised Field

Development Plans (RFDPs) for two

wells on TGT and one on CNV is

progressing, with all wells remaining in

contingent budget until approval.

• Application for extensions to TGT &

CNV licences submitted to partners for

approval.

• Application for extension to Blocks 125

& 126 licence submitted in December

2022, as no suitable rigs were available

for drilling in 2023, and is now with the

Prime Minister’s office for approval.

• Discussions ongoing with a number of

interested parties to secure a farm-in

partner before drilling the commitment

well on Block 125.

5,418 boepd

NET 2022 PRODUCTION

FROM TGT & CNV

(2021: 5,560 boepd)

12.2 mmboe

2P RESERVES AS AT YEAR

END 2022

(2021: 15.2 mmboe)

25+

YEARS ACTIVE IN

VIETNAM

BLOCKS IN VIETNAM

INVESTMENT CASE – FOCUSED PORTFOLIO OF DIVERSE ORGANIC OPPORTUNITIES - CONTINUED

Pharos Energy Annual Report and Accounts 2022

Operational

capability

INVESTMENT CASE – OPERATIONAL CAPABILITY

CASE 3

Amidst ongoing global uncertainty, Pharos continues to deliver

consistent operational results, thanks to the efforts of our teams,

our partners and the local JOCs, who have managed to navigate

the macroeconomic challenges without compromising our

operational capability.

Corporate Responsibility on page 61

Long operational history in

Asia-MENA

Our 26-year history with Vietnam has been

a success story both for the company

and the country. As at 2022, Pharos has

invested over $1 billion in the exploration,

appraisal and development of oil and

gas projects located offshore Vietnam

since inception, making Pharos one of

the largest British investors in the country.

In Egypt, IPR has a long-standing in-

country presence and relationships with

the Egyptian government and regulatory

authorities, which position them well to

support the expansion of operational

activity needed to develop the resource

base.

Our long operational history provides

a strong foundation for our future work

programmes to manage both the cash

generation and the growth potential of our

assets, and to deliver on the core pillars of

our strategy.

Excellent safety record in Vietnam

The health & safety of the Group’s

workforce is the highest priority for Pharos.

We are proud to report an exceptional

safety record of 0 lost time injuries and 0

fatal incidents in our Vietnam assets since

our operational inception in 1996. This is

thanks to the JOCs’ consistent effort to

provide and champion workers’ health,

safety and well-being, and we look to

support IPR and Petrosilah to replicate this

success with the assets in Egypt.

Pharos Energy Annual Report and Accounts 2022

Governance Report Financial Statements

Additional Information

Strategic Report

Diverse & inclusive

workforce

INVESTMENT CASE – DIVERSE & INCLUSIVE WORKFORCE

CASE 4

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.

Corporate Responsibility on page 61

Diversity in all dimensions

We operate in a global industry, and it

is vitally important to ensure that we

benefit from the diverse perspectives

that people can bring. For this reason,

equality, diversity and inclusion sit at the

heart of our recruitment, development and

promotion processes. Across all of our

assets, we acknowledge diversity in all

its dimensions and welcome people with

differing backgrounds, skills, nationalities,

gender and experiences to help us

deliver our business strategy of long-term

sustainable growth. The board now has

four female directors out of a reduced

board size of six, with both executive

positions held by women.

We recruit talents from diverse

backgrounds across our entire

organisation. Most notably our UK-based

staff comprises 16 people from 9 different

nationalities, of which women accounted

for c.65%.

Our Code of Business Conduct and

Ethics, associated policies and the Pharos

Guiding Principles commit us to providing

a workplace free of discrimination where all

employees can fulfil their potential based

on merit and ability, and we will continue to

align our Company with this ethos.

Regional knowledge and

experience

We apply our expertise locally with

operational teams in each region, working

closely with partners and JOCs. We

encourage dialogue and co-operation

between the different business assets to

ensure new ideas and solutions are always

being considered. We are committed to

providing meaningful opportunities for

training and capacity building in host

countries. We have maintained a gender-

neutral recruitment process and, wherever

possible, we first look to fill any vacancy

internally with a local candidate in London,

Vietnam and Egypt.

Pharos Energy Annual Report and Accounts 2022

Chair’s statement

A strong culture to deliver

sustainable value.

2022 has been an extraordinary year for the energy sector globally.

An extended period of volatility has driven pivotal changes for

Pharos. The Company’s response to the dynamic environment during

the year has included the reshaping of its portfolio, balance sheet,

Board, and its worldwide organisation.

As a result of strong operational

performance, completion of the IPR

transaction, securing the improved fiscal

terms over El Fayum, and with the support

of continuing high oil prices resulting

from the easing of pandemic restrictions,

Pharos now stands in a much stronger

financial position than where we were

just a year ago. This has allowed us to

commence a share buyback programme,

which has continued into 2023, and to

announce a new dividend policy focused

on making sustainable annual cash returns

to shareholders. The last twelve months

saw us take key steps in our effort to

transform the Company, and I strongly

believe that we are now well positioned

for a positive and sustainable future, with

a robust capital structure and exciting

organic opportunities in a refocused

portfolio.

Board changes

Underpinned by the financial discipline in

our corporate DNA, Pharos has remained

relentlessly focused on cost control,

starting from the Board and moving

throughout the organisation. In 2022,

as Non-Executive Chair of the Board, I

oversaw the reshaping of the Board from

nine to six Directors and salary reductions

for myself and both of the two Executives,

a decision that is commensurate with the

scale of the business and the strategic

challenges ahead of us as the Company

reframes its portfolio. Following the

completion of the farm-down of our assets

in Egypt to IPR, on 23 March 2022, Jann

Brown assumed the role of Chief Executive

Officer. On the same date, Ed Story and

Dr Mike Watts resigned as Directors of

Pharos, with Ed now serving as President

of the Group’s Vietnam business. Senior

Non-Executive Director and Deputy Chair,

Rob Gray, also stepped down in May

2022. On behalf of the Board, I would

like to thank Ed, Mike and Rob for their

long and valued service to the Company

as Directors. Going forward, I believe

we now have a reshaped Board fit for

purpose, which will provide the necessary

governance and oversight to support our

strategic framework.

Diversity in all forms

Across our entire business, we

acknowledge the benefits of diversity in

all its dimensions and welcome people

with differing backgrounds, skills, and

experiences. Our commitment to inclusion

and diversity remained strong in 2022. As

at year-end, I am pleased to report that

the Company has four female Directors,

representing two thirds of the Board. We

are proud that we are able to recruit talent

from diverse backgrounds and ethnicities

across our entire organisation. Most

notably, our UK-based staff comprises

16 people from 9 different nationalities,

of which women accounted for c.65%.

We operate in a global industry, and it is

important to ensure that we benefit from

the diverse perspectives that people bring,

and we will continue to align our Company

with that ethos.

JOHN MARTIN

Non-Executive Chair

CHAIR’S STATEMENT

Pharos Energy Annual Report and Accounts 2022

Governance Report Financial Statements

Additional Information

Strategic Report

People & Culture

I would like to express my gratitude to

all our colleagues whose hard work,

professionalism and dedication has

ensured Pharos’ resilience, delivery and

efficiency during a challenging year.

2022 saw the departure of many of our

longstanding talented Egyptian colleagues

following the transfer of operatorship

of our Egyptian assets to IPR, but I am

delighted that so many of them have

found new positions so quickly. The team

who have stayed with us have all risen

to the challenge, and I am impressed

by their commitment to maintain open

communication and trust, welcoming

constructive changes while adapting

to new working practices. They have

demonstrated that the culture of our

workforce is strong and resilient. It is

built on the Group’s guiding principles of

openness and integrity, safety and care,

and mutual trust and respect.

The in-person feedback sessions which I

conducted during the year with staff has

informed the development of our hybrid

working programme in the UK. We no

longer maintain a permanent office space

in London, with UK-based staff now having

access to a modest serviced office space

in central London. This arrangement, in

addition to significantly reducing costs,

provides greater flexibility in how and

where employees work. We have found

this approach has contributed positively to

both our cost base and our productivity,

and we will maintain an active dialogue

with our workforce to adapt to changing

situations as we go forward and ensure

that this remains the case. We have also

introduced initiatives to address staff

isolation and promote team building by

hosting in-person meet-ups throughout

the year.

Strategy Day & Stakeholder

engagement

In October 2022, the Board held a

Strategy Day to focus on where and how

we can offer value to our stakeholders.

On the day, we had presentations and

inputs from a number of key parties,

including shareholders. Despite the

volatility we have experienced in the

global macro-economic environment, our

strategy to deliver long-term sustainable

value for all our stakeholders through

regular cash returns to shareholders and

organic growth, remains unchanged. The

results of our Strategy Day reinforced our

commitment to pursue a combination

of growth and cash returns per share,

and the resumption of the dividend

in a clear policy framework has been

particularly appreciated. We are grateful

to our shareholders who have been

crucial to our growth and transformation

throughout the years, and I thank you for

your encouragement and patience as we

navigate through challenging times and

move towards a new phase of growth.

Sustainability

In a year when energy security has been

at the top of the agenda for governments

worldwide, I firmly believe that oil and gas

will continue to play an essential role in the

global energy mix for many years to come,

and that the importance of producing

this energy in a safe, environmentally

sustainable and socially responsible way

will continue to grow. During my role

as Senior Vice President of the World

Petroleum Council (WPC), I witnessed the

transformational impacts of the oil and

gas industry, particularly where it replaces

coal, on countries that suffer from energy

poverty. I strongly believe that there are

real opportunities in the energy transition,

especially for countries such as Egypt and

Vietnam, to benefit from the responsible

and sustainable development of their

natural resources. Pharos stands ready

to play our part in this transition and will

continue to support our host governments

as they seek to use oil revenues to

promote sustainable, inclusive economic

development, manage the impact of

climate change and achieve their COP

commitments.

Sustainability has always been a key value

in Pharos’ purpose and business strategy.

In 2022, we brought this even more to

the foreground. In September 2022, we

made a formal commitment to achieve a

Net Zero target on Scope 1 (direct) and

2 (indirect) GHG emissions from all our

existing and future assets by no later than

2050, with a detailed Net Zero roadmap

to come in late 2023. We have also

established an Emissions Management

Fund to provide support for emissions

management projects in line with our

climate goals. We are committed to

transparency in our reporting and will keep

stakeholders updated on our progress.

Outlook

2022 was a year of change for

Pharos, and I am honoured to

be the Chair of the Company at

such a pivotal stage in its history.

Thanks to the effort, ingenuity and

hard work of all of our colleagues,

the Company is now well-

positioned to deliver sustainable

value, with a stable balance sheet

and a clear strategy, underpinned

by a commitment to Net Zero by

2050 and to safe and responsible

operations. We enter 2023 with a

more confident outlook. On behalf

of the Board, I would like to thank

our shareholders for their support

through the year, as well as our

staff, partners, suppliers and

advisers, all of whom have helped

to provide stability through this

period of uncertainty and volatility.

JOHN MARTIN

Non-Executive Chair

CHAIR’S STATEMENT - CONTINUED

Pharos Energy Annual Report and Accounts 2022

Market overview

MARKET OVERVIEW

Economics and political

Energy independence, security and the

pace of the energy transition emerged

as major themes for the energy markets

in 2022 following Russia’s invasion of

Ukraine which plunged Europe into an

energy crisis. Many countries responded

by looking at ways to reduce or eliminate

Russian oil and gas imports, imposing

different forms of sanctions and leading to

significant volatility in the oil prices during

the first half of the year.

Alongside geopolitical conflicts, the

macroeconomic environment was

challenging with record debt levels,

declining investment rates, and high

inflation, leading in turn to political

instability and a cost of living crisis. While

COVID-19 was not the key driver of market

changes, as it has been the last few years,

China’s attempt to manage the virus with

a zero COVID-19 policy contributed to

supply side inflation.

From a market perspective, the S&P 500

in the US finished the year down 19.44%,

its worst year since 2008, with energy the

only sector to finish 59.05% up on the

year. The MSCI World index also finished

down 17.7% for the year with inflation a

primary macroeconomic concern for the

markets during this period and a weaker

economic growth outlook. The slowdown

of global economic activity, high inflation,

the cost of living crisis and the war in

Ukraine continues to weigh heavy on the

outlook for 2023. The IMF forecasts global

growth to slow from 3.4 percent in 2022

to 2.9 percent in 2023 then rebound to 3.1

percent in 2024.

Oil price

The oil price climbed on tight supplies

following Russia’s invasion of Ukraine,

peaking at US$123.58 in June 2022 with

an average Brent crude price over the year

of US$101, an increase of 39.5% from the

average price in 2021.

Demand for oil grew modestly by

2.3mmbbls/d versus the previous year as

a result of these higher oil prices and the

decline of the economy. High commodity

prices have delivered record cash flows

for oil and gas companies with many

countries introducing windfall taxes as

they face fiscal pressures to support an

economic recovery and reduce the burden

of individuals impacted by the high energy

prices.

The average realised crude oil price for

Vietnam was $106.44/bbl (2021: $72.61/

bbl), representing a premium to Brent of

just over $4/bbl on average (2021: just

under $2/bbl). For Egypt, the average

realised crude oil price was $96.03/

bbl (2021: $65.12/bbl), representing a

discount of over $5/bbl to Brent for the

year (2021: $5/bbl).

The Board’s strategy to mitigate the

principal risk of commodity price instability

is set out on pages 53 to 60. Our

approach to hedging is partly dictated

by the minimum requirements of our

RBL facility and the maximum of our

RWC support, but is otherwise regularly

reviewed to evaluate whether the benefit

of hedging its oil production is in the

best interest of shareholders. The Board

considers the balance between protecting

the Group in low oil price scenarios and

the opportunity cost of being unhedged.

In addition, Pharos continues to manage

its overall portfolio to target a low break-

even oil price, regardless of actual oil

prices. Cost efficiencies are maintained,

even in higher oil price environments, as a

result of our strong capital discipline with

all operational decisions – including new

country entry, production optimisation

and acquisitions. Operational decisions

are reviewed through the lens of full-cycle

project economics in a range of oil price

scenarios.

The IEA forecasts global oil demand to

rise by 1.9 million barrels a day in 2023, to

a record 101.7 million barrels a day, with

nearly half of the demand driven by China

lifting its COVID-19 restrictions, which

depressed economic activity in 2022. The

loosening of restrictions is expected to

drive global growth and support oil prices

in the year ahead. Global supply growth is

set to slow to 1 million barrels a day versus

last year’s OPEC+ led growth of 4.7 million

barrels a day, with western sanctions on

Russia impacting supply. Looking forward,

with interest rate increases and concerns

remaining about a global recession, crude

oil prices will remain under pressure with

EIA forecasting an average Brent crude

price of US$83.

For more information on the impact of

climate change on the long-term oil prices

and demand, please see page 59 of the

Viability Statement.

Egypt

Egypt’s economic recovery gained

momentum in 2022, although high

levels of public and domestic debt and

delayed reforms persisted. The country

suffered from the Russia-Ukraine war,

which impacted the Egyptian economy

in various ways. A foreign capital outflow

from Egypt, coupled with a drop in tourism

revenues, plus a sharp increase in the

prices of wheat (Egypt is the world’s

biggest importer of wheat, with Russia and

Ukraine its two main suppliers) and crude

oil triggered a liquidity crisis.

As a result, foreign exchange reserves

dropped from c. US$41 billion (in

February) to c. $33 billion (in August),

weakening Egypt’s ability to meet its debt

repayment obligations and its ability to

import products. Consequentially, the

Egyptian pound fell to record lows in

2022, with 1 USD selling for 15.7 Egyptian

pounds (EGP) in January and 24.7 EGP

in December (with further devaluation to

> 30 EGP in early January 2023), and

restrictions were placed on outgoing USD

transfers by the Central Bank of Egypt,

with inflation rising from 7.3% in January to

21.3% in December (and then to 25.8% in

January 2023).

In late October 2022, the IMF approved

a US$3 billion, 46-month extended

facility financial support package, with

the Egyptian Government committing to

critical structural economic reforms, with

permanent full floating of the currency and

a privatisation programme as the main

pillars.

In 2023, the Egyptian economy is

expected to stabilise, with the IMF

forecast GDP growth of 4% in the year

ahead, albeit continued high inflation and

significant debt repayment obligations are

likely to remain prominent through the year.

Vietnam

Despite relatively high inflationary pressure

which rose to 4.55% in December 2022,

the highest level since March 2020,

Pharos Energy Annual Report and Accounts 2022

Governance Report Financial Statements

Additional Information

Strategic Report

MARKET OVERVIEW - CONTINUED

Vietnam’s economy was the fastest

growing in Asia this year, following the

easing of COVID-19 restrictions, with

GDP rising 8.02% in the year ahead of

forecast, driven by the manufacturing

sector with supply chains relocating out

of China. Vietnam maintained a stable

macro-economy during 2022 and the IMF

forecasts GDP growth to slow to 5.8% in

2023.

Driven by its robust manufacturing

industry, the country’s demand in

conventional energy remains high in

the foreseeable future. Additionally,

the government’s efforts to promote

investment and maintain economic stability

will contribute to its economy’s strength,

making the country a popular destination

for foreign capital.

E&P Merger & Acquisition

activities

M&A activity within the industry slowed

down during the year, with deal value

down 41% compared to 2021 and just

over US$53 billion allocated towards

activity in the E&P sector. Despite high

oil prices and strong cash generation

across the sector, geopolitical unrest and

macroeconomic uncertainty weighed

heavily on M&A activity, and will likely

continue to impact 2023.

Climate change regulation

The 2022 United Nations Climate Change

Conference (the Conference of the Parties

or COP27) was held in Sharm El-Sheikh

last year. The issue of loss and damage

was firmly on the agenda for 2022,

focusing attention on the challenges

facing the global south as it adjusts to the

very real effects of climate change. This

proved to be a contentious issue, and

perhaps detracted attention away from

the targets set at COP26 in Glasgow to

keep global temperatures below 1.5°C.

It was however, successful in creating a

mechanism for advanced economies to

pay for the carbon emissions they create

as a result of growth, which is to be

invested in less advanced economies to

help them to adapt to climate change and

accelerate their net zero transition.

The International Energy Agency (IEA)

2022 Energy Outlook report presents

a price curve as an output of Net Zero

Emissions (NZE). The scenario outlines a

pathway to 1.5 °C stabilisation in global

average temperature rise and a transition

to an energy system with net zero CO

emission by 2050. To achieve the NZE

target, it is necessary to transition away

from fossil fuels and towards cleaner,

renewable energy sources. This transition

will likely lead to a decrease in demand

for oil and a corresponding decrease in oil

prices. Therefore, according to the IEA,

the price curve for oil is expected to be

in backwardation with a gradual decline

through to 2050. Pharos takes this into

consideration and utilises it as a reference

for estimating future value and making

predictions.

In September 2022, the Company

announced a commitment to achieve

Net Zero on Scope 1 (direct) and Scope

2 (indirect) GHG emissions from all of its

assets by no later than 2050. This Net

Zero target underscores the principle that

sustainability is a key value in our purpose

and business strategy. Further detail can

be found in our Corporate Responsibility

Report on pages 61 to 107.

Pharos seeks transparency in its emissions

performance reporting and in 2022 we

continued to report our emissions and

disclose them in accordance with UK

industry requirements and standards.

We continued to ensure the Group is

prepared to report in line with the TCFD

recommendations and, during the first

half of 2022, carried out physical climate

and transition risk analysis to identify risks

/ opportunities for the business under

different climate scenarios and pathways.

Details of this analysis can be found in the

Corporate Responsibility Report on pages

61 to 107.

Global E&P M&A, 2013-2022

Global Crude Oil Consumption 2013-2023E Brent crude 2013-2022 ($bbl)

40.0

80.0

120.0

160.0

Billions USD

2013 2014 2015 2016 2017 2018 2019

2020

2022

87.4

53.4

143.5

58.1

78.3

96.0

86.8

124.2

63.7

90.6

2021

104

102

100

mmbpd

2013A 2014A 2015A 2016A 2017A 2018A 2019A 2020A 2021A 2022A 2023E

120

100

$bbl

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Source: Bloomberg

Source: EA

Source: IHS

Pharos Energy Annual Report and Accounts 2022

CEO’s statement

Delivering value to all stakeholders.

2022 was a year of significant change for Pharos. Amidst the

challenges and ongoing volatility facing the industry, we delivered

crucial milestones that have allowed us to rebuild resilience in the

balance sheet and helped us deliver on our strategy of offering long

term, sustainable value to our shareholders via both regular cash

returns and organic growth.

JANN BROWN

Chief Executive Officer

CHIEF EXECUTIVE OFFICER’S STATEMENT

• January 2022

The Company received presidential

approval on the El Fayum Third

Amendment which increased

Contractor share of revenues from

c.42% to c.50%, thus improving fiscal

terms in Egypt.

• March 2022

We completed the farm-out transaction

and transfer of operatorship of

our Egyptian assets to IPR. The

combination of IPR’s long track-record

in Egypt, the enhanced fiscal terms,

the Egyptian rig secured on a long-

term contract, plus the carry over our

remaining 45% interest through 2022

and into 2H 2023, all combined to

support delivery of the full potential

of these assets, despite the current

challenges in the Egyptian economy.

• July 2022

We initiated a $3m share buyback

programme to return value to

shareholders at a time where the share

price was trading at a material discount

and to enhance NAV, earnings and

dividends per share to shareholders

over time. The programme took

around six months to complete and,

in January of this year, we announced

its continuation with a further $3m

committed.

• September 2022

We announced a clear policy for the

recommencement of regular dividend

payments, the first of which will be put

to the AGM in May 2023 and, subject

to shareholder approval, paid in July

2023.

Also in September 2022 we set out a

formal commitment to achieve a Net

Zero target on Scope 1 (direct) and 2

(indirect) GHG emissions from all our

existing and future assets by no later

than 2050, which we recognise is a key

component for stakeholders.

These key steps, combined with the

operational performance set out below,

have reset the dial for Pharos. The Group

now has a refreshed portfolio, a reduced

cost base, and a more resilient balance

sheet to allow us to invest in the organic

growth opportunities in the portfolio.

These opportunities range from near-term

developments and exploration potential

in Egypt to world-class potential basin-

opening exploration in Vietnam.

Governance Report Financial Statements

Additional Information

Strategic Report

CHIEF EXECUTIVE OFFICER’S STATEMENT - CONTINUED

Strong operational performance in 2022 …

In Vietnam, the Group continued to

deliver high netback, stable production.

Production in 2022 from the TGT

and CNV fields net to the Group’s

working interest averaged 5,418

boepd, in line with guidance. To sustain

production levels, the JOCs carried

out a drilling programme comprising

two development wells at TGT and

one at CNV, which was completed

on time and under budget. In 2022,

the crude produced from the fields in

Vietnam commanded a premium to

Brent of just over $4/bbl, achieved

a netback of c.$50 per barrel and a

forecast payback period for the wells

drilled of less than 12 months, making

investment in these fields an attractive

proposition.

In Egypt, we completed the farm-

out to IPR in March 2022, and

production from the El Fayum

Concession averaged 3,128 bopd

gross, 1,748 bopd net to the Group,

in line with guidance announced in

May 2022. A multi-well development

drilling programme on El Fayum was

undertaken, with a total of seven

wells drilled and put on production

in 2022. Most notably, in July 2022,

the JOC (Petrosilah) secured a rig on

a long-term contract, one year firm

plus an option for a second year, from

December 2022. This rig is expected

to provide a stable platform for a

continuous drilling campaign which

is essential to adding new barrels

to production, subject to improving

macroeconomic position in Egypt.

The health and safety of our workforce

remains our number one priority and

we are committed to operating safely

and responsibly at all times. We

continue to have an excellent safety

record in Vietnam, and I am pleased to

report that the Company reported zero

LTIs and zero fatal incidents in Vietnam

for the past 26 years. This is thanks

to the JOCs’ consistent efforts to

provide and champion workers’ health,

safety and well-being, and we are

careful to maintain this achievement as

we have done since 1996. In Egypt,

we regret to report one LTI and one

environmental spill in 2022, details

of which are set out in our Corporate

Responsibility report on page 61.

We are working with our partner IPR

and JOC Petrosilah to investigate

and address the underlying issues

behind the safety measurements and

precautions in operations in order to

return to our track record of zero safety

and environmental incidents across all

assets.

Our operational performance in 2022

has laid a strong foundation for our

2023 work programme to move

forward with the growth potential of

our assets, supporting delivery of our

strategy.

Pharos Energy Annual Report and Accounts 2022

CHIEF EXECUTIVE OFFICER’S STATEMENT - CONTINUED

… Helping us deliver our strategy

As we navigate the many challenges throughout the year, the Board and senior management team maintain a clear focus on our capital

allocation goals: to balance regular returns to shareholders with investment in our assets to generate sustainable value and cash flow,

while preserving the resilience of the balance sheet. As the Company reshapes its portfolio and financial position, our strategy of creating

and returning value to shareholders through a combination of annual dividends and organic growth, underpinned by robust cash flow

and strengthened balance sheet, stays consistent through changing times. We are committed to delivering value and invest where

we see near term cash flow and longer term value per share. We keep each asset in our portfolio under review to ensure that they are

delivering the expected value and we have a track record of monetising at the right point in the cycle.

1. Shareholder Returns

We have established a

sustainable shareholder

return framework via share

buybacks and dividends. Our

initial $3m share buyback

programme announced in

July 2022 has completed

and we have announced

a further commitment

of $3 million to continue

the programme in 2023.

Additionally, in September

2022, we announced our

intention to recommence

dividend payments starting

in 2023. Our policy is set at

returning not less than 10%

of Operating Cash Flow

(OCF) and accordingly takes

account of volatility in the

market, such as movements in

Brent price, tax, and working

capital movements. Based

on the 2022 results, where

OCF of $53.4m (£43.2m) was

achieved, the first dividend

under this policy will amount to

1p per share, and will be put

to shareholders at the AGM

in May 2023. Payment of the

2022 dividend is scheduled

for July 2023, and the Board

expects to pay an interim

dividend based on forecast

results for 2023 in early

January 2024.

2. Organic growth

opportunities

We have a portfolio of organic

growth opportunities in both

Vietnam and Egypt, with

options continuously being

explored and development

work progressed to maximise

the potential of these

complementary assets.

In Vietnam, 3D seismic

processing is complete on

Block 125, a basin-opening

frontier play with world-class

potential, and a variety of

interesting Prospects have

been identified. We are in

discussions with a number of

parties interested in farming

in to support the funding of a

commitment well on this Block.

Lastly, we are progressing

work to submit licence

extension requests across

our asset base to extend the

periods over which we can

continue our work. In Egypt,

we have infrastructure-led

exploration (ILX) opportunities

in both the North Beni

Suef (NBS) and El Fayum

Concessions, which are being

developed with our partner IPR

in the 2023 work programme.

3. Cash flow

protections

We have run cash flow

projections over a number of

different scenarios and have a

balance of hedged and free-

floating Group production, with

71% of forecast production

unhedged at 31 December

2022, thus providing exposure

to the oil price. We also

operate in two very different

jurisdictions, which provides

diversification and resilience in

a volatile world. Additionally,

to mitigate the impact of the

current late payment issues

in Egypt, we have a working

capital facility with the National

Bank of Egypt (NBE) to

smooth out payment cycles

there. Under this arrangement,

Pharos is able to access

USD cash from the facility of

up to 60% of sales invoices

outstanding, with a cap of

$18m.

4. Capital allocation

We have a culture of prudent

financial management, capital

allocation and capital return.

We exhibit capital discipline

through a focus on cost

management and control,

a part of our DNA. Capital

allocation decisions are taken

to make investments where

they will generate risk-adjusted

full-cycle returns and it is this

approach that has allowed us

to return significant amounts

of capital to shareholders in

the past. We retain a flexible

approach to our portfolio and

look to time acquisitions and

divestments to optimise cash

flow and value per share.

Pharos Energy Annual Report and Accounts 2022

Governance Report Financial Statements

Additional Information

Strategic Report

CHIEF EXECUTIVE OFFICER’S STATEMENT - CONTINUED

Stakeholder engagement

The operational successes the

Company had during the year, as

well as the strategic building blocks

towards reshaping the business, would

not have been possible if not for the

supportive relationships we have with our

stakeholders.

After an extended period of travel

restrictions due to the pandemic, in 2022,

I was able to travel to Egypt and Vietnam

to meet with many of our colleagues

and key stakeholders in-person. I am

personally very grateful to have been able

to reconnect and refresh relationships

with our partners after a long period of

remote working, and have been greatly

encouraged by the supportive and open

engagement with our colleagues, JV/JOC

partners, regulators, and governments.

I met the Chair of EGPC, the industry

regulator and state oil company in

Egypt, in H2 2022, whose support was

a crucial step towards the approval for

the improvement in our fiscal terms. In

Vietnam, I had the opportunity to meet

with both our partners and the regulator

to discuss the Revised Field Development

Plans and licence extensions for TGT

and CNV, and the exploration potential

and licence extension for Block 125/126.

Closer to home, we also hosted an

extensive delegation from Vietnam to

contribute our thoughts and experiences

as they prepared to take a new petroleum

law through the National Assembly,

which has now been approved and will

take effect from 1 July 2023, helping to

expedite some of the approval processes

in country. Finally, in December 2022, John

Martin and I were honoured to be granted

a private audience with the Prime Minster

of Vietnam to discuss the proposed

licence extensions on our assets in

country, highlighting the important benefits

that these bring not just to Pharos but

also to Vietnam. Most recently, in January

2023, the Company held a lunch to

engage with analysts, both those covering

and not covering the Company, to foster

open and communicative relationships

with key figures in the industry. We

will continue to engage in a personal

and meaningful way with our various

stakeholders in 2023 and beyond.

Sustainability & Net Zero

Sustainability is a key value in our

purpose and business strategy. We are

committed to providing energy to support

the development and prosperity of the

countries, communities and families

wherever we work, in line with recognised

social and environmental practices.

The use of oil and gas in developing

economies, particularly where it replaces

coal, can provide the energy needed to

drive GDP growth as a foundation for

long-term economic and social benefits,

as long as those resources are developed

efficiently, safely and responsibly. In this

way, we can create sustainable value for

all of our stakeholders: investors, host

countries, business and communities.

This year, we have taken an important

step with regard to our environmental

responsibilities to society and the countries

in which we operate. In September 2022,

we announced a commitment to achieve

Net Zero on our Scope 1 (direct) and

Scope 2 (indirect) GHG emissions from

all our current and future assets by no

later than 2050. We look to achieve this

by progressing operational efficiencies,

reducing flaring and venting where

possible, replacing the power consumption

of our facilities with less impactful energy

sources and eventually procuring nature-

based carbon offset projects for hard-to-

abate, residual emissions. As we develop

our emissions reduction plans, we will look

to accelerate this 2050 target whenever

we can. We have also established

an Emissions Management Fund in

2022 to provide support for emissions

management projects in line with our

climate goals. Additionally, we also pledge

to publish a detailed Net Zero roadmap in

late 2023, to include a baseline emissions

inventory for all our assets, asset-level

emission reduction frameworks, and

introducing interim targets over the short

and medium term as well as the capital

expenditure and resourcing needed to

achieve targets.

We recognise that the journey to Net Zero

will be neither simple nor straightforward.

Nevertheless, we remain committed

to transparency in our reporting and

to keeping stakeholders updated on

our progress. For more details on

our Net Zero commitment, Emissions

Management Fund, our emission impact

and how we deliver value to the local

community, please refer to our Corporate

Responsibility Report on page 61.

Outlook

The key steps we have taken to

reshape our business have taken

Pharos to a stronger place. After

a year of delivery, we now have a

combination of assets which offer

resilience in difficult times, strong

cash returns even at low oil prices,

plus valuable organic growth

potential when investment capital

is available. Having taken over the

reins at Pharos a year ago, I am

confident that we have the assets,

plan, team, capital structure

and financial discipline to deliver

long-term sustainable return to all

stakeholders. I would like to thank

our global colleagues, investors,

government and JV/JOC partners

for their continued support through

these changes as we navigated

through a year of challenges and

uncertainties, and I look forward

to working with all of them to steer

Pharos on a path towards a new

phase of growth.

JANN BROWN

Chief Executive Officer

Pharos Energy Annual Report and Accounts 2022

BUSINESS MODEL

How our business model

creates sustainable value

We are building a business focused on generating sustainable

returns. We look to grow Pharos through the responsible

management of our current portfolio and careful selection of

organic opportunities, particularly those with near-term low-cost

development and exploration assets with transformative potential

within Asia and MENA.

Assess

VALUE INPUTS

VALUE OUTPUTS VALUE OUTPUTS VALUE OUTPUTS

VALUE INPUTS VALUE INPUTS

Invest

Develop

& Produce

We assess opportunities which offer near

term cash generation and longer term

growth. We generate opportunities from

within our existing asset base and balance

the value of investing in the business with

the value of cash returns to shareholders.

Our investment programme will continue

to be allocated over our asset base in a

disciplined manner to deliver sustainable

returns for our stakeholders. We

maintain a culture of prudent financial

management, capital allocation, and

capital returns.

Our production increases through the

development of existing discovered

resources. We seek to maximise margins

through optimising production at low

operating costs. We are committed to

responsible and safe operations at all

times.

Our people

• Extensive industry experience

• Technical expertise & commercial

acumen

• Relationship-driven

• Diverse & inclusive workforce

Growth metrics

• Safe and responsible operations

• Development of discovered

Egyptian resources through

onshore, low cost, in-fill drilling

• Continued development of

Vietnam producing assets through

licence extensions and revised

field development plans

• Farm-in partner to support the

funding of a commitment well and

develop the full potential of Block

125

Organic growth

opportunities

• Development of existing

discovered resources

• New exploration prospects and

leads in both Concessions in

Egypt and in Block 125/126 in

Vietnam

• Conventional and unconventional

+ exploration potential

Stakeholders

• Net Asset Value (NAV) per share

growth

• Regular cash return to

shareholders

• Local capability & trusted

partnerships

• In-country economic contribution

and social investment

• Local employment and capability

training

Our assets

• Mix of complementary assets

• Low-cost onshore drilling in Egypt

• Mature, short payback in Vietnam

• Basin-opening frontier offshore

exploration in Vietnam

Our capital

• Rigorous approach to cost

• Low breakeven oil price in Vietnam

• Modest gearing

• Disciplined capital allocation

process

Pharos Energy Annual Report and Accounts 2022

Governance Report Financial Statements

Additional Information

Strategic Report

KEY METRICS

Reporting on

our performance

We use both financial and non-financial metrics to manage long-

term performance and deliver on our responsible business plans.

They are kept under review and regularly tested for relevance

against our strategies and policies.

* Read More

Non-IFRS measures on page 203

2022 Financial Measures

LOW CASH OPERATING COST

$/BOE *

16.36

2021

2020

2022

16.36

16.05

11.60

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 $16.36/boe in 2022, an

increase over 2021, largely due to higher variable costs as a result

of an upsurge in the fuel price, offset by the significant devaluation of

EGP against the US dollar during the year.

Outlook

We continue to target improvements in 2023 and beyond through

managing costs and increasing production

Links to strategy

• Deliver value through

growth

Associated risks

• Partner alignment risk

• Political and regional risk

Links to Remuneration Report (See page 134)

CAPITAL EXPENDITURE CASH

$M (includes abandonment funding)

29.8

021

020

022

29.8

39.8

41.3

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 2022 cash capital expenditure was lower than 2021. In 2022, the

TGT drilling programme for two development wells completed in H2

2022, on time and under budget. For CNV Field, one development

well commencing in H2 2022 and has now been completed (most

of CNV cash capex was deferred from 2022 to 2023). In Egypt,

seven wells were put on production in 2022 (including one well

drilled in 2021), and one additional well drilled in Q4 2022 is due for

completion in Q1 2023.

Outlook

The cash capex forecast for 2023 is expected to be c.$38m (c.$23m

after Egyptian carry by IPR).

Links to strategy

• Deliver value through

growth

• Investment growth

Associated risks

• Commodity price risk

• Partner alignment risk

Pharos Energy Annual Report and Accounts 2022

KEY METRICS - CONTINUED

CASH AND CASH EQUIVALENTS

45.3

021

020

022

27.1

24.6

45.3

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 $45.3m, an increase of 67% on prior

year, mainly driven by net cash flows from operating activities of

$53.4m (2021: $10.8m) as a result of higher commodity prices during

the year, offset by lower production.

Outlook

Capital discipline and financial stability have always been key to the

Company and continue to underpin the business.

Links to strategy

• Deliver value through

growth

• Return to shareholders

Associated risks

• Commodity price risk

• Financial discipline and

governance risk

RETURNS TO SHAREHOLDERS

PENCE PER ORDINARY SHARES

021

020

022

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 2022, the Board recommended recommencement of regular

dividend payments starting in 2023, subject to shareholder approval

at AGM 2023, returning no less than 10% of Operating Cash Flow

(OCF). The Board have recommended a final dividend of 1p per share

based on 2022 Operating Cash flow.

Also completion of the initial $3m share buyback programme,

completed early January 2023, with a further $3m committed for

2023.

Outlook

We are committed to deliver long term, sustainable value to our

shareholders via both regular cash returns yield and organic growth.

An annual dividend remains a key aspect of the Company’s capital

discipline and investment thesis.

Links to strategy

• Deliver value through

growth

• Return to shareholders

Associated risks

• Commodity price risk

• Climate change risk

• Sub-optimal capital

allocation risks

2022 Financial Measures - Continued

Pharos Energy Annual Report and Accounts 2022

Governance Report Financial Statements

Additional Information

Strategic Report

KEY METRICS - CONTINUED

LOST TIME INJURY FREQUENCY (“LTIF”)

PER MILLION MAN-HOURS WORKED

0.42

2021

2020

2022

0.34

0.42

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 in

1996. In Egypt, we regret to report one LTI in 2022, details of which

are set out in our Corporate Responsibility report on page 61, and

we are working with the operator IPR to investigate and address the

underlying issues behind the safety measurements and precautions in

our operations in order to return to our track record of zero LTI across

all assets.

Outlook

Continue to work closely with the Joint Operating Companies to

maintain high safety standards and training with the aim of driving

continuous improvement year-on-year.

Links to strategy

• Focus on stakeholders

Associated risks

• HSES and social risk

• Partner alignment risk

Links to Remuneration Report (See page 134)

GROUP NET PRODUCTION

BOEPD

7,166

2021

2020

2022

11,373

7,166

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 2022 production was 5,418 boepd net (2021: 5,560 boepd

net) and Egypt 2022 production was 1,748 bopd net.

Outlook

Group working interest 2023 production guidance is 6,050 – 7,500

boepd net. Vietnam 2023 production guidance is 4,700 – 5,700

boepd net, and Egypt 2023 production guidance is 1,350 – 1,800

bopd net

Links to strategy

• Deliver value through

growth

Associated risks

• Reserve risk

• Sub-optimal capital

allocation risks

• Commodity price risk

Links to Remuneration Report (See page 134)

Operational measures

Pharos Energy Annual Report and Accounts 2022

KEY METRICS - CONTINUED

SOCIAL AND ECONOMIC INVESTMENT

698,600

2021

2020

2022

745,191

698,600

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 2022, in addition to the aforementioned training levy funds (which

totals to $500,000), a further $198,600 was invested in 9 community

and charitable partnerships and investment projects.

Outlook

Build on previous work, and continuously assess and review where

the most valuable contribution to long-term social projects, both at

the local level and more widely, can be made.

Links to strategy

• Focus on stakeholders

Associated risks

• Commodity price risk

• Financial discipline and

governance risk

• Business conduct and

bribery

EMPLOYEES UNDERTAKEN ANTI-BRIBERY

AND CORRUPTION TRAINING %

100

021

020

2022

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 year end 2022.

Outlook

Maintain 100% completion rate for the ABC training and testing.

Comply with new legislations and industry best practices and ensure

the training programmes are up-to-date.

Links to strategy

• Deliver value through

growth

• Investment growth

Associated risks

• Partner alignment risk

• Business conduct and

bribery

Operational measures - Continued

Pharos Energy Annual Report and Accounts 2022

Governance Report Financial Statements

Additional Information

Strategic Report

OPERATIONAL REVIEW

Egypt

The Group has a 45% non-operating interest in two concessions

in Egypt - El Fayum and North Beni Suef. *

1,748 bopd

2022 EGYPT PRODUCTION

(NET)

DEVELOPMENT LEASES IN

EL FAYUM

El Fayum (D&P)

The El Fayum Concession is located in

the low-cost and highly prolific Western

Desert, about 80km south west of Cairo

and close to local energy infrastructure.

North Beni Suef (E)

The North Beni Suef (NBS) Concession

is also located in the Western Desert, to

the south of the El Fayum Concession. It

is currently in the first exploration period,

during which the Contractor parties are

committed to drill two exploration wells

and acquire new seismic.

* The farm-down transaction and transfer of operatorship of Pharos’ Egyptian assets to IPR completed on 21 March 2022. Although

the economic date of the transaction was 1 July 2020, working interest production for Egypt in 2022 is reported as 100% through to

completion and 45% thereafter. The comparative basis for 2021 also assumes 100% working interest until 21 March 2021 and then

45% for the remainder of the year.

CAIRO

EGYPT

CAIRO

El Fayum Concession

North Beni Suef Block

Area E

Pharos Energy Annual Report and Accounts 2022

OPERATIONAL REVIEW - CONTINUED

Egypt Production in 2022

The transaction with IPR and transfer of operatorship completed

on 21 March 2022. Although the economic date of the transaction

was 1 July 2020, operatorship remained with Pharos until March

2022. Accordingly, working interest production in 2022 is reported

in the Financial Statements as 100% through to completion of the

farm-down and 45% thereafter.

Production for 2022 from the El Fayum Concession averaged

3,128 bopd gross and 1,748 bopd net to the Group. This is in line

with the 2022 production guidance announced in January 2022.

Egypt Development and Operations in 2022

Following the transaction with IPR in March 2022, the main

El Fayum multi-year and multi-well development programme

commenced in Q2 2022. Seven wells were put on production in

2022 (including one well drilled in 2021), and one additional well

was drilled in Q4 2022 and completed in Q1 2023.

In July 2022, the El Fayum JOC, Petrosilah, secured a rig on a

long-term contract, one year firm plus an option for a second year,

which started drilling in December 2022. This rig is expected to

provide a stable platform for a continuous drilling campaign, which

we consider essential to adding new barrels to production.

Additionally, two workover rigs are on field to contribute to

production through low-cost well repairs, recompletions, and

deployment of water injection.

Egypt Commercial in 2022

In January 2022, the Company received approval on the Third

Amendment to the El Fayum Concession. The agreement, and the

improved fiscal terms, were retroactively effective from November

2020.

As a result of the changes introduced by the Third Amendment,

the Contractor parties’ share of revenue while in full cost recovery

mode increases from c.42% to c.50% as from November 2020,

(corresponding to additional net revenues to the Contractor of

c.$7 million to the date of signature) significantly lowering the

development project break-even. The Third Amendment also

grants Contractor a three-and-a-half-year extension to the

exploration term of the El Fayum Concession, with an additional

obligation on Contractor to drill two exploration wells and acquire

a 3D seismic survey in the northern area of the concession.

The Group is cognisant of the current macroeconomic situation

in Egypt, and will continue to review its investment programme in

light of recovery of the receivable position.

Egypt Exploration in 2022

North Beni Suef (NBS) exploration

In Q4 2022, the Company was granted a short extension on

North Beni Suef (NBS) to allow additional time to drill high-ranked

prospects and all work programme commitments, including the

first of two commitment exploration wells, originally planned for Q4

2022. Several prospects have been identified from the existing 3D

seismic.

2023 Work Programme

El Fayum

Egypt production guidance for 2023 is 1,350 – 1,800

bopd net (equivalent to gross production of 3,000 –

4,000 bopd).

In El Fayum, multi-well development drilling continues in

2023, with nine wells planned for the year.

On the exploration side, two commitment exploration

wells are expected to be drilled in the El Fayum

Concession as part of the planned 2023 work

programme. These two Satellite exploration wells are

planned to target two separate structures near existing

producing fields with primary reservoir targets in the

Abu Roash G and Upper Bahariya formations. We are

working closely with IPR to progress well planning and

optimise drilling schedules.

The drilling of the first NBS exploration commitment well,

originally planned for Q4 2022, has started in Q1 2023.

In March 2023, a further extension to the exploration

period was granted by EGPC. These two extensions,

which run until September 2023, provide additional

time to fulfil the Contractor parties’ commitment to

drill this commitment well. The second commitment

exploration well on NBS is planned to be drilled later in

2023, dependent on rig availability. Several prospects

have been identified from the existing 3D seismic and

acquisition of c.110 km

of additional 3D seismic has

started in Q1 2023.

Pharos Energy Annual Report and Accounts 2022

Governance Report Financial Statements

Additional Information

Strategic Report

OPERATIONAL REVIEW - CONTINUED

Vietnam

Pharos has two producing assets, Te Giac Trang (TGT) and

Ca Ngu Vang (CNV), and two exploration blocks (Blocks 125 & 126)

in Vietnam.

5,418 boepd

2022 VIETNAM PRODUCTION (NET)

BLOCKS IN VIETNAM

Block 9-2 CNV Field

(D&P)

The CNV Field is located in Block 9-2,

offshore Vietnam, in the shallow water Cuu

Long Basin. In contrast to the geology of

TGT, the CNV Field reservoir is fractured

granitic Basement.

Block 16-1 TGT Field

(D&P)

The TGT Field is located in Block 16-1,

offshore Vietnam in the shallow water

Cuu Long Basin multi-stacked sandstone

reservoirs.

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.

VIETNAM

CAMBODIA

NHA TRANG

VIETNAM

CAMBODIA

Block 125

Block 16-1 TGT Field

Block 9-2 CNV Field

Block 126

Pharos Energy Annual Report and Accounts 2022

Vietnam Production in 2022

Production in 2022 from the TGT and CNV fields net to the

Group’s working interest averaged 5,418 boepd (2021: 5,560

boepd). This is in line with the production guidance for Vietnam

announced in January 2022.

TGT production averaged 13,784 boepd gross and 4,089 boepd

net to the Group (2021: 13,887 boepd gross and 4,120 boepd

net). CNV production averaged 5,317 boepd gross and 1,329

boepd net to the Group (2021: 5,762 boepd gross and 1,440

boepd net).

Vietnam Development and Operations in 2022

TGT & CNV Fields

On Block 16-1 – TGT Field, the drilling programme for two

development wells completed in H2 2022, on time and under

budget. The first well, H1-35P, commenced production on 21

October 2022, and the second well, 11XPST, commenced

production on 10 November 2022.

Additionally, the JOC continues to execute an active well

intervention and data-gathering programme on TGT to further

optimise production.

On Block 9-2 – CNV Field, one development well, CNV-2PST1,

started drilling in H2 2022 and completed in Q1 2023 on time and

under budget.

Vietnam Exploration in 2022

Blocks 125 & 126

On Block 125, the 3D seismic processing was completed in

November 2022 and the ongoing interpretation of this data has

resulted in the mapping of a variety of world class Prospects in

this relatively unexplored basin.

The analysis of the 2D seismic shot in 2019 indicated

prospectivity in both the shallow and deeper water, and the

ongoing interpretation of the 3D seismic has highlighted greater

prospectivity in the deeper water section given the scale of the

Prospects identified there.

2023 Work Programme

TGT & CNV Fields

Vietnam production guidance for 2023 is 4,700 to 5,700

boepd net.

For the 2023 work programme, the JOCs are working

towards submitting Revised Field Development Plans

(RFDPs) for two wells on TGT and one on CNV, with all

wells remaining in contingent budget until approval by

partners and the Ministry of Industry and Trade (MOIT).

Production guidance has assumed no contribution from

these wells in 2023.

The official licence extension requests have been sent

to partners for approval, prior to submission to PVN for

their approval before being put to the Prime Minister for

final assent.

Blocks 125 & 126

As noted, the ongoing interpretation of 3D seismic

data has highlighted greater prospectivity in the deeper

water section of Block 125. In order to drill one of

these deeper water prospects as the commitment

exploration well under the current exploration phase

of the PSC, a Drillship or Dynamically-Positioned (DP)

Semi-Submersible Rig is needed. Due to limited regional

availability the Group has been unable to source a

suitable drilling unit for 2023 on acceptable terms. We

therefore submitted an application in December 2022 for

an extension of the current exploration phase of the PSC

which is now with the Prime Minister’s office for approval.

We will use the time to optimise drilling locations and

well planning for this deeper water well, to source a

Drillship or DP Semi-Submersible Rig and other long-

lead procurement items and to find a partner to support

the funding of this well. A number of parties have been

invited to review data and discussions are ongoing.

In addition, we are now engaged in updating our

3D Hydrocarbon Modelling of the area and in fully

analysing the 3D seismic data for amplitude anomalies

– spectral decomposition for reservoir facies distribution

patterns and AVA/AVO analysis for the presence of

hydrocarbons. We have also started a detailed Peer

Review study of all our technical work with a leading

Energy Subsurface consultancy (ERCE), who will also

perform an Independent Resource assessment of our

key Prospects.

OPERATIONAL REVIEW - CONTINUED

Pharos Energy Annual Report and Accounts 2022

Governance Report Financial Statements

Additional Information

Strategic Report

Group Reserves Statistics

Net Working Interest (mmboe) TGT CNV Vietnam

Egypt

Group

Oil & Gas 2P Commercial Reserves

1,2

As of 1 January, 2022 10.9 4.3 15.2 37.8 53.0

Production (1.5) (0.5) (2.0) (0.6) (2.6)

Revision (0.6) (0.4) (1.0) (1.5) (2.5)

Change in net working interest

- - - (20.7) (20.7)

2P Commercial Reserves as of 31 December 2022 8.8 3.4 12.2 15.0 27.2

Oil & Gas 2C Contingent Resource

1,2

As of 1 January, 2022 7.6 3.8 11.4 18.6 30.0

Revision (0.2) (0.4) (0.6) 0.5 (0.1)

Change in net working interest

- - - (10.2) (10.2)

2C Contingent Resources as of 31 December 2022 7.4 3.4 10.8 8.9 19.7

Total Group 2P Reserves & 2C Contingent Resources

3,4

As of 31 December 2022

16.2 6.8 23.0 23.9 46.9

1) Reserves and contingent resources are categorised in line with 2018 SPE standards.

2) Assumes an oil equivalent conversion factor of 6,000 standard cubic feet per barrel of oil equivalent.

3) Reserves and Contingent Resources have been independently audited by RISC.

4) Reserves and Contingent Resources have been independently audited by McDaniel.

5) Pharos Energy net working interest in El Fayum is 45% post completion of farm-down transaction to IPR on 21 March 2022

Vietnam Reserves and Contingent Resources

In accordance with the requirements of its Reserve Base Lending Facility, the company commissioned RISC to provide an independent

audit of gross (100% field) reserves and contingent resources for TGT and CNV as of 31 December 2022.

Vietnam Reserves Statistics

Net Working Interest (mmboe) TGT CNV Total Vietnam

Oil & Gas 2P Commercial Reserves

1,2

As of 1 January, 2022 10.9 4.3 15.2

Production (1.5) (0.5) (2.0)

Revision (0.6) (0.4) (1.0)

2P Commercial Reserves as of 31 December 2022 8.8 3.4 12.2

Oil & Gas 2C Contingent Resource

1,2

As of 1 January, 2022 7.6 3.8 11.4

Revision (0.2) (0.4) (0.6)

2C Contingent Resources as of 31 December 2022 7.4 3.4 10.8

Total Vietnam 2P Reserves & 2C Contingent Resources

As of 31 December 2022

16.2 6.8 23.0

1) Reserves and contingent resources are categorised in line with 2018 SPE standards.

2) Assumes an oil equivalent conversion factor of 6,000 standard cubic feet per barrel of oil equivalent.

3) Reserves and contingent resources have been independently audited by RISC.

On TGT, 2P reserves were revised downwards due to lower than expected performance from one of the new infill wells and a slow

production ramp-up following the annual maintenance shutdown. 2C contingent resources were revised as volumes from two future infill

wells were moved into the reserves category.

On CNV, the 2P reserves and 2C contingent resources were revised downwards due to lower performance from the existing wells and

delayed dewatering of well 5PST2.

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.

OPERATIONAL REVIEW - CONTINUED

Pharos Energy Annual Report and Accounts 2022

OPERATIONAL REVIEW - CONTINUED

Egypt Reserves and Contingent Resources

Egypt Reserves Statistics

Net Working Interest (mmboe) Egypt

Oil 2P Commercial Reserves

As of 1 January, 2022 37.8

Production (0.6)

Revision (1.5)

Change in net working interest

(20.7)

2P Commercial Reserves as of 31 December 2022 15.0

Oil 2C Contingent Resource

As of 1 January, 2022 18.6

Revision 0.5

Change in net working interest

(10.2)

2C Contingent Resources as of 31 December 2022 8.9

Total Egypt 2P Reserves & 2C Contingent Resources

As of 31 December 2022

23.9

1) Reserves and contingent resources are categorised in line with 2018 SPE standards.

2) Reserves and Contingent Resources have been independently audited by McDaniel.

3) Pharos Energy net working interest in El Fayum is 45% post completion of farm-down transaction to IPR on 21 March 2022

On El Fayum, the delay in the execution of the field development plan have resulted in a downward revision of the 2P reserves, pushing

some volumes into the contingent resources category.

Group’s Net Working Interest Reserves and Contingent Resources

El Fayum Fields at 31 December 2022 (mmboe)

Reserves 1P 2P 3P

Oil 7.3 15.0 20.0

Contingent Resources 1C 2C 3C

Oil 3.3 8.9 18.0

Sum of Reserves and Contingent Resources

1,2

1P & 1C 2P & 2C 3P & 3C

TotalTotal 10.6 23.9 38.0

1) Reserves and Contingent Resources have been audited independently by McDaniel.

2) The summation of Reserves and Contingent Resources has been prepared by the Company.

TGT Field at 31 December 2022 (mmboe) (net to Group’s working interest)

Reserves

1P 2P 3P

Oil 6.7 8.1 9.2

Gas

0.4 0.7 0.9

Total 7.1 8.8 10.1

Contingent Resources

1C 2C 3C

Oil 4.7 7.1 9.0

Gas

0.1 0.3 0.5

Total 4.8 7.4 9.5

Sum of Reserves and Contingent Resources

1P & 1C 2P & 2C 3P & 3C

Oil 11.4 15.2 18.2

Gas

0.5 1.0 1.4

Total 11.9 16.2 19.6

1) Assumes oil equivalent conversion factor of 6,000 standard cubic feet per barrel of oil equivalent.

2) The summation of Reserves and Contingent Resources has been prepared by the Company.

3) Reserves and Contingent Resources have been audited independently by RISC.

Pharos Energy Annual Report and Accounts 2022

Governance Report Financial Statements

Additional Information

Strategic Report

OPERATIONAL REVIEW - CONTINUED

CNV Field at 31 December 2022 (mmboe) (net to Group’s working interest)

Reserves

1P 2P 3P

Oil 1.8 2.1 2.5

Gas

1.1 1.3 1.5

Total 2.9 3.4 4.0

Contingent Resources

1C 2C 3C

Oil 1.3 2.1 3.0

Gas

0.8 1.3 1.8

Total 2.1 3.4 4.8

Sum of Reserves and Contingent Resources

1P & 1C 2P & 2C 3P & 3C

Oil 3.1 4.2 5.5

Gas

1.9 2.6 3.3

Total 5.0 6.8 8.8

1) Assumes oil equivalent conversion factor of 6,000 standard cubic feet per barrel of oil equivalent.

2) The summation of Reserves and Contingent Resources has been prepared by the Company.

3) Reserves and Contingent Resources have been audited independently by RISC.

SECTION 172(1)

S.172(1) Companies Act 2006

The duty under section 172(1) of the Companies Act 2006 is

applied in addition to the other duties of a Director. Each Director

must discharge these duties in accordance with the duty of care,

skill and diligence both objectively and to a subjective standard.

In accordance with section 172(1) of

the Companies Act 2006 (“s.172(1)"),

the Directors of the Company have a

statutory duty to promote the success of

the Company. The Board of Pharos, as

individuals and together, consider that they

have acted in a way that would most likely

promote the success of the Company,

and deliver the goals and objectives for

the benefit of it¬s members as a whole

in relation to all stakeholders who may

be affected by or engaging with the

Company’s activities.

Board meetings and discussions

The Board has always taken into account

its s.172(1) obligations during the year in

line with current reporting requirements.

Their key decisions have been specifically

confirmed at each Board meeting to

take into account these matters. This

has been supplemented by the roles of

the individual Directors giving due regard

and consideration of each element of the

s.172(1) requirements including:

a) The likely consequences of any

decisions in the long-term;

b) The interests of the employees;

c) The requirements to foster business

relationships with suppliers, customers,

and others;

d) The impact on the community and

environment of the Company’s

operations;

e) The desirability of the Company

maintaining a reputation for high

standards of business conduct; and

f) The need to act fairly as between

members of the Company.

Illustration of how s.172(1) factors have

been applied by the Board are set out

below and can also be found throughout

the Strategic Report of which this

statement forms part.

a) The likely consequences of any

decisions in the long-term

During its meetings and discussions, the

Board considers decisions with keen

regard to consequences in the long term

for the business. For example, in October

2022, the Board held a Strategy Day to

assess and evaluate our strategy to deliver

long-term, sustainable value for all our

stakeholders, and its implications on our

decision-making process. This involved,

amongst other things, presentations and

other inputs from a number of key external

parties, including shareholders and

advisers. At all meetings and discussions

of the Board and committees of the Board

(“Board Committees"), several papers

are presented to promote discussion and

provide options for the Board to hold an

informed and balanced debate.

For more information on how the Board

consider decisions with regards to the

long-term consequences for the business,

see page 53 of the Risk Management

report for all principal risk and page 47 of

the Risk Management report. For more

information on the Strategy Day, see page

15 of the Chair’s Statement.

Pharos Energy Annual Report and Accounts 2022

Governance Report Financial Statements

Additional Information

Strategic Report

SECTION 172(1) - CONTINUED

b) The interests of the employees

The interests of the Company’s employees

is a key element of the statutory duty

under s.172(1). Throughout the year, we

have run a dedicated Monday weekly

meeting to ensure all colleagues are

continuously informed about important

business developments in the Company

and the Group, and have channels

through which they can ask questions

and provide input. We have continued to

make extensive use of video conferencing

facilities during calls and meetings to

maintain visibility and connection. The

recent reorganisation of the Group has

instituted a flatter organisational structure,

allowing for shorter lines of management

and more direct, accessible channels of

communication with leadership.

The Executive Directors receive regular

updates on colleague engagement to

understand any complaints or troubles

from the hybrid work environment. At

the beginning and end of each calendar

year, every employee is encouraged to

set their own personal and professional

development objectives and appraisal for

the upcoming year, and to discuss this

with their line managers who can provide

any additional support where needed

and to remediate any troubles that each

employees might face. Additionally, Jann

Brown, the Company’s CEO, held virtual

and in person one-to-one meetings

with employees in the UK, Vietnam and

Egypt to understand their concerns over

the past years. Feedbacks from these

sessions have resulted in several solutions

being proposed and implemented going

forward, such as: off-site away days/

in-person meetings monthly to avoid

staff isolation and promote team culture,

learning sessions on technology and

public capital markets, and a discussion

on how best to ask others for info/help/

support when working from home. During

the year, John Martin, as Non-Executive

Chair of the Board and designated

Non-Executive Director responsible for

workforce engagement, carried out in-

person town hall meetings, during which

staff were invited to share their feedback

and views about the Company without

the presence of any Executive Directors to

provide an open, honest and safe space

for all employees to express any concerns

they might have. Feedback from these

sessions were then taken into account

and communicated back to the Board and

Executive Directors as suggestions for

improvements.

For more information on the Board’s

engagement with employees, see

page 115 for the 2018 UK Corporate

Governance Code.

c) The requirements to foster

business relationships with

suppliers, customers, and others

The Group’s business relationships

with stakeholders, such as suppliers,

service providers, vendors and joint

venture partners are subject to regular

review and consideration through vendor

due diligence and active contracts

management. Vendor due diligence is

actively undertaken before a service

provider of any size is engaged. Significant

contracts, concessions and commitments

are considered by the Executive Directors

and the Board, or relevant Board

Committee, supported by papers outlining

impact and consequences of potential

decisions. All significant contracts and

other commitments are also thoroughly

reviewed by the Group General Counsel.

Our relationships with our joint venture

partners, shareholders and analysts are

the foundation to support the success of

our business. In 2022, Jann Brown met

with the President of EGPC, the industry

regulator and state oil company in Egypt,

and met with both our JOC partners and

with the regulator in Vietnam to discuss

the Revised Field Development Plans and

licence extensions for TGT and CNV and

the licence extension for Block 125/126.

Additionally, during the Strategy Day held

in London in October 2022, the Board had

presentations and inputs from a number

of key parties, including shareholders.

The results of our Strategy Day were then

communicated to key investors as part of

our overarching objective of maintaining

open and constructive two-way dialogues

with our stakeholders. Most recently,

in January 2023, the Company held

an analyst lunch to engage with media

journalists and analysts, both covering and

not covering the Company, to foster open

and communicative relationships with key

figures in the industry.

We plan to continue to engage in a

personal and meaningful way with our

stakeholders, such as suppliers, joint

venture partners, shareholders, and others

in the future.

For more information on how the Company

foster relationships with stakeholders, see

page 19 of our CEO’s Statement and page

115 of our Corporate Governance report.

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 five years, we have participated in

the CDP (Climate Disclosure Project)

Climate Change Questionnaire and have

maintained our score (C), which is also the

industry average. 2022 also marks the first

year that the Company was graded on their

water usage disclosure in the CDP Water

Security Questionnaire, which also received

a score of (C). As a Company, we continue

to work to bring our disclosures in line

with the requirements of the TCFD. Most

notably, in September 2022, the Company

made a formal commitment to achieve Net

Zero on all Scope 1 and 2 GHG emissions

across all assets by no later than 2050,

with plans to publish a Net Zero roadmap

later in 2023.

In addition to this, the Company has always

remained committed to creating value in

a sustainable manner for host countries

and local communities as well as for staff.

In recent years, we have structured our

social investment programme to align

more with the United Nations Sustainable

Development Goals (UN SDGs). We’ve

worked closely with our local partners

and joint ventures in order to make sure

that our social initiatives continue to bring

more positive impacts to the region. In

2022, $198,600 was invested in 9 long-

term community projects, and a further

$500,000 was invested in ring-fenced

funds for training to develop future talents

in the industry in Egypt and Vietnam.

The Board regularly monitors the Group’s

business activities, financial position,

cash flows and liquidity, and operating

environment through detailed forecasts.

Scenarios and sensitivities are carefully

researched and prepared by the Group’s

Business Intelligence Analyst and are

regularly presented to the Board, including

changes in commodity prices and in

production levels from the existing assets,

plus other factors which could affect the

Group’s future performance and position.

For more information on the Board’s

commitment to ESG and considerations on

the community and the environment, see

pages 122 to 124 for the ESG Committee

report, pages 15 to 16 for the Chair’s

Statement, and pages 61 to 107 for the

Corporate Responsibility report.

For more information on Board oversight

on business activities, financial position and

the environment of the Group’s operations,

see page 47 of the Risk Management

report.

Pharos Energy Annual Report and Accounts 2022

SECTION 172(1) - CONTINUED

e) The desirability of the Company

maintaining a reputation for high

standards of business conduct

The Group’s Code of Business Conduct

and Ethics and associated policies and

procedures have been followed rigorously

in 2022. In H2 2022, the Group’s Risk

Manager hosted a virtual sessions on

anti-bribery and corruption (“ABC”)

for the global workforce to reiterate

the importance for every employee

to understand the Code of Business

Conduct and Ethics and to place it at

the forefront of our engagement with

suppliers, vendors, partners, and public

officials. It is also a requirement for all

employees and the Board to complete and

successfully pass their ABC and Criminal

Finance E-Learning modules every year

to ensure we hold the Company to the

highest standard of business conduct.

Our Whistleblowing Policy ensures that

employees are protected from possible

reprisals when raising concerns in good

faith. In addition to internal reporting

channels, we have a confidential ethics

hotline supported by EthicsPoint with

numbers displayed in local offices available

24 hours a day all year round.

The year also saw the Russian invasion

of Ukraine in February 2022 and the

introduction of an unprecedented suite of

international sanctions and export controls

in response to Russia’s aggression. The

Group’s own response to the situation,

and the prospect of a protracted conflict,

included the establishment of dedicated

cross-functional Pharos working group in

March 2022 and the adoption of a new

Group Sanctions Policy in May 2022. At

an operational level, the Group continues

to work with the JOCs on contingency

planning and mitigation in the event that

the sanctions of the conflict has a direct

impact on the Group’s business.

The Board has an obligation and duty to

ensure that we exercise our intention to

behave responsibly. The management

team is obliged to execute the business

responsibly and to the highest standards.

The Executive Directors communicate

regularly with the Board and maintain open

communication with the management

team to ensure the two-way information

flow is clear and open. Each Board

member brings individual judgement and

considerable experience to decision-

making and carefully assesses the course

of action which is most likely to promote

the success of the Company. For more

information on this, please refer to point a)

and b) above.

For more information on the Company’s

commitment to maintaining high standards

of business conduct, see pages 47 to 60

of the Risk Report, pages 61 to 107 of the

Corporate Responsibility report.

Governance Report Financial Statements

Additional Information

Strategic Report

Pharos Energy Annual Report and Accounts 2022

SECTION 172(1) - CONTINUED

f) The need to act fairly as between

members of the company.

We believe in a workforce with a diversity

of experience, nationalities, cultural

backgrounds and gender, to support our

business strategy of long-term sustainable

growth. It is crucial to the success of

our business that we retain and develop

the diversity of our workforce and have

diversity and inclusion at the heart of our

recruitment, development and promotion

processes.

Our Code of Business Conduct and

Ethics, associated policies and the Pharos

Guiding Principles commit us to providing

a workplace free of discrimination where all

employees can fulfil their potential based

on merit and ability. We remain respectful

and accepting in our relationships with

current and future employees without

discrimination or prejudice on grounds

of age, disability, gender, marital status,

sexual orientation, colour, race, religion

or any other characteristic protected by

applicable laws. They also commit us

to providing a fully inclusive workplace,

while providing the right development

opportunities to ensure existing staff have

rewarding careers.

For more information on our commitment

to act fairly as between members of the

company, see page 14 of the Investment

Case, pages 61 to 107 of the Corporate

Responsibility report, or visit our website at

https://www.pharos.energy/responsibility/

policy-statements/ for our Human Rights

statement.

Conclusion

The Company is committed to good governance and will continue to review the

balance and effectiveness of the Board with a view to maintaining the right skills,

experience and diversity to align with the Group’s strategic goals.

We will act and make decisions responsibly in the interests of the Company, our

shareholders and other stakeholders, delivering our plan and working closely

to consider the best opportunities for the Company. Detailed Board and Board

Committee papers are carefully prepared and analysed to ensure all scenarios and

options are fully considered in a timely and consistent fashion in meetings.

In accordance with s.172(1), the Board has also continued to consult with, and

take account of, the views of our investors, employees, partners, governments,

suppliers and other stakeholders throughout the year.

Other stakeholder engagement initiatives, which were not mentioned above,

included but not limited to:

• Robust process to refresh Board members and reduce Board size.

• Agile and responsible response to continue the implementation of a flexible

working model for UK staff, with the option but not the obligation to work

primarily from home – protecting people, accommodating diverse working

preference, cutting costs and deferring capex.

• Open and active dialogue with its institutional, private and retail shareholders

via website, Twitter and LinkedIn, email communications, and online meeting

with Q&A to allow the wider public a free platform to raise questions directly to

the Executive Directors.

• Frequent meetings between Executive Directors and in-country regulators and

partners, both in-person and virtual, reported to the Board.

• A section of the agenda for each regularly scheduled meeting of the Board

being dedicated to investor and stakeholder considerations.

• Reports from brokers and financial PR firm on feedback from investors and

research analysts.

Pharos Energy Annual Report and Accounts 2022

Chief Financial

Officer’s Statement

I am pleased to report the strengthening

of our balance sheet and a considerable

improvement in the liquidity of the business.

The steps we took in previous periods to streamline our business are

showing results, with improved fiscal terms in Egypt and reduced costs

throughout the Group. Our finance strategy continues to underpin our

business model and our commitment to building shareholder value

through organic growth and sustainable returns to shareholders. We

have continued with our infield development programme in Vietnam,

allowing us to sustain production levels in these highly attractive fast

payback wells. The successful completion of the farm down in Egypt in

March brought in a small initial cash payment on completion, but more

significantly allowed us to benefit from a full carry of all contractor costs

for G&A, opex and the capital programme into 2023. This activity has

all been supported by improved oil prices and has allowed us to deliver

strong positive cash flow and growth in value. As a direct result, we were

able to announce returns to shareholders with the $3m share buyback

programme in July and also announce our proposal to recommence

regular dividend payments, the first based on 2022 Operating Cash

Flow.*

*Subject to shareholder approval at 2023 AGM

SUE RIVETT

Chief Financial Officer

CHIEF FINANCIAL OFFICER’S STATEMENT

Operating performance

Revenues

Group revenues were up 35% at $221.6m

prior to realised hedging loss of $22.5m

(2021: $163.8m prior to realised hedging

loss of $29.7m).

Revenues for Vietnam of $184.8m (2021:

$131.0m) increased significantly year

on year. The average realised crude oil

price was $106.44/bbl (2021: $72.61/

bbl), a 47% increase year on year, and

the premium to Brent was over $4/bbl

on average (2021: just under $2/bbl).

Production was largely flat at 5,418 boepd

(2021: 5,560 boepd).

The revenue for Egypt of $36.8m

(2021: $32.8m) increased largely due

to an additional $7m following the

improvement in the fiscal terms with

the Third Amendment to the El Fayum

Concession, increasing cost recovery

oil from 30% to 40% from November

2020. This was combined with higher

average realised crude oil price, up 47%

to $96.03/bbl (2021: $65.12/bbl), though

offset by reduced production of 1,748

bopd from 3,318 bopd, following the

farm-down of 55% interest and transfer

of operatorship of the Group’s Egyptian

assets to IPR completed on 21 March

2022. There are two discounts applied to

the El Fayum crude production – a general

Western Desert discount and one related

specifically to El Fayum. Both are set by

EGPC and combined stayed consistent at

over $5/bbl for the year.

Pharos Energy Annual Report and Accounts 2022

Governance Report Financial Statements

Additional Information

Strategic Report

CHIEF FINANCIAL OFFICER’S STATEMENT - CONTINUED

Hedging

A number of hedges were put in place

in 2021 for the 2022 year to support

our stress testing for going concern and

the working capital test required for the

prospectus for the Egyptian farm down.

We were hedged more than required

under our RBL and higher than we would

normally commit to in order to support

this. For full year 2022, Pharos entered into

different commodity (swap and zero collar)

hedges to protect the Brent component

of forecast oil sales and to ensure future

compliance with its obligations under the

reserve based lending facility (RBL) over

the producing assets in Vietnam. The

commodity hedges run until December

2023 and are settled monthly. The majority

of hedged production volumes (61%) were

in H1 2022, leading to realised losses

of $17.3m out of total realised losses

of $22.5m for the year, in order to meet

requirements under the RBL and also

going concern and working capital tests in

relation to the Egypt farm out deal.

For 2022, 30% of the Group’s total

production was hedged, securing an

average realised price for the hedged

volumes of $73.1/bbl. The Group’s RBL

requires the Company to hedge at least

35% of Vietnam RBL production volumes

and the current hedging programme meets

this requirement through to December

2023, leaving 71% of Group production

unhedged as at 31 December 2022.

Please see below a summary of hedges

outstanding as at 31 December 2022,

which are all zero cost collar.

1Q23 2Q23 3Q23 4Q23

Production hedge per quarter – 000/bbls 180 180 180 45

Min. Average value of hedge - $/bbl 65.33 65.33 63.33 63.33

Max. Average value of hedge - $/bbl 102.88 102.88 102.23 107.80

Operating costs

Group cash operating costs, defined

in the Non-IFRS measures section on

page 203, were $42.8m (2021: $52.0m).

Vietnam increased marginally by 2% from

$31.0m to $31.7m in 2022, which equates

to $16.03/bbl (2021: $15.28/bbl). The

increase is due to higher costs relating

to the FPSO as a result of lower Thang

Long Joint Operating Company (TLJOC)

production (TLJOC has 14.5% cost share

in 2022 compared to 22.7% in 2021)

throughput, which increased the HLJOC’s

share of the costs.

Cash operating costs in Egypt were

$11.1m in 2022 (2021: $21.0m), which

equates to $17.40/bbl (2021: $17.34/bbl).

Cash operating costs from 1 January 2022

up to 20 March 2022 are 100% share and

from 21 March 2022 includes the Group’s

remaining 45% share. The increase in cash

operating costs relates largely to higher

variable costs as a result of an upsurge

in the fuel price, offset by the significant

devaluation of EGP against the US dollar

during the year.

DD&A

Group DD&A associated with producing

assets increased to $55.1m (2021:

$51.0m) driven by a higher depreciating

cost base following 2021 and June 2022

impairment reversals taken on both

Vietnam and Egypt, partially offset by the

decrease in group production year on year.

DD&A per bbl is currently $25.79/boe for

Vietnam (2021: $21.19/boe). DD&A per

bbl for Egypt is $6.43/boe for the full year

production entitlement, as the Company

had 100% share of Egypt production

for the period through to completion of

the farm-down, 1 January 2022 to 20

March 2022, and then 45% share for the

remainder of the year. At 31 December

2021, 55% of El Fayum property, plant

and equipment (PP&E) was re-categorised

to assets classified as held for sale. The

remaining 45% PP&E cost base was

depreciated over 45% share of production

for the period through to completion of the

farm-down, giving a comparable DD&A

per bbl of $7.98/boe (2021: $6.61/boe),

which reflects the impairment reversals

previously noted.

Administrative Expenses

Administrative expenses in 2022 of

$10.0m (2021: $13.2m) are substantially

lower than prior year due to our

restructuring efforts. After adjusting for the

non-cash items under IFRS 2 Share Based

Payments of $1.3m (2021: $2.2m), the

administrative expense is $8.7m (2021:

$11.0m). Following completion of the farm

down to IPR in March 2022 and the AGM

in May 2022, the Board was reduced

from 9 to 6 Directors. The remaining non-

executives’ fees were restated to the levels

prior to the reductions taken during 2020

and 2021. As previously noted in the 2021

Annual Report & Accounts, the incoming

CEO took a 21% reduction in base salary

on assuming the role. The Egypt office was

also restructured following the farm down.

Operating Profit

Operating profit from continuing operations

for the year was $72.3m (2021: $6.3m)

excluding the net impairment reversal of

$27.9m (2021: $42.0m net impairment

reversal), reflecting the higher commodity

price environment throughout the year,

offset by 19% reduction in production

volumes.

Other/Restructuring Expenses and

Loss on Disposal

Other/restructuring expenses for the year

totalled $0.8m (2021: $3.3m) and included

restructuring costs for both the head office

in London and the Egypt office in Cairo

($0.1m). In addition, there was $0.7m

charge relating to the premium on the

transfer of the lease on the London office.

Loss on disposal for the year totalled

$6.3m (2021: $nil) and related to the

farm-down transaction, where 55% of

the Group’s operated interest in each of

our Egyptian Concessions, El Fayum and

North Beni Suef, were acquired by IPR

on 21 March 2022. Pharos is entitled to

contingent consideration depending on the

average Brent Price each year from 2022

to the end of 2025 (with floor and cap at

$62/bbl and c.$90/bbl respectively). The

contingent consideration is calculated

yearly and is capped at a maximum total

payment of $20.0m (please refer to Note

37 for further details). The first payment

of the contingent consideration, being $5

million in respect of the Brent price during

2022, is due from IPR in June 2023.

Pharos Energy Annual Report and Accounts 2022

CHIEF FINANCIAL OFFICER’S STATEMENT - CONTINUED

Finance Costs

Finance costs increased to $12.7m (2021: $6.4m), mainly relating to a one-off charge of $2.6m following a change in estimated future

cash flows following the December 2022 RBL redetermination and amortisation of capitalised borrowing costs of $1.5m (2021: $2.4m),

interest expense payable and similar fees of $6.1m primarily due to higher interest rates charged on the RBL and NBE (2021: $3.8m),

unwinding of discount on provisions of $1.3m (2021: $0.8m) and foreign exchange losses of $1.2m primarily driven by the devaluation of

EGP against USD (2021: foreign exchange gains of $0.6m).

Cash operating cost per barrel*

2022 $m 2021 $m

Cost of sales

116.8

114.6

Less

Depreciation, depletion and amortisation

(55.1)

(51.0)

Production based taxes

(14.7)

(10.1)

Export duty

(3.2)

Inventories

1.8

0.1

Trade Receivable risk factor provision

(1.5)

Other cost of sales

(1.3)

(1.6)

Cash operating costs

42.8

52.0

Production (BOEPD)

7,166

8,878

Cash operating cost per BOE ($)

16.36

16.05

DD&A per barrel*

2022 $m 2021 $m

Depreciation, depletion and amortisation

(55.1)

(51.0)

Production (BOEPD)

7,166

8,878

DD&A per BOE ($)

21.07

15.74

* Cash operating cost per barrel and DD&A per barrel are alternative performance measures. See page 203.

Cash operating cost per barrel by Segment

Vietnam

Egypt

Up to 20/03/22

Egypt

From 21/03/22

to 31/12/22

Egypt

Total

$m Total $m

Cost of sales 99.6 4.9 12.3 17.2

116.8

Less

Depreciation, depletion and amortisation (51.0) (0.6) (3.5) (4.1)

(55.1)

Production based taxes (14.5) - (0.2) (0.2)

(14.7)

Export duty (3.2) - - -

(3.2)

Inventories 1.6 - 0.2 0.2

1.8

Trade Receivable risk factor provision - (0.5) (1.0) (1.5)

(1.5)

Other cost of sales (0.8) (0.2) (0.3) (0.5)

(1.3)

Cash operating costs 31.7 3.6 7.5 11.1

42.8

Production (BOEPD) 5,418 2,857 1,441 1,748

7,166

Cash operating cost per BOE ($) 16.03 15.94 18.21 17.40

16.36

1) movements from 1 January 2022 up to 20/03/22 are 100% share and from 21/03/22 includes the Group’s remaining 45% share. 100% cash operating costs

for period from 21/03/22 to 31/12/22 amounts to $16.7m.

Pharos Energy Annual Report and Accounts 2022

Governance Report Financial Statements

Additional Information

Strategic Report

CHIEF FINANCIAL OFFICER’S STATEMENT - CONTINUED

Cash flows and accounting for Egypt

Following the completion of the farm-out transaction of Egyptian assets to IPR, the accounting for the assets reflect the following:

The effective date of the transaction was 1 July 2020, with completion on 21 March 2022.

The Group, through its subsidiary PEF, owned and managed the business up to completion. On completion an adjustment to

compensate IPR for 55% of net cash flows, revenue offset by costs since the effective date has been adjusted for in the level of carry to

be provided by IPR to Pharos.

In the Financial Statements, for the period post completion, the Group’s 45% share of field costs – capex, opex and G&A – are

accounted for as incurred by the Group, although all such costs are paid by IPR and set off against the carry. Please see Note 37 for

more details on the disposal of asset held for sale.

All revenues earned are paid direct to the Group.

DD&A per barrel by Segment

Vietnam $m Egypt $m Total $m

Depreciation, depletion and amortisation 51.0 4.1

55.1

Production (BOEPD) 5,418 1,748

7,166

DD&A per BOE ($) * 25.79 6.43

21.07

* Calculation based on full production entitlement for the year. Actual DD&A charges were calculated on 45% share of production for the

full year, giving a revised DD&A per bbl metric of $7.98/boe.

Movements in the Property, Plant and Equipment

2022 $m 2021 $m

As at 1 Jan

399.8

435.8

Capital spend

23.2

24.7

Revision in decommissioning assets

(13.9)

(1.9)

Recognition of right-of-use assets

0.8

Re-classification of assets held for sale

(62.0)

DD&A- Oil and gas properties

(55.1)

(51.0)

DD&A – Other assets

(0.1)

(0.4)

Impairment reversal/(charge) – PP&E

27.1

54.6

As at 31 Dec

381.8

399.8

Property, Plant and Equipment

381.0

399.8

Right-to-use-Asset (IFRS 16 Impact)

0.8

As at 31 Dec

381.8

399.8

Taxation

The overall net tax charge of $56.2m

(2021: $43.3m) relates to tax charges

in Vietnam of $47.9m plus the deferred

tax charge on impairment reversal of

$8.3m (2021: Vietnam tax charges of

$24.8m plus the deferred tax charge on

impairment reversal of $18.5m).

The Group’s effective tax rate

approximates to the statutory tax rate in

Vietnam of 50%, after adjusting for non-

deductible expenditure and tax losses not

recognised.

The Egypt concessions are subject to

corporate income tax at the standard

rate of 40.55%, however responsibility for

payment of corporate income taxes falls

upon EGPC on behalf of PEF. The Group

records a tax charge, with a corresponding

increase in revenue, for the tax paid by

EGPC on its behalf. However, this is only

valid if PEF is in a tax paying position and

no such tax has been recorded this year.

One of the Group’s companies entered

into commodity swaps designated as

cash flow hedges. In accordance with

IAS 12, a deferred tax asset has not been

recognised in relation to the hedging

losses of $22.5m recorded in the year

as it is unlikely that the UK tax group

will generate sufficient taxable profit in

the future, against which the deductible

temporary differences can be utilised.

Profit/(loss) post-tax

The post-tax profit for the year from

continuing operations and prior to the

impairment reversal of $27.9m, impairment

tax charge of $8.3m, exceptional costs of

$0.8m and loss on disposal of $6.3m was

$11.9m (2021: post tax loss for the year

of $24.9m from continuing operations and

prior to the impairment reversal of $42.0m,

impairment tax charge of $18.5m and

exceptional costs of $3.3m). The overall

profit for the year was $24.4m (2021:

$4.7m loss).

Pharos Energy Annual Report and Accounts 2022

Cash flow

Operating cash flow (before movements

in working capital) was $128.8m (2021:

$60.1m). After tax charges of $54.7m

(2021: $39.9m), restructuring and

exceptional expenses $2.7m (2021:

$0.7m) and working capital adjustments of

$18.1m (2021: $8.6m), the cash generated

from operations was $53.4m (2021:

$10.8m). Cash generated from operations,

after tax charges, exceptional expenses

and working capital movements, will form

the basis of our dividend framework going

forward.

Operating cash flow (before movements

in working capital) adjusted for the impact

of the hedging positions of $22.5m loss

(2021: $29.7m loss) gives an underlying

operational performance of $151.3m

(2021: $89.8m), which is consistent

with the significant improvement seen in

commodity prices offset by the production

decrease year on year.

The increase in receivables was $7.7m

(2021: increase in receivables of $7.2m).

The movement in 2022 is primarily driven

by $16.1m increase from Egypt, which

was mainly due to the increase in EGPC

receivables inclusive of $7m catch-up

invoice for improved fiscal terms under

the Third Amendment to the El Fayum

Concession and the lack of hard currency

in country. As noted in previous updates

to the market, the Group has opted not to

accept the payment of PEF’s receivables

balance in EGP unless required for

operations. PEF is entitled under contract

to be paid for hydrocarbon sales in US

dollars. The progressive devaluation

of EGP against USD means that it is

preferable to continue to hold USD

denominated receivables. The International

Monetary Fund (IMF) recently announced

that its Executive Board had approved

the provision of a $3 billion, 46-month

extended fund facility to Egypt, which

the IMF expects to catalyse additional

financing of approximately $14 billion from

Egypt’s international and regional partners.

In addition, Egypt is seeking access to up

to a further $1 billion from the IMF’s newly

created resilience and sustainability facility

to support climate-related policy goals.

Taken together, these developments are

widely anticipated to improve Egypt’s FX

reserves and overall liquidity in the first half

of 2023. The Company therefore remains

optimistic that outstanding receivables with

EGPC will start to be recovered during

2023. The increase in Egypt receivables

was partially offset by timing differences

on the Vietnam cargoes, leading to a

decrease in receivables of $6.9m despite

higher commodity prices.

Capital expenditure on continuing

operations for the year was lower at

$31.9m (2021: $41.8m). On Block 16-1

– TGT Field, the drilling programme for

two development wells completed in H2

2022, on time and under budget. The first

well, H1-35P, commenced production on

21 October 2022, and the second well,

11XPST, commenced production on 10

November 2022. On Block 9-2 – CNV

Field, one development well, CNV-2PST1,

commencing in H2 2022 and has now

been completed. In El Fayum, seven wells

were put on production in 2022 (including

one well drilled in 2021), and one

additional well drilled in Q4 2022 is due for

completion in Q1 2023.

Net cash outflows from financing activities

of $19.8m (2021: $31.1m inflow) included

outflows in relation to the RBL of $0.2m

in June 2022 and $12.9m in December

following the half year and year end

redetermination processes and the amount

drawn stood at $65.0m at year end.

The RBL loan, which is secured over

only the existing Vietnam producing

assets, matures in July 2025. The facility

amount is amortised by $14.2m every

re-determination from 1 July 2022, with a

facility amount as at 31 December 2022

of $85.75m, which decreased to $71.5m

from 1 January 2023 and will decrease

further to $57.3m from 1 July 2023.

The Group is able to dividend up from

the Vietnam RBL zone to the Company

twice a year in January and July following

approval of the redetermination.

Financing activities also included net

$2.7m outflow in relation to the NBE

revolving credit facility, which allows PEF

to draw down 60% of the value of each El

Fayum invoice in USD. The amount drawn

under the NBE facility as at 31 December

2022 was $9.2m. A further $2.9m outflow

was due to the share buyback programme

that was initiated in July 2022. The first

phase of that programme, completed in

January 2023, resulted in a total of 10.3

million shares being purchased, at a daily

average price of 24.4p.

Tax strategy and total tax

contribution

Tax is managed proactively and

responsibly with the goal of ensuring that

the Group is compliant in all countries in

which it holds interests. Any tax planning

undertaken is commercially driven and

within the spirit as well as the letter of the

law.

This approach forms an integral part of the

Group’s sustainable business model.

The Group’s Code of Business Conduct

and Ethics seeks to build open,

cooperative and constructive relationships

with tax authorities and governmental

bodies in all territories in which it operates.

The Group supports greater transparency

in tax reporting to build and maintain

stakeholder trust. We have a number of

overseas subsidiaries which were set up

some time ago and the Group is now

proactively planning to bring these into the

UK tax net to ensure greater transparency

and comparability. No additional taxes

are expected to be due as a result of this

exercise.

During 2022, the total payments to

governments for the Group amounted

to $245.3m (2021: $198.2m), of which

$211.5m or 86% (2021: $151.9m or 77%)

was related to the Vietnam producing

licence areas, of which $140.7m (2021:

$102.6m) was for indirect taxes based

on production entitlement. In Egypt

payments to government totalled $31.3m

(2021: $44.7m), of which $28.8m (2021:

$44.1m) related to indirect taxes based on

production entitlement.

Balance sheet

Intangible assets increased during the

period to $16.5m (2021: $12.4m).

Additions for the year related to Blocks

125 & 126 in Vietnam $3.1m (2021:

$10.6m), Egypt $1.0m (2021: $3.9m) and

$0.2m (2021: $0.7m) for the Israeli bid

round licence fee. The Group has written

off $0.2m (2021: $2.2m) relating to the

Israel asset as no substantive expenditure

has been identified under IFRS 6. In 2021,

$2.1m of intangible assets relating to the

Egypt concessions were re-classified as

assets held for sale.

The movements in the Property, Plant and

Equipment asset class are shown above.

CHIEF FINANCIAL OFFICER’S STATEMENT - CONTINUED

Pharos Energy Annual Report and Accounts 2022

Governance Report Financial Statements

Additional Information

Strategic Report

Impairment reversals

As a result of previously recognised impairment losses, combined with ongoing oil price volatility, economic uncertainty leading to an

increase in inflation and discount rates, and movements in 2P reserves, we have tested each of our oil and gas producing properties

for impairment. The results of these impairment tests are summarised below. For each producing property, the recoverable amount has

been determined using the value in use method which constitutes a level 3 valuation within the fair value hierarchy. The recoverable

amount is supported by the fair value derived from a discounted cash flow valuation of the 2P production profile.

Summary of Impairments - Oil and Gas properties

TGT

CNV

Egypt

Total

2022

Pre-tax impairment reversal 19.7 3.6 3.8 27.1

Deferred tax charge (6.9) (1.4) – (8.3)

Post-tax impairment reversal 12.8 2.2 3.8 18.8

Reconciliation of carrying amount:

As at 1 Jan 2022 266.0 84.2 49.2 399.4

Additions 7.0 3.2 13.6 23.8

Changes in decommissioning asset

(11.1) (2.8) – (13.9)

DD&A (39.2) (11.8) (4.1) (55.1)

Impairment reversal 19.7 3.6 3.8 27.1

As at 31 Dec 2022 242.4 76.4 62.5 381.3

TGT

CNV

Egypt

Total

2021

Pre-tax impairment reversal 49.1 3.8 1.7 54.6

Deferred tax charge (17.1) (1.4) – (18.5)

Post-tax impairment reversal 32.0 2.4 1.7 36.1

Reconciliation of carrying amount:

As at 1 Jan 2021 239.3 91.2 104.1 434.6

Additions 11.4 0.3 12.9 24.6

Reclassified as assets held for sale - - (1.4) (1.4)

Changes in decommissioning asset

(1.0) (0.9) - (1.9)

DD&A (32.8) (10.2) (8.0) (51.0)

Impairment reversal 49.1 3.8 1.7 54.6

Sub-total 266.0 84.2 109.3 459.5

Reclassified as assets held for sale - - (60.1) (60.1)

As at 31 Dec 2021 266.0 84.2 49.2 399.4

1) Egypt carrying value reflects 45% share (2021: 100%).

2) Changes in decommissioning asset for TGT is due to changes in discount rate and the field abandonment plan, whereas CNV reflects the change in discount

rate only (2021: change in discount rate only for both TGT and CNV)

It should be noted that the TGT impairment reversal for full year 2022 has been restricted to reflect the remaining balance of historic

impairment charges previously recorded against the field. Further details of these impairment charges, including key assumptions in

relation to oil price and discount rate are provided in Note 16 of the financial statements.

CHIEF FINANCIAL OFFICER’S STATEMENT - CONTINUED

Pharos Energy Annual Report and Accounts 2022

Cash is set aside into abandonment

funds for both TGT and CNV. These

abandonment funds are controlled by

PetroVietnam and, as the Group retains

the legal rights to the funds pending

commencement of abandonment

operations, they are treated as other non-

current assets in the Financial Statements.

Oil inventory was $7.2m at 31 December

2022 (2021: $5.9m), of which $7.0m

related to Vietnam and $0.2m to Egypt.

Trade and other receivables increased to

$60.9m (2021: $28.1m) of which $11.4m

(2021: $18.2m) relates to Vietnam and

$49.0m (2021: $8.5m) relates to Egypt.

For Egypt, the closing balance includes

$20.9m of carry (2021: $nil), which reflects

the remaining disproportionate funding

contribution from IPR to compensate for

net cash flows since the economic date of

the farm down transaction, 1 July 2020,

and the completion date of 21 March

2022. The carry decreases every month

by the cash calls received from IPR. In

addition, Egypt trade receivables include

$24.2m from EGPC where collection has

been delayed by the devaluation of EGP

and ongoing restrictions on outgoing USD

transfers by the Central Bank of Egypt

previously highlighted.

Cash and cash equivalents at the end of

the year were $45.3m (2021: $27.1m)

mainly driven by net cash flows from

operating activities of $53.4m (2021:

$10.8m) as a result of higher commodity

prices during the year, offset by lower

production.

Trade and other payables were $14.0m

(2021: $30.6m), of which $6.3m (2021:

$14.5m) relates to the Egypt payables,

inclusive of Stratton royalty obligation and

following re-classification of Petrosilah

working capital balances to joint venture

receivables following the farm-down

transaction. $4.8m (2021: $4.8m) relates

to Vietnam payables, $0.5m (2021:

$6.5m) net hedging liability and $1.9m

(2021: $4.4m) Head Office payables. Tax

payables decreased to $5.2m (2021:

$5.4m) which is linked to the timing of

cargoes from TGT.

Borrowings were $74.2m (2021: $80.5m),

a decrease of $6.3m with $13.1m

related to repayments following the RBL

redeterminations in June and December,

partially offset by $4.1m amortisation of

capitalised borrowing costs and one-off

charges in relation to the redeterminations.

This was offset by a net increase in the

NBE credit facility of $2.7m during the

year.

Long-term provisions comprise the

Group’s decommissioning obligations and,

for 2021, the royalty over the El Fayum

asset. In Vietnam, the decommissioning

provision decreased from $66.9m at 2021

year-end to $54.3m at 2022 mainly due to

an increase in discount rate from 1.51%

to 3.83% as a result of an increase in

prevailing risk-free market rates, partially

offset by the TGT infill wells programme

completed during the year. The amounts

set aside into the abandonment funds

total $50.2m (2021: $48.1m). No

decommissioning obligation exists under

the El Fayum Concession.

The royalty provision relates to a historical

arrangement granting a 3% royalty on

PEF’s share of profit oil and excess cost

recovery from El Fayum in Egypt. At 31

December 2022, the long-term provision

was $nil (2021: $2.2m) and the amount

disclosed in current payables is $2.5m

(2021: $3.4m)

Own shares

The Pharos Employee Benefit Trust (“EBT”)

holds ordinary shares of the Company

for the purposes of satisfying long-term

incentive awards for senior management.

At the end of 2022, the trust held

2,126,857 (2021: 1,767,757), representing

0.48% (2021: 0.40%) of the issued share

capital.

In addition, as at 31 December 2022,

the Company held 9,122,268 (2021:

9,122,268) treasury shares, representing

2.06% (2021: 2.02%) of the issued share

capital. All shares purchased under the

on-market buyback programme originally

announced in July 2022 and extended

in January 2023 have been or will be

cancelled rather than retained in treasury.

Dividend Framework

The Company intends to recommence

dividend payments starting in 2023. Our

policy is now set at returning no less than

10% of Operating Cash Flow (OCF).

OCF has been selected as the most

appropriate measure as it automatically

takes account of:

• movements in Brent price;

• tax, which is the main form of

government take in Vietnam; and

• working capital movements.

The first dividend will therefore be a

final dividend for the 2022 financial year.

The Board have recommended a final

dividend of 1.00 pence per share (based

on a minimum 10% OCF of $5.34m at

the average rate of exchange for 2022)

subject to approval of the shareholders

at the Company’s 2023 AGM. The final

dividend will be paid in full on 12 July 2023

in Pounds Sterling to ordinary shareholders

on the register at the close of business

on 16 June 2023. Going forward, we

expect the payment pattern will move to

a conventional pattern of an interim and

a final dividend. As is normally the case

with interim dividends, and unlike the final

dividend for 2022 to be proposed at the

2023 AGM, the interim dividend will not

be conditional on separate shareholder

approval.

CHIEF FINANCIAL OFFICER’S STATEMENT - CONTINUED

Pharos Energy Annual Report and Accounts 2022

Governance Report Financial Statements

Additional Information

Strategic Report

Going concern

Pharos continuously monitors its business

activities, financial position, cash flows

and liquidity through detailed forecasts.

Scenarios and sensitivities are also

regularly presented to the Board, including

changes in commodity prices and in

production levels from the existing assets,

plus other factors which could affect the

Group’s future performance and position.

A base case forecast has been considered

that utilises oil prices of $88.3/bbl in

2023 and $84.8/bbl in 2024. The key

assumptions and related sensitivities

include a “Reasonable Worst Case” (RWC)

scenario, where the Board has taken

into account the risk of an oil price crash

broadly similar to what occurred in 2020.

It assumes the Brent oil price down by a

third to $59/bbl in May 2023 and gradually

recovers to base price in next 12 months,

concurrent with 5% reductions in Vietnam

and Egypt production compared to our

base case from June 2023. Both the base

case and RWC take into account effect of

hedging that has already been put in place

at 31 December 2022 and subsequent

hedges placed in 2023, now covering

c.33% for the full year 2023 and 6% of

Q1 2024. We have therefore secured an

average floor price and ceiling price of

c.$64/bbl and c. $100/bbl, respectively,

for the entire hedged volumes. Under

the RWC scenario, we have identified

appropriate mitigating actions, which

could look to defer capital expenditure

programme as required.

In addition, we have conducted a reverse

stress test sensitivity analysis that

indicates the magnitude of oil price decline

required to breach our financial headroom,

assuming all other variables remain

unchanged.

Our business in Vietnam remains robust,

with breakeven price of c.$30/bbl. We

have limited capital expenditure in Vietnam

which includes the delay of CNV 2PST1

well. The cash flows have also been tested

in the unlikely event that an extension for

the 125/126 is not secured. The majority

of our debt is secured against the Vietnam

assets under the RBL, only $9.2m drawn

on an uncommitted revolving credit facility

on the Egypt revenue invoices.

In Egypt, we have 9 wells in 2023 and

the Base case assumes a full investment

scenario.

On the basis of the forecasts provided

above, the Group is expected to have

sufficient financial headroom for the

12 months from the date of approval

of the 2022 Accounts. Based on this

analysis, the Directors have a reasonable

expectation that the Group has adequate

resources to continue its operations in the

foreseeable future. Therefore, the Financial

Statements have been prepared using the

going concern basis of accounting.

Financial outlook

We have a lot to look forward to

as we move forward in 2023 and

beyond.

• A strong and stable balance

sheet, improved liquidity,

improved fiscal terms in Egypt,

stable production with a

solid USD cash flow from our

Vietnam portfolio and a reduced

cost base throughout the

Group.

• Continued development drilling

and carry in Egypt, extra $5m

contingent consideration

payment in 2023 and potentially

for the next 3 years (oil price

dependent). We are encouraged

by the intervention from the IMF

and hope to see an improved

position in our Egyptian

receivables.

• Strong support from our RBL

lenders over the Vietnam assets

as we continue in 2023 to pay

down this facility and a renewal

of our uncommitted revolving

credit facility with the National

Bank of Egypt.

Further returns to shareholders

are anticipated in 2023, with the

announcement in January of an

additional $3m committed to an

extension of the Company’s on-

market share buyback programme,

and the resumption of sustainable

dividends based on OCF to be

proposed at the 2023 AGM.

SUE RIVETT

Chief Financial Officer

CHIEF FINANCIAL OFFICER’S STATEMENT - CONTINUED

Pharos Energy Annual Report and Accounts 2022

RISK MANAGEMENT

Risk Management

Report

Risk Management Framework

at Pharos

Pharos carried out regular and robust

risk assessments to identify and manage

its Principal and Emerging risks during

2022. The Group’s risk management

activities during the year focused on the

ramifications of the war in Ukraine with

increased uncertainties and volatilities

on world commodity markets and the

ensuing Western sanctions on Russia

and vice versa which have negatively

impacted on the recoveries of many

economies, particularly Egypt. Our

management undertook a number of

deep-dive exercises to gauge its risk

appetite and recalibrate its risk tolerance

to ensure the appropriate mitigating

actions were implemented. The Board

has closely considered the potential

impact and probability of these risks and

related events on its corporate strategy,

objectives and stakeholders’ perspectives

of the Group.

Control environment

The Group’s control environment is based

primarily on its Code of Business Conduct

and Ethics, which carries a number of

fundamental values, including openness

and integrity, safety and care and respect

for human rights. The control environment

is also supported by a series of corporate

policies, which form part of the Group’s

Business Management System.

These documents are distributed to all

employees, followed up with training as

required and are available on the Intranet.

As part of the compliance programme, all

employees have to do an anti-bribery and

corruption training assessment at least

once a year.

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 2022

• Prolonged War in Ukraine / ensuing sanctions

• Risk of rising inflation and stagflation

• Inability to repatriate cash earned from Egypt

• Further devaluation of the Egyptian pound

• Legal risks – Sanctions related

• Climate Change

• Commodity price volatility

• Volatility in production levels

• HSE & Social

• Partner alignment

• Sub-optimal capital allocation

• Political and Regional

• Cyber security

• Reserves downgrades

• Insufficient funds to meet commitments

Principal and Emerging risks in 2023

• Prolonged War in Ukraine / ensuing sanctions

• Risk of rising inflation and stagflation

• Inability to repatriate cash earned from Egypt

• Further devaluation of the Egyptian pound

• Legal risks – Sanctions related

• Climate Change

• Commodity price volatility

• Volatility in production levels

• HSE & Social

• Partner alignment

• Sub-optimal capital allocation

• Political and Regional

• Cyber security

• Reserves downgrades

• Insufficient funds to meet commitments

MANAGING OUR RISKS

2022

RISKS

2023

RISKS

Pharos Energy Annual Report and Accounts 2022

Governance Report Financial Statements

Additional Information

Strategic Report

RISK MANAGEMENT - CONTINUED

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 Governance Framework

The Board

Senior Management Team

Audit & Risk

Committee

ESG

Committee

Asset/Project/Function

Set

Strategic

Objectives

Define

Risk

Appetite

Identify

Principal

Risks

Apply Risk

Assessment

Process

Deliver

Strategic

Objectives

The Pharos Risk Management Framework

requires that all business units within the

Group conduct on-going risk management

and report to the Audit and Risk

Committee and the Board. The Group’s

Risk Management Policy defines the

specifics of the risk management process,

describes the risk tools (for example, the

preparation and maintenance of a Group

risk matrix and risk register) and outlines

the reporting process and responsibilities

in order to meet the Group’s Risk

Governance Framework.

Risk management and reporting is a

necessary and important activity at

Pharos. It is an internal control process

implemented by the Board, management

and all other personnel; applied throughout

the organisation and all functions,

designed to identify potential events which

may affect the business, and manage

those risks within its risk appetite. In

addition, risk management is a process

that provides reasonable assurance

regarding the achievement of the

Group’s objectives. A comprehensive risk

management approach allows Pharos to:

• Assist the Group in achieving its

corporate objectives and develop

alternate strategies

• Better manage the business by

anticipating potential risks and devise

preventive / mitigating measures

• Meet regulatory requirements

• Promote sustainability and help build

more resilient systems

The Business Management System (BMS)

evolves continually at Pharos but at its

core comprises a set of policies and

standards, including the Risk Management

Policy based on ISO 31000 Risk

Management Principles and Guidelines.

The BMS is supported by procedures

and processes for each function and

business unit to control day-to-day

business activities. The internal control

framework and risk management process

under the BMS seeks to ensure that risk

identification, assessment and mitigation

are all properly embedded throughout

the organisation. Whilst the Group’s

approach to risk management is designed

to provide a reasonable assurance that

material financial irregularities and control

weaknesses can be detected, the process

does not totally eliminate that a risk could

have a material adverse effect on our

operations, earnings, liquidity and financial

outlook.

Risk is often described as an event,

change of circumstances or a

consequence. The Group’s risk reporting

will focus on identifying risk as a “potential

event”. Each event will be assessed

on its potential impact to people, the

environment, the respective asset /

financial impact on operations, and the

Group’s reputation in terms of severity and

likelihood.

A challenging future - The war in

Ukraine and its ramifications

Repercussions of the Russian invasion of

Ukraine and ensuing sanctions continue

to reverberate globally and will test the

resilience of the financial system.

Serious impacts on the Egyptian

economy

The impact of the war on Egypt’s economy

is especially significant. Egypt is the

world’s top wheat importer; before the

invasion of Ukraine, around 80 percent of

its wheat imports came from Russia and

Ukraine. Since the beginning of the war,

food prices have risen significantly, more

than doubled.

Egypt has faced economic and financial

difficulties due to the impact of COVID-19

and now the impact of the war in Ukraine

is putting a severe strain on the country.

• Inability to receive cash revenue’s in

USD in order to repatriate to the UK

• Inability to convert Egyptian Pound

(EGP) into USD

• Further devaluation of the Egyptian

pound

The recent global macroeconomic volatility

has seen both a significant devaluation

of the Egyptian Pound and continued

restrictions on outgoing USD transfers

by the Central Bank of Egypt. Pharos

have opted not to accept the payment

of our receivables balance in EGP unless

required for operations. The progressive

devaluation of EGP against USD means

that it is preferable to continue to hold

USD denominated receivables.

Risk Management Framework

Pharos Energy Annual Report and Accounts 2022

RISK MANAGEMENT - CONTINUED

The International Monetary Fund (IMF)

announced in December 2022 that

its Executive Board had approved the

provision of a $3 billion, 46- month

extended fund facility to Egypt, which

the IMF expects to catalyse additional

financing of approximately $14 billion

from Egypt’s international and regional

partners. In addition, Egypt is seeking

access to up to a further $1 billion from

the IMF’s newly created resilience and

sustainability facility to support climate-

related policy goals. In addition, the

Government has officially launched a multi-

year privatisation programme whereby it

intends to sell stakes in 32 companies,

which are currently fully or partially owned

by the State (or the Military), with a target

to raise c. $40 billion in four years. The

Government’s plan is to kick-start the

programme with a round of sales to

strategic buyers, which will be followed by

the offer of smaller stakes on the Egyptian

Stock Exchange. In fact, the first 11 (of the

32) companies have just been transferred

to a pre-IPO fund that will manage

strategic sales worth an expected $6

billion over the coming few months.

Taken together, these developments are

widely anticipated to improve Egypt’s

FX reserves and overall liquidity in H1

2023. We therefore remain optimistic that

outstanding receivables with EGPC will

start to be recovered during 2023.

In the event of continued delays in our

El Fayum invoices being paid, we have

access to our revolving credit facility with

the National Bank of Egypt (NBE), which

allows us to draw down 60% of the value

of each invoice in USD. As announced in

our January 2023 trading and operations

update, we agreed with NBE to extend the

current $18m facility on the same terms to

31 March 2024.

The conflict in Ukraine and

international sanctions

The extensive sanctions and export

controls introduced by the US, EU and

UK on key Russian industries, entities

and individuals following the invasion of

Ukraine on the 24 February 2022 remain

an important consideration for the Group

and its approach to risk management.

Throughout 2022 and in early 2023 the

scope of international sanctions and

controls has expanded incrementally. To

date, neither the conflict in Ukraine nor

the sanctions themselves have had a

material impact on the Group’s business.

Despite this, the Group continues to be

prepared to act swiftly in the event that

an existing counterparty were to become

a sanctioned entity or otherwise affected.

The dedicated cross-functional Pharos

working group covering sanctions and

the impact of the conflict in Ukraine

established in March 2022 remains active.

The working group reports to the Audit

and Risk Committee and also contributes

to regular risk management reporting. The

Group Sanctions Policy was adopted in

May 2022 and is available on the Pharos

website with the Group’s other principal

corporate policies. At an operational

level, the Group continues to work with

the JOCs on contingency planning and

mitigation.

Inflation and risks of stagflation

After the double shock of COVID-19 and

the Russian invasion of Ukraine, inflation

rates have surged, surging to the highest

levels in decades in many countries and

triggering many currencies devaluation

while economic growth forecasts are

rapidly deteriorating. At the start of

2022, most economists were expecting

2022 to be a period of strong economic

rebound but the start of the war in Ukraine

led to higher commodity prices which

fuelled further inflation. Geopolitics and

macroeconomic factors are causing

disruptions in commodity markets, leading

to increased counterparty risk exposures,

poor market liquidity and funding strains

further down the line.

Egypt devalued its pound by 14% on

21 March 2022 after Russia’s invasion

of Ukraine prompted foreign investors

to pull billions of dollars out of Egyptian

treasury markets, putting pressure on

the currency. The Egyptian pound fell to

record lows in 2022, with 1 USD selling

for 15.7 EGP in January and 24.7 EGP

in December (with further devaluation to

> 30 EGP in early January 2023). Pharos

crude receivables in early 2022 from EGPC

were being settled mostly in EGP which

creates currency exchange risk due to the

devalued Egyptian pounds and repatriating

cash earned requires currency transfer to

USD which was taking much longer than

previously to arrange. Since Q2 2022 the

Group has only been accepting USD with

the impact that the receivables position

has grown significantly.

Pharos Energy Annual Report and Accounts 2022

Governance Report Financial Statements

Additional Information

Strategic Report

RISK MANAGEMENT - CONTINUED

Climate Change risks

During 2022 a number of trends peppered

the energy sector; the energy price inflation

crisis, the war in Ukraine ramifications,

the questioning by activist of companies

on overpromising and under delivering on

climate and the recovery of oil price.

The COP27 summit in Egypt in November

2022 culminated with a historic agreement

on a fund to compensate developing

countries for losses and damage caused

by the climate crisis. These countries,

which suffer the most extreme impacts

despite small carbon footprints, have

called for loss and damage to be

addressed for the past 30 years.

Although discussed and questioned by

several participants and big emitters, the

commitments made in Paris (COP21) and

Glasgow (COP26) were renewed, however

no stronger climate goals and ambitions

were put into work.

Summary of COP27 results:

• Major breakthrough on loss and damage funding for vulnerable developing

countries suffering the most from the effects of climate change

• Agreements on mitigation measures only include a coal phase down

(instead of a phase out) and ignore emissions from the use of gas and oil

• Mitigation commitments from Paris and Glasgow were renewed but not

strengthened or ambitions increased

• To be able to reach net zero emissions by 2050 about $4 trillion per year

needs to be invested in renewable energy

As the outcome of COP27 is debated, a number of ESG topics have been

elevated and will likely dominate 2023:

• Focus on reporting and reducing Scope 3 emissions

• How private capital can influence and assist the energy transition journey?

• Carbon markets - how to set a globally acceptable price and ensure

carbon offsets are verifiable?

• The rise of sustainability accounting

• Focus on diversity, equity and inclusion

Pharos Energy Annual Report and Accounts 2022

Climate Risk and Resilience

Climate change risks, both arising from

energy transition and the physical effects

of changes in climate, are identified and

assessed as part of the Group’s integrated

risk management approach and mitigated

within the remit of a diverging set of key

stakeholders’ aspirations and calibrated

within the Group’s risk appetite and

corporate strategy. Climate change and

the transition to a low carbon economy

were also considered in preparing the

consolidated financial statements, more

details of which can be found on page 59

of our Viability Statement and Note 4 of

the financial statements.

In Q1 2022, Pharos advanced its

alignment with the four TCFD pillars and

disclosures on Governance, Strategy, Risk

Management and Metrics and Targets.

A detailed analysis was commissioned

with the help of a Climate Change and

TCFD specialist consultancy which

produced in-depth assessments of the

transition and physical climate risks

followed by a hi-grading risk exercise

based on the Group internal risk matrix.

These assessments were then discussed

with the Senior Management team and

submitted to the ESG committee of the

Board. Throughout the year, these risks,

along with every other principle and

emerging risks presented on page 53

of the Risk Report, are discussed and

reviewed by the Audit and Risk Committee

every quarter to ensure they are up to

date and remain dynamic to the changing

nature of the macroeconomic environment

and the business. In Q1 2023, a deeper

analysis into Group’s transitional and

physical risk assessment was conducted

with the Management team to update the

hi-grading risk assessment and ensure

its severity and likelihood grading are in

line with the Group’s latest risk matrix. For

a full list of our transitional and physical

climate risks, please see page 94 for our

full TCFD reporting.

The physical risk assessment focused

on screening our operational interests in

Vietnam and Egypt using the consultant’s

physical risks datasets to quantify changes

in key climate variables (e.g. drought,

rainfall, wave height) over a 5 and 10

year timeframe under the three emissions

scenarios – Representative Concentration

Pathways (RCPs). The transition analysis

focused on the potential impacts of

different future scenarios on the key

transition risks facing the Group and the

oil and gas sector more broadly over the

next 5-10 years. By undertaking these

assessments, Pharos is in a better position

to formulate strategies which will increase

its resilience to climate related risks - and

better cope with the uncertainty, speed

and extent of the energy transition. The

transition risk analysis conducted by the

independent Climate Change and TCFD

specialist consultant was assessed under

the International Agency (IEA) Sustainable

Development Scenario (SDS) and Stated

Policies Scenario (STEPS). Additionally,

Pharos has considered the risk that

climate change pressures could reduce oil

prices during the 3-year Viability Statement

window under the recommended IEA’s

Net Zero Emissions scenario. For more

information, please see pages 59 to 60 for

the Viability Statement and page 79 for our

full TCFD reporting.

Commodity Price risk

Brent and WTI oil spot prices climbed

during the first half 2022 because of

supply concerns following the Russian

invasion of Ukraine. The increase in

commodity prices causing geo-political

and economic tensions among some

governments forcing them to tap into

their oil / gas strategic reserves and

boost supplies to avoid excessive petrol

rises at the pump and further inflationary

pressures. Europe and Asia in the

meantime faced a severe gas shortage

causing gas prices to shoot up. Prices

then declined during the second half back

to the levels at the start of the year.

In its most recent publication, the IMF

painted a reasonably gloomy picture of the

world economy, with high inflation, rising

interest rates, continuing impacts of the

Russia-Ukraine conflict and the COVID-19

pandemic, all weighing down on near-term

growth. Despite the expected slowdown

in global growth, oil demand growth

is still expected to be well within the

positive territory, driven mainly by China’s

reopening and the continuing recovery in

international air travel.

A buoyant oil market and price is

sometimes perceived as an unconditional

positive for the oil and gas sector, but

the costs of material and services in this

capital intensive industry can lead to big

changes to predicted returns and stifle

cash flows.

Carbon Tracker, a London-based not-for-

profit think tank researching the impact

of climate change on financial markets,

warned oil producers they should not let

high prices today lure investments into

pricey new projects that will lose money

when the fever breaks and the energy

transition cripples fossil fuel demand over

coming years.

Commodity price uncertainty persists and

is factored into all stages of the planning

process. Please refer to the Viability

Statement on page 59 for more details

of how the Group has stress tested its

assets and projected cash flows against

its principal risks.

Cyber risks

Cyber attacks remain a critical threat

as the war in Ukraine has raised acute

concerns about cyber operations. WFH

also creates an increased dependence on

cloud-deployed services and thus opening

more vulnerabilities to cyber-attacks.

Pharos continues its focus on the

robustness of its business continuity and

collaborate closely with its IT partners

to minimise disruption to our business.

Specific cyber training was carried out

across the Group in 2022.

Insurance costs / pollution

liability

At the time of writing, it remains unclear

whether energy insurance premiums for

the renewal of the Group’s cover this year

will increase broadly in line with inflation,

as was the case with the 2022 renewal.

As noted in last year’s report, the energy

insurance markets are increasingly difficult

to access for oil and gas exploration and

production businesses. Climate change

risks and broader ESG objectives remain

at the forefront of insurers’ attitudes to oil

and gas assets, with prominent insurers

already taking steps to rebalance their

portfolios. By way of example, the major

reinsurer Munich Re, a current underwriter

of the Group’s oil and gas package policy,

announced in October 2022 that it will

no longer invest in or insure contracts or

projects relating to new oil and gas fields

not already producing on 31 December

2022 or new midstream infrastructure

related to oil.

This trend of oil and gas businesses

suffering reduced access to the insurance

market is likely to continue, resulting in

significant premium increases ahead of

inflation over time. While the Group may

be able to mitigate the impact of premium

increases by agreeing to more restrictive

terms of cover or reduced financial cover

limits, this strategy will inevitably result in

increased exposure to risk elsewhere.

More positively, but with a smaller financial

impact on the Group, there are indications

that the cost of directors’ and officers’

liability insurance (D&O) has stabilised,

after increasing dramatically over the last

two years due to reduced availability of

D&O cover in the market and an increase

in liability claims during the COVID-19

pandemic.

RISK MANAGEMENT - CONTINUED

Pharos Energy Annual Report and Accounts 2022

Governance Report Financial Statements

Additional Information

Strategic Report

Operational Cost risk

Rising operational costs may become

a big risk because they are directly

impacted by the other factors, particularly

our ability to meet capex commitments.

Generally speaking, the larger a project,

the greater the legal and regulatory

burden and associated costs. In addition,

higher oil prices result in services

companies increasing prices, creating

further inflationary pressure. With the

unpredictability of oil and other commodity

prices and owing to global manufacturing

beyond any one company’s control, there

are genuine cost concerns.

Additionally, many oil and gas firms

struggle to find and keep skilled employees

during boom periods. Thus payroll can

rapidly grow to add another expense

to the total picture. The cost of training

employees in the oil and gas sector has

increased, reducing the number of firms in

the industry. As a result, oil and gas have

become a very capital-intensive business

with fewer participants each year.

Out-sourcing is becoming more common

in the industry, and while this offers

flexibility to operators, it also results in

greater exposure to increases in daily rates

for essential services, such as drilling and

well services, when the oil price rises.

With heightened scrutiny on environmental,

social, and governance (ESG)

transparency, there will be continuous and

more onerous regulatory challenges which

oil and gas companies must handle to

sustain their growth and purpose.

Following the completion of the farm-out

transaction to IPR in March and AGM in

May the Board was reduced from nine

Directors to six (two Executive Directors

and four Non-Executive Directors).

The remaining non-executives’ fees

were restated to the levels prior to the

reductions taken during 2020 and 2021.

The incoming CEO took a c.21% reduction

in base salary on assuming the role. The

headcount reduction will contribute to

lower G&A costs.

Emerging Risks

Areas of emerging risks will be around

regulatory changes, digital transformation,

remote working, risks of social disorders

and the role of the Board in crisis

situations.

Similar to our principal risks, emerging

risks are identified using our bottom

up approach with the regular risk

assessments with risk owners and

reporting to and discussing the emerging

trends at the quarterly management

risk meetings and the Audit and Risk

Committee meetings. Pharos is engaged

with the industry with organisations such

as BRINDEX and assesses news alerts

from such sources as Oil & Gas UK,

FT, Refinitiv (Eikon and Worldcheckone)

Bloomberg Green and the World Economic

Forum. Pharos also conducts internal

benchmarking analyses with its industry

peers to better understand emerging

trends in the sector.

Opportunities

For the oil and gas sector the lack of

liquidity and increased scrutiny from

investors on fossil fuel producers to

decarbonise may create investment

opportunities for oil and gas independents

with a lower cost base than the oil majors

and which are more able to adapt to a

rapidly changing risk landscape. In the

short term, capital allocation and discipline

will be rigorously maintained while at the

same time exploring opportunities to

reduce our carbon footprint by adopting

different methods / processes to power

our operations, including the possibilities of

solar power, wind power and other carbon

reduction technologies in the longer term.

Our asset base is operated by separate

independent Joint Operating Companies,

leaving our role in both Egypt and Vietnam

one of joint, rather than unilateral, control.

Board Responsibility

The Board fulfils its role in risk oversight

by developing policies and procedures

around risk that are consistent with the

organisation’s strategy and risk appetite,

taking steps to foster risk awareness

and encouraging a company culture of

risk adjusting awareness throughout the

Group. The Audit and Risk Committee

reports back to the Board regarding the

adequacy of risk management measures

so that the Board has confidence that

management can support them. The

Board regularly reviews the principal

and emerging risks facing the business,

including an annual review of the

effectiveness of the risk management

process in identifying, assessing and

mitigating any significant risks which may

affect the Group’s business objectives.

Risk management and the principal

financial risks and uncertainties facing the

Group are discussed in Note 3 & Note 36

to the Financial Statements. The Group’s

Risk Management Framework, Policy

and associated procedures are further

discussed in the Corporate Governance

Report on pages 109 to 160 and in the

Audit and Risk Committee Report on

pages 127 to 133, where the significant

issues related to the 2022 Financial

Statements are also reported. The Group’s

Business Management System, which

includes the Health, Safety, Environmental

and Social Responsibility (‘HSES’)

Management System, incorporating the

Group’s internal control mechanisms

of policies, procedures and guidelines

through which it assesses, manages and

mitigates its HSES risks and impacts,

is described more fully in the Corporate

Responsibility Report on pages 61 to 107.

The Board has carried out a review

of the uncertainties surrounding the

Group’s principal and emerging risks

and recognised that a potential adverse

event can have a material impact on

the Group’s future earnings and cash

flows. The fluctuating prices of crude

oil and gas remain a significant variable

to monitor closely for the Group. Flash

events are happening more frequently from

international trade tensions, geopolitical

tensions, sudden outbreak of diseases,

speed of climate change transition and

physical risks which may require changes

to our corporate price assumptions and

productions outlook which in turn may

trigger impairment of assets.

RISK MANAGEMENT - CONTINUED

Pharos Energy Annual Report and Accounts 2022

RISKS

Principal risks

and mitigations

A summary of the key risks affecting Pharos and how these are

mitigated to enable the Company to achieve its strategic objectives

is as follows:

Key to change in likelihood

Increase No Change Decrease New Risk

Principal risks

Change in

likelihood Causes Risk Mitigation

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 2023

• 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

• Stress testing forecast

• Proactive dialogue with banks and other providers

of capital

• Opportunity screening

• Effective project management and resourcing

• Cost carry by farm-in partner(s)

• Thorough capital allocation process

Pharos Energy Annual Report and Accounts 2022

Governance Report Financial Statements

Additional Information

Strategic Report

RISKS - CONTINUED

Principal risks

Change in

likelihood Causes Risk Mitigation

3. Production

levels below

expectation

• 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

• Active participation in dialogue with JVs/ JOCs

4. Health, Safety,

Environmental

and Social

Risk

• Reputational

• Operational outages

leading to lower

production

• Business disruption due to

workforce affected by COVID-19

• Health, safety and environmental

risks of major explosions, leaks

or spills

• High-risk operating conditions and

HSES risks

• Climate change impacts on the

sector, such as extreme weather,

sea level rise and water availability

affecting production

• Gas venting and flaring hazards

and risks - well blow outs, land/

water contamination

• Non-alignment of new

acquisitions’ HSES practices with

Pharos Corporate standards

• Increased disparities and societal

risks in health, technology or

workforce opportunities

• 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 transition to a goal based approach focused

on improving safety

• Promote a positive health and safety culture

where workers are given proper training and

incentives to work safe with a zero tolerance for

non-compliance

• Environmental and Social Impact Assessments

relating to, for example:

- climate impacts and need to adapt to changing

climate conditions over the life of the asset

- regulatory developments

• Enhance emergency preparedness and spill

prevention plan

- Controlled venting

- Control and management of pressurised oil and

gas from boreholes

- Use of low impact extraction chemicals where

alternatives exist

- Water management - securing of a sustainable

water supply, recycling and reuse wastewater

- Marine management plan - especially for offshore

drilling

- Carry out scenario exercises to improve

preparedness

- Active participation in dialogue with JOC to

influence them on best work practices

• Maintaining adequate energy insurance for our

assets and operations

Pharos Energy Annual Report and Accounts 2022

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

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

• Net Zero commitment on all assets by 2050,

detailed roadmap coming in 2023

• Establishment of an Emission Management

Fund, under which we will set aside $0.25 for

each barrel sold at an oil price above $75/bbl to

support emissions management projects

• Transparent reporting and participation in Carbon

Disclosure Project (CDP) Climate Change and

Water Security questionnaires

• Continue alignment with TCFD recommendations

• Further integrate climate risk management within

Pharos Risk Management Framework

• Stress test our going concern scenarios 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

emissions reduction initiatives

• Update our Climate Change Policy and keep

it fit for purpose and in line with evolving

decarbonisation developments

• Comprehensive insurance cover for Physical

Damage

• Regional close monitoring of extreme weather

developments so that evacuation or shut-down

are activated in good time

• Regular and timely control of inventories to ensure

essential spares are sourced in advance

• Prepare business case or back study to support

decarbonisation initiatives

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

• Repercussions of the Russian

invasion of Ukraine

• 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

Pharos Energy Annual Report and Accounts 2022

Governance Report Financial Statements

Additional Information

Strategic Report

Principal risks

Change in

likelihood Causes Risk Mitigation

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

8. Egyptian

economy

• The impact of the war

on Egypt’s economy

is especially significant

• Inability to repatriate cash earned

from Egypt

• Further devaluation of the Egyptian

pound

• Pharos have opted not to accept the payment of

our receivables balance in EGP unless required for

operations.

• Revolving credit facility with the National Bank of

Egypt (NBE), which allows us to draw down 60%

of the value of each invoice in USD (extended the

current $18m facility on the same terms to 31

March 2024)

OPERATIONAL

9. 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:

consistency, transparency and utility, including

disclosure of movements in reserves on a country-

by-country basis, disclosure of material projects

and moderation of subjective judgements

• On-going evaluation of projects in existing and

potential new areas of interest and pursue

development opportunities

• Regular reviews of reserves estimates by

independent consultants

• Ensure continuing adherence to industry best

practice regarding technical estimates and

judgements

• Ensuring peer and independent verification of

future production profiles and reserve recovery

• RBL facility compliance - Vietnam Reserves are

audited independently by reserves consultants

approved by lenders

RISKS - CONTINUED

Pharos Energy Annual Report and Accounts 2022

Principal risks

Change in

likelihood Causes Risk Mitigation

10. Partner

Alignment

Risk

Vietnam

• Misalignment at JV/

JOC level can delay

investment

• Adverse impact on

Production and Cash

flow

Egypt

• Technical

Misalignment at JV/

JOC level can delay

investment

• Adverse impact on

Production and Cash

flow

• 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

• JOC partner (IPR and 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

• Close collaboration with JOCs partners

• Support JV training initiatives

• Engage with JV Exploration Manager. Achieve

technical buy-in to ERCE model

• Waterflood analogue success education

11. 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

• The war in Ukraine has raised

acute concerns about cyber

operations

• 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

• Cyber Security and Phishing training for all our

workforce globally in 2022

12. 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 regarding

bonus, long-term incentive and share option plans

• Build and use people networks in each country

and advertise vacancies in these networks

• Maintain a programme for staff wellbeing

• Facilitate and encourage workforce

communication via employee surveys and shared

feedback

• The Board was reduced from 9 to 6 (two

Executive Directors and four Non-Executive

Directors)

RISKS - CONTINUED

Pharos Energy Annual Report and Accounts 2022

Governance Report Financial Statements

Additional Information

Strategic Report

Principal risks

Change in

likelihood Causes Risk Mitigation

REPUTATION

13. Sub-optimal

capital

allocation

• Adverse reaction

from current / future

stakeholders

• Investment decisions

based on realistic /

achievable economic

assumptions

• 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

14. Political and

Regional risk

• Energy sector

exposed to a wide

range of political

developments which

may impact adversely

on operating costs,

compliance and

taxation

• Operations in challenging

regulatory and political

environments

• Changes to fiscal regimes without

robust stabilisation protections

• Protracted approval processes

causing delays

• Government reform, political

instability and/or civil unrest

• Impact of financial sanctions,

export controls and other

trading restrictions on industry

counterparties and sectors (in

particular, Russian state-controlled

entities, or certain other connected

entities or Individuals, arising from

the continuing conflict in Ukraine)

• Canvas support in risk management by using both

international and in-country professional advisors

• Engage directly with the relevant authorities on a

regular basis

• Assess country risk profiles, trend analyses and

on-the-ground reports by journalists / academics

• Thoroughly evaluate the risks of operating

in specific areas and assess commercial

acceptability

• Maintain political risk insurance at appropriate

levels of cover

• Maintain USD as the main currency of our

business

• Active working group monitoring sanctions arising

from conflict in Ukraine and assessing/managing

associated risk to Group

• Adoption in May 2022 of new standalone Group

Sanctions Policy, to supplement existing Group

Code of Business Conduct and Ethics

• Develop and maintain mitigation planning in

relation to certain counterparties with potential to

come within the future scope of sanctions

RISKS - CONTINUED

Pharos Energy Annual Report and Accounts 2022

Principal risks

Change in

likelihood Causes Risk Mitigation

15. 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

• Group Whistleblowing Policy and confidential

ethics 24 hour hotline supported by EthicsPoint

with numbers displayed in all offices

• CCO risk assessment and on-going

implementation of adequate procedures to

prevent facilitation of tax evasion across all

operations

• Comply with the principles of the Extractive

Industries Transparency Initiative

Viability Statement

In accordance with the UK Corporate

Governance code, the Board has

assessed the prospects of the company

over a period longer than the twelve

months required to support the Going

Concern Statement on page 179 of the

Financial Statements. The Audit & Risk

Committee reapproved in December

2022 that the appropriate length, which

the Viability Statement (“VS”) should

cover, is 3 years. A significant factor in

the Group’s forward cash position is the

oil price assumption, and as most of the

source data relates to a 3-year period this

is considered as the appropriate lookout

period for the VS.

In undertaking this assessment, the Board

has carried out a robust review of the

principal and emerging risks facing the

Group, including those that would threaten

its business model, future performance,

solvency or liquidity, with particular

attention given to the principal and

emerging risks.

Our strategy and associated principal and

emerging risks underpin both the Group’s

3-year base forecast and scenario testing,

as well as our longer term prospects and

position.

Group’s current position

• Production assets in Vietnam and Egypt

with low operating cost base

• Flexibility in the capital expenditure

programme

• Operating cash flows in line with oil

prices and supported by hedging

programme

• Focus on capital discipline

• Excellent HSES standards in Vietnam

• Repayment of current RBL loan in the

3-year period of the VS

Strategy & business model

• Business model drawing on

geoscience, engineering, financial and

commercial talent

• Responsible and Flexible stewards of

capital

• Focus on stakeholders

The principal and emerging risks, which

are considered in assessing the Group’s

prospects, are the same as those used

to stress test our viability over the 3-year

period.

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 3-year period selected for testing

covers the Group’s medium term capital

plans and projections, in particular oil

price projections, a fundamental driver of

the groups operating cash flows, where

market consensus data becomes less

reliable for periods further ahead than

three years.

Although individual assets are often

modelled for periods longer than three

years, to reflect the return on investments

being considered over the life of field, the

3-year period has been selected by the

Board as most appropriate for the group

as a whole. It provides management and

the Board with sufficient and realistic

visibility of the future industry environment

whilst capturing the Group’s future

expenditure commitments on its licences,

its near term drilling programmes and Full

Field Development Plans (FFDPs).

In assessing the Group’s viability over

the next three years, it is recognised that

all future assessments are subject to a

level of uncertainty which increases with

time and that future outcomes cannot be

guaranteed.

RISKS - CONTINUED

Pharos Energy Annual Report and Accounts 2022

Governance Report Financial Statements

Additional Information

Strategic Report

Key Assumptions

During the 3-year period, the working

assumption is that Group will be

dependent on its two cash generating

assets in Vietnam and the El Fayum

concession in Egypt.

The underlying oil and gas reserves in both

Vietnam and Egypt have been certified

by Reserves Auditors, RISC (for Vietnam)

and McDaniel (for Egypt). In our model, we

have used management’s best estimate

of future commodity prices, resulting in

a base oil price prior to scenario testing

of $87.3/bbl in 2023, $84.8/bbl in 2024

and $79.4/bbl in 2025. The base model

also includes the Group’s latest life of

field production models and expenditure

forecasts.

The company has a Reserves Based

Lending (RBL) facility of $100 million

over its Vietnam producing assets,

with a further US$50m available on an

uncommitted “accordion” basis. It has a

four-year term that matures in July 2025

and has been subject to amortisation since

July 2022. As of December 2022, the

facility amount was $87.5m, with $65m

drawn. The current borrowing level and

the repayment schedules in the model

are based on the RBL's economic and

technical assumption as of the December

2022 redetermination. In the current VS

period, the RBL loan is expected to be

repaid by 2025.

Pharos El Fayum have an uncommitted

revolving credit facility through to 31

March 2024 for up to $18m with the

National Bank of Egypt (UK). This facility

was implemented to help mitigate the risk

of late payment from debtors. Under this

arrangement, Pharos is able to access

cash from the facility for up to 60% of the

value of each El Fayum oil sales invoice.

Stress testing linked to Principal Risks

As well as the base model, the Group also

evaluates other scenarios and has stress-

tested the forecast for a combination of

severe but plausible events (linked to the

majority of the Group’s principal risks)

that could potentially impact its ability to

fund planned activities and/or comply with

the covenants and undertakings within

its reserves based lending (RBL) facility

agreement. These events include:

• A material reduction in the oil price

putting pressure on the Group’s capital

available for investment

• A material reduction in production

• An unfavourable event resulting in lost

production and oil price shock

Base Forecast flexed for

combinations of the

following scenarios

Link to Principal Risks and

Uncertainties 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 $59/bbl in May 2023,

then rising gradually over a year till

in line with base price

Company remains viable

with mitigating actions

Reduction in production

2,3,4,7,9,10,12,13,14

5% drop in production from June

2023 over the period of testing

Company remains viable

with mitigating actions

Unfavourable event leading to lost

production and price shock

1,2,3,4,5,6,7,8,9,12,13,14

Combination of tests above

Company remains viable

with mitigating actions

Climate Change

We have also factored in the risk of

potential price reductions due to climate

change pressures during the 3-year VS

window. We have therefore considered

the price curve as an output of a Net

Zero Emissions by 2050 (NZE) based

on IEA’s World Outlook 2022 report,

which is consistent with achieving

1.5 °C stabilisation in global average

temperatures and a net zero CO

emission

by 2050. The nominal Brent prices used

in this scenario are comparable to our

base case oil price assumptions over the

3-year VS period. Nevertheless, we have

concluded that the stress testing outlined

above adequately accounts for the risk of

any downside adjustments to our revenue

base over the 3-year VS period due to

climate change pressures.

To date, there is no official carbon tax

established in either jurisdictions where

our operations are located i.e. Vietnam

and Egypt. Furthermore, the imposition

of carbon taxes would likely to uplift the

Brent prices as some of the burden will be

passed to the consumer.

As a sensitivity test, we have run the effect

of carbon tax from 2025 on Base case

without assuming any increment in Brent

price and the Group remains viable over

the 3-year VS period (see TCFD report for

more information).

It should be noted that majority of the

existing RBL facility will be repaid within

two years, falling within the 3-year viability

statement window. This provides us

certain level of protection against the risk

of capital availability being constrained by

concerns related to climate change.

In all combinations of scenarios that

were tested, the Group had implemented

mitigating actions including hedging

and deferring non-committed capital

expenditure beyond the 3-year window

of the VS. Directors have reviewed the

realistic mitigating actions that could

be taken to reduce the impact of the

underlying risk. The forecast cash flows

are regularly monitored and reviewed to

provide early warnings of any issues and

to give sufficient time to undertake any

necessary mitigating actions.

The potential impact of other principal

risks on the group’s viability during the

assessment period were also considered.

Such risks include the inability to attract

and retain appropriately skilled people,

Cyber risk and Business Conduct and

Bribery risk. The Board has considered

the risk mitigation strategy for each of

these risks and believes that the mitigation

strategies in place are sufficient to reduce

the impact of each risk, making it unlikely

to jeopardise the Group’s viability during

the 3-year period.

Based on all of these assessments,

including the availability of actions which

could be taken in the event of plausible

negative scenarios occurring, the Directors

confirm that they hold a reasonable

expectation that the Group will continue

to operate and meet its liabilities as they

fall due for the three year period to 31

December 2025.

RISKS - CONTINUED

Pharos Energy Annual Report and Accounts 2022

CORPORATE RESPONSIBILITY

Responsibility

framework

Business

Environment Society

Ethics People

Oil sold domestically in Egypt and Vietnam

in 2022, contributing to host country

development goals and access to energy

Combined total training levies in Vietnam

and Egypt for investment in industry

capacity building in 2022

Community and charitable investments

supporting 9 social projects in Vietnam

through the HLHVJOC Charitable Donation

Programme in 2022

100%

El Fayum oil

100%

CNV oil

Taxes and royalties to host governments,

includes host governments share of

production entitlements in 2022

One Lost Time Injury event in

Egypt in 2022

Zero Lost Time Injury event in

Vietnam in 2022

Tonnes CO

e per 1,000 tonnes of

hydrocarbon produced in 2022

Percentage of staff receiving

anti-bribery and corruption training

by 31 December 2022

Female employees at corporate level

in London in 2022

Oil/chemical spills (quantities greater than

100 litres) in Egypt in 2022

$245.3m

$500,000

100%

$198,600

1 LTIs

c.65%

340

Pharos Energy Annual Report and Accounts 2022

Governance Report Financial Statements

Additional Information

Strategic Report

CORPORATE RESPONSIBILITY - CONTINUED

Our aim is to add value in everything we do through responsible, efficient and safe energy production.

We take our role in society very seriously. We are committed to open, transparent communication, and taking a rigorous, conscientious

approach to the environment, our role in society, our business practices and ethics, and how we relate to people. That includes all our

stakeholders: the people who work with us directly and indirectly, those who live where we operate, and the host governments and

authorities that regulate our activities.

Structure of the Group’s

Corporate Responsibility and

HSES Management System

1. Code of Business Conduct

and Ethics

2. Key Corporate Responsibility

(CR)/HSES policies supporting

the Code

Climate Change Policy

Code of Business Conduct

and Ethics Code

Human Rights Policy

Security Policy

HSE Policy

Social Responsibility Policy

Biodiversity Conservation Policy

Water Resource Management Policy

Prevention of Slavery and Human

Trafficking Policy

Sanctions Policy

Tax Strategy Statement

Non-Audit Services

3. Standards, procedures and

guidance supporting the

policies

See https://www.pharos.energy/

responsibility/policy-statements/ for the

full text of each of these policies.

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

Annual feedback sessions with all

staff members

• 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

• 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

Pharos Energy Annual Report and Accounts 2022

CORPORATE RESPONSIBILITY - CONTINUED

Corporate Responsibility governance & management

A long-term goal of the Group is to be a

positive presence in regions in which it

operates by providing responsible and

sustainable development. The objective

of sustainability will apply equally to the

Company’s traditional reputation for

financial discipline and return of value

to shareholders as it will to the Group’s

objective of striving towards the goal of

establishing and maintaining the highest

operating standards across Environmental,

Social and Governance (“ESG”) matters.

The Board is also fully committed to

effective compliance with the 2018 UK

Corporate Governance Code, applicable

to the current financial year of the

Company ending 31 December 2022. The

Board’s objective is to be recognised for

its high standard for governance, with a

considerate and pragmatic approach to its

business.

In terms of corporate responsibility and

community engagement, the Board is

committed to treating all stakeholders in

every area of operations with honesty,

fairness, openness, engagement and

respect, and to conducting all business

ethically and safely. The Group will only

work with parties that share these values.

Our Code of Business Conduct and Ethics

(“our Code”) sets out our expectations

for how we do business, clarifying our

commitments to ethical, social and

environmental performance. Our Group

CR and HSES policies described above

support our Code.

Our corporate standards, procedures and

guidelines support the policies. Project-

specific operational plans, programmes

and procedures set out the specific

approach to CR and HSES issues and

risks within each project.

The Pharos Health, Safety, Environmental

and Social Responsibility Management

System (“HSES MS”) describes the

Group’s internal processes to manage

risks and is consistent with the

requirements of internationally recognised

standards (ISO 14001, ISO 45001) and

aligned with the World Bank’s International

Finance Corporation (“IFC”) Environmental

and Social Performance Standards.

The Board takes overall responsibility

for our Net Zero climate goal, ESG

strategy and climate-related risk and

opportunities, overseeing executive

management in developing the approach,

execution, associated reporting and

climate disclosures. Progress against

our ESG ambitions is reviewed through

Board discussion at quarterly Board

meetings and review of key topics such

as updates on GHG/HSES performance

and decarbonisation projects. The Chief

Executive Officer is accountable to the

Board for implementation of CR policies

and HSES performance.

Given the wide-ranging remit of climate-

related matters, the governance activities

are managed interdisciplinary through a

combination of different committees.

• The Audit & Risk Committee (ARC)

oversees all principle and emerging

risks in our risk management process,

in which climate risk is considered

a principle risk. It also oversee the

adequacy and effectiveness of our

policies, standards and management

system for HSES.

• The ESG Committee oversees the

Group’s management of ESG matters

and compliance with legal and

regulatory climate-related reporting

and disclosure requirements, as well

as assists the Board in defining and

implementing the Group’s strategy

relating to ESG matters.

• The Remuneration Committee oversees

the level of management incentives

attached to improvements in climate-

related performance in order to further

encourage action on this agenda.

For each Committee’s Terms of Reference

(ToR), please visit https://www.pharos.

energy/about-us/governance/committees/.

Corporate Responsibility objectives are

defined annually and reviewed quarterly in

relation to: our business, our ethics, our

people, environment and society.

Stakeholder engagement &

materiality screening

We engage with our stakeholders on a

regular basis and receive feedback through

a range of formal and informal processes,

which we set out in more detail in the

UK Governance Code report on pages

115 to 121. We listen to their concerns

and feedbacks when determining our

corporate responsibility strategy and use

the information they provide us to identify

the issues that are most important to

the successful delivery of our corporate

objectives and most important to our

stakeholders.

The Board, the ARC and the ESG

Committee also regularly discuss, at each

quarterly Board/Committee meetings,

the new and existing themes and issues

that matter to our stakeholders. Our

management team then uses this insight

and other applicable disclosure laws and

regulations to choose what we measure

and publicly report in our Annual Report.

Following an earlier screening of material

ESG factors relevant to the oil and gas

sector, in 2022 Pharos has been referring

to the Sustainability Accounting Standards

Board (SASB) materiality map for Oil & Gas

- Exploration and Production, to ensure

that the material issues of importance to its

activities are appropriately managed and

reported. Our approach on environmental

and social reporting in 2022 has taken

into account the Voluntary Sustainability

Reporting guidance (4th edition, published

March 2020)” issued by IPIECA, the

global not-for-profit oil and gas industry

association for environmental and social

issues, in partnership with the American

Petroleum Institute and the International

Association of Oil and Gas Producers. We

report on jointly operated companies in

Egypt and Vietnam.

We are also informed by the London

Stock Exchange listing and disclosure

rules in areas where we have operations,

and are held accountable by our auditors

and Company Secretary. The Board

will further reinforce the integration of

climate considerations into its governance

frameworks by implementing the principles

stated in our Climate Change Policy and

continuing the Company’s alignment with

TCFD recommended disclosures.

We know that what is important to our

stakeholders evolves over time and we

plan to continue to assess our approach

to ensure we remain relevant in what we

measure and publicly report.

Pharos Energy Annual Report and Accounts 2022

Governance Report Financial Statements

Additional Information

Strategic Report

CORPORATE RESPONSIBILITY - CONTINUED

Business

Our objective is to provide responsible and

sustainable development throughout our

operations.

Climate risks and global energy transition

Climate change is considered a principal

risk to the Group and its business over

the medium and long term, and this

is discussed in more detail in the Risk

Management report on page 47.

Both transition and physical climate

risks may further impact many of the

Group’s principal risks including those

associated with commodity price, access

to capital, reserves, operations, political,

stakeholders’ and reputational risks. We

recognise that the global energy transition

to a lower carbon intensity world in

response to climate change could result

in reduced demand for fossil fuels,

lower oil prices and increased operating

cost, increased capital cost, further

regulation and carbon taxation which

may significantly increase our operating

costs and reduce our revenue. Our overall

risk management framework integrates

climate change and carbon related risks

by stress-testing key a number of our

principal risks on key variables for the

Going Concern and Viability Testing.

Established management processes

include any physical risks associated with

climate change and our energy insurance

programmes cover to a large extent

our asset portfolio against the risks of

extreme weather events.

Pharos is cognisant of the potential

diminished role of fossil fuels in the

global energy mix as depicted in the IEA

Sustainable Recovery Plan. However,

we also recognise that oil and gas will

continue to play an essential role in

the global energy mix for many years

to come, and that the importance

of producing this energy in a safe,

environmentally sustainable and socially

responsible way will continue to grow. We

believe that there are real opportunities

in the energy transition, especially for

countries such as Egypt and Vietnam,

to benefit from the responsible and

sustainable development of their natural

resources. Pharos stands ready to play

our part in this transition and will continue

to support our host governments

as they seek to use oil revenues to

promote sustainable, inclusive economic

development, manage the impact of

climate change and achieve their COP

commitments.

We report transparently and have

participated in the CDP (formerly Climate

Disclosure Project) Climate Change

Questionnaire over the past five years.

In 2022, we maintained our score of (C),

originally awarded in 2019. 2022 also

marks the first year that the Company

received a score (C) for our disclosure to

the CDP Water Security Questionnaire.

Our greenhouse gas emissions (“GHG”)

are reported in the Environment section

on page 71. Our commitment to align

our reporting to TCFD recommended

disclosures are set out on page 79.

Business partners and influence

Relationships with business partners,

host governments and local communities

where we operate are critical for our

business. Our Code sets out our

commitment to doing business honestly

and ethically and complying with all

applicable laws and regulations. It sets

out our expectations to take steps to only

do business with others who share our

values.

Our ability to influence our business

partners and JOCs depends on our

degree of ownership and operatorship.

Where we are the designated operator,

we fully apply the Pharos HSES MS.

Where we are a joint operating partner

or part of a JOC, we seek to influence

and ensure alignment with our systems.

Where we have a minority interest, we

seek to make our views heard and ensure

that minimum standards are met in

accordance with our commitment to the

IFC Performance Standards.

Pharos Energy Annual Report and Accounts 2022

Vietnam interests and operations

Degree of

influence Blocks Country

Pharos

ownership

Pharos

role

2022

field activity

Target HSES

outcome

High

Blocks 125

& 126

Vietnam 70% Operator

Block 125 3D seismic

processing completed.

Interpretation underway

Full application of the

Pharos HSES MS

Moderate

Block 16-1 Vietnam 30.5%*

Joint operating partner

(in Hoang Long Joint

Operating Company)

Completion of Phase

2 of TGT Revised Field

Development Plan. 2 well

development drilling and

intervention campaigns

Influence to bring

alignment to the

Pharos HSES MS

Moderate

Block 9-2 Vietnam 25%

Joint operating partner

(in Hoan Vu Joint

Operating Company)

Development drilling of

one additional sidetrack

underway

Influence to bring

alignment to the Pharos

HSES MS

* Pharos has a 30.5% working interest in Block 16-1 which contains 97% of the Te Giac Trang (TGT) field and is operated by the Hoang

Long Joint Operating Company. The Group’s unitised interest in the TGT field is 29.7%

Egypt interests and operations

Degree of

influence Blocks Country

Pharos

ownership*

Pharos

role *

2022

field activity

Target HSES

outcome

Moderate

El Fayum

Concession

Egypt 45%

Joint operating partner

(in Petrosilah)

Continuation of

development drilling and

waterflood programme

Influence to bring

alignment to the

Pharos HSES MS

Moderate

North

Beni Suef

Concession

Egypt 45%

Joint operating partner

(in Petrosilah)

Interpretation of pre-

existing 3D seismic survey.

Several low risk drillable

prospects identified.

Influence to bring

alignment to the

Pharos HSES MS

* In September 2021, Pharos announced the farm-out and sale of a 55% working interest and operatorship in each of the El Fayum and

North Beni Suef Concessions to IPR Lake Qarun Petroleum Co, a wholly owned subsidiary of IPR Energy AG. The transaction was

completed on 21 March 2022.

CORPORATE RESPONSIBILITY - CONTINUED

Pharos Energy Annual Report and Accounts 2022

Governance Report Financial Statements

Additional Information

Strategic Report

HSES Management System

We undertake a range of activities to continuously improve our

HSES MS to ensure that the Company’s policy commitments are

applied. We work in countries that have different standards and

we review any potential gaps to ensure adherence to our policies

in dialogue with our business partners. Routine monitoring is

undertaken to assess and improve performance and periodic

audits are conducted.

HSE trainings and exercises

In Vietnam, the HLHVJOCs continued HSE induction to new staff,

maintained its HSE Training Matrix such as travel safety by boat,

firefighting and rescue, working at height and also conducted

training for offshore production team such as Personal Protective

Equipment training, refresh safety induction for contractors,

behavioural safety and tank inspection procedure.

In Egypt, HSES training focused on increasing the staff’s

capabilities and competence on ISO 14001 and 45001

management systems, safety at rig, firefighting, lifesaving rules,

permit to work, hot work hazards and safety requirements in

confined space entry and working at height.

Key Performance Indicators

KPI Target 2022 2021 2020

HSES regulatory

non-compliances

0 0 0 0

Contractor management

Contractors are used throughout all aspects of our business. Our

Contractor Management Procedure sets out requirements through

all stages from selection through to management and service

delivery.

In HSES critical activities, bridging documents are put in place

to ensure Pharos and its contractors are in alignment with our

requirements.

Hours worked in Vietnam and Egypt assets Percentage of total

Company staff: 734,620 22%

Contractors: 2,614,898 78%

Overall objective

To provide responsible and sustainable development

2022 Objectives 2022 Outcomes 2023 Objectives

Further alignment with Pharos HSES

Management System.

Pharos Energy continued to work

towards full implementation of our HSES

Management System across our business.

Further alignment with Pharos HSES

Management System.

Work closely with new partner HSES

department to ensure a similar HSES

approach is shared.

Pharos Energy worked closely with IPR

to achieve good alignment between our

respective HSES Management Systems.

Close any outstanding gaps between HSES

procedures with a focus on land transport

and environmental risks.

Update Pharos HSES Management

System.

HSES Management System policies and

procedures have been updated and will

be submitted to the board for approval in

March 2023. Updates include the role of

the ESG Committee and embedding ESG

considerations into daily work.

Review implementation of updated HSES

Management System across business

functions.

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.

Emergency response procedures have

been updated and an online repository

containing all relevant documentation

created.

Further training on crisis management and

emergency response to be held in 2023.

CORPORATE RESPONSIBILITY - CONTINUED

Pharos Energy Annual Report and Accounts 2022

Ethics

Our objective is to conduct our business in an

honest and ethical manner.

Preventing corruption

Pharos currently operates in Vietnam,

which is allocated a low score on

Transparency International’s most recently

published Corruption Perception Index

(“CPI”), and is ranked number 77 (87 in

2021) out of 180 countries in the 2021

CPI. Egypt is ranked at 130 on the same

CPI (117 in 2021). We recognise that,

with both areas of operation having a

reputation for a lack of transparency and

relatively high risk of corruption, it is vital

that the Group’s policies, procedures

and working practices are fit for purpose.

Pharos maintains internal control systems

to guide and ensure that our ethical

business standards for relationships

with others are achieved. The Audit and

Risk Committee and the Board have

carried out a review of the effectiveness

of the Group’s risk management and

internal control systems, see the Audit

Committee and Risk report page 127.

Bribery is prohibited throughout the

organisation, both by our employees

and by those performing work on our

behalf. The Code of Business Conduct

and Ethics supports all businesses that

are conducted in an honest and ethical

manner across the organisation. Our

Anti-Bribery and Corruption (“ABC”)

programme is designed to prevent

corruption and ensure systems are in

place to detect, remediate and learn from

any potential violations. This includes due

diligence on new vendors, annual training

for all personnel, requisite compliance

declarations from all associated persons,

Gifts and Hospitality declaration

and comprehensive ‘whistleblowing’

arrangements.

Our Whistleblowing Policy and Procedure

ensures that employees are protected

from possible reprisals when raising

concerns in good faith. In addition to

internal reporting channels, we have a

confidential ethics hotlines supported by

EthicsPoint with numbers displayed online

and in local offices available 24 hours a

day all year round. Zero calls were made

to the EthicsPoint hotlines in 2022.

Payments to host governments

Wealth generated by natural resources

plays an important part in the growth

and development of countries in which

we operate. Revenues to governments

become payable by the Group due

to oil production entitlements, taxes,

royalties, licence fees and infrastructure

improvements.

During 2022, the total payments to

governments for the Group amounted

to $245.3m (2021: $198.2m), of which

$211.5m or 86% (2021: $151.9m or 77%)

was related to the Vietnam producing

licence areas, of which $140.7m (2021:

$102.6m) was for indirect taxes based

on production entitlement. In Egypt

payments to government totalled

$31.3m (2021: $44.7m), of which $28.8m

(2021: $44.1m) related to indirect taxes

based on production entitlement. Our

Code prohibits contributions to political

parties, candidates or other political

organisations.

Overall objective

To conduct our business in an honest and ethical manner

2022 Objectives 2022 Outcomes 2023 Objectives

All personnel to complete the annual ABC

programme including training, testing and

self-declaration statement.

Completed. All personnel to complete the annual

ABC programme including training,

testing and self-declaration statement.

Continue to review ABC programme and

update as required.

No updates required. Continue to review ABC programme and

update as required.

Update and republish the Modern Slavery

annual statement and all other corporate

policy statements.

The annual statement on Modern Slavery has

been reviewed by the Board and republished on

the Pharos website.

Update and republish the Modern Slavery

annual statement and all other corporate

policy statements.

100 %

EMPLOYEES AND RELEVANT

CONTRACTORS HAVE

UNDERTAKEN ANTI-BRIBERY

AND CORRUPTION TRAINING

BY 31 DECEMBER 2021

CORPORATE RESPONSIBILITY - CONTINUED

Pharos Energy Annual Report and Accounts 2022

Governance Report Financial Statements

Additional Information

Strategic Report

People

Our objective is to ensure the health, safety,

security and welfare of our employees and those

with whom we work and to ensure that we have a

workforce that is performing at its best.

Our Health, Safety and Environment Policy and Code of Business Conduct and Ethics commit us

to protecting the health and safety of our workforce, to providing a workplace free of discrimination

where diversity is valued and to ensure that we consult and engage with our employees. We value

the contribution made by all employees and strive to ensure that we have training and development

opportunities for everyone.

On-going monitoring and

precautionary / preventive

measures under COVID-19

The Group adhered to the requisite

precautionary procedures and

restrictions, in line with the government

directives in Egypt, Vietnam and the UK.

Occupational health and safety

Safety is the highest priority in our

business and we are committed to

operating safely and responsibly at

all times and to providing a safe and

healthy working environment for staff and

contractors. Following from our Health,

Safety and Environment Policy and

Code of Business Conduct and Ethics,

our HSES MS provides the framework

for our approach and is implemented

at each stage of a project supported by

Occupational Health and Safety Guidance

and Standard Operating Procedures.

While Pharos had no field activity in

2022 in which we were the operator, we

continued to work with our partners in

Vietnam where the HLHVJOCs continued

to maintain a high level of safety. We

have worked to build and contribute

to improvements in the safety culture

in Vietnam and we are proud of that

record of achievement. HSES training,

drills, workshops and inspections are

conducted on an annual basis to ensure

that the zero lost time injury target is

maintained. One medical treatment

case was however recorded, when one

catering crew accidentally stepped and

broke a drinking glass on a bedside table,

causing him to trip and fall, lacerating the

back of his head and a toe in the process.

We are able to share our practices and

lessons learned with others in the industry

and are contributing to further capacity

building.

In Egypt, we recorded one lost time injury

in 2022. On the 30/08/2022, when the

ECDC drilling crew assembled the mast

parts at Silah-2-6, the support beam

under the crown block was broken and

the mast warped. One person fractured

his knee bone and sustained a partial

cut in the ligament, with treatment taking

over two months. Two other people were

injured but were able to return to work

and were recorded as First Aid Cases.

Safety of our workforce remains our

number one priority and Pharos has

reinforced the use of stop cards and

safety training across all of the Group’s

operations.

Safety record

2022 2021 2020

KPI Target rates Pharos IOGP

Pharos IOGP

Fatal Accident Frequency Rate

0 0

0.75

0.34

0.55

Lost Time Injury (“LTI”) Frequency Rate

0.30 0

0.22

0.34

0.22

Total Recordable Injury Rate

<0.34

0.60 0

0.77

0.34

0.70

Million-man hours worked

3.35 3.17

2,679

2.97

2,544

1) Fatal accident frequency rate: Number of fatal accidents per hundred million man-hours for both employees and contractors

2) Lost time injury frequency rate: Number of lost time injuries per million man-hours for both employees and contractors

3) Total Recordable Injury rate; Number of recordable injuries per million man-hours for both employees and contractors

4) International Association of Oil and Gas Producers (“IOGP”) - Statistics not yet available for 2022.

CORPORATE RESPONSIBILITY - CONTINUED

Critical Incident Risk

Management

Pharos has emergency response plans

in place for all projects and assets.

The plans are communicated to the

workforce and response personnel

receive training to ensure they are

competent to carry out their emergency

roles. This is supplemented by periodic

refresher training. Drills and training

exercises are carried out. We ensure

asset integrity and control operations in

order to effectively manage all significant

risks during all stages of the operations.

During 2022, there were no Process

Safety Events classified Tier 1 or Tier

2 to be reported. All incidents were

investigated and lessons learned as

appropriate and actions to prevent

recurrence were implemented.

Safety indicators

(for both Pharos employees and

contractors)

Indicator 2022

Lost Time Injury (“LTI”) Cases 1

Fatal Accidents 0

Medical Treatment Cases 1

First Aid Cases 3

Number of Motor Vehicle Crashes 1

Roll-over 1

HSES Near Miss 15

HSES Inspections 776

HSES Audits 913

HSES Toolbox Talks 5,688

HSES Meetings 568

Safety indicators

Indicator 2022

Emergency Response Drills 98

Process Safety Events

(Tier 1 or Tier 2)

Other minor events 39

Diversity and Inclusion

Greater diversity and inclusivity brings

greater understanding of people. Through

our Guiding Principles of ‘Openness

and Integrity’ and ‘Empowerment and

Capability’, we have demonstrated our

commitment to maintaining and building

a culture of diversity and inclusion in

meaningful ways.

We believe in a workforce with a diversity

of experience, nationalities, cultural

backgrounds and gender, to support our

business strategy of long-term sustainable

growth. It is crucial to the success of

our business that we retain and develop

the diversity of our workforce and have

diversity and inclusion at the heart of our

recruitment, development and promotion

processes.

Our Code of Business Conduct and

Ethics, associated Policies and the Pharos

Guiding Principles commit us to providing

a workplace free of discrimination where all

employees can fulfil their potential based

on merit and ability. They also commit us

to providing a fully inclusive workplace,

while providing the right development

opportunities to ensure existing staff have

rewarding careers.

The spirit of diversity, inclusion and

trust lies behind everything we do. Our

commitment to inclusion and diversity

remains strong in 2022. As at year-end

2022, the Company has four female

Directors, representing two thirds of the

Board. We are proud that we are able to

recruit talents from diverse backgrounds

and ethnicities across our entire

organisation. Most notably, our UK-based

staff comprises 16 people from 9 different

nationalities, of which women accounted

for c.65%, which ensures that we cultivate

a culture that recognises and promotes

diversity in all forms and where every voice

is heard.

Pharos Energy Annual Report and Accounts 2022

CORPORATE RESPONSIBILITY - CONTINUED

Pharos Energy Annual Report and Accounts 2022

Governance Report Financial Statements

Additional Information

Strategic Report

Local capability building

We are committed to providing meaningful

opportunities for technical cooperation,

training and capacity building in host

countries. We have maintained a gender-

neutral recruitment process and, wherever

possible, are ensuring that we first look

to fill any vacancy internally with a local

candidate in London, Vietnam and Egypt.

In Egypt, under the El Fayum and North

Beni Suef Concession Agreements, the

Contractor party commits to a total of

$200,000 split equally between the two

Concessions for training and development

of employees. In Vietnam, as part of the

HLHVJOCs, a training levy of $150,000

for each JOC goes into a fund which is

ring-fenced to support the development

of future talent in Vietnam in the industry.

The HLHVJOCs also invest in staff

development and training.

2022 Corporate Employees (*)

(*) Figures correct as at 31 December 2022.

Overall objective

To ensure the health, safety, security and welfare of our employees and those with whom we work; to sustain and grow a global cultural

of diversity and inclusion such that diversity is at the core of who we are and where inclusion drives innovation and solutions

2022 Objectives 2022 Outcomes 2023 Objectives

Close gaps and initial

improvements identified in

employee surveys

Established new routine post COVID for Directors

to travel internationally and engage with teams.

Reinstated weekly Head office business focus

meetings to further improve staff engagement.

Regular in person Head office events to continue

building a cohesive team.

Extended the performance appraisal system to

the global business.

Further develop, deliver and refine Head office

options of hybrid or home working, following

learnings from COVID remote working practices.

Develop and deliver company wide global team

engagement events, uniting colleagues from

Egypt, Vietnam, US and UK for business review

and updates.

Further embed and develop the performance

appraisal system globally.

Focus on maintaining safe working

environment

Safety workshops are routinely held at our field

locations to raise awareness. Where incidents

occurred, thorough investigations were carried

out and lessons learned were captured and

communicated.

Ensure worker health and safety is maintained

to a high standard during both desk-based and

operational activities.

Engage with the teams about workplace

wellbeing schemes.

Non-Executive Directors

Executive Directors

Senior Management

Other Employees

Male

Female

3 9

CORPORATE RESPONSIBILITY - CONTINUED

Pharos Energy Annual Report and Accounts 2022

Environment

We recognise the potential impacts of our

business on the environment.

Our Health, Safety and Environment Policy sets out our commitment to conduct all business activities in

a responsible manner. In setting the Group’s corporate responsibility priorities, our objective is to protect

the environment and conserve biodiversity.

Greenhouse gas emissions

(“GHG”)

GHGs associated with energy use, natural

gas flaring and venting are a key issue for

the Group.

In 2022, we continued to monitor

our emissions and disclose them in

accordance with industry requirements

and standards. Additionally, we also

participated in the Carbon Disclosure

Project (“CDP”), details of which can be

found in the Business section of the this

report on page 64, and continue to align

our disclosure with TCFD recommended

disclosures, details of which can be found

in our TCFD report on page 79.

GHG reported

Pharos reports carbon dioxide (CO

methane (CH

), and nitrous oxide (N

combined into carbon dioxide equivalent

(CO

e) based on the gases’ 100-year

Global Warming Potential (GWP). These

three gases are produced through

combustion and included in the emissions

calculations, although N

O quantities

produced via combustion is relatively

small.

In addition to emissions resulting from

combustion, Pharos reports its direct

methane emissions from routine venting

and has been doing so since 2021.

The other greenhouse gases, HFCs, PFCs

and SF

, are not closely associated with

the petroleum industry. Their respective

emitting activities are not core parts of

Pharos operations. The total emission of

these gases is therefore expected to be

small and has not been calculated.

Emissions scope

Reported Scope 1 direct emissions

comprise direct GHG emissions resulting

from equipment or other sources owned

(partly or wholly) and/or operated by

the Company (for example, gas flaring

operations and fuel gas/diesel use to

generate power or for vehicle use, as well

as venting). Reported Scope 2 indirect

emissions comprise those arising from

purchased energy already transformed

into electricity, heat or steam generation.

For Pharos activities, Scope 2 emissions

comprise electricity supplied by the

national grid in our Cairo office (Egypt)

and in Ho Chi Minh City (Vietnam). No

Scope 3 emissions (indirect emissions

created in the value chain) are reported

for this financial year due to limitations

of data collection & concerns around

double-counting/ integrity of data.

Reporting of Scope 3 emissions would

involve voluntary disclosure of usage

from end-user and consumers, which

provides limitation in data integrity & data

collection. The company is cognisant that

TCFD advocates the reporting of scope

3 and the Group will endeavour to review

and follow this route where possible to be

in line with TCFD recommendations.

Reporting boundary

Pharos has elected to report its emissions

of GHGs from Egypt and Vietnam

operations on the basis of equity share.

Under equity share reporting, Pharos

reports a pro-rata share of the emissions

from partnerships or assets over which

the Group has operational control (i.e.,

Vietnam Blocks 125 &126) and a pro-rata

share of the emissions from partnerships

or assets it does not control (i.e., Vietnam

Blocks 9-2 and 16-1 and Egypt, all of

which are operated through JOCs)

according to its ownership interest. Since

the middle of July 2021, Pharos has

rented flexible office space consisting

of six desks at WeWork based in Soho,

London. The electricity consumption from

this office is not included in the figures

discussed thereafter.

Pharos Energy commits to making all

efforts to minimise all GHG Emissions

during its ongoing exploration activities

in Blocks 125 & 126, where it has

operational control. Where we are a joint

operating partner, we seek to influence

and ensure alignment with our systems

to promote best practice. Where we have

a minority interest, we seek to make our

views heard and ensure that minimum

standards are met in accordance with

our commitment to the IFC Performance

Standards and TCFD recommendations.

Methodology

Pharos applies the expectations set by

the ISO 14064-1 standards in terms of

Relevance, Completeness, Consistency,

Transparency and Accuracy which are

endorsed by IPIECA, the Greenhouse

Gas Protocol Initiative and Part 7 of The

Companies Act 2006 (Strategic Report

and Directors’ Report) Regulations 2013.

Emission factors for GHG calculations

were taken from UK Government GHG

Conversion Factors for Company

Reporting (BEIS, 2022) and EEMS, 2008,

Atmospheric Emissions Calculations;

for the calculation of associated gas

consumed as fuel and flared in Vietnam,

the emission factors were calculated

based on the carbon content of gas

analysed for the TGT and the CNV fields

as per a January 2023 gas daily report.

For the calculation of gas consumed,

vented and flared in Egypt, the emissions

factors were calculated based on the

carbon content of gas analysed at the

North Silah Deep, North East Tersa,

South Silah and Silah Base Separators

(EPRI Central Analytical Labs, 2018).

CORPORATE RESPONSIBILITY - CONTINUED

Pharos Energy Annual Report and Accounts 2022

Governance Report Financial Statements

Additional Information

Strategic Report

In 2022, we have again reported our

GHG emissions intensity in tonnes of

GHG per 1,000 tonnes of oil produced by

equity share to align with the International

Association of Oil and Gas Producers

(“IOGP”) benchmarks.

Key sources of our emissions are from

flaring and use of associated gas as

fuel to generate power on our offshore

production sites in Vietnam and likewise

for our onshore production in Egypt. In

2021, in addition to our emissions from

combustion which had been the focus

of Pharos’ reporting until then, we have

started to report our direct methane

emissions resulting from venting, and we

have continued to do so in 2022. In 2022,

gas fuel and gas flaring in TGT remain the

largest single contributor to Pharos’ total

emissions. Venting in Egypt represented

over 12 percent of our gross emissions.

The Group’s total CO

e emissions for

2022 is 376,915 tonnes of CO

equivalent

(109,539 tonnes of CO

equivalent based

on equity share). This corresponds to a

decrease of 0.3 percent compared to

2021 (approximately 2 percent decrease

based on equity share). It can therefore be

considered that Pharos’ emissions have

remain relatively stable compared to last

year despite some variations per source.

Activity data pertaining to GHG emissions

by the HLHVJOCs and Egypt is reported

to Pharos. Telos NRG assisted with data

collation and GHG emissions calculations.

Verification was undertaken by RPS

Consulting UK & Ireland with the following

limits:

• Activity data completeness, accuracy

and data collection and control

procedures have not been verified

due to the majority of GHG emissions

arising from activity in operations not

under Pharos’ direct operational (and

data collection) control.

• Activity data from Pharos’ Egypt

operations is considered to have a

higher risk of uncertainty.

• There is inherent variability and

uncertainty associated with the

available methods for calculation of

GHG emissions from activity data;

reported emissions and the assurance

statement should be understood in that

context.

Approaches to reducing

emissions

In Vietnam, we continue to manage

gas flaring by carefully monitoring and

optimising the processing facilities in the

TGT FPSO. Unfortunately, an extended

repair and maintenance in the receiving

facilities resulted in disruptions to gas

export and increased flaring levels in the

first quarter of 2022. The focus for the

next year will be on exploring opportunities

and technologies to reduce gas venting in

Egypt, which can potentially reduce our

Scope 1 emissions while also resulting in

economic gains, such as solar photovoltaic

powered pumping systems, increased

used of gas generators at wellsites and

further deployment of flare stacks, among

other gas utilisation opportunities. In

terms of energy efficiency, the usage of

a WeWork office is an initiative to reduce

both our cost base and our energy usage.

This is a continuation of our energy-

saving initiative from the previous year.

Additionally, in 2022, we moved to a

smaller office in Egypt as part of our effort

to reduce our cost base, thus conserving

more energy.

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 2022 and

did not obtain any violations from the

Environment Authority in Egypt in 2022.

The Company obtained 9 Environmental

Approvals from the Ministry of Environment

during 2022.

GHG emissions and activity data

GHG Data - tonnes of CO

equivalent for 2020 to 2022

Gross GHG emissions (CO

e (t))

Net to Pharos GHG emissions based on Equity Share (CO

e (t))

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

393,655

340,606

378,048

376,915

115,342

2021

(venting

excluded)

2020

(venting

excluded)

2021

(venting

included)

2022

(venting

included)

101,173

112,024

109,539

CORPORATE RESPONSIBILITY - CONTINUED

Pharos Energy Annual Report and Accounts 2022

2021

(venting

excluded)

2020

(venting

excluded)

2021

(venting

included)

2022

(venting

included)

600

500

400

300

200

100

289

307

240

237

458

541

280

281

313

340

Gas Flared - TGT

105,405 (36.6%)

Gas Fuel - TGT

142,425 (49.4%)

Marine Gasoil (MGO)

21,873 (7.6%)

Gas Flared (CNV)

13,877 (4.8%)

Diesel

4,561 (1.6%)

Aviation Fuel

(<0.1%)

Venting

43,815 (49.4%)

Gas Fuel

20,536 (23.2%)

Diesel

16,422 (18.5%)

Gas Flared

7,493 (8.5%)

Petrol (0.3%)

Electricity from

the grid (0.2%)

Greenhouse Gas Emissions Contributors (Total CO

e (t))

for 2022 – Vietnam (Based on total field emissions)

Vietnam

Total CO

e (t)

Egypt

Total CO

e (t)

Greenhouse Gas Emissions Contributors (Total CO

e (t))

for 2022 – Egypt (Based on total field emissions,

including venting)

In 2022, 35 tonnes of gas were flared for every 1,000 tonnes of total hydrocarbon production from Group assets on a gross basis (not

equity share adjusted). This is a slight increase from 32 tonnes in 2021.

Venting

Routine venting emissions have been

included for the second year in GHG

report in 2022. Routine venting only

occurs in Egypt. Although there is no

routine venting in Vietnam, accidental leaks

can occur. In addition, some activities

do occasionally require depressurisation

of differing process systems. In these

instances, the system(s) will be isolated,

and depressurised to as low as possible,

and then drained to a closed drain tank.

A minor amount of gas commingled with

liquid will evacuate out through cold vent

line to a safe area. Associated emissions

are negligible (8 tCO

e) but for the sake of

completeness have been included within

the report for 2022.

Although venting in Egypt was not

recorded before 2020, quantities involved

are likely to have been lower, as the oil

production decrease in 2021 meant the

amount of gas produced had become

insufficient to operate flare or power gas

generators at some locations and had

been vented instead. In 2022, the amount

of associated gas used as fuel in gas

generators in Egypt was 234 mmscf,

which resulted in 20,536 tCO

e (gross).

However, had this associated gas been

vented it would have resulted in additional

emissions in the order of 51,630 tCO

e, or

14% of the Group’s total emissions on a

gross basis.

The Group’s energy use from grid

electricity was 323,492 kWh in 2022 for

overseas offices in Egypt and Vietnam.

In 2021, the Group’s energy use was

311,692 kWh. Since the middle of July

2021, Pharos has rented a flexible six-

desk office space in London, the electricity

consumption of which is not included in

the report.

Charts: Scope 1 and 2 emissions from the Group’s operated and joint-operated projects on an equity share basis calculated pro-rata to its

ownership interest.

Vietnam

Egypt

Overall

Carbon intensity of production (tCO

e per 1,000 tonnes of oil equivalent produced)

CORPORATE RESPONSIBILITY - CONTINUED

Pharos Energy Annual Report and Accounts 2022

Governance Report Financial Statements

Additional Information

Strategic Report

Effluents and waste

During 2022, Pharos maintained its record of no spills into the environment in Vietnam. In Egypt, there was one environmental spills as

follows:

Date Location Description Estimated Quantity (bbls)

August 2022

Egypt - El Fayum fields to Suez oil

processing company, about 2 km

away from Suez city

Following a collision with a gravel truck, a crude oil shipping

truck overturned causing a leak in tank– no injury

362

Water is extracted along with hydrocarbon

reservoir fluids as part of normal

production operations; in Egypt, water is

also withdrawn from deep saline aquifers

and injected into hydrocarbon-bearing

formations to enhance production. In 2022

we generated 6.3 million cubic metres of

produced water. In Vietnam, the produced

water is cleaned by separating the

hydrocarbon phase before discharging to

the sea in line with national standards.

In Egypt, our produced water is all

disposed of in disposal wells. The

company has three Produced Water

Treatment Facilities (PWTF), two of them

are in-service at the gathering stations

(GS) in Silah and North Silah Deep (NSD)

and the third is yet to be used at North

East Tersa. The produced water is being

collected in both PWTF (Silah & NSD) and

then disposed of by injecting it into the

Abu Roash “E” formation through disposal

wells at each location (approximately 5,000

bbls/d of water disposed into SILAH-15 &

and 6,500 bbls/d of water into NSD-1-1).

In Vietnam, waste is generated from both

our production operations as well as

from our offshore drilling activities. Drilling

waste includes cuttings, used oil and other

materials. We work to recycle as much

non-hazardous waste as possible. We

have a third-party contract for the disposal

of hazardous waste, with a reporting

system into the specific Vietnamese

authorities for checking, audit, and

approval.

In Egypt, waste generated is segregated

into hazardous and non-hazardous

waste and disposed of in a licensed

facility. Freshwater is used to support our

operations.

In 2022, freshwater consumption for both

Vietnam and Egypt amounted to 70,582

cubic metres. Our use of freshwater has

increased by 21 percent compared to

2021, due to an increase in the number of

drilling activity carried out through the year.

Tonnes (t) of CO

e equivalent for 2022 Operations

e (t)

e (t) per 1000 tonnes of oil

produced by equity share

Country

Reported

operations

Operational

phase Overall

Based on

equity share

1,2

Per field

Per

country

Rented flexible office

space - not reported

Administration (office – electricity

usage)

– – – –

Israel

No activity – – – –

Egypt

Office Administration support for exploration 328 95 – –

El Fayum Concession

Production 84,592 23,652 541 541

Field development 3,746 1,069

Vietnam Cuu Long

Basin (offshore)

Office Administration (electricity usage) 2 2 – –

Blocks 125 & 126 Seismic exploration – –

Block 9-2 – Ca Ngu Vang

(CNV) field

Production 16,130 4,033 83 307

Field development 2,790 698

Block 16-1 – Te Giac

Trang (TGT) field

Production 262,640 78,004 368

Field development 6,687 1,986 –

Total

376,915 109,539 340

1) Figures include rounding to the nearest whole number.

2) Under equity share, Pharos reports a share of the emissions from the partnerships pro-rata its ownership interest.

3) GHG emission intensity is calculated, per field, and at country level, based on equity share, and gross/net boepd produced in 2022 in the CNV and TGT fields

as well as in El Fayum Concession. Calculations have been made using the following constants:1 m3 = 6.2898 barrels of oil, specific gravities of 0.8283,

0.728 and 0.8527 for El Fayum, CNV and TGT respectively.

CORPORATE RESPONSIBILITY - CONTINUED

Pharos Energy Annual Report and Accounts 2022

Tonnes (t) of CO

e equivalent for 2022 Operations

Biodiversity

The Group’s Biodiversity and

Conservation Policy commits us to meet

the objectives of the Convention on

Biological Diversity (1992). We identify

whether a project is located in modified,

natural or critical habitats, or a legally

protected or internationally recognised

area; and whether the project may

potentially impact on, or be dependent

on, ecosystems services over which

Pharos has direct management control

or significant influence. In Egypt, the El

Fayum Concession borders the multiple-

use management area and the natural

protectorate area of Lake Qarun which

includes important bird habitats. It is

adjacent to the Wadi El Rayan protected

area, which includes the Wadi Al-Hitan

World Heritage Site. In Vietnam, Blocks

125 & 126 are approximately 50km

offshore to the Nha Trang Bay Protected

Area and the Thuy Trieu Marine Protected

Area. Consistent with the Biodiversity and

Conservation Policy, Pharos does not

operate in any UNESCO designated World

Heritage Site and ensures that activities

in buffer zones around these sites do not

jeopardise the Outstanding Universal Value

(as defined by UNESCO) of these sites.

In Vietnam, safe practices were adhered

to ensure the surrounding environment is

protected at all times:

• The oil in water content of produced

water were continuously monitored

• Hazardous wastes have been strictly

managed, with hazardous wastes

manifests completed and submitted to

the relevant authorities

• All waste waters and sewage generated

on the drilling rigs, supply vessels

and FPSO have been treated before

discharge

• All solid wastes were collected,

segregated and transported to shore

and sent to the appointed contractors

who provided waste treatment system

In Egypt, similar safe practices were in

place:

• For normal waste, handling and

disposal was undertaken in compliance

with applicable environmental law

and regulatory requirements, involving

contracting with local units.

• Handling, transportation and disposal

of hazardous waste was undertaken as

follows:

- solid hazardous waste to approved

governmental landfill in El Nasrya in

Alexandria

- liquid and solid hydrocarbon waste

to approved landfill by contractor

Petrotrade

- water-based mud cutting waste to the

Fayum Governorate landfill.

An annual environmental monitoring was

conducted over Petrosilah work locations

by IMS Company to assess compliance

with applicable environmental law and

regulation.

We are committed to developing site-

specific biodiversity action plans in the

event that operational sites are within

sensitive areas, incorporating country-

specific strategies and action plans and

working in association with external

advisers to ensure that best practice

conservation priorities are achieved.

Non-Financial KPIs (HSES)

KPI

Target - 2022 2022 2021 2020

Spills to the environment 0

3 4

KPI

Target 2022 2021 2020

Solid non-hazardous waste produced (tonnes) Set per project

109

111 94

Percentage of non-hazardous waste reused or recycled Set per project

24 25

Solid hazardous waste (tonnes) Set per project

48 41

Percentage of hazardous waste reused or recycled Set per project

<1 4

CORPORATE RESPONSIBILITY - CONTINUED

Governance Report Financial Statements

Additional Information

Strategic Report

Overall objective

To protect the environment and conserve biodiversity

2022 Objectives 2022 Outcomes 2023 Objectives

Obtain all necessary environmental

permits for all drilling programmes /

seismic studies.

All necessary permits for our 2022 field development

operations were obtained successfully.

Obtain all necessary environmental permits

for all drilling programmes / seismic

studies.

Improve methane emissions

management and reporting.

In progress. Pharos has been reporting methane

emissions from venting following established

industry procedures. In 2023 we plan to focus on

improving the reliability of these estimates through

better measurements.

Improve methane emissions management

and reporting.

Carry out further feasibility studies /

cost benefit analysis on CO

reduction

technologies.

Ongoing. Partly achieved in Vietnam where we

have conducted a review of potential technology

to reduce GHG emissions. Focus will now shift to

evaluate technologies to reduce venting in Egypt.

Carry out further feasibility studies /

cost benefit analysis on CO

reduction

technologies.

Continue with TCFD alignment -

disclosure & reporting

Map out Pharos decarbonisation plan.

Ongoing. Net-zero emissions roadmap to be

published in 2023.

Produce net-zero GHG emissions

roadmap.

Pharos Energy Annual Report and Accounts 2022

CORPORATE RESPONSIBILITY - CONTINUED

Pharos Energy Annual Report and Accounts 2022

Society

Our Social Responsibility and Human Rights Policies

set our requirements for social responsibility,

community engagement and human rights.

Human rights

The Group Human Rights Policy commits

Pharos to conducting its business

in accordance with the fundamental

principles of human rights set out in the

Universal Declaration of Human Rights

and reflects the terms of both the OECD

Guidelines for Multinational Enterprises

and the United Nations Guiding Principles

on Business and Human Rights. Together

with our Social Responsibility Policy, it

sets out our commitments to align with

the Voluntary Principles on Security and

Human Rights. We respect indigenous

rights and cultures of the communities

where we operate.

Our human rights due diligence includes

processes to address, monitor and

communicate actual or potential impacts.

For Egypt, all Group corporate policies

including the Human Rights Policy and

the Social Responsibility Policy, have been

translated into Arabic for dissemination

locally.

In accordance with the UK Modern

Slavery Act, Pharos reports annually on

the steps it has taken to mitigate the risk

of modern slavery occurring in any part

of its business. The Group’s Statement

on Modern Slavery is available on the

Company’s website at https://www.

pharos.energy/modern-slavery-act/.

Community and social investment

Pharos remains committed to creating

value for host countries and local

communities as well as for staff and

shareholders. We understand that our

success is reliant upon building strong

relationships and being welcomed as a

responsible partner in our host countries

and communities. In recent years, we

have structured our social investment

programme to align more with the United

Nations Sustainable Development Goals

(UN SDGs).

Pharos works closely with our local

partners and joint ventures in order

to make sure that our social initiatives

continue to bring more positive impacts to

the region. In Vietnam in 2022, in addition

to the training levy of $300,000 per year in

a ring-fenced fund to support developing

future Vietnamese expertise in the industry,

a further $198,600 was invested in 9

community projects. The JOCs actively

inquired and listened to locals to identify

which areas of the country would need the

greatest assistance in order to ensure that

we were investing in local projects that

would bring the most sustainable positive

impact to the community. For instance,

in H1 2022, the Group provided financial

support towards physical improvement

education programme for children with

disabilities at Khanh Tam Specialised

Educational Centre and An Tue Social

Assistance Centre (UN SDG 3: Good

health & wellbeing and UN SDG 4: Quality

education). In H2 2022, the Donation

Programme helped fund the renovation

of classrooms for primary school in

Tien Cau village, which will bring about

positive impacts on the development and

education of children in the area for years

to come (UN SDG 4 Quality education

and UN SDG 9: Industry, innovation and

infrastructure).

In Egypt, under the El Fayum and North

Beni Suef Concession Agreements, the

Company contributes a total of $200,000

split equally between the two Concessions

to support long-term training and

development of talents within the industry

(UN SDG 9: Industry, innovation and

infrastructure). Additionally, in cooperation

with the Ministry of Higher Education and

Scientific Research, Petrosilah holds an

annual summer training programme for all

students applying from public and private

Egyptian universities for training in the

administrative office and the company’s

fields, of which they can obtain a training

certificate from the company (UN SDG 4:

Quality education).

Social projects like these have been part

of Pharos since inception, and we have

always sought to invest sustainably so that

the initiatives that we helped set up stay in

place, and have lasting impacts for many

generations.

Local capacity

We support local capacity building during

the exploration or development phases of

a project to ensure a positive imprint and

legacy. All our licence agreements include

a high degree of local content, which

commits us to hire locally where possible

and provide training to develop new

skills. Our policy commits us to provide

meaningful opportunities for technical co-

operation, training and capacity building

within any host country in which we

operate.

CORPORATE RESPONSIBILITY - CONTINUED

Pharos Energy Annual Report and Accounts 2022

Governance Report Financial Statements

Additional Information

Strategic Report

SOCIETY CASE STUDY

Engaging with host

communities to

provide sustainable

positive impacts

Vietnam

• $95,000 in financial support from the

HLHVJOCs to renovate classrooms

for primary school in Tien Cau village,

Hiep Cuong commune, Kim Dong

district, Hung Yen province.

• $15,000 in charitable donation to

provide support for physical therapy

treatments for children with disabilities

at An Tue Social Assistance Center –

Thua Thien Hue province.

• $7,000 in financial support towards

Saigon Children Charity to help

children orphaned by COVID-19 in

Vietnam.

Egypt

• In cooperation with the Ministry of

Higher Education and Scientific

Research, Petrosilah holds an annual

summer training programme for all

students applying from public and

private Egyptian universities for

training in the administrative office

and the company’s fields, of which

they can obtain a training certificate

from the company.

Community projects in Vietnam 2022 via the

HLHVJOC Donation Programme

UN SDG 1 – No poverty

End poverty in all its forms everywhere

• Financial Support for House of Grace orphanage in Thu Duc city

• Financial support towards Saigon Children Charity to help children orphaned by COVID-19 in Vietnam

• Financial support to Agent Orange victims in Thai Binh province

• Financial support for flood victims with difficult family situation in Phu Luu commune, Ha Tinh

province

UN SDG 4 – Quality education

Ensure inclusive and equitable quality education and promote lifelong learning

opportunities for all

• Financial support for the physical improvement education program for children with disabilities for Khanh Tam

Specialised Education Centre

• Financial support for therapy for children with disabilities at An Tue Social Assistance Center – Thua Thien

Hue province

• Financial support to purchase computer equipment for English labs in Tan Thanh commune’s middle school,

Kim Son district, Ninh Binh province

• Financial support to renovate classrooms for primary school in Tien Cau village, Hiep Cuong commune, Kim

Dong district, Hung Yen province

• Financial support for school facilities for lab teaching at Nguyen Van Troi secondary school, Hoang Quy

commune, Hoang Hoa district, Thanh Hoa province

Overall objective

To consult with and contribute into our host communities

2022 Objectives 2022 Outcomes 2023 Objectives

Continuation of the social investment programme in

Vietnam, with further alignment to UN SDGs

On target

Continuation of the social investment

programme in Vietnam

Improvement in social investment programmes in

Egypt and London

Ongoing

Social investment programmes in Egypt

and London implemented

$198,600

TOTAL

CORPORATE RESPONSIBILITY - CONTINUED

Pharos Energy Annual Report and Accounts 2022

TCFD

Task Force on Climate-related

Financial Disclosure

Our approach on TCFD disclosure

Pharos is in the early stages of our climate-related financial reporting journey and therefore always aim to

improve our disclosure in order to better align the Group with the TCFD recommendations.

Overview of TCFD recommended

disclosures

The table below sets out our climate-

related financial disclosures and

summarises where additional information

can be found. As at 31 December 2022,

Pharos is fully consistent with 8 out of 11

TCFD recommended disclosures. There

are certain areas where we are not yet

aligned with the TCFD recommendations,

a summary of these are set out below:

Strategy: b) Describe the impact of

climate-related risks and opportunities

on the organisation’s businesses,

strategy and financial planning

The TCFD recommends that organisations

should describe their plans for transitioning

to a low-carbon economy, which should

include GHG emissions targets and

specific activities intended to reduce GHG

emissions in their operations and value

chain. All of this information will be part of

Pharos’ Net Zero Roadmap, which will be

published later in 2023 and therefore we

consider ourselves to be not fully aligned

with Strategy (b) as at year end 2022.

Partial disclosure of our progress towards

this Roadmap, such as the GHG emission

targets in the Company’s KPI, emission

reduction opportunities already explored

such as the gas generators, carbon pricing

and operational cessation sensitivity

analyses, business impact of transitional

and physical risks, definition of resilience

over different time timeframes and more

are discussed in the below sections of the

report to help readers understand other

aspects of our consideration towards

climate-related risks and opportunities

over the short, medium and long-term.

Metrics & Targets: b) Disclose scope

1, scope 2 and, if appropriate, scope

3 greenhouse gas emissions and the

related risks

We currently only disclose Scope 1 and

Scope 2 greenhouse gas emissions and its

related risks. While the Group have taken

into considerations the assessment of

Scope 3 reporting as recommended by the

TCFD guidelines, Scope 3 emissions are

currently not being reported in our reports

due to limitations of data collecting,

concerns around double-counting and

integrity of data. We are non-operator in

Vietnam and Egypt and do not have a

line of sight through to end-user energy

consumption and usage. Nevertheless,

the Company is cognisant that TCFD

advocates the reporting of scope 3 and

therefore will look to disclose our Scope 3

reporting within the next 2 years.

Metrics & Targets: c) Describe the

targets used by the organisation to

manage climate-related risks and

opportunities and performance against

targets

For measurement of our GHG

performance as part of the determination

of our corporate KPI and LTIP, we have

set reduction targets on both absolute

and intensity. Details can be found in

the Directors’ Remuneration Report. For

targets on longer-term climate-related

risks, we are in the process of developing

a Net Zero roadmap, which will include

short and medium term targets we need

to achieve in order to meet our climate

ambition of achieving Net Zero by 2050

and manage our climate risks. This will be

published in late 2023.

Pharos Net Zero target measures

Scope 1 (direct) and 2 (indirect) GHG

emissions from all our existing and

future assets by no later than 2050,

against a baseline of 2020 GHG

emissions. Our GHG emissions from

Egypt and Vietnam operations are

reported on the basis of equity share.

Under equity share, Pharos reports

a pro-rata share of the emissions

from partnerships over which it has

operational control (i.e., Vietnam Blocks

125 & 126) and a pro-rata share of the

emissions from partnerships it does

not control (i.e., Vietnam Block 9/2 and

Block 16/1 and Egypt) according to its

ownership interest.

Approach:

• Build a roadmap

• Adopt an integrated approach

• Approach as cyclical process

Benefits:

• Demonstrates awareness of growing importance of climate-related issues to key

stakeholders

• Staying ahead of mandatory disclosure requirements

• Creates efficiencies and relieves reporting burden

Stakeholder

engagement

Gap

analysis

Internal

alignment

Reporting &

disclosure

Pharos Energy Annual Report and Accounts 2022

Governance Report Financial Statements

Additional Information

Strategic Report

TCFD - CONTINUED

Where we have not included climate-related financial disclosures consistent with all of the TCFD Recommendations and Recommended

Disclosures, we have added icons to highlight disclosures where we are partially or non-compliant and included our reasons in the

Response column in the table.

Disclosure Level: Full Partial Omitted

Recommendation Response Disclosure location

GOVERNANCE

a) Describe the Board’s oversight of climate-related risks & opportunities

Board governance

process and

frequency

• The Board takes overall responsibility for our Net Zero climate

goal, ESG strategy and climate-related risk and opportunities,

overseeing executive management in developing the approach,

execution, associated reporting and climate disclosures, with the

help of multiple committees such as the Audit & Risk Committee,

the ESG Committee, and the Remuneration Committee.

• The Board takes into account climate-related issues when

reviewing and guiding the Group’s strategy via a number of

considerations, such as the risk management process and its

risk grading (in which climate risk is considered a principal risk),

Going Concern and Viability Statement which includes NZE curve

stress testing and carbon pricing sensitivity analysis, and the

Remuneration Committee’s ESG and climate-related KPIs.

• Given the wide-ranging remit of climate-related matters, the

governance activities are managed through a combination of

different committees, detailed below. Climate-related matters,

as well as progress against our ESG performance and Net Zero

ambitions, are reviewed and discussed at each committees

meetings. Information are then flown to the main Board for

considerations when they review the Group’s strategy at quarterly

Board meetings. The Chief Executive Officer is accountable to the

Board for implementation of Corporate Responsibility (CR) policies

and HSES performance.

• See page 112 for the Board &

Principal Committees structure

• See page 63 of the Corporate

Responsibility Report in the

Strategic Report for Board

governance process in regards

to ESG and climate-related

matters

Sub-committee

accountability,

processes and

frequency

• The Audit & Risk Committee (ARC) oversees all principal and

emerging risks in our risk management process, in which climate

risk is considered a principal risk. It also oversees the adequacy

and effectiveness of our corporate policies, standards and

management system for HSES.

• The ESG Committee oversees the Group’s management of ESG

matters and compliance with legal and regulatory climate-related

reporting and disclosure requirements, as well as assists the

Board in defining and implementing the Group’s climate strategy

relating to ESG matters.

• The Remuneration Committee oversees the level of management

incentives attached to improvements in climate-related

performance in order to further encourage action on this agenda.

• In 2022, each Committee meets four times, as scheduled.

• All the sub-committees then reports to the main Board, which

meets every quarter, as scheduled. In 2022, the Board meet four

times.

• See page 112 for the Board &

Principal Committees structure

• See pages 122 to 124 for the

ESG Committee report

• See pages 127 to 133 for the

ARC Committee report

• See pages 137 to 140, and

pages 145 to 146 of the

Remuneration Report for more

details on how the Committee

measure remuneration progress

in regards to ESG and climate-

related KPIs

Skills/competency/

training of

the board/

management

regarding climate

matters

• The Board takes an active approach to ensure Board members

are aware of key climate matters. In 2022, the Board invited

an ESG specialist to educate Board members on key issues

regarding industry’s expectation on Net Zero commitment, GHG

Scope 1,2,3 disclosures across peers, and emerging climate

regulatory trends.

• In 2022, Mike Watts who was a member of the Board at the time,

also presented his research to Management and the UK staff on

a Company offsite day to help educate and raise awareness on

important climate matters.

• See pages 122 to 124 for the

ESG Committee report

Pharos Energy Annual Report and Accounts 2022

TCFD - CONTINUED

Recommendation Response Disclosure location

Examples of the

Board and relevant

Board committees

taking climate into

account

• The Board considers climate-related issues when reviewing and

guiding the Group’s strategy and any major action plans. For

example, climate risks’ impacts, mitigation, the Going Concern

and Viability of our business, and our emissions data were all

taken into consideration when the Group made its commitment

to achieve Net Zero on Scope 1 and 2 GHG emissions across

all of its assets by no later than 2050, including all future

business decisions and developments. This commitment was

discussed at the ESG Committee meetings and Board meetings

and approved by the Board.

• During the Board’s Strategy Day in October, climate-related risks

were presented to the Board when they reviewed our future

strategy.

• The ARC also monitor the Group’s sensitivity analysis for stress

testing, NZE scenario analysis, and carbon tax analysis as part

of our Viability Statement and Going Concern.

• The Remuneration Committee continues to set GHG reduction

target as a 2023 KPI.

• See pages 122 to 124 for the

ESG Committee report

• See pages 127 to 133 for the

ARC Committee report

• See pages 137 to 140, and 145

to 146 of the Remuneration

Report for more details on

how the Committee measure

remuneration progress in regards

to ESG and climate-related KPIs

• See pages 61 to 78, and

page 107 for our Corporate

Responsibility report and our

Corporate Responsibility Non-

Financial Indicators

• See pages 47 to 60 for more

details on climate risks’ impacts

and mitigations, which were

taken into consideration when the

Board reviewed and guided the

Group’s strategy

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

Who manages

climate-related

risks and

opportunities

• The Group’s Chief Executive Officer and Chief Financial Officer

manage our climate progress and is responsible for the delivery

of our Net Zero climate commitment, with management

responsibilities integrated into the relevant business and

functional areas, such as HSE, Operations, Risk, ESG. They

oversee and direct the climate-related opportunities. They were

involved in every ARC and ESG Committee meetings in 2022

and oversaw the Net Zero Working Group, which meets monthly

since May 2022.

• The Group’s Head of Operations supports the Executives in

the development of emission reduction projects and provides

oversight and management on HSE performance & activities.

• The Group’s Heads of Risk and Business Intelligence support

the Executives in managing principal and emerging risks,

including climate-related risks, by providing detailed scenario

analysis and stress testing updates throughout the year.

• See page 112 for the Board &

Principal Committees structure

• See pages 122 to 124 for the

ESG Committee report

• See pages 47 to 60 for the Risk

Report

How management

reports to the

Board

• The Group’s Chief Executive Officer and Chief Financial Officer

provided regular updates to the Board. In 2022, they provided

updates to the Board, which met every quarter during the year.

• The sub-committees regularly report to the Board on climate-

related issues at every Board meeting.

• See pages 109, 110 for Chair’s

Introduction to Governance

• See page 112 for the Board &

Principal Committees structure

• See pages 122 to 124 for the

ESG Committee report

Processes

used to inform

management

• Ahead of each Board meeting, Board papers are prepared and

approved by the Executives before submission to the Board.

At each Board meeting, management and related Head of

functions will provide additional verbal updates and answer

questions when challenged.

• See pages 35 to 38 for the s.172

(1) on how the Board is informed

in their decision-making process

Pharos Energy Annual Report and Accounts 2022

Governance Report Financial Statements

Additional Information

Strategic Report

TCFD - CONTINUED

Recommendation Response Disclosure location

STRATEGY

a) Describe the climate-related risks and opportunities the organisation has identified over the short, medium

and long term

Processes used

to determine

material risks and

opportunities

• We use scenario analysis conducted both internally and by a

third-party climate consultant to help us identify and understand

climate-related risks.

• We use an internal risk matrix to grade the risks identified in

order to determine their impact and materiality on the business.

• We conduct sensitivity analysis to outline the impact on the

impairment charges using the average of the NZE (Net Zero

Emissions) scenarios.

• As part of our business risk management guideline and risk

management policy, we consider all risks with potential cash

impacts above $5m as material. These guidelines and policies

are reviewed and re-approved every year by the Board.

• See below for more details on

the process used to determine

material risks and opportunities

Relevant short,

medium, and long

term time horizons

• We are committed to achieve net zero on all Scope 1 and 2

GHG emissions across all our assets by no later than 2050.

• We use our license period, plus any potential extensions, as

determination of useful life of assets.

• We consider a short term horizon to be 3 years, which is the

same time horizon we use in our Going Concern & Viability

Statement. We consider medium terms to be 5 years, as our

most cash-generative asset in Vietnam, if not granted the

licence extension, would expire in 2026 and 2027. We consider

long-term to be 10 years, as our producing licences in Vietnam

are currently due to expire within the next 10 years, and have

therefore set ‘long-term’ as 10 years.

• In identifying short-term climate-related risks, we are in regular

conversation with our stakeholders, such as our RBL lenders,

on their commitments around climate change and how those

might impact our business. In the short term (3-year period),

we take this into account when running our Going Concern and

Viability Statement, and NZE stress testing. Short-term climate

risks and its impacts are also linked to our capital financing risk

which is considered in the Risk Report. We aim to address and

mitigate these short-term risks by looking at decarbonisation

projects as part of our Net Zero roadmap, which is currently

being developed.

• Climate-related risks and opportunities were identified across

5-year and 10-year timeframes. While these time-horizons

may be on the longer side of a ‘typical’ business strategy, they

are designed to highlight the importance of sustainability and

climate-related issues in the longer-term. Also, many climate-

related risks are likely to manifest in the medium- and long-term,

so longer time-horizons ensure these risks are not excluded

from consideration.

• See pages 59 to 60 for the

Viability Statement

• See pages 47 to 60 for the Risk

Report

• See below for more details on

the risks identified over 5 and

10-years

Transition or

physical climate-

related issues

identified

• Details of the transition and physical-climate related issues

identified are set out below.

• Overall, based on risk high-grading and scenario analysis, we

believe that transition risk is material for Pharos.

• See below for more details on the

risks identified

Pharos Energy Annual Report and Accounts 2022

Recommendation Response Disclosure location

Climate-related

opportunities

identified

• While many climate-related opportunities are being explored by

the Group as part of the development of our Roadmap, we have

identified one notable emission-reduction opportunity, which

is the associated gas-powered electricity generators in Egypt.

This is part of a broader plan to utilise produced associated

gas instead of diesel for power generation, along with flare

reductions. The generators reduce CO

e emission by using

the associated gas that otherwise would have been flared,

and turn them into electricity to be used for field operations in

Egypt. This opportunity directly improves our expenditure, as

we reduce the purchase of diesel to power operations in the

field. More information on the usage of gas-powered generators

in Egypt can be found on pages 72 and 73 of the Corporate

Responsibility Report.

• See pages 61 to 78 & page 107

for our Corporate Responsibility

report and our Corporate

Responsibility Non-Financial

Indicators

Risks and

opportunities by

sector and/ or

geography

• Both transition and physical risks have been assessed by

geography of operations (Vietnam and Egypt).

• See below for more details on

the risks identified

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

strategy and financial planning

Impact on strategy,

business, and

financial planning

• We considered the impact of climate-related issues on our

businesses and strategy through the severity and likelihood

high-grading process of all transition and physical risks

identified, plus the feedbacks from our stakeholders.

• We also assess the significance of certain transitional risks,

such as carbon tax and stranded assets, by evaluating their

potential financial impact on cash in different time periods if

no mitigating actions are taken. The Assessment is based

on NZE scenario analysis.

• We explain the business and financial impacts of each risks

in the sections below.

• Climate-related issues are considered in our financial

planning, as we conduct sensitivity analyses bi-annually,

which involves analyses on carbon pricing and stress

testing using the NZE scenario, in order to evaluate the

Group’s going concern and viability. Climate-related risks

and opportunities are also considered when we hold regular

conversation with our RBL lenders, on their commitments

around climate change and how those might impact on our

business. We also consider climate-related issues when

financially planning any potential new business opportunities,

as evident in our NZ statement in September which includes

NZ emissions commitment on all assets, including the

development of new asset such as Block 125 in Vietnam.

Therefore, the Group takes into account the cost and

benefits of projects/technologies that can reduce our carbon

footprints.

• Additionally, our Net Zero commitment is also a part of the

Board’s decision making process when considering new

business ventures.

• See below for more details

on the risks identified and its

potential financial impact

• See pages 59, 60 for the

Viability Statement

• See Note 16 for details on NZE

sensitivity

• Carbon pricing in the GC

TCFD - CONTINUED

Pharos Energy Annual Report and Accounts 2022

Governance Report Financial Statements

Additional Information

Strategic Report

Recommendation Response Disclosure location

Impact on products

and services

• Details set out below from page 94

Impact on supply

chain and/or value

chain

• Details set out below from page 94

Impact on

adaptation and

mitigation activities

• Details set out below from page 94

Impact on

operations

• Details set out below from page 94

Impact on

investment in

research and

development

• As part of our Net Zero commitment, we are developing

a Net Zero roadmap, in which we are investigating new

technologies that can be developed and employed to help

us reduce our carbon emissions and lessen climate-related

impacts on our business.

• In December 2022, we have contracted a third-party

ESG specialist company to provide the additional

expertise needed to help us develop our Roadmap. As

at the publication date of this report, we have verified

the baseline emission, mapped emissions across the

business and reviewed existing emission reduction

initiatives. Our next step of the roadmap is to calculate

the remaining emission reduction required to achieve Net

Zero by 2050, and explore and rank emission reduction

options based on cost, impact, maturity, and start to map

emission reduction targets along a Net Zero timeline. As

we explore technology to reduce our GHG emissions, we

prioritise those that can help us reduce emissions directly

from operations, either by improving efficiency in current

facilities, reducing flaring and venting, or replacing the

power consumption of our facilities with less impactful

energy sources. We will only look to procure nature-

based carbon offset projects for hard-to-abate, residual

emissions. The outcome of this work will be published in

our Net Zero roadmap later in 2023.

• See pages 122 to 124 for the

ESG Committee report

How we are striving

to meet investor

expectations

• We are committed to transparency in our climate-related

disclosure and reporting.

• We strive to achieve a balance of delivering value to all

stakeholders via cash returns & organic growth while

minimising climate-related impacts on our long-term

business model, while providing energy security for

host countries in which we operate and helping local

government achieve their economic development goals

and prosperity using oil revenues from our operations.

• As part of our NZ by 2050 commitment to all stakeholders,

we aim to reconcile our commitment to existing FPSO

facilities in our operations with future business endeavours,

such as exploration commitments on Block 125 in

Vietnam, in order to minimise environmental impacts and

achieve our climate goals.

• See the Chair’s Statement

(pages 15, 16) and CEO’s

statement (pages 19 to 22)

for our strategy, purpose, and

commitment to transparent

climate disclosure and reporting

• See pages 122 to 124 for the

ESG Committee report

TCFD - CONTINUED

Pharos Energy Annual Report and Accounts 2022

Recommendation Response Disclosure location

c) Describe the resilience of the organisation’s strategy, taking into consideration different climate-related

scenarios, including a 2°C or lower scenario

Business

resilience

• We consider our business to be resilient when we can continue

our business when stress-tested. This is in line with our

assumptions in the Going Concern and Viability Statement.

• See pages 59, 60 for the

Viability Statement

Embedding climate

into scenario

analysis

• Climate-related issues are always taken into consideration when

we conduct scenario analysis. Our sensitivity test is conducted

based on International Energy Agency’s (IEA) NZE curve,

which is more conservative than the Sustainable Development

Scenario (SDS), in order to showcase our resilience, viability and

going concern.

• The Climate change price used is based on Brent which is

estimated to reach $35/bbl in 2030 in real terms as of 2021

($43/bbl in nominal terms as of 2030). Pharos YE 2022 Brent

price forecast was extrapolated from 2026 to reach the NZE

price in 2030.

• See pages 59, 60 for the

Viability Statement and the NZE

consideration in our financial

reporting below

Key drivers of

performance and

how these have

been taken into

account

• Key drivers of the Group’s performance include operational/

production stability, reputational risks, financial risks and legal

risks, all of which are set out on page 94 below.

• See below for more details on

the risks identified

Scenarios

used and how

they factored

in government

policies

• While every company may use a different curve, Pharos uses

NZE as we believe it is the most conservative measure to

demonstrate our resilience.

• Additionally, we also review carbon tax policies in host countries

in which we have operations. Currently there is no active carbon

tax policy. Impairments, have also been run on the NZE curve,

which we believe take into account carbon pricing. Nonetheless,

we’ve still conducted carbon tax sensitivity analysis at group

level, covering all assets.

• Our scenario analyses on the financial impact of carbon tax and

operational cessation is detailed in the table below.

• See pages 59, 60 for the

Viability Statement and the NZE

consideration in our financial

reporting below

• See below for more details on

the financial impact of carbon

tax and operational cessation

scenario analysis

How our strategies

may change and

adapt

• We aim to regularly review and enhance our own selection

process and design standards to help these reflect the potential

impacts of climate change.

• While we are proud of our role in the energy transition as an

oil & gas provider to help developing countries, like Vietnam

and Egypt, develop their natural resources in a responsible

and sustainable manner in order to achieve their economic

development goals and prosperity, we also understand the

complex nature of climate-related issues. As our approach to

climate-related reporting becomes more refined over time, we

will look to broaden the energy portfolio.

• See the Chair’s Statement

(pages 15, 16) and CEO’s

statement (pages 19 to 22) on

how our strategy and purpose

take into account climate

considerations

TCFD - CONTINUED

Pharos Energy Annual Report and Accounts 2022

Governance Report Financial Statements

Additional Information

Strategic Report

Recommendation Response Disclosure location

RISK MANAGEMENT

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

Process

• We use scenario analysis conducted both internally and by a

third-party climate consultant to help us identify and assess

climate-related risks.

• The process to assess to size, scope and significance of

climate-related risks and opportunities is integrated into the

business. Climate risks, along with other principal risks, are

considered as part of the Group’s Risk Management Process

(RMP), which is regularly reviewed by the Board and ARC. In

determining the significance of each risk, the Group Head of

Risk will discuss the risk grading, its impacts and mitigations

with Country Managers & Head of Operations. Challenges on all

risks, its grading and mitigation actions are welcomed and are

documented in every ARC meeting.

• In identifying climate-related physical and transition risks, the

Group and its third-party climate consultant also consider

regulatory requirements and emerging trends related to climate

change of each host government, such as assessing Vietnam

and Egypt’s national energy plans as well as STEPS and SDS.

• See below for more details on

the risks identified

• See pages 47 to 60 for the Risk

Report

Integration into

policies and

procedures

• Our Climate Change policy is available on our website and is

subjected to annual review by the Board.

• Our Risk Policy is reviewed and re-approved by the Board

every year. In addition, quarterly risk reports, conducted by the

Group’s Head of Risk, is also submitted to the Board ahead of

every Board meeting throughout the year.

• Climate risk is integrated into the supporting policies, processes

and controls and we will continue to update these as our climate

risk management capabilities mature over time.

• See pages 127 to 133 for the

ARC Committee report

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

Process and how

we make decisions

• We carefully consider the environmental performance of assets

and opportunities as part of our decision-making process,

underpinned by our net zero commitment.

• The Group’s ARC receives quarterly scheduled updates on all

principal and emerging risk.

• Our risk matrix helps the Group determine its appetite for

all risks, thus supporting the Board in their decision-making

process, oversight and management of the Group’s financial

health and business strategy.

• The Board and management team believes that the Group’s risk

matrix is a living/ ever-evolving dynamic document, and thus

additional risk-assessment meetings, aside from the quarterly-

scheduled ARC meetings, can be called if a new emerging risk

is deemed significant.

• Our approach to climate risk management is continually

developing and how we manage these risks will vary by risk

type. For examples on how we manage mitigation actions

for different climate-related risks types, please see our risk

table below. We will continue to review our risk management

framework when determining the materiality of its exposure to

climate-related risks.

• See below for more details on

the risks identified

• See pages 47 to 60 for the Risk

Report

• See pages 127 to 133 for the

ARC Committee report

TCFD - CONTINUED

Pharos Energy Annual Report and Accounts 2022

Recommendation Response Disclosure location

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

integrated into the organisation’s overall risk management framework

How we have

aligned and

integrated our

approach

• Climate risk is a principal risk, which is integrated into the

Group’s Risk Management Process (RMP). The RMP is regularly

reviewed by the Board and ARC.

• See pages 47 to 60 for the Risk

Report

• See pages 127 to 133 for the

ARC Committee report

How we take

into account

interconnections

between entities,

functions

• Our RMP takes into account relevant interconnections

within global businesses, functions and entities. In all of our

risk meetings, we invite staff from all functions, entities and

locations to participate and contribute to the risk matrix.

• See pages 47 to 60 for the Risk

Report

• See pages 127 to 133 for the

ARC Committee report

METRICS AND TARGETS

a) Disclose the metrics used by the organisation to assess climate-related risk and opportunities in line with its

strategy and risk management process

Metrics and

targets used to

assess the impact

of climate-related

risks

• Our considerations & disclosure on 7 cross-industry metrics

categories recommended by the TCFD are detailed below.

• Our GHG emissions is recorded on Scope 1 & 2 CO

absolute and intensity. We also measure total hydrocarbon

flared as part of our Corporate Responsibility Non-Financial

Measure. Both of these metrics is directly related to our

commitment to achieve Net Zero emissions across all assets

by 2050.

• We also measure other industry metrics such as energy

consumption, process emissions, combustion, venting,

waste usage and recycled, freshwater use, and oil spills,

which we track as part of our HSE performance. We do

not measure fugitive emissions as they are not considered

material.

• We measure the impact of climate-related risks by risk-

grading its severity and likelihood across a 5-10 year

timeframe. We evaluated transition and physical risks,

including policy, market and long-term chronic effects of

global warming and used NZE price testing and carbon

pricing as metrics to assess the impact of climate-related

risks on business viability and financial planning.

• We also conduct scenario analysis to assess the financial

impacts of carbon tax and operational cessation across 3, 5

and 10 year timeframe, more details of which can be found

below.

• See pages 61 to 78 and 107

for our Corporate Responsibility

report and our Corporate

Responsibility Non-Financial

Indicators

• See below for our

considerations on materiality

and its impacts over different

time periods

TCFD - CONTINUED

Pharos Energy Annual Report and Accounts 2022

Governance Report Financial Statements

Additional Information

Strategic Report

Recommendation Response Disclosure location

Metrics and

targets used

to assess

progress against

opportunities

• We use GHG % reduction against the 2020 baseline as the

main metrics to identify projects and opportunities with the

most impact to reduce our environmental impact.

• We are in the process of developing our NZ roadmap

and are looking at all carbon reduction projects and

opportunities. Results of this will be published in 2023.

• Additionally, the transition and physical risk assessment

conducted by the third party consultant have strengthened

our position to look at further carbon-reduction

opportunities.

• See pages 61 to 78 and 107

for our Corporate Responsibility

report and our Corporate

Responsibility Non-Financial

Indicators

Board or senior

management

incentives

• We use a number of sustainability and climate-related

metrics for our KPI (applicable for all staff & Board members)

& LTIP (applicable only to Board members), details are set

out in the Directors’ Remuneration Report.

• See pages 137 to 140 and

145, 146 of the Remuneration

Report for more details on

how the Committee measure

remuneration progress in

regards to ESG and climate-

related KPIs

b) Disclose scope 1, scope 2 and, if appropriate, scope 3 greenhouse gas emissions and the related risks

Our operations

• We report scope 1 and 2 greenhouse gas emissions as

calculated following the ISO 14064 guidelines which are

considered acceptable in line with the GHG protocol, on a

location/geographical basis. We report on jointly operated

companies in Egypt and Vietnam.

• The Company have taken into considerations the

assessment of Scope 3 reporting as recommended by the

TCFD. Scope 3 emissions are currently not being reported

due to limitations of data collecting, concerns around

double-counting and integrity of data. We are non-operator

in Vietnam and Egypt and do not have a line of sight through

to end-user energy consumption and usage. Nevertheless,

the Company is cognisant that TCFD advocates the

reporting of scope 3 and therefore will look to start our

Scope 3 reporting within the next 2 years.

• See pages 61 to 78 and 107

for our Corporate Responsibility

report and our Corporate

Responsibility Non-Financial

Indicators

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

performance against targets

Details of targets

set and whether

they are absolute

or intensity based

• For measurement of our GHG performance as part of the

determination of our corporate KPI and LTIP, we have set

reduction targets on both absolute and intensity. Details can

be found in the Directors’ Remuneration Report.

• For targets on longer-term climate-related risks, we are in

the process of developing a Net Zero roadmap, which will

include short and medium term targets we need to achieve

in order to meet our Net Zero target.

• See pages 137 to 140 and

145, 146 of the Remuneration

Report for more details on

how the Committee measures

remuneration progress in

regards to ESG and climate-

related KPIs

• See page 107 for our Corporate

Responsibility Non-Financial

Indicators for more details on

absolute and intensity-based

GHG emissions (Scope 1 & 2)

and comparative data to our

baseline (2020)

TCFD - CONTINUED

Pharos Energy Annual Report and Accounts 2022

Recommendation Response Disclosure location

Other key

performance

indicators used

• We also report on energy consumption, waste produced

and recycled, freshwater usage, environmental spills.

Details are set out in the CR report and Non-Financial

Indicators.

• See pages 61 to 78 and 107

for our Corporate Responsibility

report and our Corporate

Responsibility Non-Financial

Indicators

In 2022, throughout the year, these key climate risks, along with

every other principal and emerging risks presented on page 47

of the Risk Report, are discussed and reviewed by the Audit and

Risk Committee every quarter to ensure they are up to date and

remain dynamic to the changing nature of the macroeconomic

environment and the business. In Q1 2023, a deeper analysis

into Group’s transitional and physical risk assessment was

conducted with the Management team to update the hi-grading

risk assessment and ensure its severity and likelihood grading

are in line with the Group’s latest risk matrix. For a full list of our

transitional and physical climate risks, please see below for our full

TCFD reporting.

Our approach on Physical Climate Risk Scenario

analysis:

This analysis adopted a data-driven approach to identify and

analyse the most material physical climate risks facing Pharos

Energy’s activities in Egypt and Vietnam and how those risks

may manifest differently under three emissions scenarios -

Representative Concentration Pathways (RCPs) 2.6, 4.5, and 8.5:

• RCP2.6: Aggressive mitigation assumes that global annual

GHG emissions peak immediately, with emissions declining

substantially thereafter

• RCP4.5: Strong mitigation assumes that emissions peak

around 2040, then decline

• RCP8.5: Business-as-usual assumes that emissions continue

to rise throughout the 21st century.

2000 2010 2020 2030 2040 2050 2060 2070 2080 2090

SDS STEPS RCP2.6 RCP4.5 RCP8.5

2100

It assesses current climate extreme, such

as flooding, heat stress and storms, as

well as how long-term shifts if climate

features will affect these events.

The information provided will help Pharos

understand the inherent risk profile of the

locations and identify current and future

operational weaknesses, vulnerabilities

and opportunities and inform strategic

decision around resilience building.

Furthermore, the assessment can inform

climate risk disclosures in line with the

recommendations of the Taskforce on

Climate-related Financial Disclosure

(TCFD).

Key findings:

• Common to all onshore and offshore oil

and gas activities, projected increases

in the frequency, duration, and intensity

of extreme heat events will pose

threats to the health of workers and

heat-sensitive equipment, which in

some cases could result in reduced

efficiencies and even operational

downtime.

• Offshore sites will experience increases

in sea level of between 18cm and

22cm under all emissions scenarios

considered with direct implications of

offshore activities as well as onshore

infrastructure.

• Onshore Egyptian operations are found

in locations which already experience

extremely hot and dry conditions,

climate change will marginally raise

risks of disruption from rare extreme

rainfall and flash flooding events.

• Offshore sites in the Eastern

Mediterranean currently have low

exposure to climate-related disruption

risks. A reduction in average wind

speeds and wave heights is projected

under all emission scenarios,

suggesting that these threats could

weaken further by 2045.

• The southern offshore Vietnamese

blocks are more exposed to higher

wind speeds than the northern blocks

and these are projected to increase in

the future under all emission scenarios,

creating more challenging operating

environments for oil and gas activities.

However, wave heights are projected

to fall under most emission scenarios

in the South China Sea due to shifts in

the prevailing wind direction, reducing

disruption risks to platforms and service

vessels.

TCFD - CONTINUED

Pharos Energy Annual Report and Accounts 2022

Governance Report Financial Statements

Additional Information

Strategic Report

Our approach on Transition Risk

Scenario Analysis

The aim of this analysis is to supplement

the work that Pharos has already

undertaken by assessing the potential

impacts of different future scenarios on the

key transition risks facing the company,

and the oil and gas industry more broadly,

over the next 5-10 years.

By assessing how a range of transition

risks manifest differently under these

contrasting scenarios, Pharos can

demonstrate how it tests portfolio

resilience amid the uncertainty of the

speed and extent of the energy transition

in line with the recommendations of

the TCFD. As Pharos has already used

the International Energy Agency (IEA)

Sustainable Development Scenario (SDS)

and NZE to benchmark its Reasonable

Worst Case price curve, the same scenario

is used here. This is supplemented by the

IEA’s Stated Policies Scenario (STEPS).

Under SDS, it is assumed that there is

a rapid implementation of clean energy

policies that set the planet on course to

meet the objectives of the Paris Climate

Agreement. Meanwhile STEPS is a more

conservative view of the future, in which

only current and planned policies are

enacted, and oil and gas play a greater

role in the energy system for longer.

To tackle the climate and environmental

challenges Pharos will continue to focus

on the following:

• Measuring and assessing our

environmental footprints

• Conducting climate scenario analysis

• Evaluating our alignment with market

frameworks and regulations designed

to support the transition to a low

carbon, sustainable and equitable

future

• Continuing on our TCFD commitments

and alignment

• Exploring partnerships with effective

reduction solutions

• Build an emissions reduction

framework, as part of our Net Zero

roadmap in 2023, to achieve our Net

Zero by 2050 commitment

Identifying the costs of mitigating

climate risks

One of the most important considerations

in assessing climate risk is the cost of

mitigation action and solutions. As part of

our Net Zero roadmap due to be published

in 2023, we are exploring the capital

expenditure required to mitigate climate

risks and achieve our climate goals by

2050, based on findings conducted from

our emissions reduction framework. We

are committed to transparency and will

keep our stakeholders updated on our

progress.

In addition the Net Zero roadmap, to

support our efforts to mitigate climate

risks, we have also established an

Emissions Management Fund in

September 2022. For every barrel sold

at an oil price above $75 in 2023, we

will set aside $0.25 into this Fund. The

capital accumulated from the Fund will

be used to invest in worthwhile emissions

management projects for Pharos and

our operational partners, in line with our

climate commitments. We are also in

the process of developing our Net Zero

Roadmap, which will help us identify the

projects and technology to invest in to

reduce our climate impacts, the funding of

which will come from this Fund.

Climate change, the energy

transition and its consideration in

our financial reporting

Climate change and the transition to a low

carbon economy were considered in the

preparation of our Annual Report, including

the consolidated financial statements. In

particular, the energy transition is likely to

impact future oil and gas prices which in

turn may affect the recoverable amount of

the group’s property, plant and equipment

(PP&E). In addition to impairment,

climate change pressures could curtail

the expected useful lives of the group’s

oil and gas PP&E, thereby accelerating

depreciation charges. However, the

group’s producing fields are likely to be

fully depreciated within 15 years, during

which timeframe it is expected that

global demand for oil will remain robust.

Accordingly, the impact of climate change

on expected useful lives is not considered

to be a significant judgement or estimate.

In addition to PP&E, climate change

could: (1) adversely impact the future

development or viability of exploration

and evaluation (E&E) prospects. When

the field is transferred from exploration to

development stage; (2) bring forward the

date of decommissioning of the group’s

producing oil and gas assets in Vietnam,

thereby increasing the net present value

of the associated provision. However,

decommissioning is currently forecast

to occur within the next 8-9 years and,

due to the relatively short timeframe, it

is not considered that any reasonably

possible acceleration in the timing of

decommissioning will have a material

impact on the provision, assuming

the underlying cost estimates remain

unchanged.

The International Energy Agency (IEA)

2022 Energy Outlook report presents a

price curve as an output of a Net Zero

Emissions (NZE). The scenario outlines

a pathway to limiting the global average

temperature rise to 1.5 °C, the Paris

Agreement objective, by achieving net zero

emissions by 2050. Our sensitivity

test is conducted based on IEA’s NZE

curve, which is more conservative than

SDS, in order to showcase our resilience,

viability and going concern.

To achieve the NZE target, it is necessary

to transition away from fossil fuels and

towards cleaner, renewable energy

sources. This transition will likely lead

to a decrease in demand for oil and a

corresponding decrease in oil prices.

Therefore, according to the IEA, the

price curve for oil is expected to be in

backwardation with a gradual decline

through to 2050.

TCFD - CONTINUED

Pharos Energy Annual Report and Accounts 2022

The Climate change price used in the sensitivity test is based on IEA’s NZE scenario, in which Brent is estimated to reach $35/bbl in

2030 in real terms as of 2021 ($37/bbl in real terms and $43/bbl in nominal terms as of 2030). Pharos YE 2022 Brent price forecast was

extrapolated from 2026 to reach the NZE price in 2030.

Nominal price ($/bbl) 2023 2024 2025 2026 2027 2028 2029 2030

Pharos Net Zero Brent 88.3 84.8 79.4 72.7 65.6 58.3 50.7 42.7

More details on this can be found in our Viability Statement on pages 59, 60.

Materiality assessment - How we decide what to measure

We engage with our stakeholders on a

regular basis and receive feedback through

a range of formal and informal processes,

which we set out in more detail in the UK

Governance Code report on pages 115 to

121 of our Governance Report. We listen

to their concerns and feedbacks when

determining our Corporate Responsibility

strategy and use the information they

provide us to identify the issues that are

most important to the successful delivery

of our corporate objectives and most

important to our stakeholders.

The Board, the ARC and the ESG

Committee also regularly discuss, at each

quarterly meetings, the new and existing

themes and issues that matter to our

stakeholders. Our management team

then uses this insight and other applicable

disclosure laws and regulations to choose

what we measure and publicly report in

our Annual Report.

Following an earlier screening of material

ESG factors relevant to the oil and gas

sector, in 2022 Pharos has been referring

to the Sustainability Accounting Standards

Board (SASB) materiality map for Oil & Gas

- Exploration and Production, to ensure

that the material issues of importance to its

activities are appropriately managed and

reported. Our approach on environmental

and social reporting in 2022 has taken

into account the Voluntary Sustainability

Reporting guidance (4th edition, published

March 2020)” issued by IPIECA, the

global not-for-profit oil and gas industry

association for environmental and social

issues, in partnership with the American

Petroleum Institute and the International

Association of Oil and Gas Producers. We

report on jointly operated companies in

Egypt (IPR and Petrosilah) and Vietnam

(HLHVJOCs).

In identifying short-term climate-related

risks and opportunities, we are in regular

conversation with our stakeholders, such

as our RBL lenders, on their commitments

around climate change and how those

might impact our business. In the short

term (3-year period), we take this into

account when running our Going Concern

and Viability Statement, and NZE stress

testing. Short-term climate risks and its

impacts are also linked to our capital

financing risk which is considered in the

Risk Report. Medium term and longer term

climate-related risks and opportunities,

which were conducted with the help of

a third-party climate consultant, were

evaluated for severity and likelihood over

5 and 10 year timeframes. Based on this

framework, the Group considered each

risk’s ’materiality’ whilst bearing in mind

operational continuity and their importance

to our investors and other stakeholders.

This allows Pharos to prioritise resources

in managing the most material climate-

related impacts, determine the best

management response or highlight areas

requiring further investigation.

We are also informed by the London

Stock Exchange disclosure and listing

rules in areas where we have operations,

and are held accountable by our auditors

and Company Secretary. The Board

will further reinforce the integration of

climate considerations into its governance

frameworks by implementing the principles

stated in our Climate Change Policy and

continuing the Company’s alignment with

TCFD recommended disclosures.

We know that what is important to our

stakeholders evolves over time and we

plan to continue to assess our approach

to ensure we remain relevant in what we

measure and publicly report.

Fossil fuel prices by scenario

Net Zero Emissions

by 2050

Announced

Pledges

Stated

Policies

Real terms (USD 2021) 2010 2021 2030 2050 2030 2050 2030 2050

IEA crude oil (USD/barrel) 96 69 35 24 64 60 82 95

TCFD - CONTINUED

Pharos Energy Annual Report and Accounts 2022

Governance Report Financial Statements

Additional Information

Strategic Report

Summary of high-level quantitative assessment

For those risks and opportunities where we have undertaken high-level quantitative assessments, the results are shown in the tables

below. These assessments show the gross impact on cash before any mitigation action which Pharos might take to respond. We

undertook scenario analysis based on NZE’s 1.5°C scenario.

Financial quantification of the assessed transitional & physical risks

Risks

Potential financial impact on cash in the year

if no actions to mitigate risks are taken (NPV)

Key assumptions

(calculations based on forecasted level of production)2025 2027 2032

Carbon tax

-$1.8m -$5.8m -$11.3m

• Although there is currently no carbon tax in Egypt and Vietnam,

we still conduct a sensitivity test where carbon tax is effective

from 2025 at $20/tonne CO

gradually incrementing to $40/

tonne at 2030.

• This results in a carbon tax of around $1.8m (NPV) in 2025. In

Base case scenario, the low point in cash balance is $32.3m in

2025.

• The present value of total carbon tax is estimated to be c.

$11.3m (NPV) until 2032.

Operational

cessation

-$132.5m -$59.1m -$1.7m

• Operational cessation scenario analysis is an extreme scenario

analysis that takes into account a scenario of all operational

cessation, i.e. no operational, drilling, exploration, development,

etc. activities from the Company, which can be considered as

a result of all other climate-related risks identified in the table

below, regardless of transitional or physical risks (regulatory,

market, legal, physical risks, any external or internal risks, etc.)

Financial quantification of the assessed opportunities

Opportunities

Potential financial gains in the year if actions

to capitalise on opportunities are taken (NPV)

Key assumptions

(calculations based on forecasted level of production)2025 2027 2032

Gas-powered

electricity

generator

$1.1m $1.6m $2.4m

• For our field operations in Egypt, we employ gas-powered

electricity generator units. This is part of a broader plan to utilise

produced associated gas instead of diesel for power generation,

along with flare reductions. The generators reduce CO

emission by using the associated gas that otherwise would have

been vented, and turn them into electricity to be used for field

operations in Egypt.

• For more details on the gas generators, please see pages 72, 73

of our Corporate Responsibility Report.

• The potential financial savings gained from the usage of these

generators are based on savings earned from the rental cost of

the diesel generators that otherwise would have been employed

to generate electricity, as well as the cost of diesel that otherwise

would have been used.

TCFD - CONTINUED

Pharos Energy Annual Report and Accounts 2022

Cross-industry metrics

Metric Category Measurement Explanation

GHG Emissions

• Metric tonnes of CO

produced

Our GHG emissions are recorded on Scope 1 & 2 CO

e absolute and

intensity. We also measure total hydrocarbon flared as part of our Corporate

Responsibility Non-Financial Measure. We also measure other industry

metrics such as energy consumption, waste usage and recycled, freshwater

use, and oil spills which we track as part of our HSE performance. Details of

this can be found in our Corporate Responsibility Non-Financial Disclosures

on page 107.

Transition Risks

• Risk grading by levels of

severity & likelihood

• Amount ($m) of potential

financial impact on cash if

no mitigation actions were

taken

• Carbon tax analysis & NZE

price testing

We monitor and report on a variety of transition risks, such as regulatory,

financial, legal, technological and reputational, as part of our climate-related

reporting. We measure the impact of these transition risks by risk-grading

its severity and likelihood across a 5-10 year timeframe. We also use

NZE price testing and carbon pricing as a metrics to assess the impact of

climate-related risks on business viability and financial planning.

We also conduct scenario analysis to measure the potential financial

impacts of carbon tax and operational cessation across 3, 5 and 10 year

timeframe.

Details can be found in our TCFD report above and below.

Physical Risks

• Risk grading by levels of

severity & likelihood

• Amount ($m) of potential

financial impact on cash if

no mitigation actions were

taken

Similar to above, we also monitor and report on our physical risks, which

were analysed over 3 emission scenarios and measure the impact of these

physical risks by risk-grading its severity and likelihood across different

time frames. We also conduct scenario analyses to measure the potential

financial impacts of carbon tax and operational cessation across 3, 5 and

10 year timeframe.

Details can be found in our TCFD report above and below.

Climate-Related

Opportunities

• Metric tonnes of CO

reduced

While many climate-related opportunities are being explored by the Group

as part of the development of our Roadmap, we have identified one notable

emission-reduction opportunity, which is the associated gas-powered

electricity generators in Egypt. This is part of a broader plan to utilise

produced associated gas instead of diesel for power generation, along

with flare reductions. The generators reduce CO

e emission by using the

associated gas that otherwise would have been flared, and turn them into

electricity to be used for field operations in Egypt. More details on how

much venting has reduced is available in our Corporate Responsibility

Report from pages 71 to 76 and 107.

Capital

Deployment

• Percentage of revenue

As part of our commitment towards Net Zero, in September 2022, we

announced the establishment of an Emissions Management Fund. For

every barrel sold at an oil price above $75 in 2023, we will set aside $0.25

into this Fund. The intended purpose of the fund is to provide support for

emissions management projects for Pharos and our operational partners

in line with our climate goals. Details of this can be found in our CEO’s and

Chair’s Statement in the Annual Report.

Internal Carbon

Price

• $ per metric tonne of CO

Pharos currently uses the NZE prices to stress test, which we believe is the

most conservative price curve compared to SDS and STEPS, at a targeted

price of $35 per barrel by 2030. We believe that the NZE price curve has

already incorporated carbon tax considerations into their price deck.

Although there is currently no carbon tax in Egypt and Vietnam, we still

conduct a sensitivity test where carbon tax is effective from 2025 at $20/

tonne CO

gradually incrementing to $40/tonne at 2030. Details can be

found in our Viability Statement and in our Risk table below.

Remuneration

• Percentage weighting as

part of Group’s annual KPI

The Remuneration Committee continues to set GHG reduction target as

a 2023 KPI, details of which can be found in our Directors’ Remuneration

Report.

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Pharos Energy Annual Report and Accounts 2022

Governance Report Financial Statements

Additional Information

Strategic Report

Summary of climate-related risks & opportunities identified (YE2022)

Key – Risk Type

Transition

Physical

TRANSITION

RISK TYPE: REGULATION

Risk Regulatory changes

Description

Emerging regulations and disclosure requirements

Business element impacted

Legal and compliance

Financial impact

Expenditure

Financial impact pathway

Emerging regulations and disclosure requirements may result in increased baseline costs

Mitigation

Engage with industry bodies and track development of strategies

Severity (5 year) Moderate

Likelihood (5 year) Likely (60%-85%)

Severity (10 year) Moderate

Likelihood (10 year) Very likely (>85%)

Analysis for risk rating

• Under all scenarios, disclosure requirements will continue to become more stringent. All UK listed

companies will be subject to mandatory climate reporting by 2025 under current government plans.

Pharos is already implementing climate reporting.

Risk Carbon price

Description

Increased price of carbon through national and international schemes

Business element impacted

Operations, market

Financial impact

Costs

Financial impact pathway

Higher cost of operating. Reduced demand due to rising product prices

Mitigation

Use a carbon tax in stress-testing for viability & going concern

Severity (5 year) Moderate

Likelihood (5 year) Very unlikely (< 15%)

Severity (10 year) Major

Likelihood (10 year) Medium likelihood (40%-60%)

Analysis for risk rating

• By 2030, SDS assumes that developing countries and emerging economies with Net Zero pledges will

have implemented an effective carbon price of $40 per tonne CO

- Under STEPS it is assumed that

operations Egypt and Vietnam will not be subject to a carbon price within 5 years.

• Pharos currently uses the NZE prices to stress test, which we believe is the most conservative price

curve compared to SDS and STEPS, at a targeted price of $35 per barrel by 2030. We believe that the

NZE price curve has already incorporated carbon tax considerations into their price deck.

• Although there is currently no carbon tax in Egypt and Vietnam, we still conduct a sensitivity test where

carbon tax is effective from 2025 at $20/tonne CO

gradually incrementing to $40/tonne at 2030.

• More details can be found in our Viability Statement on pages 59, 60.

REGULATION FINANCIAL TECHNOLOGY LEGAL MARKET

REPUTATION

CHRONIC ACUTE

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Pharos Energy Annual Report and Accounts 2022

Risk Stranded assets

Description

Asset suffers unanticipated or pre-mature write-downs

Business element impacted

Operations

Financial impact

Assets and liabilities, Revenue

Financial impact pathway

Full potential of asset not realised; therefore, restricted revenue and potential project level null payback

Mitigation

• Diversification of assets by location, technology, fuel source

• Increase proportion of natural gas in portfolio

Severity (5 year) Severe

Likelihood (5 year) Very unlikely (< 15%)

Severity (10 year) Severe

Likelihood (10 year) Very unlikely (< 15%)

Analysis for risk rating

• In a push to decarbonise power generation, Egypt and Vietnam both have plans to increase the

proportion of gas, and decrease the proportion of oil, in the energy mix. While under both SDS and

STEPS, energy demand per capita continues to increase through to 2030 in many developing countries,

pursuit to net zero pledges under SDS, the likelihood of stranding the most carbon intensive oil assets is

slightly elevated.

• The Egyptian government is expanding its natural gas electricity generation capacity and intends to

phase out the use of heavy fuel oil by increasing domestic gas production and imports. As Pharos no

longer has gas assets in Israel, this remains a high severity risk.

• However, this remains unlikely in the 5 to 10-year timeframe, as it would take time for Vietnam & Egypt

to completely phase out oil & gas.

Risk Restriction on use of carbon intensive assets

Description

Countries may place caps on imports / use of carbon intensive fuels

Business element impacted

Market

Financial impact

Revenue

Financial impact pathway

Demand will reduce due to restrictions of use result in a loss of revenue

Mitigation

Engage with ministries to keep track of developments

Severity (5 year) Major

Likelihood (5 year) Unlikely (15%-40%)

Severity (10 year) Major

Likelihood (10 year) Medium likelihood (40%-60%)

Analysis for risk rating

• Our analysis is the same as the above

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Pharos Energy Annual Report and Accounts 2022

Governance Report Financial Statements

Additional Information

Strategic Report

Risk International measures to limit fossil fuel use

Description

Net-zero commitments will result in a decreased demand of fossil fuels

Business element impacted

Market

Financial impact

Capital and financing, Revenue

Financial impact pathway

Restriction of use or investment in carbon intensive fuel will result in reduced demand

Mitigation

• Investment in greener technology

• Build in reduced market share into company strategy to limit stranded assets

Severity (5 year) Major

Likelihood (5 year) Medium likelihood (40%-60%)

Severity (10 year) Major

Likelihood (10 year) Likely (60%-85%)

Analysis for risk rating

• Pharos is likely to be somewhat insulated to the impacts of this risk given that 100% El Fayum & CNV

Oil is sold domestically. During 2022, TGT sales were exported in H1 2022, however, we will look to

prioritise domestic sales going forward, thus mitigating this risk. While Vietnam have made net zero

pledge, we believe fossil fuels will continue to play a major role in energy production in these countries

under both SDS and STEPS.

Risk Reduced access

Description

New oil fields prohibited access due to environmental pressure

Business element impacted

Market

Financial impact

Assets and liabilities / Capital and financing

Financial impact pathway

Investments in new oil fields are seeing opposition from political and environmental groups. This may limit

access or have a negative impact on investor confidence

Mitigation

Build resilience and capacity within existing locations

Severity (5 year) Moderate

Likelihood (5 year) Medium likelihood (40%-60%)

Severity (10 year) Major

Likelihood (10 year) Medium likelihood (40%-60%)

Analysis for risk rating

• Under SDS a drop in oil and natural gas demand means that there is a limited additional development of

oil fields required beyond those that have already been approved. However, we believe the phasing out

of oil & gas usage will have a longer time horizon than what we measured here (5 to 10-year).

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Pharos Energy Annual Report and Accounts 2022

RISK TYPE: FINANCIAL

Risk Challenges in raising capital

Description

Pressure on investors to divest / avoid fossil fuel companies / projects

Business element impacted

Assets, Market

Financial impact

Capital and financing, Expenditure

Financial impact pathway

Pressure from investors and other stakeholders may result in divestment from O&G projects

Mitigation

• Set a Net Zero target

• Set interim targets and a decarbonisation strategy

Severity (5 year) Major

Likelihood (5 year) Medium likelihood (40%-60%)

Severity (10 year) Major

Likelihood (10 year) Likely (60%-85%)

Analysis for risk rating

• Oil demand rebounded quite rapidly in 2022-23. At the same time gas demand, particularly in South

East Asia is projected to grow significantly. As such, capital is likely to continue to be available to oil

& gas companies. The SDS assumes that there is a near term surge in clean energy investment in

order that all net zero pledges are achieved, diverting investment from the oil and gas sector, but not

eliminating it completely.

• For Pharos, we recently negotiated the NBE loan, thus limiting the impact of this risk to a certain extend.

We also got existing borrowing facilities in place, which decreases the impact of this risk, at least in the

5-year horizon.

Risk Divestment

Description

Questioning of long-term viability of oil and gas market participants by institutional and retail investors

Business element impacted

Group

Financial impact

Capital and financing

Financial impact pathway

This could have a negative impact on share price and limit the ability to attract further investment

Mitigation

• Set a Net Zero target and communicate it widely to the public

• Transparent carbon emission reporting

• Offsetting residual emissions

Severity (5 year) Moderate

Likelihood (5 year) Unlikely (15%-40%)

Severity (10 year) Moderate

Likelihood (10 year) Medium likelihood (40%-60%)

Analysis for risk rating

• Fossil-fuel divestment is not explicitly captured within the STEPS and SDS parameters, but the likelihood

is implicitly greater under these scenarios as governments implement increasingly punitive emissions

policies and encourage investment in renewables.

• However, for Pharos, we are still receiving interests from potential partners looking to invest/farm-in on

our assets in Vietnam. The Company also recently completed the farm-out transaction in Egypt with IPR

and completed the equity placing in January 2021, thus demonstrating various long-term interests from

investors.

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Pharos Energy Annual Report and Accounts 2022

Governance Report Financial Statements

Additional Information

Strategic Report

Risk Increased cost of insurance

Description

Insurance costs increase due to higher frequency of extreme weather events

Business element impacted

Insurance (Business costs)

Financial impact

Expenditure

Financial impact pathway

Cost of insuring assets increases. In extreme cases assets may be uninsurable

Mitigation

• Stress tests of impacts of climate change on existing a proposed asset

Severity (5 year) Moderate

Likelihood (5 year) Medium likelihood (40%-60%)

Severity (10 year) Moderate

Likelihood (10 year) Likely (60%-85%)

Analysis for risk rating

• Unlikely to be directly affected by the different parameters modelled under STEPS and SDS.

• However, we recognise that there is potential for growing costs and/or difficulties in getting insurance

covering oil & gas assets. While there likely will be a surge in clean energy investment, thus diverting

investment from the oil and gas sector, the sector will not be eliminated completely, therefore capital

(and insurance coverage) is likely to continue to be available to oil & gas companies in the 5 to 10 year

time horizon.

RISK TYPE: TECHNOLOGY

Risk Lack of portfolio diversification

Description

Transition towards low-carbon economy will see a reduced demand for oil

Business element impacted

Capital projects / Research and development

Financial impact

Revenue

Financial impact pathway

Not making meaningful investments into a lower-carbon portfolio will increase exposure to the impact of

stranded assets and also overlook the opportunities of potential revenue from other energy sources

Mitigation

• Diversification of assets by; location, technology, fuel source

• Investment in low-carbon technology

Severity (5 year) Major

Likelihood (5 year) Medium likelihood (40%-60%)

Severity (10 year) Major

Likelihood (10 year) Medium likelihood (40%-60%)

Analysis for risk rating

• Oil demand rebounded quite rapidly in 2022-23, with prices rising slowly in and then plateauing.

However, Egypt & Vietnam both all have current plans to increase the proportion of gas, and decrease

the proportion of oil, in the energy mix. On balance, these factors may offset each other under STEPS.

Meanwhile, under SDS, the drop in oil demand poses a threat to Pharos’ operating model. However, we

believe that, while the impact of this risk can be major, the likelihood of completely phasing out of oil &

gas usage in Vietnam & Egypt will have a longer time horizon than 5 to 10 years.

• For the 10-year timeframe, we are working towards a Net Zero roadmap that is exploring options

towards investment in low-carbon technology in the longer term.

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Pharos Energy Annual Report and Accounts 2022

Risk

Accelerating electrification of the transport & heating sectors

& advances in plastic recycling

Description

Could result in lower demand for hydrocarbons

Business element impacted

Market

Financial impact

Revenue

Financial impact pathway

Could result in lower demand for hydrocarbons

Mitigation

• Benchmark against peer group carbon intensity

• Monitor competitor’s decarbonisation strategies; adoption of low-carbon technology, technology

advancements

Severity (5 year) Moderate

Likelihood (5 year) Medium likelihood (40%-60%)

Severity (10 year) Moderate

Likelihood (10 year) Likely (60%-85%)

Analysis for risk rating

• Neither Egypt nor Vietnam have announced plans for a nationwide electrification of the transport sector.

• Nevertheless, transport is the biggest contributor to GHG emissions in Vietnam and would likely be a

key target for reductions under SDS and STEPS in order to meet its Net Zero pledge. Likewise, Egypt is

already eyeing the decarbonisation of the transport sector through electrifying rail and building Electric

Vehicles (EV) charging infrastructure.

• However, while it is assumed that the global uptake in e-mobility will be the key driver of this risk, the

pandemic have slowed down this progress. Furthermore, Egypt is experiencing a high level of inflation

and suffering from liquidity issues due to the devaluation of its currency, which we believe will hinder the

facilitation of electrification of carbon-intensive sectors.

Risk Low carbon technology maturity

Description

Low carbon technology becomes more mature and cost-competitive could reduce the demand for fossil

fuels, which could result in lower prices and reduced revenue for oil and gas companies

Business element impacted

Market

Financial impact

Financing

Financial impact pathway

Technology maturity in other field will serve as a competitive alternative for investors

Mitigation

• Monitor competitors and assess opportunities for adoption of low carbon technology

• Set a net zero target

Severity (5 year) Moderate

Likelihood (5 year) Unlikely (15%-40%)

Severity (10 year) Moderate

Likelihood (10 year) Medium likelihood (40%-60%)

Analysis for risk rating

• Uptake in EVs and renewable energy coupled with renewable energy costs projected to drop

significantly under SDS as current trends in technology and battery storage are accelerated will present

a competitive alternative to fossil fuel. While this remains a risk for Pharos, we believe that green

technology will continue to be tried and tested, but not yet mature enough to completely phase out oil &

gas in the next 5 years. This risk is increased in the 10-year timeframe, as renewable technology would

be more advanced then.

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Pharos Energy Annual Report and Accounts 2022

100

Governance Report Financial Statements

Additional Information

Strategic Report

Risk Lack of investment in innovation

Description

Lack of innovation in equipment of conventional fossil fuel-based technology

Business element impacted

Research and Development / Operations

Financial impact

Expenditure

Financial impact pathway

Not able to capitalize on opportunity to reduce operational inefficiencies

Mitigation

• Development of new products or services through R&D and innovation

Severity (5 year) Moderate

Likelihood (5 year) Unlikely (15%-40%)

Severity (10 year) Moderate

Likelihood (10 year) Medium likelihood (40%-60%)

Analysis for risk rating

• While Pharos is limited in terms of development and innovation of equipment to reduce carbon

emissions due to its commitment to existing facilities, we believe there is an opportunity here to explore,

as Pharos is looking to develop Block 125 in Vietnam, which provides options to employ newer facilities/

platforms/ equipment that improves efficiency & limits our carbon footprint, if proven commercially

successful.

RISK TYPE: LEGAL

Risk Non-compliance with standards or targets

Description

Not able to comply with TCFD recommendations / Global Reporting Initiative / SASB Sustainable

Accounting Standard Board

Business element impacted

Reputation

Financial impact

Investment / Costs

Financial impact pathway

Non-compliance with climate change policies could result in lower level of investor trust. This could also

result in fines or additional taxes

Mitigation

• Transparent disclosure of climate risks and carbon accounting

• Development of decarbonisation strategy

Severity (5 year) Moderate

Likelihood (5 year) Unlikely (15%-40%)

Severity (10 year) Moderate

Likelihood (10 year) Medium likelihood (40%-60%)

Analysis for risk rating

• As more climate-related disclosures, policies, frameworks and standards became mandatory, especially

for UK-listed companies, there is a risk of non-compliance with these requirements, which would result

in a lower level of trust between stakeholders and the Company. Additionally, companies will have to

face fines or spend additional resources to meet the extra level of disclosures required.

• While growing climate regulations and policies remains a risk to the sector, Pharos remains committed

to comply with all regulations, and have demonstrated this through our disclosures for many years.

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Pharos Energy Annual Report and Accounts 2022

101

Risk Liability exposure

Description

Acts or omissions that result in suits against the organization

Business element impacted

Reputation

Financial impact

Expenditure / Financing

Financial impact pathway

Liability exposure could result in high legal fees and lead to a risk of access to capital finance

Mitigation

Transparent disclosure of climate risks and carbon accounting

Severity (5 year) Moderate

Likelihood (5 year) Unlikely (15%-40%)

Severity (10 year) Major

Likelihood (10 year) Unlikely (15%-40%)

Analysis for risk rating

• Our analysis is the same as the above.

RISK TYPE: MARKET

Risk Shift in consumer demand

Description

The conscious-consumer may demand a shift from fossil fuels

Business element impacted

Sales of product

Financial impact

Revenue

Financial impact pathway

Increased demand for renewable energy tariffs coupled with and increased penetration of low-carbon

energy sources in the energy mix undermine the competitiveness of fossil fuels. Resulting in a negative

impact on share price

Mitigation

• Set a Net Zero target

• Set interim targets and a decarbonisation strategy

Severity (5 year) Moderate

Likelihood (5 year) Unlikely (15%-40%)

Severity (10 year) Major

Likelihood (10 year) Medium likelihood (40%-60%)

Analysis for risk rating

• Global consumer demand for EVs and renewable energy is significantly greater under SDS than

STEPS. However, trends in Pharos’ key markets in Egypt and Vietnam are likely to lag global trends,

and especially those in the EU. Under both SDS and STEPS energy demand per capita continues to

increase through to 2030 in many emerging economies, with consumers likely to be more price sensitive

than in developed countries and unlikely to immediately phase out oil & gas from the energy mix, thus

mitigating the risk for Pharos given its current markets.

• Additionally, Pharos is currently developing its Net Zero roadmap, and is actively exploring emission

reduction technology to be a more sustainable oil & gas producers.

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102

Governance Report Financial Statements

Additional Information

Strategic Report

Risk Commodity prices

Description

Oil and gas price volatility

Business element impacted

Operations

Financial impact

Revenue

Financial impact pathway

A lower market cost of oil and will have a negative impact on revenue

Mitigation

• Hedging programmes

• Diversification of asset portfolio

Severity (5 year) Major

Likelihood (5 year) Medium likelihood (40%-60%)

Severity (10 year) Major

Likelihood (10 year) Likely (60%-85%)

Analysis for risk rating

• Egypt & Vietnam have plans to decrease the carbon intensity of domestic energy production by increasing

the proportion of natural gas in the energy mix. At the same time energy demand in these countries is

expected to grow to 2030, placing pressure on national governments to balance decarbonisation aims

with economic and development agendas. Based on Vietnam and Egypt’s NZ and COP commitments, in

order that these goals are achieved, oil demand must drop significantly in the 2020s with a commensurate

uptick energy generation from gas and renewables. The Egyptian government is expanding its natural gas

electricity generation capacity and intends to phase out the use of heavy fuel oil by increasing domestic

gas production and imports. However, these goals are proving to be more challenging than expected

given the economic challenges both countries, especially Egypt, are facing.

Risk Uncertainty in energy market

Description

Shift in demand to less carbon intensive primary energy sources

Business element impacted

Market

Financial impact

Revenue

Financial impact pathway

Uncertainty in energy market dynamics as demand changes in fossil fuel costs pose a challenge for the

industry

Mitigation

• Stress test asset portfolio with lower demand

Severity (5 year) Moderate

Likelihood (5 year) Unlikely (15%-40%)

Severity (10 year) Moderate

Likelihood (10 year) Medium likelihood (40%-60%)

Analysis for risk rating

• Our analysis is the same as the above.

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Pharos Energy Annual Report and Accounts 2022

103

RISK TYPE: REPUTATION

Risk Shareholder activism

Description

This may arise due to the carbon emissions produced from the organisation and the wider sector

Business element impacted

Reputation

Financial impact

Capital and financing

Financial impact pathway

This could have a negative impact on share price and limit the ability to attract investment

Mitigation

• Set a net zero target and communicate it widely to the public

• Transparent carbon emission reporting

Severity (5 year) Minor

Likelihood (5 year) Unlikely (15%-40%)

Severity (10 year) Moderate

Likelihood (10 year) Medium likelihood (40%-60%)

Analysis for risk rating

• Under SDS, the assumption is that organisations that are not perceived to be contributing to the global

decrease in GHG emissions will come under greater scrutiny from shareholders.

• To address this, Pharos engage with stakeholders on a regular basis to understand their concerns. We

also report transparently on our emissions. Additionally, we are actively exploring options to reduce our

carbon emissions and will publish our NZ roadmap in 2023. We also announced the establishment of

our Emissions Management Fund as part of our effort to be a sustainable & responsible producer.

Risk Internal frustration from employees

Description

Careers in oil and gas E&P are considered less attractive

Business element impacted

Recruitment / Retention

Financial impact

Expenditure

Financial impact pathway

Impact ability to attract and retain talent

Mitigation

• Set a net zero target and invest in low carbon technologies

Severity (5 year) Moderate

Likelihood (5 year) Unlikely (15%-40%)

Severity (10 year) Moderate

Likelihood (10 year) Medium likelihood (40%-60%)

Analysis for risk rating

• The assumption is made that under SDS global GHG emissions drop significantly and careers in oil and

gas E&P are considered less attractive.

• For Pharos, we recognize the importance of climate action throughout the organization. ESG is

embedded in different parts of the organization and includes involvement from a lot of the workforce.

Furthermore, Chair of the Company and Chair of the ESG Committee, John Martin, also host annual

town-hall meetings with the global workforce to address any concerns or frustrations.

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104

Governance Report Financial Statements

Additional Information

Strategic Report

PHYSICAL

RISK TYPE: CHRONIC

Risk Water stress

Description

Limited freshwater availability due to shifting hydrological regimes

Business element impacted

Assets / Operations

Financial impact

Assets and liabilities

Financial impact pathway

Conflict over local water resources between domestic / agricultural / business users may limit ability to

source water and / or impact social license to operate

Mitigation

• Business continuity and crisis management planning

• Local engagement

Severity (5 year) Minor

Likelihood (5 year) Unlikely (15%-40%)

Severity (10 year) Minor

Likelihood (10 year) Medium likelihood (40%-60%)

Analysis for risk rating

• Pharos operations only uses fresh water from the national grid for domestic use by workers.

Groundwater used directly for injection during extraction activity is of very high salinity and unsuitable for

municipal or agricultural use, is not therefore a scare resource.

Risk Sea level rise

Description

Inundation and enhanced erosion rates due to rising sea levels

Business element impacted

Operations

Financial impact

Expenditure / Assets and liability

Financial impact pathway

Infrastructure may be impacted by flooding or near-shore erosion. Supporting infrastructure may

experience increasingly frequent disruption and / or damage

Mitigation

• Identification of assets in flood zones

• Assessment of reliance on critical infrastructure in coastal zones

• Build in flood resilience protection

Severity (5 year) Minor

Likelihood (5 year) Very unlikely (< 15%)

Severity (10 year) Moderate

Likelihood (10 year) Unlikely (15%-40%)

Analysis for risk rating

• Offshore sites will experience increases in sea level of between 18cm and 22cm by 2045 under

all emissions scenarios considered with direct implications of offshore activities as well as onshore

infrastructure. Pharos do not foresee this becoming a high-severity and likely issue within the 5 to 10-

year timeframe.

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Pharos Energy Annual Report and Accounts 2022

105

RISK TYPE: ACUTE

Risk Flash flooding

Description

Infrastructure may be impacted by heavy rainfall and flooding

Business element impacted

Assets / Operations

Financial impact

Assets and liabilities

Financial impact pathway

Flash flooding may damage infrastructure increasing expenditure on replacement and maintenance

Mitigation

• Identification of assets in flood zones

• Build in flood resilience protection

Severity (5 year) Minor

Likelihood (5 year) Very unlikely (< 15%)

Severity (10 year) Moderate

Likelihood (10 year) Unlikely (15%-40%)

Analysis for risk rating

• Intensive flash floods can occur due to high levels of surface run-off. Under low and moderate emission

scenarios (RCP2.6 and RCP4.5) there is likely to be a moderately higher risk of more frequent disruption

from flash flooding.

Risk Coastal flooding

Description

The physical threat of extreme sea levels along global coastlines

Business element impacted

Operations

Financial impact

Expenditure / Assets and liability

Financial impact pathway

Infrastructure may be impacted by flooding

Mitigation

• Identification of assets in flood zones

• Build in flood resilience protection

Severity (5 year) Minor

Likelihood (5 year) Very unlikely (< 15%)

Severity (10 year) Moderate

Likelihood (10 year) Unlikely (15%-40%)

Analysis for risk rating

• Offshore sites will experience increases in sea level of between 18cm and 22cm by 2045 under

all emissions scenarios considered with direct implications of offshore activities as well as onshore

infrastructure. Pharos do not foresee this becoming a high-severity and likely issue within the 5 to 10-

year timeframe.

Risk Heat waves

Description

Rising temperatures and more frequent and intense heat waves will result in increased operational costs

Business element impacted

Operations

Financial impact

Expenditure / Assets and liability

Financial impact pathway

Exposure to high temperatures and humidity can lead to a reduction in productivity

Heat extremes can impact infrastructure

Mitigation

• Reinforce key infrastructure to be resilient in future climate scenarios

Severity (5 year) Minor

Likelihood (5 year) Unlikely (15%-40%)

Severity (10 year) Minor

Likelihood (10 year) Medium likelihood (40%-60%)

Analysis for risk rating

• Common to all onshore and offshore oil and gas activities, projected increases in the frequency,

duration, and intensity of extreme heat events will pose threats to the health of workers and heat-

sensitive equipment, which in some cases could result in reduced efficiencies and even operational

downtime.

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Governance Report Financial Statements

Additional Information

Strategic Report

Risk Storm frequency

Description

Operations impacted from high winds (and waves if offshore)

Business element impacted

Operations

Financial impact

Expenditure

Financial impact pathway

Storms may delay operations or cause damage to existing assets

Mitigation

• Build in suitable storm protection

• Business continuity and crisis management planning

Severity (5 year) Minor

Likelihood (5 year) Unlikely (15%-40%)

Severity (10 year) Moderate

Likelihood (10 year) Medium likelihood (40%-60%)

Analysis for risk rating

• Shifting storm, wave and wind characteristics will impact on the uptime of processing platforms and

affect service vessels.

Risk Global extreme weather events

Description

Suppliers adversely affected by extreme weather events, such as flood, storms, wildfires

Business element impacted

Supply chain

Financial impact

Expenditure

Financial impact pathway

Extreme weather events cause direct damage to supplier manufacturing facilities or impact ability of

employees to get to work. Reduced / delayed supply can drive up pricing and cause project delays

Mitigation

• Diversify supplier base

• Conduct risk assessment of suppliers

• Supplier engagement to understand mitigation strategies

Severity (5 year) Moderate

Likelihood (5 year) Unlikely (15%-40%)

Severity (10 year) Major

Likelihood (10 year) Medium likelihood (40%-60%)

Analysis for risk rating

• In Egypt, under all climate change scenarios, extreme temperatures will rise, precipitation will decline,

and extreme heat events will become more frequent and intense. In Vietnam, both heatwave events

and extreme temperatures will become more frequent and longer in duration. Heath related hazards will

become more severe under the highest emissions scenario, with heatwaves expect to last almost five

times longer in that scenario.

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107

Corporate Responsibility

Non-Financial Indicators

2022 2021

2020

Hours worked (million)

3.35

3.17 2.97

Lost Time Injury Frequency Rate (number of lost time injuries per million man-hours)

0.3

0 0.34

Fatal Accident Frequency Rate (number of fatal accidents per hundred million man-hours)

0 34

Fatal Accidents

0 1

Total Recordable Injury Rate (number of recordable injuries per million hours worked)

0.6

0 0.34

Total GHG emissions (tCO

e) by equity

109,539

112,024 115,342

Scope 1 total GHG emissions (tCO

e) by equity

109,491

111,977 115,294

Scope 2 total GHG emissions (tCO

e) by equity

46 48

Scope 3 total GHG emissions (tCO

e) by equity Not measured

GHG intensity by production (tonnes of CO

e per 1,000 tonnes of oil produced by equity share)

340

313

280

Total hydrocarbons flared (Tonnes of hydrocarbons flared for every 1,000 tonnes of

production on a gross basis)

32 41

Energy use (grid electricity kWh)

323,492

311,692 309,942

Total energy consumption (from fuel combustion, other operations and purchased electricity) in MWh

257,246

285,942 256,913

Non-hazardous waste produced (tonnes)

109

111 94

Hazardous waste produced (tonnes)

48 41

Percentage non-hazardous waste recycled

24 25

Percentage hazardous waste recycled

<1 4

Spills to the environment (>100 litres)

3 4

Oil in produced water content (Vietnam Blocks 16-1/9-2)

28 29

Freshwater use (cubic metres)

70,582

58,525 102,820

HSES regulatory non-compliance

0 0

Community investment spend ($) 198,600

265,000 245,191

1) Pharos normalised emissions in 2021 and 2022 include emissions from venting in Egypt, whilst they were not included in 2020.

2) Pharos unitised net working interest in Vietnam TGT field changed from 30.16 % in 2019 to 29.67 % in 2020. The equity variation is not significant compared

to Pharos total emissions, and therefore data of 2020 provide a meaningful comparison.

3) In line with the UK government’s Streamlined Energy and Carbon Reporting (SECR) policy, energy consumption from fuel combustion

4) Under Section 385(2) of the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations, 2013 and in line with the requirements of the Climate

Change Act (2008), carbon reporting for UK-listed companies in Directors’ Annual Report is mandatory for reports published after 30 September 2013.

The regulations cover the six Kyoto Protocol GHG cited in Section 92 of the Climate Change Act: carbon dioxide (CO

), methane (CH

), nitrous oxide (N

O),

hydrofluorocarbons (HFC), perfluorocarbons (PFC) and sulphur hexafluoride (SF

). The Companies Act 2006 regulation does not state which methodology a

company has to use but requires that this methodology is clearly disclosed.

5) On the 21 of March 2022 Pharos net revenue entitlement in Egypt decreased from 42.60 to 22.86%. This corresponds to a weighted average of 28.98% for

the year. According to section 5 of the GHG protocol on base year recalculation following an acquisition, GHG emissions for the years 2020 and 2021 have

been recalculated using this weighted average.

Approval of the Strategic Report

This report was approved by the Board of Directors on 21 March 2023 and is signed on its behalf by

JANN BROWN

Chief Executive Officer

Governance

Report

Chair’s introduction to Governance 109

Leadership & Governance 111

Board of Directors 113

2018 UK Corporate Governance Code 115

Environmental, Social and Governance (‘ESG’) Committee report 122

Nominations Committee report 125

Audit and Risk Committee report 127

Directors’ Remuneration report 134

Directors’ report 156

108

Financial Statements

Additional Information

Governance Report

Pharos Energy Annual Report and Accounts 2022

Strategic Report

Additional Information

Financial Statements

Pharos Energy Annual Report and Accounts 2022

109

A year of

significant change

JOHN MARTIN

Non-Executive Chair

CHAIR’S INTRODUCTION TO GOVERNANCE

Dear shareholders

On behalf of the Board, I am pleased to present the Pharos

Corporate Governance Report for the financial year ended 31

December 2022. The Company was in full compliance with the UK

Corporate Governance Code throughout the year.

The role of the Board

The Board as a whole is responsible

for the determination of the Group’s

strategy and objectives, the approval of

overall financial budgets and financing

agreements, the approval of key corporate

relationships with operators and other

joint venture partners and for corporate

governance.

The Board provides leadership to the

Group by monitoring culture across the

organisation, ensuring its alignment with

Group strategy, objectives and values,

and overseeing its implementation by

management. The Directors are expected

to act at all times with integrity and

honesty, to lead by example and to

promote the Pharos Way principles of

openness, safety, care and mutual trust

and respect. The Board also ensures

there are appropriate processes in place

to assess and manage risk, including

the overall appetite for risk across the

Group, and monitors the Group financial

and operational performance against

objectives and KPIs. The Board is

committed to ensuring the Group complies

with applicable law, regulation, rules and

requirements in all host countries and

other relevant jurisdictions.

The authority for implementing Group

strategy, including the taking of decisions

and the making of financial and other

commitments, is generally delegated

by the Board to the executive Directors

and the senior management team. This

delegation by the Board includes the

authority to approve expenditure in relation

to any budgeted item. However, certain

matters are not delegated and require

approval by the Board itself, and these

are set out in the Group Delegation of

Authority, a key corporate policy document

issued and maintained by the Board that

sets out in detail the financial and non-

financial authority held by individuals within

the Group.

Overview of 2022

2022 was a year of significant change for

Pharos. The restructuring of the Board and

the wider organisation, the completion of

the farm-out in Egypt and the continuing

drive to reduce costs across the Group

have challenged the robustness and

durability of our governance systems and

structure. I am gratified to say that these

challenges have been met, and I believe

we are now in a much stronger position

across all fronts than we were at the start

of the year.

In particular, we are seeing the benefits

of in a materially improved financial

position for the Group, allowing the

Board to announce an initial $3 million

share buyback programme in July 2022

and then to reward shareholder patience

with the announcement of a return to a

regular dividend in September 2022. We

are proposing a final dividend of 1p per

share in respect of the 2022 financial

year, subject to the passing of the

relevant resolution at the AGM on 25 May

2023. We announced completion of the

initial $3 million buyback programme in

January 2023 and, at the same time, we

committed a further $3m to an extension

of the programme. The Board believes that

the Company's shares are still trading at

a material discount to their underlying net

asset value, despite improved performance

across the Group, and remains of the view

that share buybacks are an appropriate

means of returning value to shareholders

in the circumstances. The Board engaged

with shareholders regularly throughout the

year and, based on those interactions,

remains committed to capital discipline

and regular shareholder returns as core

elements of the overall shareholder

offering.

Pharos Energy Annual Report and Accounts 2022

110

Financial Statements

Additional Information

Strategic Report

Governance Report

CHAIR’S INTRODUCTION TO GOVERNANCE - CONTINUED

External factors also tested the Group’s

approach to governance during the

year, with the continuing impact of the

COVID-19 pandemic on supply chain and

other logistical issues. Russia’s invasion

of Ukraine in February 2022, and the

extensive international sanctions packages

introduced in response, have brought new

challenges for our operations, particularly

in Egypt. The Egyptian economy, reliant

to a significant degree on Russian and

Ukrainian trade and tourism, has suffered

thought the year, with consequences

including high inflation, devaluation of

the Egyptian pound and greatly reduced

availability of US dollars in country. This

has constrained our ability to conduct

normal business in Egypt, evidenced most

clearly by the large unpaid balance for sale

of the Group’s share of production from

El Fayum. Improving this situation, and

the development and implementation of

mitigation strategies, is an important area

of focus for the Board and the executive

team.

Throughout the year, the Board devoted

considerable time to supporting and

constructively challenging the executive

team. The Board received regular detailed

updates from the executive Directors

and other key members of management

and staff during the year and, in pursuit

of the best interests of shareholders,

the non-executive Directors (NEDs)

brought constructive challenge to the

executives’ proposals and strategy,

offering direction and support. Key areas

of focus for the NEDs’ discussions in

2022 were overseeing the farm-out of the

Egypt assets to IPR, the share buyback

programme, succession planning, ESG,

effective implementation of Group strategy,

portfolio management, capital allocation

and oversight of operational, financial

performance and KPIs. The NEDs also

regularly meet without the executive

Directors present.

Board Committees

The Board is assisted in its role by four

permanent committees of the Board:

the Audit and Risk Committee, the ESG

Committee, the Nominations Committee

and the Remuneration Committee.

Reports from these committees follow this

introduction, but I will briefly summarise

some of their key activities in 2022.

The health and safety of the Group’s

workforce remains our number one priority,

and the ESG Committee (see the report

on pages 122 to 124) is committed to

ensuring that the Group operates safely

and responsibly at all times. In 2022, the

JOCs in Vietnam continued to deliver an

exceptional record of safety, reporting

zero LTIs since operational inception,

representing ten production years on TGT

and 13 production years on CNV. In Egypt,

however, the ESG Committee had to

address an LTI and an environmental spill

in 2022. Further details of these incidents

are set out in our Corporate Responsibility

report on page 61. With the oversight of

the ESG Committee, Group personnel are

working with the operator IPR and the JOC

Petrosilah to address the underlying issues

identified in the incident investigation

reports and safety assessments. We look

forward to re-establishing our track record

of zero safety and environmental incidents

across all assets.

In September 2022, following discussion

at previous ESG Committee meetings, the

Company announced our commitment

to achieve Net Zero Scope 1 and Scope

2 GHG emissions from all our assets by

no later than 2050. In further support

of these climate goals, I am particularly

proud, in my capacity as chair of the ESG

Committee, of the establishment of our

innovative Emissions Management Fund.

Under this scheme, Pharos will contribute

$0.25 for each Group barrel sold at an

oil price above $75/bbl to the Fund. The

Fund will be available to support emissions

management projects approved by the

Committee.

During 2022 the Nominations Committee

(see the report on page 125) focused on

reviewing Board composition, succession

planning for key roles throughout the

company, a review of annual Board

evaluation, and annual Director re-

appointments. This included the changes

to the Board announced on 13 January

2022, and which took effect following

completion of the Egyptian farm-out

transaction with IPR in March. These

changes saw Jann Brown assume the role

of CEO as one of two executive Directors

alongside CFO Sue Rivett, while Ed Story

and Dr Mike Watts stepped down as

executive Directors. At the conclusion

the 2022 AGM in May, Rob Gray stepped

down from the Board, having served for

nearly 9 years as Senior Independent

NED and Deputy Chairman. The size of

the Board has thus reduced from nine

Directors (four Executives and five NEDs)

to six (two Executives and four NEDs),

commensurate with the size and profile of

the Group.

The Remuneration Committee’s activities

in 2022 centred on the updated

remuneration structure following

completion of the farm-out transaction with

IPR to reflect the scale of the business.

This included significant reductions in

the base salary for the CEO and CFO.

These salaries have dropped by c.40%

since 2019, with the CEO salary reducing

from c. £660,000 to £420,000 and the

CFO salary decreasing from £450,000 to

£280,000. The Remuneration Committee

has also agreed with the Directors that

there will be no increases in salary or NEDs

fees in 2023, while the salaries for non-

Director UK staff, have increased 10% to

counteract the current inflationary factors

and cost of living crisis. Further details

are set out in the Directors’ Remuneration

Report from pages 134 to 155. In addition,

as the three-year term of the current

Directors’ Remuneration Policy is due to

expire in 2023, we will be submitting a new

Policy to shareholders for approval at the

2023 AGM. The Remuneration Committee

oversaw the Policy revision, which included

an extensive review and consultation

with large shareholders. Following this

consultation process, the Policy submitted

for approval to the 2023 AGM is in largely

similar terms to the current Policy. The

two principal changes proposed to the

Policy are a reduction in the maximum

LTIP awards from 400% to 200% and an

increase the post-cessation of holding

shares to 200% of salary for the full two

years following cessation. The proposed

terms of the updated Policy are set out on

page 135.

Board Priorities for 2023

In 2023 the Board expects to work closely

with senior management to focus on

overseeing the delivery of efficiencies,

controlling costs and making prudent

investments to maximise the value of

our portfolio. Particular priorities are

expected to include the continuation of

the share buyback programme and the

broader strategy to deliver value to our

shareholders, improving our payment

situation in Egypt, seeking to return to

zero safety and environment incidents and

finding the right farm-in partner to fund our

commitment well on Block 125.

In closing, I would like to thank all of our

employees, shareholders, partners, JOCs

and other stakeholders for their continued

support. The Board looks forward to

building on the progress made last year,

supported by the strong foundations of our

culture of governance.

JOHN MARTIN

Non-Executive Chair

Pharos Energy Annual Report and Accounts 2022

111

Director

Board meeting

(scheduled

quarterly) x4

Board meeting

(additional) x3

Audit and Risk

Committee

meeting x4

Remuneration

Committee

meeting x3

Nominations

Committee

meeting x4

Environmental, Social

and Governance

Committee meeting x4

John Martin (Chair)*

Jann Brown (appointed

CEO 21 March 2022)

Sue Rivett (CFO)

Geoffrey Green*

Lisa Mitchell *

Marianne Daryabegui

(1)

Ed Story (retired 23

March 2022)

(2) (4)

Dr Mike Watts

(retired 23 March 2022)

(2)

Rob Gray

(retired 19 May 2022)

(3)

Board Members

John Martin*

Non-Executive Chair and Chair

of Nominations Committee and

ESG Committee

Jann Brown

Chief Executive Officer

(from March 2022 following

completion of Egyptian farm-

out transaction, previously

Managing Director), ESG

Committee member and

Nominations Committee

member (from March 2022)

Sue Rivett

Chief Financial Officer and ESG

Committee member

Geoffrey Green*

Non-Executive Director and

Senior Independent Director

(from May 2022), Chair of

Remuneration Committee,

Nominations Committee

member (from March 2022),

Audit and Risk Committee

member and ESG Committee

member

Lisa Mitchell *

Non-Executive Director, Chair

of Audit and Risk Committee,

Remuneration Committee

member (from March 2022)

Nominations Committee

member and ESG Committee

member

Marianne Daryabegui*

Non-Executive Director, Audit

and Risk Committee member,

Remuneration Committee

member, Nominations

Committee member and ESG

Committee member

Ed Story~

President and Chief Executive

Officer, Nominations

Committee member and ESG

Committee member (until

March 2022; retired from the

Board and Board committees

following completion of

Egyptian farm-out transaction)

Dr Mike Watts~

Managing Director and ESG

Committee member (until

March 2022; retired from the

Board and Board committees

following completion of

Egyptian farm-out 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 (until

May 2022; retired from Board

and Board committees at the

conclusion of the 2022 AGM)

DIVERSITY OF SKILLS, BACKGROUNDS AND EXPERIENCE

The Board places importance on the diversity of approach, experience, knowledge, skills, and professional, educational and cultural

backgrounds. This diversity has brought an international and global outlook which has been particularly beneficial to the Board’s discussions

about the strategic positioning of its current and new business ventures.

As at 31 December 2022, the Board comprised six Directors.

Meeting attendance

During each Director’s respective term of office during 2022

* Independent Non-Executive Directors. ~ Retired from Board in 2022

Attended as member

* Independent Directors

KEY

Attended as invitee Not attended

LEADERSHIP & GOVERNANCE

Leadership

& Governance

Pharos Energy Annual Report and Accounts 2022

112

Financial Statements

Additional Information

Strategic Report

Governance Report

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

G 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*

L Mitchell

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

J Brown

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.

* Retired from Board and all Board committees with effect from the conclusion of the 2022 AGM

** Retired from Board and all Board committees following completion of the Egyptian farm-out transaction with IPR.

In addition to the four scheduled quarterly meetings, the Board met in 2022 on an additional

three occasions to deal with specific business matters which required Board approval. One

of the additional meetings included a Board strategy meeting in October 2022, which was

fully attended by all members of the Board at that time.

Whilst the impact and unpredictability of the COVID-19 situation was still being taken into

account when planning for the 2022 AGM, shareholders were offered the opportunity to

attend in person if they wished to do so. All Directors on the Board at that time attended

the AGM. Shareholders were also invited to submit questions relevant to the business of the

AGM in advance of the meeting and responses were provided by email as appropriate.

1) Marianne was not in attendance at the December

ESG Committee meeting due to unforeseen family

illness.

2) Ed Story and Dr Mike Watts retired from the Board

following completion of the Egyptian farm-out

transaction with IPR.

3) Rob Gray retired from the Board at the conclusion

of the 2022 AGM.

4) Ed Story recused himself from the March meetings.

LEADERSHIP & GOVERNANCE - CONTINUED

Pharos Energy Annual Report and Accounts 2022

113

BOARD OF DIRECTORS

Experienced leaders

guiding our future

JOHN MARTIN

Non-Executive Chair

Appointed: June 2018 (Non-Executive Director from June 2018 – March 2020; Non-

Executive Chair from March 2020)

John has more than 30 years’ experience in international banking in the oil and gas

industry and was a Senior Managing Director in the Oil and Gas team at Standard

Chartered Bank. Prior to joining Standard Chartered in 2007, John worked for ABN

Amro for 26 years, specialising in the energy sector. John has served as the Senior Vice

President of the World Petroleum Council, and as an Independent Non-Executive Director

of Rockhopper Exploration plc. He was previously Chairman of Falkland Oil and Gas

Limited, an Independent Non-Executive Director on the board of Bowleven plc and, an

Independent Non-Executive Director and Chair of the Audit Committee of Total E&P UK

Limited.

JANN BROWN

Chief Executive Officer

Appointed: November 2017 (Managing Director and Chief Financial Officer from

November 2017 – July 2021; Managing Director from July 2021 – March 2022)

Jann was appointed to the role of Chief Executive Officer with effect from 21 March 2022

following a period as CFO from 2017 to 2021. Jann currently serves as an Independent

Non-Executive Director of RHI Magnesita N.V. and previously served as an Independent

Non-Executive Director and Chair of the Audit Committee of Troy Income & Growth

Trust plc and of John Wood Group P.L.C. She was Chief Financial Officer and Executive

Director of Cairn Energy plc from 2006 to 2014. Jann is also a Past President of the

Institute of Chartered Accountants of Scotland.

SUE RIVETT

Chief Financial Officer

Appointed: July 2021

Sue, previously Group Head of Finance and UK General Manager, has been with the

Company for over seven years. Prior to joining Pharos, Sue held senior finance roles with

Conoco, ARCO British (subsidiary of Atlantic Richfield Company), JKX Oil & Gas plc and

Seven Energy. Sue’s various roles have included heading up full FTSE finance functions

including finance, taxation, treasury, IT, corporate planning and Company Secretary. She

was Head of ARCO British trading arm’s back office and mid office and has considerable

joint venture experience and numerous years M&A experience. Sue is a Fellow of the

Chartered Institute of Management Accountants (“FCMA”) with international experience

and nearly 40 years in the energy business.

Pharos Energy Annual Report and Accounts 2022

114

Financial Statements

Additional Information

Strategic Report

Governance Report

BOARD OF DIRECTORS - CONTINUED

GEOFFREY GREEN

Non-Executive Director and Senior Independent Director

Appointed: May 2020 (Non-Executive Director from May 2020; Senior Independent

Direct from May 2022)

Geoffrey has many years of legal and commercial experience in advising major UK listed

companies on corporate and governance issues, mergers and acquisitions and corporate

finance. Geoffrey retired as a partner of Ashurst LLP in 2013, a leading international law

firm, after 30 years as a partner and 10 years of service as the senior partner and chair of

its management board. He served as head of Ashurst’s Asia practice from 2009 to 2013,

based in Hong Kong, and was responsible for leading the firm’s strategy and business

development for the region. He served on the Board of Vedanta Resources Limited,

(formerly Vedanta Resources plc, a London Stock Exchange listed company) from 2012

to 2021 and was Chair of the Remuneration Committee. Geoffrey was the non-executive

Chair of the Financial Reporting Review Panel, one of the main subsidiary bodies of the

Financial Reporting Council, from 2015 to 2022, and is also a non-executive director of

a Hong Kong based investment fund. He has a degree in law from Cambridge University

and qualified as a solicitor at Ashurst LLP.

LISA MITCHELL

Non-Executive Director

Appointed: April 2020

Lisa is currently the Chief Financial Officer of Orca Energy Group Inc. a TSX-V listed

company. Lisa is an experienced CFO with over 25 years’ international experience, across

the oil and gas, mining and the pharmaceutical industries. She was most recently CFO of

San Leon Energy plc and was previously CFO and Executive Director of Lekoil Limited,

the African-focused oil and gas exploration and production company with interests in

Nigeria. Prior to this, Lisa was CFO and Executive Director at Ophir Energy plc, formerly

a FTSE 250 company where she was responsible for contributing to the overall business

strategy of Ophir; leading the finance function including all financial, taxation, treasury and

funding requirements and investor relations. Lisa’s previous roles include CSL Limited,

and Mobil Oil Australia. Lisa is a Certified Practicing Accountant (FCPA Australia) and

holds a Bachelor of Economics (major in Accounting) from La Trobe University, Melbourne

and a Graduate Diploma in Applied Corporate Governance from the Governance Institute

of Australia.

MARIANNE DARYABEGUI

Non-Executive Director

Appointed: March 2019

Marianne is currently the Chief Financial Officer of Lithium de France, an energy transition

company focused on geothermal energy and lithium extraction. She was Head of Natural

Resources at BNP Paribas and then Managing Director at Natixis in the Energy and

Natural Resources sector. She has extensive experience in corporate transactions and

capital markets and has advised majors, independent E&Ps and national oil companies.

Prior to leading the Oil and Gas Corporate Finance Team in 2006 at BNP Paribas,

Marianne headed the Commodity Structure Finance team for the Middle East and Africa.

Before joining the banking sector Marianne spent eight years at TOTAL. Marianne has a

Master’s degree in Finance and Capital Markets from Sciences Po University, Paris and a

Masters in Tax and Corporate Law.

Pharos Energy Annual Report and Accounts 2022

115

2018 UK CORPORATE GOVERNANCE CODE

2018 UK Corporate Governance

Code (the ‘2018 Code’)

2022 statement of compliance with the 2018 Code

We are committed to the highest standards of corporate governance and compliance with the UK Corporate

Governance Code 2018, which sets out the principles that emphasise the value of good corporate

governance to long-term sustainable success. The Company was in full compliance with the provisions of the

2018 Code throughout the year.

The section below demonstrates our application of the Principles of the 2018 Code.

Board Leadership and Company

Purpose

Purpose and Culture

At Pharos, our purpose is to provide

energy to support the development and

prosperity of the countries, communities

and families wherever we work, in line

with recognised social and environmental

practices. We have a focused strategy of

delivering long-term, sustainable value for

all our stakeholders though regular cash

returns and organic growth that, together

with a strong corporate culture, help us

fulfil our purpose.

It has been important to the Board to

preserve and enhance the strong and

resilient culture of our workforce. It is built

on our guiding principles of openness,

safety and care, and mutual trust and

respect. The Board monitors adherence

to these principles through a number of

different engagements, both formal and

informal, ensuring that they are evidenced

in behaviours not simply as words on a

page.

Stakeholder engagement

Colleague engagement

The Board understand that the strategy

and long-term success of the Group is

dependent on a strong culture and set of

values that is clear and guide everything

we do. Our approach is driven by the

strength, skills and imagination of our

people, and our shared purpose to make

a positive impact. The way we work and

do business is based on five guiding

principles which we call the Pharos Way:

Safety & Care, Energy & Challenge,

Openness & Integrity, Empowerment

& Accountability, and Pragmatism &

Focus. They are reinforced by our Code

of Conduct and Business Ethics. The

Board has responsibility for assessing

and monitoring the culture of the Group

and ensuring that the Group’s policies

and practices are aligned with this. There

are a number of ways in which the Board

monitor and assess the culture, which is

detailed in our colleague engagements

below.

The Board placed great importance

on the level of engagement with senior

management and other colleagues.

The Board remains passionate about

workforce engagement and fostering a

genuine dialogue between the Company

and staff. All staff are kept informed about

important business developments in the

Company and have channels through

which they can ask questions and provide

input. The now well practised route of

using video calls facilitates more frequent

engagement across our offices worldwide

and the reorganisation of the Group has

instituted a flatter organisational structure,

allowing for shorter lines of management

and more direct, accessible channels of

communication with leadership.

The Executive Directors receive regular

updates on colleague engagement to

understand any complaints or troubles

from the hybrid work environment. At

the beginning and end of each calendar

year, every employee is encouraged to

set their own personal and professional

development objectives and appraisal for

the upcoming year, and to discuss this

with their line managers who can provide

any additional support where needed

and to remediate any troubles that each

employees might face. Additionally, Jann

Brown, the Company’s CEO, held virtual

and in person one-to-one meetings with

employees in the UK, Vietnam and Egypt

to understand their concerns over the past

years, from which feedbacks from these

sessions have resulted in several solutions

being proposed and implemented going

forward, such as: off-site away days/

in-person meetings monthly to avoid

staff isolation and promote team culture,

learning sessions on technology and

public capital markets, and a discussion

on how best to ask others for info/help/

support when working from home. During

the year, John Martin, as Non-Executive

Chair of the Board and designated

Non-Executive Director responsible for

workforce engagement, carried out in-

person town hall meetings, during which

staff were invited to share their feedback

and views about the Company without

the presence of any Executive Directors to

provide an open, honest and safe space

for all employees to express any concerns

they might have. Feedback from these

sessions were then taken into account

and communicated back to the Board and

Executive Directors as suggestions for

improvements.

Additionally, there have been other forms

of engagement including extending

participation in the Company’s share

schemes, participation for all in the

bonus scheme and other feedback

channels, including through the Group’s

Whistleblowing Policy and access to a

dedicated, anonymous and confidential

ethics hotline.

Pharos Energy Annual Report and Accounts 2022

116

Financial Statements

Additional Information

Strategic Report

Governance Report

2018 UK CORPORATE GOVERNANCE CODE - CONTINUED

Shareholder engagement

The Board as a whole has responsibility for

ensuring that a satisfactory dialogue with

shareholders takes place. The Executive

Directors are responsible for ensuring that

effective communication is maintained with

key stakeholders and partners, including

an appropriate level of contact with major

shareholders and ensuring that their views

are communicated to the Board. The

Chief Financial Officer has management

responsibility for investor relations.

To maintain a clear understanding of the

views of shareholders, all Directors receive

a quarterly investor relations report, which

includes market updates, brokerage and

communications reports, share register

and share performance analysis and

comments and notes from research

analysts and proxy agencies. Additionally,

a section of the agenda for each regularly

scheduled meeting of the Board are

dedicated to investor and stakeholder

considerations.

In 2022, Pharos had several opportunities

to engage in open and active dialogue

with its institutional, private and retail

shareholders throughout the year. The

Company uses its online presence to

post and disseminate key information

promptly to a wide audience. The

Company’s website is regularly used by

shareholders and stakeholders for email

communication with management. The

official Twitter and LinkedIn accounts of

Pharos continue to be used actively. The

Company uses a communications agency

to provide assistance in the dissemination

of information to shareholders and the

general public and also to solicit active

feedback as to the effectiveness of such

efforts. Additionally, the Company also

provide a platform for everyone to access

an analyst research feed via its corporate

website at https://www.pharos.energy/

investors/analyst-research/. This allowed

for a wider audience of private and retail

shareholder to freely access to analyst

research notes about the Company. Also

in 2022, the Company engaged with online

platform Investor Meet Company to host

online meetings with a Q&A session in

April and September to allow the wider

public a free platform to raise questions

directly to the Executive Directors.

Most notably, during our Strategy Day

held in London in October 2022, the

Board had presentations and inputs

from a number of key external parties,

including shareholders and advisers. The

results of our Strategy Day were then

communicated to key investors as part of

our overarching objective of maintaining

open and constructive two-way dialogues

with our stakeholders. During the year, the

Executive Directors and investor relations

colleagues met and engaged with c.20

different institutional investors, family

offices, media journalists and analysts in

c.30 meetings.

The NEDs are each responsible for taking

sufficient steps to understand shareholder

views, including any issues or concerns.

This includes being available to major

institutional shareholders and responding

to requests for additional communication

with the Chair or other NEDs.

Additionally, both before and after the

formal proceedings of each AGM, and

subject to any applicable travel or public

gathering restrictions, all Directors and

senior management, including the Chairs

of the Audit and Risk, Remuneration

and Nominations Committees, make

themselves available to answer shareholder

questions and respond to any specific

queries.

Local communities, governments and

employees

Our goal is to have a responsible and

positive presence in the regions in which

we operate, resulting in value for host

countries, local communities, employees,

contractors, suppliers, partners and

shareholders, and we engage with them

on a regular basis. Additionally, the

requirements in the Modern Slavery Act are

dealt with through our due diligence and on

boarding processes with suppliers.

In Vietnam, commitment to local sourcing,

employment, training and industry capacity

building has continued with a training levy

of $300,000 per year in a ring-fenced fund

to support developing future Vietnamese

expertise in the industry. In Egypt, under

the El Fayum and North Beni Suef

Concession Agreements, the Contractor

parties contribute a total of $200,000

per year split equally between the two

Concessions to support training and

development in industry.

In recent years, we have structured our

social investment programme to align

more with the United Nations Sustainable

Development Goals (UN SDGs). In

Vietnam, in 2022, in addition to the

training levy mentioned above, a further

$198,600 was invested in 9 community

projects. The JOCs actively inquired and

listened to locals to find out which areas

of the country would need the greatest

assistance in order to ensure that we

were investing in local projects that

would bring the most sustainable positive

impact to the community. For instance,

in H1 2022, the Group provided financial

support for therapy for children with

disabilities at the An Tue Social Assistance

Center – Thua Thien Hue province, with

additional donations towards supporting

the construction of an English teaching lab

for Middle School in Tan Thanh commune,

Kim Son district, Ninh Binh province (UN

SDG 3: Good health & wellbeing and UN

SDG 4: Quality education). In H2 2022,

the Donation Programme helped fund the

renovation of classrooms for a secondary

school in Tien Cau village, Hiep Cuong

commune, Kim Dong district, Hung Yen

province which will bring about lasting

positive impact to the children in the area

for years to come (UN SDG 4 Quality

education and UN SDG 9: Industry,

innovation and infrastructure).

For full details of all the projects the JOCs

have invested in 2022, please see our

Corporate Responsibility report on pages

61 to 107.

Whistleblowing, Ethics and Business

Conduct

Our Whistleblowing Policy and associated

procedures ensure that employees are

protected from possible reprisals when

raising concerns in good faith. In addition

to internal reporting channels, we have a

dedicated, anonymous and confidential

ethics hotline supported by EthicsPoint

with numbers displayed in local offices

available 24 hours a day all year round.

Zero calls were made to the EthicsPoint

hotline in 2022.

Additionally, our Anti-Bribery and

Corruption (‘ABC’) Policy and Code of

Business Conduct and Ethics have been

followed rigorously in 2022. In H2 2022,

the Group’s Risk Manager hosted a virtual

sessions on Anti-Bribery and Corruption

for the global workforce to reiterate

the importance for every employee to

understand the Code of Business Conduct

and Ethics and to place it at the forefront of

our engagement with suppliers, vendors,

partners, and public officials. It is also a

requirement for all employees and the

Board to complete and successfully pass

their ABC and Criminal Finance E-Learning

modules every year to ensure we hold

the Company to the highest standard of

business conduct.

The year also saw the Russian invasion

of Ukraine in February 2022 and the

introduction of an unprecedented suite of

international sanctions and export controls

in response to Russia’s aggression. The

Group’s own response to the situation,

and the prospect of a protracted conflict,

included the establishment of dedicated

cross-functional Pharos working group in

March 2022 and the adoption of a new

Group Sanctions Policy in May 2022. At

an operational level, the Group continues

to work with the JOCs on contingency

planning and mitigation.

Pharos Energy Annual Report and Accounts 2022

117

2018 UK CORPORATE GOVERNANCE CODE - CONTINUED

Division of Roles &

Responsibilities

Responsibilities of the Board

The statutory duty of the Directors is to

act in what they consider to be in the

best interests of the Company and, as

a unitary Board, they are responsible for

the long-term success of the Company.

The Board determines and develops the

strategy for the business and provides

it with the necessary entrepreneurial

leadership. It ensures the Company is

adequately resourced to meet its strategic

objectives and can meet its obligations

to its stakeholders. The Board sets the

values, standards and controls necessary

for risk to be effectively assessed and

managed. Some of its responsibilities

have been delegated to committees

of the Board, including the Audit and

Risk, Remuneration and Nominations

Committees.

The roles of the Chair and Chief

Executive Officer are separated and their

responsibilities are clearly established, set

out in writing and agreed by the Board.

Both are collectively responsible for the

leadership of the Company. The Chair

chairs the Board meetings, leads the

NEDs in the constructive challenge of

the Executive Directors’ strategy and is

accountable for the Board’s effectiveness.

This includes encouraging an open and

frank boardroom culture, setting the

Board’s agenda, facilitating the NEDs’

contribution and ensuring sufficient time

and information to promote effective and

challenging discussions. The Chair has

been in his current role since March 2020.

The CEO is responsible for the everyday

management of the Company. The

CEO leads the Executive Directors and

management team in the implementation

of the Board’s strategy and management’s

performance in running the business.

The NEDs have a supervisory role that

contributes to the development of

the strategy through supportive and

challenging inquiry. They scrutinise the

Executive Directors’ performance in

meeting their agreed goals and objectives,

and play a key role in their appointment or

removal.

The Company Secretary is appointed

by the Board. He facilitates the

communications and processes of the

Board, the induction programme for new

Directors and provides advice through the

Chair as may be required in the ongoing

discharge of the Directors’ duties. This

includes ensuring that the Company

provides the necessary resources for

access to independent advice and

any individual professional training and

development needs agreed with each

Director.

The Board operates within a framework

that distinguishes the types of decisions

to be taken by the Board, including

determination of strategy, setting the

principal operating policies and standards

of conduct, approval of overall financial

budgets and financing agreements,

approval for establishing key corporate

relationships and approval of any actions

or matters requiring the approval of

shareholders.

Board composition

As of December 2022, the Board

comprised six Directors, being the Chair,

the two Executive Directors and three

independent Non-Executive Directors.

Tony Hunter was Company Secretary

throughout the year and his appointment

was approved by the Board as a whole.

Responsibilities & Composition of the

Committees

There are four principal committees of the

Board:

• The Audit and Risk Committee –

responsible for the integrity of the

Financial Statements and narrative

reporting, including annual and half year

reports

• The Environmental, Social and

Governance (ESG) Committee -

responsible for defining the Group’s

strategy related to ESG matters.

• The Nominations Committee –

responsible for ensuring the leadership

needs of the Company are sufficiently

appropriate to ensure continued

ability to compete effectively in the

marketplace

• The Remuneration Committee

– responsible for the design,

development and implementation of the

Directors’ Remuneration Policy

Each principal Board committee has a

formal Terms of Reference (“TOR”), which

sets out the Committee’s delegated role

and authority and is approved by the

Board. The TORs for each Committee, as

well as the current Committee members,

are available on the Company’s website

at https://www.pharos.energy/about-us/

governance/committees/.

Time commitment

The Board has four scheduled meetings

a year although additional meetings are

scheduled as required.

In 2022, in addition to the four scheduled

quarterly meetings, the Board also met on

an additional three occasions to deal with

specific business matters which required

Board approval. One of the additional

meetings included a Board Strategy Day

meeting in October 2022, which was fully

attended.

Only Committee members are required

to attend their respective meetings.

Other Directors were invited to attend,

as determined appropriate or beneficial,

and committee chairs provide an update

at the full Board meeting. There was

full attendance of committee members

at the Audit and Risk, Remuneration,

Nominations and ESG Committees in

2022.

Composition, succession and

evaluation

Board composition and succession

The Nominations Committee ensures the

leadership needs of the Company are met

and maintained appropriately to allow it

to compete effectively in the marketplace.

Board appointments are made through

a formal process led by the Nominations

Committee. In relation to the recruitment

and appointment of Non-Executive

Directors, the Committee recognises the

emphasis placed by the 2018 Code on

the engagement of an external search

consultancy or the open advertising of

vacancies.

The Directors’ roles are established in

writing and approved by the Board.

Biographical details are provided on pages

113, 114.

Pharos Energy Annual Report and Accounts 2022

118

Financial Statements

Additional Information

Strategic Report

Governance Report

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

procedures, and the Pharos Guiding

Principles commit us to providing a

workplace free of discrimination where all

employees can fulfil their potential based

on merit and ability. They also commit us

to providing a fully inclusive workplace,

while providing the right development

opportunities to ensure existing staff have

rewarding careers.

For more information on the gender

balance of our corporate employees and

senior management, please see page 70

of the Corporate Responsibility report.

Annual re-election of Directors

All Directors annually retire and seek re-

election by shareholders at the Company’s

AGM. The Nominations Committee makes

its recommendation to the Board on

each re-election resolution. Pending the

Chair confirming his satisfaction that each

Director continues to perform effectively

and with the appropriate commitment to

the role, the full Board then determines its

own recommendation to shareholders in

relation to those resolutions.

The Committee formed its

recommendations regarding the re-

election resolutions at the 2023 AGM

following assessments of Board balance,

composition and independence.

Board effectiveness and evaluation

The Nominations Committee assesses

the Board’s balance of skills, experience,

independence, diversity, tenure and

knowledge of the Company and

the industry on an annual basis.

The assessment in 2022 included

consideration of the Company’s leadership

needs within the context of growth,

portfolio diversification and long-term

strategy. The discussions determined

that following the recent changes in

the business the current balance is

appropriate and sufficient to effectively

promote the long-term success of the

Company.

Remuneration

Remuneration principles

The Remuneration Committee is

responsible for the design, development

and implementation of the Directors’

Remuneration Policy.

In determining the remuneration packages

awarded to management, the Board

and the Remuneration Committee have

continued to aim at providing incentive

schemes that reflect the characteristics of

attractive rewards, fairness and restraint.

Appropriate advice on best practice is

taken from an independent advisor.

Directors’ Remuneration Policy

Our overarching aim is to operate a

Directors’ Remuneration Policy which

rewards senior management at an

appropriate level for delivering against

the Company’s annual and longer-term

strategic objectives. The policy is intended

to create strong alignment between

Executive Directors and shareholders.

In line with applicable law, we are required

to review and propose to shareholders the

Directors’ Remuneration Policy at least

once every 3 years. As the policy was last

reviewed and proposed at the 2020 AGM,

a revised policy will be put to shareholders

for approval at the 2023 AGM.

Consultation on the revised Directors’

Remuneration Policy commenced in

December 2022, and the policy takes into

account input from shareholders during

that process. The terms of the revised

policy are set out on pages 134 to 155 of

this report.

Pension and benefits

All eligible employees have the same

access to the same pension contribution

rate (15% of salary) and access to a similar

level of benefits.

Directors’ shareholdings and share

interests

The Board has a policy requiring Executive

Directors to build a minimum shareholding

of 200% of their annual salary. Additionally,

LTIP awards require a two-year holding

period following vesting. This is intended

to emphasise a commitment to the

alignment of Executive Directors with

shareholders and a focus on long term

stewardship.

Audit, Risk and Internal Control

Significant reporting and accounting

matters

During the first half of 2022, the Group’s

accounting policies, in accordance

with best practice, were reviewed by

management and the Committee to

ensure that they remained appropriate

for the Group’s activities. Following this

review, the Group’s accounting policies

were judged to be fully up-to-date and no

significant changes were recommended to

the Board by the Committee.

Significant issues related to the 2022

Financial Statements

The Committee met in March to go

through the significant issues that should

be taken into consideration in relation

to the Financial Statements for the

year ended 31 December 2022, being

key issues which may be subject to

heightened risk of material misstatement.

These key issues are set out below.

Fair, balanced and understandable

The Audit and Risk Committee advised

the Board whether the annual report

and accounts taken as a whole are fair,

balanced and understandable and provide

the range of information necessary for

shareholders to assess the Group’s

performance, business model and

strategy. The Directors have confirmed this

in their Responsibility Statement set out on

pages 156 to 160 of the Directors’ Report.

Viability statement and Going concern

Management completed their Going

Concern assessment which was

challenged and reviewed by the

Committee. The assessment included

a “Base Case” for the Group, including

cash flow estimates for both Egypt and

Vietnam, as well as a “Reasonable Worst

Case” scenario, giving particular regard

to the continuing impact of commodity

price volatility. A further assessment was

also undertaken on the impact of climate

change on commodity prices and a

sensitivity on carbon taxes.

Under these scenarios, management

has assessed, on a conservative basis,

the risks around commodity pricing,

operational risk and political and

regional risks, particularly in Egypt. The

assessments also took into account

the impact of potential discretionary

reductions in capital expenditures, as well

as the hedging of production volumes

to mitigate against commodity price

fluctuations.

2018 UK CORPORATE GOVERNANCE CODE - CONTINUED

Pharos Energy Annual Report and Accounts 2022

119

Based on this detailed analysis,

management has concluded that the

Group will continue as a Going Concern

for 12 months from the date of signing of

the 2022 Financial Statements.

Following its review of management’s

Committee paper and in-depth walk

through of assumptions, the Committee

are satisfied that it is appropriate to

prepare the 2022 Financial Statements on

a Going Concern basis.

For more information, please see the

Viability Statement in the Strategic Report

on pages 59 to 60.

Internal controls and risk management

systems

The Group’s internal control framework

and risk management processes are

designed to ensure that risk identification,

assessment and mitigation is properly

embedded throughout the organisation.

The risk management approach is

designed to provide the Committee and

the Board with reasonable assurance

that financial irregularities and control

weaknesses will be identified to mitigate

risks that could potentially have a material

adverse impact on the Group’s operations,

earnings, liquidity and financial prospects.

During 2022, the Group continued to

carry out comprehensive reviews of the

overall effectiveness of its internal controls

framework and continued to work on

improvements.

The Board is primarily responsible for

the effectiveness of the Group’s internal

control systems which are monitored

and improved on an ongoing basis.

The Committee has been delegated

the responsibility to monitor and assess

the effectiveness of the control systems

operated by management. The external

auditor, Deloitte, also provides feedback

and recommendations on controls

which are brought to the attention of the

Committee.

Internal controls and risk management

issues are discussed in detail and reviewed

for effectiveness at each Committee

meeting, with a report being provided to

the Board for approval.

Internal audit

In previous years, based on the size and

scale of the Group’s activities, an Internal

Audit function could not be justified.

However, following the acquisition of

the Egyptian asset, the Committee

recommended and the Board approved

the appointment of KPMG to carry out

various internal audits. No audits were

conducted during 2021 in order to

preserve cash following the impact of

the COVID-19 pandemic but work did

commence in 2022. The Committee

discussed and approved an internal

audit plan which is complementary but

separate to the audit work undertaken by

the Group’s external auditor, Deloitte. The

programme of work for 2022 included

Group Treasury and Corporate Model.

The Treasury Committee continue to meet

regularly to review the RBL covenants

compliance and to review the Group’s

liquidity, hedging requirements and

investment strategy.

The Committee reviewed and approved

the related compliance statements set

out in the Risk Management Report.

The Committee has also reviewed and

approved the statements regarding

compliance with the 2018 Code in

the Corporate Governance Report on

page 115. The Committee reviewed

and discussed with management and

the external auditor the Company’s

relevant financial information prior to

recommendation for Board approval.

This included the Financial Statements

and other material information presented

in the annual and half year reports. The

Committee considered the significant

financial reporting issues, accounting

policies and judgements impacting the

Financial Statements, and the clarity of

disclosures. The Committee conducted a

review of its Terms of Reference for best

practice, which were approved by the

Board in 2022. These will be reviewed

again during 2023.

The Audit and Risk Committee and

the Board have carried out a review of

the effectiveness of the Group’s risk

management and internal control systems.

Overall, the control environment was

considered to be operating effectively.

We recognise the oil and gas industry

faces many challenges ahead, including

the technical, financial, environmental

and political challenges of accessing an

increasingly scarce resource base and at

the same time coping with the opposing

dual challenges of production growth

but managing transition to a low carbon

future. The pressure to move to a low

carbon future have been brought to the

forefront during the COVID-19 pandemic.

During 2022 we made our commitment to

achieve Net Zero on Scope 1 and Scope 2

GHG emissions across all assets by 2050.

Our Strategic Framework takes into

consideration the range of potential

risks and the nature of their impact on

the business. The strategic ambitions of

the Group, achieving our financial and

ESG objectives, maintaining operational

effectiveness, ensuring our reputation to

markets, partners, and stakeholders are

all assessed in the context of our appetite

for risk.

The Board is responsible for maintaining

a sound system of internal controls to

safeguard shareholders’ investment and

the assets of the Company. There is an

effective internal control function within

the Company which gives reasonable

assurance against any material

misstatement or loss. The Board and

management will continue to review the

effectiveness and the adequacy of the

Company’s internal control systems and

update such as may be necessary.

External auditor

Deloitte LLP was originally appointed as

external auditor to the Company in 2002.

The Statutory Auditors and Third Country

Auditors Regulations 2016 (the “2016

Regulations”), amending the Companies

Act 2006, introduced a requirement for

all public interest entities, including listed

companies, to conduct a tender for

external audit services no less frequently

than every 10 years and rotate auditors

no less frequently than every 20 years.

For engagements starting in a financial

year beginning on a date between 17

June 1994 and 17 June 2003, as is the

case with the Company’s engagement of

Deloitte LLP, the last permitted year of the

engagement under the 2016 Regulations

is the last financial year to begin before 17

June 2023.

Accordingly, the financial year

commencing 1 January 2023 is the

final year for which Deloitte LLP can act

as external auditor to the Company. In

view of this, the Committee conducted

a competitive tender process for a

new external auditor during 2022. The

process followed the guidance set out in

the Financial Reporting Council’s paper

entitled “Audit Tenders: Notes on Best

Practice” published in February 2017

(the “FRC Audit Tender Guidance”). The

Company prepared a request for proposal

(RFP) document and, following initial

approaches, prepared a shortlist of audit

firms to whom the RFP document was

sent. Firms receiving the RFP document

2018 UK CORPORATE GOVERNANCE CODE - CONTINUED

Pharos Energy Annual Report and Accounts 2022

120

Financial Statements

Additional Information

Strategic Report

Governance Report

were invited to review data relating to

the Group and given an extended period

to ask questions, seek clarifications and

hold a number of meetings or calls with

the Committee, members of the Group’s

management and various teams and

disciplines across the Group’s business in

the UK, Vietnam and Egypt. Following that

period, participating firms were invited to

submit written proposals to the Company

by a specified deadline.

The Committee evaluated the proposals

received from participating firms based

on criteria set out in the RFP document.

Although there was a financial component

to the evaluation, the process extended

to a number of important non-financial

criteria. Non-financial criteria considered

in the evaluation process included the

strength and experience of the proposed

audit team and their understanding of the

oil and gas exploration and production

industry, each firm’s intended approach to

the audit, their ability to build respected

working relationships and the extent to

which they could add value and provide

important insight to the role.

Following this process, and consistent

with the FRC Audit Tender Guidance, the

Committee submitted the proposals to

the Board, with one of those proposals,

from Ernst & Young LLP, being the

Committee’s recommendation. In

early 2023, the Board agreed to adopt

the Committee’s recommendation.

The Company then announced in its

preliminary results statement on 22 March

2023 that it had agreed in principle to

appoint Ernst & Young LLP to succeed

Deloitte LLP as external auditor with effect

from the financial year commencing 1

January 2024. During the financial year

commencing 1 January 2023, Ernst

& Young LLP will “shadow” Deloitte’s

work as external auditor, with a view to

preserving know-how and experience and

encouraging a seamless transition.

Principal and emerging risks

On page 47, we set out our assessment

of the principal risks facing the business.

The Group Risk Management framework

requires that all business units within the

Group conduct on-going risk management

and reporting to the Audit and Risk

Committee and the Board. The Group

Risk Management Policy defines the

specifics of the risk management process,

describes the risk tools (for example, the

preparation and maintenance of a Group

risk matrix and risk register) and outlines

the reporting process and responsibilities

in order to meet the Group’s risk

governance framework.

Board Leadership and Company Purpose

Page(s)

Purpose and Culture 6, 14, 16, 115

Colleague engagement 16, 35, 115

Shareholder engagement

16, 22, 35, 36, 37, 109,

110, 116

Local communities, government and employees

15, 16, 22, 27, 35, 36, 37,

62, 67, 77, 78, 116

Conflicts of interests & Ethics hotline 14, 37, 38, 59, 61, 67, 116

Division Of Roles & Responsibilities

Responsibilities of the Board 109, 110, 111, 112

Board composition 112

Responsibilities & Composition of the Committees 110, 112

Time commitment 111

Composition, succession and evaluation

Board composition and succession 117

Diversity and Inclusion 8, 14, 16, 118

Annual re-election of Directors 118, 126

Board effectiveness and evaluation 118, 126

Remuneration

Remuneration principles 134, 135

Remuneration policy 135, 149-155

Pension & Benefits

136, 142, 145, 149, 152,

155

Directors’ shareholdings and share interests 141, 151

Audit, Risk and Internal Control

Significant reporting and accounting matters 128

Fair, balanced and understandable 128

Viability statement and going concern 59, 60, 118, 179

Risk management and internal controls 129-132

Internal audit 132

External auditor 132, 133

Principal and emerging risks 47

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Pharos Energy Annual Report and Accounts 2022

121

Changes during the year 2022

The Board

Members 6 (from May 2022, previously 9)

Execs 2 (from March 2022, previously 4)

NEDs 4 (from May 2022, previously 5)

Independent

NEDs

John Martin

(Chair, independent

on appointment)

Geoffrey Green

Lisa Mitchell

Marianne Daryabegui

Appointed 0

Retired 3

Audit and Risk Committee

Members 3

Appointed 0

Retired 1

Remuneration Committee

Members 3

Appointed 1

Retired 1

Nominations Committee

Members 5

Appointed 2

Retired 2

Environmental, Social and

Governance Committee

Members 6

Appointed 0

Retired 3

Accountability statement page references

Accountability

statements Report Page(s)

Business strategy,

purpose, and strategic

objectives

Strategic Report 6-8

Directors’ responsibility

statement

Directors’ Report 160

Auditor’s statement Independent Auditor’s Report 162-170

Going concern

statement

Financial Review 46

Directors’ Report 159

Viability statement Risk Management Report 59, 60

Critical judgements and

accounting estimates

Note 4 to the Financial Statements 179, 180

Risk Management and

Internal Control

Risk Management Report 48

Corporate Governance Report 118, 119

Audit and Risk Committee Report 129

Audit and Risk

Committee

Corporate Governance Report 117

Audit and Risk Committee Report 127-133

Nominations

Committee

Corporate Governance Report 117

Nominations Committee Report 125, 126

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Pharos Energy Annual Report and Accounts 2022

122

Financial Statements

Additional Information

Strategic Report

Governance Report

Environmental,

Social &

Governance (‘ESG’)

Committee report

JOHN MARTIN

ESG Committee Chair

ENVIRONMENTAL, SOCIAL AND GOVERNANCE (‘ESG’) COMMITTEE REPORT

Meeting attendance

Committee member

2022

attendance

John Martin (Chair)*

Jann Brown

Sue Rivett

Marianne Daryabegui*

Lisa Mitchell *

Geoffrey Green*

Rob Gray

Ed Story

Mike Watts

Note: Marianne was not in attendance

at one meeting due to unforeseen family

illness. Ed Story recused himself from the

meeting.

Dear shareholders,

Membership and responsibilities

During 2022, the Environmental, Social

and Governance (‘ESG’) Committee

was comprised of myself as Chair, Rob

Gray (retired May 2022), Ed Story, Jann

Brown, Sue Rivett, Mike Watts, Marianne

Daryabegui, Lisa Mitchell and Geoffrey

Green.

As Chair of the Committee, I convene

meetings on a regular basis and report to

the Board throughout the year.

The ESG Committee has a formal

document outlining its responsibilities,

which is reviewed and updated as

appropriate by the Board on an annual

basis.

The ESG Committee Terms of Reference

are available on our website, https://www.

pharos.energy/about-us/governance/

committees/ .

Key responsibilities

The Committee is constituted by the Board

to:

• Assist the Board in defining and

implementing the Group’s strategy

relating to ESG matters;

• Review the policies, programmes,

practices and initiatives of the Group

relating to ESG matters ensuring they

remain effective and up to date;

• Oversee the Group’s management of

ESG matters and compliance with legal

and regulatory requirements, including

applicable rules and principles of

corporate governance, and applicable

industry standards;

• Report on these matters to the

Board and, where appropriate, make

recommendations to the Board; and

• Report as required to shareholders of

the Company on the activities and remit

of the Committee, and in achieving ESG

targets.

Attended as member

* Independent Directors

Attended as invitee

Not attended

Pharos Energy Annual Report and Accounts 2022

123

ESG Committee meetings in 2022

The Committee met four times during

2022. These meetings were regularly

scheduled Committee meetings held in

March, May, September and December.

The Committee examines and discusses

at each meeting:

• Review of HSES quarterly performance

reports, which includes review of KPIs

for both safety and environmental

matters, and all HSES plans, policies

and procedures.

• Review of current GHG emissions

(including venting) and main sources of

GHG emitters in Egypt and Vietnam.

• Review and discussion on proposed

carbon-reduction initiatives in Egypt

and Vietnam, as part of the Group’s

Decarbonisation plan.

• Review of TCFD recommendations,

CDP climate change reporting and

annual Corporate Responsibility (“CR”)

Report.

• Review and discussion on the Group’s

Net Zero commitment and Emissions

Management Fund.

• Review and discussion on the

development of environmental

regulations and COP events.

• Review of procedures in place to

ensure a COVID-safe workplace and

practices.

In addition to members of the Committee,

additional non-committee members, such

as the Group Risk Manager, Reservoir

Engineer, Group Head of Technical,

General Counsel and Investor Relations

Analyst were invited to attend Committee

meetings. Internal ESG & Net Zero working

group meetings were also held separately

from ESG Committee meetings. There was

noted to be buy-in on ESG matters across

the Group.

During 2022, the following additional

areas were discussed at meetings of

the Committee:

March

Review and discussion on:

• Q4 2021 HSES performance report,

including procedures being maintained

to ensure a COVID-safe workplace

• KPIs for both safety and environmental

matters, noting no LTIs in 2021 and a

slight increase in GHG emissions.

• Draft ESG Committee report to be

included in the Annual Report

• Group’s GHG emissions reporting

compared to peer groups

• Gas venting, specifically the

methodology used for measuring and

how to address this issue

• Inventory of social charitable projects

to date

• Vietnam and Egypt’s national power

development plan, noting each

government’s Net Zero commitments

at COP26

• TCFD alignment & reporting

May

Review and discussion on:

• Q1 2022 HSES performance report,

including Process Safety Events (“PSE”)

in Vietnam

• GHG emissions and gas venting, noting

the reasons for increased venting from

TGT

• Progress on decarbonisation plan and

carbon-reduction projects

• TCFD reporting in the Annual Report

September

Review and discussion on:

• H1 2022 HSES performance report,

noting ongoing investigations into third-

party HSE incident in Egypt

• GHG emissions reporting

• Operational control on ESG matters, as

the Group is now non-operator in Egypt

• Proposal of an Emissions Management

Fund, noting its benefits to stakeholders

in the long term and demonstrated

the Group’s commitment to invest in

carbon reduction initiatives

December

Review and discussion on:

• Q3 2022 HSES performance report,

noting one LTI and 1 environmental spill

in Egypt following investigation after

September ESG Committee meeting

• GHG emissions reporting, noting a

decrease in Egypt due to decreased

venting but an increase in Vietnam

due to gas export stopping for

maintenance, resulting in increased

flared gas

• Progress on the Net Zero roadmap

to be published in 2023, noting

engagement with third-party consultant

to assist with development of roadmap

• Progress on potential decarbonisation

projects and technologies in Egypt and

Vietnam

During the year the Committee

focused on the following matters:

COVID-19 precautionary measures

The health, safety and welfare of our

staff, contractors and host communities

across our business remains the highest

priority on the Board agenda. The Group

adhered to the requisite precautionary

procedures and restrictions, in line with

the government directives in Egypt,

Vietnam and the UK. At Petrosilah and

Pharos El Fayum, a vaccination campaign

for all employees in the main offices and

fields started in Q2 2021 and culminated

to 97% of the workforce being double

vaccinated at the end of December 2022.

In Vietnam, 100% of our workforce are

double vaccinated. For the London office,

the Executives continued to monitor

closely the COVID-19 situation via the

WHO website, Public Health England

advices, travel alerts from foreign travel

advice and media outlets on what other

companies are implementing to mitigate its

risks of spread. The group has in place the

following precautions:

• Maintain regular communication with

in-country managers and their HSES

teams;

• Working from home options given;

• Travel guidance / restriction if

appropriate.

Health & Safety

In 2022, the JOCs in Vietnam continue

to deliver an exceptional record of safety,

reporting zero LTIs since operational

inception, representing ten production

years on TGT and 13 production years on

CNV. In Egypt, we regret to report one LTI

and one environmental spill in 2022, details

of which are set out in our Corporate

Responsibility report on page 61, and we

are working with the operator IPR and the

JOC Petrosilah to address the underlying

issues identified behind the safety

measurements and precautions in our

operations in order to return to our track

record of zero safety and environmental

incidents across all assets.

In Vietnam, the JOCs conducted over 200

HSE training sessions and 100 emergency

response drills respectively during 2022

to ensure safety and preparedness remain

a top priority. In Egypt, we continually

reinforce and implement safe working

procedures such as inspection of all

instruments and equipment, obtaining

the requisite permit to work applications,

providing training and awareness sessions

and above all implementing checks to

ENVIRONMENTAL, SOCIAL AND GOVERNANCE (‘ESG’) COMMITTEE REPORT - CONTINUED

Pharos Energy Annual Report and Accounts 2022

124

Financial Statements

Additional Information

Strategic Report

Governance Report

ensure risks are reduced to acceptable

levels and encourage the immediate use of

stop-cards.

HSES performance of the Group was

reviewed and discussed at every ESG

Committee meetings in 2022. All spillage

incidents during the year were investigated

and lessons learned as appropriate

and actions to prevent recurrence were

implemented.

KPIs

KPIs for both safety and environmental

matters were reviewed and discussed

at all four ESG Committee meetings in

2022. Whilst safety results were excellent

in Vietnam, continuing with our zero

LTI’s since operations began, there were

two safety and environmental incidents

in Egypt which have mean the bonus

outcomes for these elements were zero.

For more details of 2022 safety and

environmental KPIs, please see page 145

of the Directors Remuneration Report.

TCFD

The Company commenced Phase 2 of the

project to bringing our disclosures in line

with the requirements of the Task Force

on Climate-Related Financial Disclosures

(“TCFD”) in Q4 2021, results of which were

concluded in Q1 2022 and can be found

in the Corporate Responsibility Report

on page 79 to 106. As at year end 2022,

Pharos is compliant with 8 out of 11 of

TCFD recommendations, and we will

continue to work on improving our climate-

related reporting and disclosure to align

with all 11 of TCFD recommendations.

CDP

Over the past five years, the Company

have participated in the CDP Climate

Change Questionnaire. In 2022, we have

maintained our score of (C), originally

awarded in 2019 and which is also the

industry average. Most notably, 2022

marks the first year that the Company got

graded for their water usage disclosure in

the Water Security Questionnaire, which

was also rewarded a score of (C).

Both Questionnaires were completed

through collaborative efforts across

multiple disciplines and functions within

the Group and after thorough discussions

within the ESG working group, with

oversight and approval from the ESG

Committee before submission

Social

In recent years, we have structured our

social investment programme to align

more with the United Nations Sustainable

Development Goals (UN SDGs).

Pharos works closely with our local

partners and joint ventures in order to

make sure that our social initiatives in the

region continue to bring more positive

impacts to the region. In 2022, $198,600

was invested in 9 long-term community

projects, and a further $500,000 was

invested in ring-fenced funds for training

to develop future talents in the industry in

Egypt and Vietnam.

For full details of all the projects the JOCs

have invested in 2022, please see our

Corporate Responsibility report on pages

77 to 78.

Net Zero commitment by 2050,

Emissions Management Fund & Net

Zero roadmap

In September 2022, following various

discussions with and approval from the

ESG Committee and Board members,

Pharos announced our commitment to

achieve Net Zero GHG emissions from

all our assets by no later than 2050. Our

Net Zero target includes Scope 1 (direct)

and Scope 2 (indirect) emissions from

all our assets. In addition, our Net Zero

target applies to our existing as well as our

future assets. As we evaluate any potential

development of our business, such as

licence extensions and acquisitions, we will

take this commitment into account in our

decision-making and it will fall under our

Net Zero target. We will look to advance

our Net Zero target date which will depend

on achieving operational efficiencies,

reducing flaring and venting, replacing

the power consumption of our facilities

with less impactful energy sources and

eventually procuring nature-based carbon

offset projects for hard-to-abate, residual

emissions.

This will require investment by Pharos

and its operational partners, which is

why, following approval from the ESG

Committee, the Company also announced

the establishment of an Emissions

Management Fund. For every barrel sold

at an oil price above $75, we will set

aside $0.25 into this Fund. The intended

purpose of the fund is to provide support

for emissions management projects for

Pharos and our operational partners in line

with our climate goals.

Additionally, in 2022, Pharos also pledged

to publish a detailed Net Zero roadmap in

2023. This will include the following:

• A baseline emissions inventory for all

our assets

• Asset-level emission reduction

frameworks

• Interim targets over the short and

medium term

• Capital expenditure and resourcing to

achieve targets

The Committee recognise that the journey

to Net Zero will not be straightforward,

for Pharos and for the wider industry,

with a stream of new ideas and

solutions emerging to be tested. As new

technologies become established, they

will be reviewed by the ESG Committee

as well as its Working Group and brought

into use where relevant. We are committed

to transparency in our reporting and to

keeping stakeholders updated on our

progress.

JOHN MARTIN

ESG Committee Chair

ENVIRONMENTAL, SOCIAL AND GOVERNANCE (‘ESG’) COMMITTEE REPORT - CONTINUED

Pharos Energy Annual Report and Accounts 2022

125

JOHN MARTIN

Nominations Committee Chair

NOMINATIONS COMMITTEE REPORT

Nominations

Committee report

Membership

During the year, the Committee comprised John Martin as Chair, the outgoing Chief

Executive Officer Ed Story (retired March 2022), the incoming Chief Executive Officer Jann

Brown (joined March 2022), and the four Independent Non-Executive Directors (‘NEDs’),

Rob Gray (retired May 2022), Marianne Daryabegui, Lisa Mitchell and Geoffrey Green.

The qualifications of each of the Chair and members are set out on pages 113 to 114

Meetings

The Committee conducted its duties through four meetings held during 2022. During the

year the following areas were discussed at the Committee meetings:

Meeting Matter

Review and approval of Nominations Committee report for inclusion in the

2022 Annual Report and Accounts

Annual review of conflicts of interest register

Annual Committee Performance Evaluation

Annual Director reappointment

Confirmation of appointment of Senior Independent Director

Board Composition / Ongoing succession planning

Succession planning continued

As at 31 December 2022, the Board

comprised two Executive Directors and

four NEDs, including the Chair. All of

those NEDs (discounting the Chair, who

was independent on appointment) were

considered independent for the purposes of

the 2018 Code. John Martin remains Chair

of the ESG Committee, and Chair of the

Nominations Committee.

Board refreshment and

succession planning

Board refreshment and succession planning

continue as ongoing processes. In 2022,

the priority was to maintain the independent

component of the Board and to fully comply

with the 2018 Code.

In January 2022 we announced the

appointment of Jann Brown as CEO

effective 21 March 2022 on the completion

of the Egyptian farm-out transaction with

IPR. Jann was previously on the Board as

Managing Director and CFO.

Appointments Process

Board appointments are made through

a formal process led by the Nominations

Committee. In relation to the recruitment

and appointment of NEDs, the Committee

recognises the emphasis placed by the

2018 Code on the engagement of an

external search consultancy of the open

advertising of vacancies.

Independence

All NEDs are independent in full compliance

with the provisions of the 2018 Code.

Although Marianne Daryabegui has served

for a shorter period than 9 years in total in

two phases (October 2013 to 20 October

2016 and March 2019 to present), there

has been some discussion that she should

be regarded as having 8 years of service.

The Board continue to regard Marianne as

independent because of the 30 month gap

between two periods of office and the fact

that her total service will only amount to 7

years.

Board balance

The Committee assesses the Board’s

balance of skills, experience, independence,

diversity, tenure and knowledge of the

Company and the industry on an annual

basis. The assessment in 2022 included

consideration of the Company’s leadership

needs within the context of growth, portfolio

diversification and long-term strategy. The

discussions determined that following the

recent changes in the business the current

balance is appropriate and sufficient to

effectively promote the long-term success

of the Company.

The Board’s current balance and

composition are shown on page 111.

Role of the Committee

Ensuring the composition of the Company’s

leadership remains effective and competitive.

Leading the process for Board and

committee appointments and making

recommendations to the Board.

Annually reviewing the Board balance,

structure, composition, diversity and

succession planning.

Establishing an ongoing process for

evaluating the Board’s performance and

effectiveness.

The Committee has continued to ensure that

Board independence was evident during

2022 and will continue into 2023 taking into

account the Board composition requirements

of the 2018 UK Corporate Governance

Code.

Meeting attendance

Committee member

2022

attendance

John Martin (Chair)*

Jann Brown

Marianne Daryabegui*

Lisa Mitchell *

Geoffrey Green*

Rob Gray

Ed Story

Note: Jann Brown, Mike Watts and Sue

Rivett attended as non-committee members

for the first meeting of the year. Sue attended

meetings in Q1, 2 and 4. Ed Story recused

himself from the meeting. Jann Brown and

Geoffrey Green were appointed to committee

on 15 March 2022.

* Independent Directors

Attended as member

Attended as invitee Not attended

Pharos Energy Annual Report and Accounts 2022

126

Financial Statements

Additional Information

Strategic Report

Governance Report

NOMINATIONS COMMITTEE REPORT - CONTINUED

Diversity

Our approach to diversity and inclusiveness

is embedded within the Group’s Human

Rights Policy available on the Company’s

website at https://www.pharos.energy/

responsibility/policy-statements/. A key aim

of the Policy is a workplace that is inclusive

and free from discrimination.

In applying the Human Rights Policy

to Board composition, the Committee

pursues diversity of approach, experience,

knowledge, skills, and professional,

educational and cultural backgrounds.

The international and global perspective

achieved has enhanced the Board’s

discussions on business development, M&A

and operational and financial integration.

At present the Board composition scores

highly on gender diversity, with 67% female

representation. The average age of the

Board is 64, which is a little higher than

the average for listed companies, but not

dramatically so. There is no minority ethnic

representation on the Board although, as

noted in this report the Group’s staff as a

whole has significantly more ethnic diversity.

In theory this organisational diversity should,

in the longer term, filter upwards to senior

management and potentially to executive

representative on the Board.

In its annual review of diversity, the

Committee noted diversity of gender,

age, demographics, skills, professional

backgrounds, experience and education

amongst the Board and senior

management.

Board evaluation

At the end of 2022, in line with the UK

Corporate Governance Code, the Board

carried out its annual evaluation of its own

performance and effectiveness and that

of its principal Committees, the Chair and

the individual Directors. In doing so, the

outcomes of last year’s review were also

considered. The Committee Chair led

the process which was facilitated by the

Company Secretary and followed a similar

format to that of prior years. Directors

completed confidential questionnaires

covering the key areas as set out below.

The questions were structured to

encourage full, in-depth responses on each

area of focus.

• Strategy

• Risk

• Shareholder and stakeholder relations

• Succession planning

• The Chair’s effectiveness

• Board effectiveness and operation

• The operation of each of the principal

Board committees

• Board training and development needs

• Any other general matters Directors

wished to raise

The results were reported on an

unattributed basis and discussed by the

Committee, led by the Committee Chair,

then shared with the whole Board. The

results of the Chair’s performance review

were discussed with the other NEDs, led by

the Deputy Chair and Senior Independent

Director, and communicated to the Chair.

Following the evaluation process, a number

of areas were identified for ongoing focus in

2023 including:

• Ongoing strategy discussions

• Continued review of risk

• Assets and operations

• Maintaining shareholder engagement

• Future succession planning

• ESG considerations

Re-election

All Directors annually retire and seek

re-election by shareholders at the

Company’s AGM. The Committee makes

its recommendation to the Board on

each re-election resolution. Pending the

Chair confirming his satisfaction that each

Director continues to perform effectively

and with the appropriate commitment to

the role, the full Board then determines its

own recommendation to shareholders in

relation to those resolutions.

Ed Story and Dr Mike Watts retired as

Directors following completion of the

farm-out transaction with IPR in March

2022. In addition, Rob Gray did not seek

re-appointment as a Director at the 2022

AGM and retired with effect from the

close of that meeting. The remaining six

Directors retired and offered themselves for

re-election at the 2022 AGM. All Directors

were duly re-elected at the 2022 AGM,

each receiving more than 94% of the proxy

votes submitted in advance of the meeting.

The Committee is satisfied that each

individual Director’s performance continues

to be effective and demonstrates

commitment to the role and, accordingly,

has recommended to the Board that each

such Director remains in office subject to

re-election by shareholders at the AGM.

The Committee formed its

recommendations regarding re-election

following assessments of Board balance,

composition and independence.

Workforce engagement

In November 2022, in my role as

Independent Non-Executive Director

responsible for workforce engagement

I joined head office staff for a dedicated

offsite staff meeting, at which staff members

were able to discuss matters of interest.

In addition to this meeting I have regularly

attended company functions and remain

approachable to all staff.

This engagement has proved an effective

communication route for the employees

and demonstrates the values of openness

and integrity to which we are committed.

Board development, information

and support

Throughout 2022, all Directors received

ongoing access to resources for the update

of their skills and knowledge; both on an

individual and a full Board basis. Comments

are solicited in the annual Board evaluation

and discussed with the Chair.

Conflicts of interest

The Board has the power, subject to

certain conditions, to authorise, where

appropriate, a situation where a Director

has, or can have, a direct or indirect interest

that conflicts, or possibly may conflict, with

the Company’s interests. Such authority

is in accordance with section 175 of the

Companies Act 2006 and the Company’s

articles of association. Procedures are in

place for ensuring that the Board’s powers

to authorise conflicts are used effectively

and appropriately. Directors are required

to notify the Company of any conflicts of

interest or potential conflicts of interest

that may arise, before they arise, either

in relation to the Director concerned or

their connected persons. The decision

to authorise each situation is considered

separately on its particular facts.

Only Directors who have no interest in

the matter are able to take the relevant

decision to authorise a conflict and must

act in a way they consider, in good faith, will

be most likely to promote the Company’s

success. The Directors will impose

such limits or conditions as they deem

appropriate when giving authorisation or

when an actual conflict arises. These may

include provisions relating to confidential

information, attendance at Board meetings

and availability of Board papers, along with

other measures as determined appropriate.

Each Director has notified the Board of

either the potential for or the absence

of conflicts. The Board assesses every

notification of a conflict on its own merits,

including the implementation of appropriate

limits and conditions, prior to giving

authorisation for any specific conflict or

potential conflict to exist.

The Board assesses its conflict

authorisations on an ongoing basis

throughout the year and additionally

performs a scheduled review in December.

JOHN MARTIN

Nominations Committee Chair

Pharos Energy Annual Report and Accounts 2022

127

AUDIT AND RISK COMMITTEE REPORT

Audit and Risk

Committee report

LISA MITCHELL

Audit and Risk Committee Chair

Dear shareholders,

Membership and responsibilities

During 2022, the Audit and Risk

Committee comprised me as Chair,

Marianne Daryabegui and Geoffrey Green.

Rob Gray attended the March and May

Committee’s before stepping down from

the Board at the close of the 2022 AGM

in May.

As Chair of the Committee, I convene

meetings on a regular basis and report to

the Board throughout the year.

The Audit and Risk Committee has

a formal document outlining its

responsibilities, which is reviewed and

updated as appropriate by the Board on

an annual basis.

The Audit and Risk Committee Terms of

Reference are available on our website,

https://www.pharos.energy/about-us/

governance/committees/.

Key responsibilities

Reviewing key financial, operational and

corporate responsibility risk management

processes with strong focus on

Environmental, Social and Governance

(“ESG”) issues.

Reviewing and testing the integrity of the

Group’s financial statements to ensure

full compliance with international financial

reporting standards and requirements.

Overseeing the planning and execution

of the ongoing external audit programme

including a detailed review of audit quality

and results.

Reviewing the effectiveness of internal

control processes and systems, including

IT control platforms.

Audit and Risk Committee

meetings in 2022

The Committee met four times during

2022. These meetings were the regularly

scheduled Committee meetings held in

March, May, September and December.

The Committee examines and discusses at

each meeting:

• Detailed review of internal controls and

implementation of upgrades.

• Review of risk register and risk

management reports, including updates

on Russian sanctions, a full paper also

goes to the Board.

• In addition to members of the

Committee, all members of the

Board, the finance management

team, operational management and

the Group’s external auditor, Deloitte,

attended each of the Audit and Risk

Committee meetings.

During 2022, the following additional

areas were discussed at meetings of

the Committee:

March

Update and review of Modern Slavery and

Human Trafficking Statement, HSE Policy,

Social Responsibility Policy, Biodiversity

and Conservation Policy, Human Rights

Policy and Code of Business Conduct and

Ethics

Finance update including the Internal

Controls Report, Reserves Update,

Impairment Analysis, review of the Asset

Held for Sale paper, RBL Refinancing and

Treasury review

Review and approval of 2021 financial

statements, including reviews that they

were fair, balanced and understandable,

reviews of Going Concern and Viability

Statements

Review of 2021 external audit status,

including analyses of findings of the

external audit and key judgemental areas

Meeting attendance

Committee member

2022

attendance

Lisa Mitchell (Chair) *

Marianne Daryabegui *

Geoffrey Green *

Rob Gray

Note: Jann Brown, Sue Rivett and John

Martin also attended all of the meetings

as non-committee members.

Attended as member

* Independent Directors

Attended as invitee

Not attended

Pharos Energy Annual Report and Accounts 2022

128

Financial Statements

Additional Information

Strategic Report

Governance Report

AUDIT AND RISK COMMITTEE REPORT - CONTINUED

Review and update of the Audit and Risk

Committee governance matters, with

attention to internal controls processes

and systems, and a detailed review of Risk

management issues and mitigations, a

separate report on Russian sanctions was

presented to the full Board

May

Review and update of Internal Controls

Report including Financial review

Internal audit update

Review of the Egyptian Farm out paper

Review of the Russian sanctions paper

and recommendation of new Group

Sanctions Policy

Status update on Treasury activities

including the RBL and hedging status

Review and assessment of Risks and

mitigations

September

Finance update including the Internal

Controls Report, Reserves Update,

Impairment Analysis, review Egyptian farm

out paper, Distributable Reserves position,

internal audit update and insurance review

Review and Approval of 2022 Interim

Accounts, including presentation by

external auditor, Deloitte, and Audit and

Risk Committee comments

Review and approval of the Going

Concern Paper, including stress testing

and mitigations

An update on Treasury, financing, covenant

compliance monitoring and commodity

hedging with particular attention on the

increasing receivables position in Egypt

and the currency devaluation

Presentation by our 3rd party advisor,

Commodities Trading Corporation on

commodity hedging

Reviewing the response to the FRC on

their question regarding abandonment

disclosures

December

Review and update on Internal Controls

and Risk Report including: Finance review

and Treasury update

Review of the Group Forecast 2022 and

2023 Budget and capital allocation

Annual Review and Approval of Terms

of Reference of the Audit and Risk

Committee

Review of 2022 year-end planning

Review and discussion of Significant Risks

particularly around the impact of Climate

Change, impact on Going Concern and

Impairment of assets and the Egyptian

receivables position, currency devaluation

and the IMF approved loan coming into

Egypt

Review of recent developments in

relation to FRC requirements, proposed

developments in relation to external

auditors’ responsibilities, and other related

regulatory and compliance matters

Review the Tax Strategy Statement and

Provision of Non-Audit Services by the

External Auditors

Review the results of the external audit

tender

Financial reporting and significant

accounting issues

During the first half of 2022, the Group’s

accounting policies, in accordance

with best practice, were reviewed by

management and the Committee to

ensure that they remained appropriate

for the Group’s activities. Following this

review, the Group’s accounting policies

were judged to be fully up-to-date and no

significant changes were recommended to

the Board by the Committee.

Significant issues related to the 2022

Financial Statements

The Committee met in March to go

through the significant issues that should

be taken into consideration in relation

to the Financial Statements for the

year ended 31 December 2022, being

key issues which may be subject to

heightened risk of material misstatement.

These key issues are set out below.

Fair, balanced and understandable

The Committee advised the Board

whether the annual report and accounts

taken as a whole are fair, balanced and

understandable and provide the range of

information necessary for shareholders to

assess the Group’s performance, business

model and strategy. The Directors have

confirmed this in their Responsibility

Statement set out on page 160 of the

Directors’ Report.

Going Concern

Management completed their Going

Concern assessment which was

challenged and reviewed by the

Committee. The assessment included

a “Base Case” for the Group, including

cash flow estimates for both Egypt and

Vietnam, as well as a “Reasonable Worst

Case” scenario, giving particular regard

to the continuing impact of commodity

price volatility. A further assessment was

also undertaken on the impact of climate

change on commodity prices and a

sensitivity on carbon taxes.

Under these scenarios, management

has assessed, on a conservative basis,

the risks around commodity pricing,

operational risk and political and

regional risks, particularly in Egypt. The

assessments also took into account the

impact of potential discretionary reductions

in capital expenditures, as well as the

hedging of production volumes to mitigate

against commodity price fluctuations.

Based on this detailed analysis,

management has concluded that the

Group will continue as a Going Concern

for 12 months from the date of signing of

the 2022 Financial Statements.

Following its review of management’s

Committee paper and in-depth walk

through of assumptions, the Committee

are satisfied that it is appropriate to

prepare the 2022 Financial Statements on

a Going Concern basis.

Pharos Energy Annual Report and Accounts 2022

129

Oil and gas reserves

The Group’s estimates of oil and gas

reserves have a crucial impact on the

Financial Statements, especially in relation

to DD&A and impairment of PP&E assets.

Oil and gas reserves, as discussed in the

Risk Management Report on page 56

are calculated using best practice and

industry evaluation techniques which have

uncertainties in their application.

The Committee reviewed, in conjunction

with management, the results of

independent third party assessments

conducted by ERCE for Vietnam assets

TGT and CNV, and subsequently audited

by the Group’s reserves auditor, RISC

Advisory Pty Ltd (“RISC”).

In addition, the Committee reviewed,

in conjunction with management and

Deloitte, the reserves assessment

conducted by McDaniel for the El Fayum

Concession in Egypt.

The reserves are described in the review of

operations on pages 32 to 34.

The various reserves estimates have

been scrutinised by management, taking

into account the status of each field’s

development, to be satisfied that reserves

estimates are appropriate, that DD&A

calculations are correct and that rigorous

impairment testing has been carried out.

Management also reviewed its estimates

of future costs (including decommissioning

costs) associated with producing reserves.

Reserve estimates are inherently uncertain,

and are revised over the producing lives

of oil and gas fields as new reserves

estimates become available and economic

conditions evolve.

Deloitte also engaged their in-house

Reserves Evaluation and Advisory team

in Canada to understand and challenge

management processes in determining

the year end reserves estimates. This

included performing procedures over

the future production forecasts to the

approved budgets and to the reserves

auditors’ CPRs, comparing historical prior

year forecasts and impairment models to

understand variances and reviewing of the

technical reserves revisions in the year.

Internal controls and risk management

systems

The Group’s internal control framework

and risk management processes are

designed to ensure that risk identification,

assessment and mitigation is properly

embedded throughout the organisation.

The risk management approach is

designed to provide the Committee and

the Board with reasonable assurance

that financial irregularities and control

weaknesses will be identified to mitigate

risks that could potentially have a material

adverse impact on the Group’s operations,

earnings, liquidity and financial prospects.

During 2022, the Group continued to

carry out comprehensive reviews of the

overall effectiveness of its internal controls

framework and continued to work on

improvements.

The Board is primarily responsible for

the effectiveness of the Group’s internal

control systems which are monitored

and improved on an ongoing basis.

The Committee has been delegated

the responsibility to monitor and assess

the effectiveness of the control systems

operated by management. The external

auditor, Deloitte, also provides feedback

and recommendations on controls

which are brought to the attention of the

Committee.

Internal controls and risk management

issues are discussed in detail and reviewed

for effectiveness at each Committee

meeting, with a report being provided to

the Board for approval.

Reserve Based Lending Facility (RBL)

The RBL facility was refinanced in 2021,

providing access to a committed $100m

facility based solely on the Vietnam

assets. As at 31 December 2022 an

amount of $65.0m was drawn (2021:

$78.1m). A further $50m is available on

an uncommitted accordion basis. The

refinanced facility matures in July 2025.

Under the RBL facility agreement, the

Group is required to be compliant with

certain debt covenants for each half year

ending 30 June and 31 December, as set

out on page 203.

The Committee has reviewed

management’s assessments of debt

covenant calculations and is satisfied that

the Group is fully compliant.

Commodity hedging – treasury

management

The Group actively managed its exposure

to commodity price risk by entering into

an ongoing programme of hedging. The

objectives of the hedging programme are

mainly to comply with the requirements

under the RBL and to protect the Group’s

Reasonable Worst Case Scenario. Pharos

was hedged more than required under the

conditions of the RBL and higher than the

Company would normally commit to in

order to support stress testing for going

concern and the working capital test

required for the prospectus for the Egypt

farm down.

A Treasury Committee, comprising the

Chief Financial Officer as Chair and senior

members of the Group’s finance team,

convene on a very regular basis to review

the Group’s strategy and the open hedge

positions to ensure that these are still

fit for purpose in light of current market

conditions. Over the course of 2022, the

hedged positions were out of the money

by $22.5m (2021: $29.7m), the hedge

position having been taken out to satisfy

the 35% minimum Vietnam production

hedge required under the RBL and hedges

to mitigate the impact on Reasonable

Worst Case for Going Concern and the

Working Capital Test for the Egypt farm

down during 2021.

In 2022, the Group seeks to extend this

coverage further to protect budgetary cash

flow and ensure compliance with and help

mitigate redetermination risk on the RBL.

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130

Financial Statements

Additional Information

Strategic Report

Governance Report

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 commodity price

assumptions were reviewed.and reduced

accordingly

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 risks of 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 costs

Costs held in Vietnam pending future work

programme and costs in Israel impaired due

relinquishment of the blocks

In Egypt, further activities are due to take place

on NBS and El Fayum in 2023, therefore no

impairment triggers have occured

Reviewed at each Committee meeting the status

of all updated estimates

Updated third party estimates and independent

audit completed, with results disclosed in the 2022

Financial Statements

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Pharos Energy Annual Report and Accounts 2022

131

Exploration and evaluation assets and

impairment review

The Committee reviewed the Group’s

intangible exploration and evaluation

assets individually in Egypt, Israel and

Vietnam for any indications of impairment,

including the various indicators specified

in paragraphs 18 to 20 as set out in IFRS

6 – “Exploration for and Evaluation of

Mineral Resources”. Please refer to Note

4 (b) to the Financial Statements for more

information on climate change and energy

transition.

At both the half year and year end 2022,

the Committee considered whether various

indicators of impairment existed, and

also whether there were issues arising

from the results of impairment reviews by

management. Such reviews are carried

out in relation to both exploration and

evaluation assets, with the role of the

Committee being focused on challenging

management’s underlying assumptions

and estimates and to judge whether

they are realistic and justified. Following

the impairment testing, the Committee

recommended to the Board that following

3D seismic acquisition on Block 125 in

Vietnam and the forward programme

of work that no impairment had been

triggered. The minor commitment

programme of work in Israel has been

completed in 2022 and the blocks

relinquished, the Group have therefore

impaired the assets. In Egypt, on NBS,

further drilling and 3D activity is due to

take place in 2023 and on El Fayum

the next phase will be to test the well.

Therefore with the forward programme

of work no impairment triggers have

occurred.

Producing assets, property, plant and

equipment (“PP&E”) and impairment

review

The Committee reviewed individually the

Group’s oil and gas producing assets

classified as PP&E on the balance sheet

for impairment with reference to IAS 36

– “Impairment of Assets”. During 2022,

the Group’s PP&E oil and gas assets

comprised its two Vietnam producing

licences, TGT and CNV, as well as its El

Fayum Concession in Egypt. These are

described in the operations review on

pages 28 to 34.

This review focused on an updated

assessment of the recoverable amount

of each asset compared to their carrying

value in the accounts. If the recoverable

amount dropped below the carrying

value, there would have been an

impairment charge to reduce the carrying

value. The Committee considered the

various assumptions underpinning the

assessment of the recoverable amount,

including underlying reserves, commodity

prices, production rates and discount

rates. Based on the Group’s approved

economic assumptions, the Committee

recommended to the Board that

impairment reversals were made on the

two Vietnam fields, and on the El Fayum

Concession in Egypt.

On our CNV field in Vietnam, a pre-tax

impairment reversal of $3.6m has been

reflected in the Income Statement with an

associated deferred tax charge of $1.4m.

As at 31 December 2022, the carrying

amount of the CNV oil and gas producing

property is $76.4m.

On our TGT field in Vietnam, a pre-tax

impairment reversal of $19.7m has been

reflected in the Income Statement with an

associated deferred tax charge of $6.9m.

As at 31 December 2022, the carrying

amount of the TGT oil and gas producing

property is $242.4m.

For our El Fayum concession in Egypt,

an impairment reversal of $3.8m, no tax

applicable, is reflected in the Income

Statement. As at 31 December 2022,

the carrying amount of the El Fayum oil

producing property is $62.5m.

Disposal of Asset Held for Sale (AHFS)

In December 2021, we classified 55% of

the Group’s operated interest in each of

our Egyptian Concessions, El Fayum and

North Beni Suef, as assets classified as

held for sale (Net assets classified as held

for sale as 31 December 2021: $53.5m).

Following the completion of the farm-out

transaction of Egyptian assets to IPR,

the accounting for the assets reflect the

following:

• The economic date of the transaction

was 1 July 2020, with completion on 21

March 2022

• Pharos owned and managed the

business up to completion

• On completion, an adjustment to

compensate for net cash flows since

the economic date has been adjusted

for in the level of carry to be provided

by IPR to Pharos

• In the financial statements, for the

period post completion, Pharos 45%

share of field costs – capex, opex and

G&A – are accounted for as incurred by

Pharos, although all such costs are paid

by IPR and set off against the carry

• All revenues earned are paid direct to

Pharos

The firm consideration was received in two

tranches, $2.0m in September 2021 and

$3.0m on 30 March 2022.

The carry of $36.3m is disproportionate

funding contribution from IPR adjusted

for working capital and interim period

adjustments from the effective economic

date of 1 July 2020 and completion date.

The carry decreases every month against

the cash calls received from IPR. The

total amount utilised as at 31 December

2022 amounts to $15.4m, which has

been disclosed in “Consideration received

on farm out of Egyptian assets” in the

cash flow as part of investing activities

(combined with $3.0m firm consideration

received on 30 March 2022). No cash

outflow is required until we utilise the

whole amount.

The Group is entitled to contingent

consideration depending on the average

Brent Price each year from 2022 to the

end of 2025 (with floor and cap at $62/

bbl and c.$90/bbl respectively). The

contingent consideration is calculated

yearly and is capped at a maximum total

payment of $20.0m. As at 31 December

2022, the contingent consideration

amounts to $13.9m ($5.0m current and

$8.9m non-current). Testing of sensitivity

for a $5/bbl reduction in long term oil price

used would result in $1.3m decrease in

contingent consideration to $12.6m.

El Fayum Concession Third

Amendment

On 19 January 2022, the Third

Amendment to the El Fayum Concession

Agreement was signed by His Excellency

Eng. Tarek El Molla (Minister of Petroleum

& Mineral Resources of the Arab Republic

of Egypt), EGPC and the Company.

Signature of the Third Amendment was a

key Condition Precedent for the transfer

of a 55% participating interest (and

operatorship) in the El Fayum and North

Beni Suef Concessions to IPR Lake Qarun.

Under the terms, the cost recovery

percentage increased from 30% to

40% allowing Pharos a significantly

faster recovery of all its past and future

investments. In return, Pharos has agreed

to waive its rights to recover a portion of

the past costs pool ($115m) and reduce its

share of Excess Cost Recovery Petroleum

from 15% to 7.5%. While in full cost

recovery mode, Contractor’s share of

revenue increases from 42.6% to 50.8%

as from November 2020 (corresponding

to additional net revenues to Contractor of

$7.0m to the date of signature).

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132

Financial Statements

Additional Information

Strategic Report

Governance Report

Egypt Foreign Currency Risk

In the Egypt business, the recent global

macroeconomic volatility has seen both

a significant devaluation of the Egyptian

Pound and continued restrictions on

outgoing US Dollar transfers by the

Central Bank of Egypt. The Company has

opted not to accept the payment of trade

receivables balance in Egyptian Pounds

unless required for operations. The

progressive devaluation of EGP against

USD means that it is preferable to continue

to hold USD denominated receivables.

As a result, Pharos’ receivables have

increased to $24.2m at 31 December

2022, inclusive of c.$7m catch-up invoice

for improved fiscal terms under the Third

Amendment and stated prior to a risk

factor provision of $1.8m (2021: $7.4m

receivables).

The International Monetary Fund (IMF)

recently announced that its Executive

Board had approved the provision of a $3

billion, 46-month extended fund facility to

Egypt, which the IMF expects to catalyse

additional financing of approximately

$14 billion from Egypt’s international and

regional partners. In addition, Egypt is

seeking access to up to a further $1 billion

from the IMF’s newly created resilience and

sustainability facility to support climate-

related policy goals. Taken together, these

developments are widely anticipated to

improve Egypt’s FX reserves and overall

liquidity in the first half of 2023.

The Company therefore remain optimistic

that outstanding receivables with EGPC

will start to be recovered during 2023.

Internal controls focus for 2022

In previous years, based on the size and

scale of the Group’s activities, an Internal

Audit function could not be justified.

However, following the acquisition of

the Egyptian asset, the Committee

recommended and the Board approved

the appointment of KPMG to carry out

various internal audits. No audits were

conducted during 2021 in order to

preserve cash following the impact of

the COVID-19 pandemic but work did

commence in 2022. The Committee

discussed and approved an internal

audit plan which is complementary but

separate to the audit work undertaken by

the Group’s external auditor, Deloitte. The

programme of work for 2022 included

Group Treasury and Corporate Model.

The Treasury Committee continue to meet

regularly to review the RBL covenants

compliance and to review the Group’s

liquidity, hedging requirements and

investment strategy.

The Committee reviewed and approved

the related compliance statements set

out in the Risk Management Report.

The Committee has also reviewed and

approved the statements regarding

compliance with the 2018 Code, in

the Corporate Governance Report on

page 115. The Committee reviewed

and discussed with management and

the external auditor the Company’s

relevant financial information prior to

recommendation for Board approval.

This included the Financial Statements

and other material information presented

in the annual and half year reports. The

Committee considered the significant

financial reporting issues, accounting

policies and judgements impacting the

Financial Statements, and the clarity of

disclosures. The Committee conducted a

review of its Terms of Reference for best

practice, which were approved by the

Board in 2022. These will be reviewed

again during 2023.

The Audit and Risk Committee and

the Board have carried out a review of

the effectiveness of the Group’s risk

management and internal control systems.

Overall, the control environment was

considered to be operating effectively.

We recognise the oil and gas industry

faces many challenges ahead, including

the technical, financial, environmental

and political challenges of accessing an

increasingly scarce resource base and at

the same time coping with the opposing

dual challenges of production growth but

managing transition to a low carbon future.

The pressure to move to a low carbon

future have been brought to the forefront

during the COVID-19 pandemic. During

2022 we made our commitment to Net

Zero by 2050.

Our Strategic Framework takes into

consideration the range of potential

risks and the nature of their impact on

the business. The strategic ambitions of

the Group, achieving our financial and

ESG objectives, maintaining operational

effectiveness, ensuring our reputation to

markets, partners, and stakeholders are

all assessed in the context of our appetite

for risk.

The Board is responsible for maintaining

a sound system of internal controls to

safeguard shareholders’ investment and

the assets of the Company. There is an

effective internal control function within

the Company which gives reasonable

assurance against any material

misstatement or loss. The Board and

management will continue to review the

effectiveness and the adequacy of the

Company’s internal control systems and

update such as may be necessary.

Risk assessment

The Committee carried out a detailed

risk assessment in which it reviewed

existing risks and identified new risks

as appropriate. The likelihood and

significance of each risk was evaluated

along with proposed mitigating factors and

was reported to the Board. All new risks or

changes to existing risks were monitored

throughout the year and discussed at

each Committee meeting. The Committee

maintains a comprehensive bribery risk

assessment and mitigation procedure to

ensure that the Group has procedures

in place to eliminate bribery, and that

all employees, agents, contractors, and

other associated persons are made fully

aware of the Group’s robust policies and

procedures on a regular basis.

We continue to recognise the ongoing sad

situation in Ukraine. We have no direct

business in the region. We have set up a

working project team who carried out due

diligence checks to assess parts of our

business that might be affected and came

up with mitigating actions.

External auditor

Deloitte LLP was originally appointed as

external auditor to the Company in 2002.

The Statutory Auditors and Third Country

Auditors Regulations 2016 (the “2016

Regulations”), amending the Companies

Act 2006, introduced a requirement for

all public interest entities, including listed

companies, to conduct a tender for

external audit services no less frequently

than every 10 years and rotate auditors

no less frequently than every 20 years.

For engagements starting in a financial

year beginning on a date between 17

June 1994 and 17 June 2003, as is the

case with the Company’s engagement of

Deloitte LLP, the last permitted year of the

engagement under the 2016 Regulations

is the last financial year to begin before 17

June 2023.

Accordingly, the financial year commencing

1 January 2023 is the final year for

which Deloitte LLP can act as external

auditor to the Company. In view of this,

the Committee conducted a competitive

tender process for a new external auditor

during 2022. The process followed the

guidance set out in the Financial Reporting

Council’s paper entitled “Audit Tenders:

Notes on Best Practice” published in

February 2017 (the “FRC Audit Tender

Guidance”). The Company prepared a

request for proposal (RFP) document and,

following initial approaches, prepared a

shortlist of audit firms to whom the RFP

document was sent. Firms receiving the

RFP document were invited to review

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Pharos Energy Annual Report and Accounts 2022

133

data relating to the Group and given

an extended period to ask questions,

seek clarifications and hold a number of

meetings or calls with the Committee,

members of the Group’s management and

various teams and disciplines across the

Group’s business in the UK, Vietnam and

Egypt. Following that period, participating

firms were invited to submit written

proposals to the Company by a specified

deadline.

The Committee evaluated the proposals

received from participating firms based

on criteria set out in the RFP document.

Although there was a financial component

to the evaluation, the process extended

to a number of important non-financial

criteria. Non-financial criteria considered

in the evaluation process included the

strength and experience of the proposed

audit team and their understanding of the

oil and gas exploration and production

industry, each firm’s intended approach to

the audit, their ability to build respected

working relationships and the extent to

which they could add value and provide

important insight to the role.

Following this process, and consistent

with the FRC Audit Tender Guidance, the

Committee submitted the proposals to

the Board, with one of those proposals,

from Ernst & Young LLP, being the

Committee’s recommendation. In

early 2023, the Board agreed to adopt

the Committee’s recommendation.

The Company then announced in its

preliminary results statement on 22 March

2023 that it had agreed in principle to

appoint Ernst & Young LLP to succeed

Deloitte LLP as external auditor with effect

from the financial year commencing 1

January 2024. During the financial year

commencing 1 January 2023, Ernst

& Young LLP will “shadow” Deloitte’s

work as external auditor, with a view to

preserving know-how and experience and

encouraging a seamless transition.

In each year, the Committee assesses

the performance of the external auditor

based on their experience, the quality

of their written and oral communication

and input from management, prior to

making any recommendations as to the

re-appointment of the external auditor at

the AGM. The Committee also assesses

the independence of the external auditor

once a year and the lead partner is

required to be rotated every five years.

The current Deloitte LLP lead partner is

Anthony Matthews, who is compliant with

the rotation requirements and will continue

to be compliant during Deloitte’s final year

as external auditor. Other senior audit staff

are rotated every five to seven years.

External auditor – non-audit services

The external auditor is appointed primarily

to carry out the statutory audit and their

continued independence and objectivity

is crucial. In view of their knowledge of

the business, there may be occasions

when the external auditor is best placed to

undertake other services on behalf of the

Group. The Committee has a policy which

sets out those non-audit services which

the external auditor may provide and those

which are prohibited. Within that policy,

any non-audit service must be approved

by the Committee.

Before approving a non-audit service,

consideration is given to whether the

nature of the service, materiality of the

fees, or the level of reliance to be placed

on it by the Group would create, or appear

to create, a threat to independence.

If it is determined that such a threat

might arise, approval will not be granted

unless the Committee is satisfied that

appropriate safeguards are applied to

ensure independence and that objectivity

is not impaired. The auditor is prohibited

from providing any services which might

result in certain circumstances that have

been deemed to present such a threat,

including auditing their own work, taking

management decisions for the Group or

creating either a mutuality or conflict of

interest. The Company has taken steps

to develop resources and relationships in

order to establish availability of alternate

advisers for financial and other matters.

External audit fees

Total audit and non-audit fees in 2022

were $0.6m and $0.1m respectively. The

Committee approved all non-audit services

provided by the external auditor in 2022.

The principal non-audit fees during 2022

were $0.1m for the interim review.

The Committee reviews its non-audit

services policy on an annual basis and

current policy requires all non-audit

services to be pre-approved by the

Committee. It is noted that the Group’s

policy sets out the permitted services and

those that are prohibited.

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

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134

Financial Statements

Additional Information

Strategic Report

Governance Report

DIRECTORS’ REMUNERATION COMMITTEE REPORT

Directors’ Remuneration

Committee report

GEOFFREY GREEN

Remuneration Committee Chair

Role of Committee

The Remuneration Committee is

responsible for setting the remuneration

of the Chair and the Executive Directors,

has oversight of pay more generally, and is

responsible for appointing any consultants

it may engage in carrying out its duties.

Dear shareholders,

On behalf of the Board, we are pleased

to present the Directors’ Remuneration

Report for the financial year ended 31

December 2022. This report has been

prepared in accordance with section 421

of the Companies Act 2006 and Schedule

8 of the Large and Medium-sized

Companies and Groups (Accounts and

Reports) Regulations 2008 (as amended).

Highlights of Committee actions

in 2022

The year has seen significant progress

with our strategy. Activities undertaken by

the Committee include:

• Board changes. Following completion

of the transaction with IPR, Ed Story

and Mike Watts stepped down from

the Board on 23 March 2022 and

Jann Brown assumed the role of

Chief Executive Officer. Jann’s base

salary was reset to £420,000, which

represented a c.21% reduction on her

previous salary as Managing Director,

reflecting the new size of the business.

• Review of the Directors’ Remuneration

Policy ahead of its proposed renewal at

the 2023 AGM.

How performance was reflected

in the pay of our Executive

Directors

As reported throughout the Strategic

Report, 2022 was a year of significant

change for the business, not least in

managing the completion of the farm-

out of our Egyptian assets. Continued

strong leadership of the Company by

the Executive Directors and other senior

management has meant that once again

we have not had to furlough any staff,

nor have we borrowed any Government

money under any loan schemes.

As part of our commitment to help

employees deal with rising cost of living,

the Company made early interim payments

of c.25% of the bonus potential in October

2022, with the balance paid in December

as usual. Employees will also be supported

with their travel expenses from 2023.

Strategic

We continue to focus our efforts on

driving efficiencies, controlling costs

and making judicious investments to

maximise the value of our portfolio. The

$3m share buyback programme, which

we announced in July, continues as part of

the Company's broader strategy to deliver

value to our shareholders and will continue

during 2023 up to an additional $3m.

Pharos is now in a materially improved

financial position, has an accelerating

programme in Egypt and significant growth

potential in Vietnam. Together, these put

us in a strong position. We were pleased

to be able to reward shareholder patience

with the announcement of a return to a

regular dividend, based on operating cash

flow, with the first payment set for 2023.

Meeting attendance

Committee member

2022

attendance

Geoffrey Green (Chair) *

Marianne Daryabegui *

Lisa Mitchell *

Rob Gray*

Note: Jann Brown, John Martin and Sue

Rivett attended all of the meetings as

non-committee members.

Mike Watts attended one of the

meetings as non-committee member.

Lisa was appointed to the committee

on 15 March 2022.

Attended as member

* Independent Directors

Attended as invitee

Not attended

Pharos Energy Annual Report and Accounts 2022

135

Operational

On an operational basis, the Company

performed well across a broad range of

metrics. Production levels in both Vietnam

and Egypt were in line with guidance.

Multi-well development drilling in El Fayum

continues in 2023 under the operatorship

of IPR, with nine wells planned for the year

ahead.

Financial performance was strong,

with cost control, cash generation and

funding ahead of expectations. Whilst

safety results were excellent in Vietnam,

continuing with our zero LTIs since

operations began, there were two safety

and environmental incidents in Egypt

which have mean the bonus outcomes for

these elements were zero.

Following a robust assessment of the

performance criteria the Committee

determined the formulaic outturn for

bonuses at 66.1% of the maximum

potential. The Committee considered

the wider stakeholder experience and

agreed that the formulaic outcome was

appropriate. As a reminder the Committee

used its discretion to reduce the 2021

bonus outcome by 20% for Executives

but not staff. Bonus outcomes for the

wider workforce also reflect corporate

KPIs achieved as well as their personal

performance. The 2020 LTIP awards,

whose performance criteria is based on

TSR, are due to vest in May 2023 but are

expected to lapse through failure to meet

the required relevant performance target.

Directors’ Remuneration Policy

Our current Directors’ Remuneration Policy

was approved at the 2020 AGM with

92.6% of votes cast in favour. As the three

year term of the current Policy is due to

expire in 2023, we are required to submit

a new Policy to shareholders at the 2023

AGM.

During 2022, the Remuneration

Committee reviewed the current Policy.

The Committee believes that the Policy

remains fit for purpose and continues to

support the business strategy. The current

Policy is well understood by participants

and investors. It is also considered to be

aligned to market practice and already

includes standard corporate governance

best practice features such as pension

alignment and the use of post-cessation

shareholding requirements. We therefore

propose to submit the Policy for renewal

at the 2023 AGM with relatively minor

revisions, following a consultation process.

These are to remove the ability to award

a maximum LTIP award of 400% of salary

“in exceptional circumstances” to reduce

that maximum to 200% and to increase

the post cessation requirement for holding

shares from 200% of salary for one year

and 200% of salary for a further year to

200% of salary for the full two years.

Approach for 2023

Base salaries for the Executive Directors

and Non Executive Directors will be

frozen for 2023. Across the UK employee

population, the average increase for 2023

is 10%.

The current annual bonus and LTIP

maximum awards will remain unchanged.

The annual bonus will continue to be

subject to a scorecard of measures

including safety, financial, operations,

capital structure, sustainability and culture

and governance reflecting the key priorities

of the business and disclosed on a

retrospective basis.

The LTIP measures and targets will be

based on relative TSR (35% weighting),

absolute TSR (20% weighting), cash flow

from operations (15% weighting), ROCE

(15% weighting) and an ESG condition

(15% weighting).

Conclusion

The Remuneration Committee

believes that the remuneration

outcomes for 2022 are a fair

reflection of the context in which

decisions had to be made. We

believe that the continuation of

the current Policy in all material

respects maintains the link

between strategy and incentives,

as well as being closely aligned to

the market.

We look forward to receiving your

support at the upcoming AGM.

GEOFFREY GREEN

Remuneration Committee Chair

DIRECTORS’ REMUNERATION COMMITTEE REPORT - CONTINUED

Pharos Energy Annual Report and Accounts 2022

136

Financial Statements

Additional Information

Strategic Report

Governance Report

Annual Report on Remuneration

(Audited section)

DIRECTORS’ REMUNERATION COMMITTEE REPORT - CONTINUED

Single total figure of remuneration

The table below sets out the total remuneration in respect of qualifying services for both Executive and Non-Executive Directors for the

financial year 2022. It also provides comparative figures for 2021:

2022

Fees/salary

£000’s

Benefits

£000’s

Bonus

Cash

£000’s

Bonus

Deferred

£000’s

Pension

£000’s

Total

£000’s

Fixed

£000’s

Variable

£000’s

Executive Directors

E Story

1,2

59 11 73 37 9 189 68 121

J Brown

389 39 294 147 58 927 447 480

M Watts

68 12 75 37 10 202 78 124

S Rivett 277 16 182 91 41 607 318 289

Non-Executive Directors

R Gray 45 - - - - 45 45 -

J Martin 162 - - - - 162 162 -

M Daryabegui 57 - - - - 57 57 -

L Mitchell 80 - - - - 80 80 -

G Green 89 2 - - - 91 89 2

Total 1,226 80 624 312 118 2,360 1,344 1,016

The benefits receivable by Executive Directors include private medical insurance, permanent health insurance, life assurance cover,

critical illness cover, travel and car benefits. E Story also received expatriate benefits including tax protection or equalisation for any

travel to the UK. The benefits column for Non-Executive Directors includes taxable travel and accommodation expenses to attend Board

functions in the year and other benefits, and the tax payable thereon, in accordance with HMRC guidance.

1) Executive Director fees and salary of Ed Story is set in US dollars and is reported in GB pounds at the average exchange rate for the period 1 January

2022 to 22 March 2022, reflecting the period he served on the Board.

2) Ed Story and Dr Mike Watts stepped down from the Board on 23 March 2022 following completion of the Egyptian farm-out transaction. At the same

time, Jann Brown was appointed to the role of Chief Executive Officer. Prior to that date, Messrs Story and Watts and Ms Brown had been waiving 50%

of their salary and the reported numbers include such waivers.

3) The total Directors’ bonuses include the following: a) Cash bonus paid in December 2022 of £624k; b) Deferred bonus of £312k granted under the

Deferred Share Bonus Scheme.

* Fees and/or salaries paid to the Directors are in relation to their dates of service as a Director during the year.

2021

Fees/salary

£000’s

Benefits

£000’s

Bonus

Cash

£000’s

Bonus

Deferred

£000’s

Pension

£000’s

Total

£000’s

Fixed

£000’s

Variable

£000’s

Executive Directors

E Story

1,2

275 44 215 231 41 806 316 490

J Brown

288 40 225 240 43 836 331 505

M Watts

288 53 225 240 43 849 331 518

S Rivett

127 4 55 58 20 264 147 117

Non-Executive Directors

R Gray 100 - - - - 100 100 -

J Martin 126 - - - - 126 126 -

M Daryabegui 45 - - - - 45 45 -

L Mitchell 62 - - - - 62 62 -

G Green 62 - - - - 62 62 -

Total 1,373 141 720 769 147 3,150 1,520 1,630

Pharos Energy Annual Report and Accounts 2022

137

The benefits receivable by Executive Directors include private medical insurance, permanent health insurance, life assurance cover,

critical illness cover, travel and car benefits. E Story also receives expatriate benefits including tax protection or equalisation for any

travel to the UK. The benefits column for Non-Executive Directors includes taxable travel and accommodation expenses to attend Board

functions in the year, and the tax payable thereon, in accordance with HMRC guidance.

1) Executive Director fees and salary of Ed Story is set in US dollars and is reported in GB pounds at the annual average exchange rate.

2) Ed Story, Jann Brown and Dr Mike Watts agreed to a reduction of 35% of their salary from 1 August 2020 and a further 15% reduction from 1 April

2021 for the remainder of the year. Non-Executive Directors agreed to a 25% reduction of their fee throughout 2021. The figures above reflect the

reductions in salary and fees.

3) Sue Rivett was appointed to the Board on 1 July 2021.

4) The total Directors’ bonuses include the following: a) Cash bonus paid in December 2021 of £720k; b) Deferred bonus of £358k granted under the

Deferred Share Bonus Scheme; c) Deferred bonus paid on completion of the Egypt farm-out (£274k of which was paid in cash and £137k of which was

granted under the DBSP).

* Fees and/or salaries paid to the Directors are in proportion with their dates of service.

The aggregate emoluments of all Directors during the year was £2.4m (2021: £3.2m).

Notes to the single figure table

Annual bonus

Setting measures

The Company seeks to set challenging, yet achievable, performance measures designed to link pay to performance against its core

strategic objectives.

The performance measures were chosen to ensure that Executive Directors are focused on the near-term objectives that build the long-

term delivery of value to shareholders, which results in a combination of measures being used covering strategic, operational, financial,

business development and CR goals. While we monitor the Group’s performance with a broader mix of financial and non-financial KPIs,

the measures impacting the annual bonus emphasise those deemed most relevant to management performance and take into account

the annual budget and the prevailing economic environment. The performance measures and targets for 2022 were set prior to the full

impact of the COVID-19 pandemic becoming evident. No subsequent adjustments have been made to the targets.

2022 annual bonus measures and out-turns

Metric Weight Performance Bonus awarded

SAFETY AND ENVIRONMENT

18% 6%

Zero LTIs

6% 0%

Link to strategy

• Safety of our people

• Sound oil field

practices

Target

• Zero LTIs

Performance

• An LTI occurred in Egypt with a 3rd

party rig contractor when rigging

up the mast

• An environmental spill in Egypt due

to an overturned truck

Outcome

• Not achieved

TRIR Target of 0.8

3% 3%

Link to strategy

• Safety of our people

• Sound oil field

practices

Target

• 0.8

Performance

• 0.42 TRIR recorded

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

• 1 environmental spill recorded in

Egypt

Outcome

• Not achieved.

DIRECTORS’ REMUNERATION COMMITTEE REPORT - CONTINUED

Pharos Energy Annual Report and Accounts 2022

138

Financial Statements

Additional Information

Strategic Report

Governance Report

Metric Weight Performance Bonus awarded

Carbon footprint improvements

6% 3%

Link to strategy

• Management of our

carbon footprint

wherever we work

Target

• Maintain or reduce GHG

emissions against 2021

baseline as this included

venting for the first time

• Implement second stage of

work towards compliance with

the G20 Financial Stability

Board’s Task Force on Climate

-Related Financial Disclosures

(TCFD)

Performance

• GHG intensity increased by 9% in

2022

• Phase 2 TCFD alignment

Transition risks were assessed

over a 5-10 year period under IEA’s

recommended SDS and STEPS

scenarios

Physical risks were assessed

against physical risk datasets

under the three emissions

scenarios over a 5 and 10 year

timeframe.

Continued commitment to disclose

and report in line with TCFD

recommendations.

Outcome

• Not achieved

• Achieved

OPERATIONAL/PORTFOLIO MANAGEMENT

37% 21.6%

Portfolio management

6% 2%

Link to strategy

• Deliver value

through growth

Target

• Seek farm-in partner for 125

commitment well

Performance

• A number of interested parties

have been reviewing the physical

data

Outcome

• Part Achieved

Production

12.5% 6.9%

Link to strategy

• Prudent

Management in

a low oil price

environment

Target

• Vietnam production volumes

5,000 – 6,000 boepd

• Egypt production volumes

1,350 – 1,800 bopd

Performance

• Vietnam production outturn was

5,418 boepd

• Egypt production outturn year was

1,748 bopd

Outcome

• Achieved for Vietnam, within

guidance

• Achieved for Egypt, within

guidance

Secure extension on NBS and drill of wells

6% 2%

Link to strategy

• Continued

development of

Vietnam assets

Target

• Secure extension on NBS and

drill 2 wells

Performance

• Small extension secured allowing

the drilling to move to 2023

Outcome

• Part achieved

Farm Out

6% 4.2%

Link to strategy

• Effective portfolio

management

Target

• Execute phase 1 of the farm

down dev drilling - 10 wells

Performance

• Phase 1 commenced with 7

development wells drilled

Outcome

• Part achieved

Operational development

6.5% 6.5%

Link to strategy

• Continued

development of

Vietnam assets

Target

• Development drill of 2 wells

TGT and 1 CNV

Performance

• The 3 well development

programme commenced in H2

2022

Outcome

• Achieved

DIRECTORS’ REMUNERATION COMMITTEE REPORT - CONTINUED

Pharos Energy Annual Report and Accounts 2022

139

Metric Weight Performance Bonus awarded

FINANCIAL

30% 25%

Opex per bbl for each producing asset

5% 0%

Link to strategy

• Control expenditure

Target

• Vietnam cash opex bbl <$15

• Egypt cash opex bbl <$16

Performance

• Vietnam cash opex bbl $16.03

• Egypt cash opex bbl $17.40

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 2021

Performance

• Full year administrative expenses

lower by 24%, reflecting

restructuring of the business in

2021, reduction in the Board from

9 to 6 Directors post-Egypt farm-

down and 21% reduction in base

salary of new CEO

• Cash at bank has increased from

$27.1m to $45.3m due to strong

operating performance

Outcome

• Achieved

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 $20m

• Funding for commitments in

2022/23

Performance

• Net debt/EDITDAX of 0.23

• All bank covenants have been met

• Renewed the NBE facility and

have sufficient headroom for

commitments plus headroom of

$20m

Outcome

• Achieved

GOVERNANCE/LICENCE TO OPERATE

15% 13.5%

Review of Board structure

5% 5%

Link to strategy

• Develop talent

throughout our

business

Target

• Streamline Board structure

Performance

• Board reduced from 9 to 6

Outcome

• Achieved

Compliance review

5% 5%

Link to strategy

• Strong governance

and personal codes

of conduct

Target

• Complete independent review

of key policy compliance

across the Group

Performance

• Two audits on Treasury and

Corporate Modelling

Outcome

• Achieved

DIRECTORS’ REMUNERATION COMMITTEE REPORT - CONTINUED

Pharos Energy Annual Report and Accounts 2022

140

Financial Statements

Additional Information

Strategic Report

Governance Report

Metric Weight Performance Bonus awarded

Social Investment

5% 3.5%

Link to strategy

• Strong governance

and personal codes

of conduct

Target

• Social investment plan

approved and implemented

Performance

• 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.

• In 2022, in addition to the

aforementioned training levy

funds (which totals to $500,000),

a further $198,600 was invested

in 9 community and charitable

partnerships and investment

projects.

Outcome

• Part achieved

Overall

100%

Total assessment

66.1%

As noted in the Chair’s statement, notwithstanding that the Executive Directors delivered a number of the KPIs in challenging

circumstances, the Committee felt that the overall performance and the experience of stakeholders in 2022 was sufficiently recognised in

the formulaic outcome and therefore no discretion was considered necessary.

Executive Directors receive a third of any bonus as awards under the Deferred Share Bonus Plan. This ensures their interests remain

closely aligned with shareholders. For 2022, the total Directors’ bonuses include the following: a) Cash bonus paid in December 2022 of

£624k and b) Deferred bonus of £312k to be granted under the Deferred Share Bonus Scheme.

Paid Bonus

£000s

Deferred Bonus

£000s

Total Bonus

£000s % of max

E Story

73 37 110 66.1%

M Watts

75 37 112 66.1%

J Brown

294 147 441 66.1%

S Rivett

182 91 273 66.1%

The bonus amounts for Ed Story and Dr Mike Watts are pro-rated to reflect time served as a Director during the period.

LTIP vesting in respect of May 2020 awards

The LTIP awards granted in May 2020, which would have vested in May 2023, are not expected to vest as they are currently not

achieving the threshold level of vesting and are therefore expected to lapse. The table below sets out an overview of Pharos’s relative

TSR performance during that period.

Performance against comparator group

Vesting schedule

25% vesting Median (50th percentile)

100% vesting Upper Quartile (25th percentile)

Actual expected vesting

0% Greater than 50th percentile

In all material respects, the same performance targets apply to awards granted in 2021.

LTIP award grants made in 2022

The LTIP awards are usually made in March. For Jann Brown and Sue Rivett this represented 200% of contractual salary at the time the

award was made. It is anticipated that future grants, including the grants to be made in 2023, will be made following the announcement

of the preliminary results in March. These will be made on a similar basis to prior years, with awards to Executive Directors over shares

worth two times salary and subject to the same TSR measure (subject to confirmation of the precise list of comparators immediately

prior to grant).

DIRECTORS’ REMUNERATION COMMITTEE REPORT - CONTINUED

Pharos Energy Annual Report and Accounts 2022

141

Date of grant No. of shares Face value of award Award as % of salary

J Brown

25 March 2022 3,049,001 £840,000 200%

S Rivett

25 March 2022 2,032,667 £560,000 200%

Face value based on share price at the time of awards were determined on 24 March 2022 (being £0.2755)

The performance measures for the 2022 awards are set out below, with 25% vesting for Threshold rising on a straight-line basis to full

vesting at Maximum:

Metric Weight Targets

TSR – Relative vs bespoke peer group

40% Median to Upper Quartile ranking

TSR – Absolute

15% 20% to 30% absolute growth

ESG medium term measures

15% 10% to 15% reduction in emissions.

Cash flow from operations

15% $150m to $200m over the 3 year period

Return on Capital Employed

15% 6% to 10% average for the 3 year period

Deferred Share Bonus Plan awards granted in 2022

The DSBP awards were granted in March 2022 in relation to the 2021 annual bonus outcome.

Date of grant No. of shares Face value of award

J Brown

25 March 2022 563,157 £155,150

S Rivett

25 March 2022 136,842 £37,700

E Story

25 March 2022 560,529 £154,426

M Watts

25 March 2022 563,157 £155,150

Face value based on share price at the time of awards were determined on 24 March 2022 (being £0.2755)

Directors’ interests as at 31 December 2022

The Board has a policy requiring Executive Directors to build a minimum shareholding of 200% of their annual salary. Additionally, LTIP

awards require a two–year holding period following vesting. This is intended to emphasise a commitment to the alignment of Executive

Directors with shareholders and a focus on long term stewardship.

The table below sets out the Directors’ interests as at 31 December 2022 and any subsequent changes to their beneficially owned

shares are shown as at the date of this report:

Shareholding

requirement Beneficially

owned shares as

at 31 December

2022

Beneficially

owned shares as

at the date of this

report

Awards subject

to performance

conditions as

at 31 December

2022

1,2

Awards subject

to Option Price

120 pence as at

31 December

2022

Awards subject

to service

conditions as at 31

December 2022

(% of

salary)

Achieved

(Yes/No)

Executive

J Brown

200% No 1,841,587 1,894,593 6,150,711 – 563,157

S Rivett

200% No 66,293 74,188 3,209,763 90,000 136,842

Non-Executive

J Martin – – 237,000 237,000 – – –

M Daryabegui – – 36,757 36,757 – – –

G Green – – 95,000 95,000 – – –

L Mitchell

– – 51,958 51,958

–

– –

1) Figures include accrued dividend equivalents.

2) These shares are held by Alexander Barblett (husband of Lisa Mitchell), and a closely associated person to Lisa Mitchell.

3) At the date of this report, J Brown and S Rivett are yet to reach the 200% shareholding requirement.

DIRECTORS’ REMUNERATION COMMITTEE REPORT - CONTINUED

Pharos Energy Annual Report and Accounts 2022

142

Financial Statements

Additional Information

Strategic Report

Governance Report

While the Executive Directors, as potential beneficiaries, are technically deemed to have an interest in all ordinary shares held by the

Company’s EBT, the table above only includes those ordinary shares held by the EBT which are potentially transferable to the Directors

pursuant to Options granted to them under the Company’s incentive schemes. Details of the EBT and its holdings are set out in Note 28

to the Financial Statements.

There have been no changes to the Directors’ interests subsequent to 31 December 2022 other than as set out above and as described

in the notes to the table above.

Share awards outstanding at 31 December 2022

Type of

award

As at 1 Jan

2022

Granted/

awarded Adjusted

Lapsed

Released

As at 31 Dec

2022

Date

potentially

vested

4,5

Expiry date

J Brown

4,5,6

LTIP 1,417,797 – – 1,417,797 – – – –

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

LTIP – 3,049,001 – – – 3,049,001 25.03.25 25.03.32

DSBP 235,469 – – – 235,469 – 03.01.21 –

DSBP 202,702 – – – 202,702 – 09.01.22 –

DSBP – 563,157 – – – 563,157 25.03.24 25.03.32

S Rivet

2,5,6,8

LTIP 496,229 – – 496,229 – – – –

LTIP 267,779 – – – – 267,779 12.05.23 12.05.30

LTIP 909,317 – – – – 909,317 06.10.24 06.10.31

LTIP – 2,032,667 – – – 2,032,667 25.03.25 25.03.32

DSOP 25,000 – – – – 25,000 31.05.19 31.05.26

DSOP 65,000 – – – – 65,000 31.05.19 31.05.26

DSBP – 136,842 – – – 136,842 25.03.24 25.03.32

1) Outstanding awards under the Company’s share schemes were adjusted for dividend equivalents in accordance with plan rules (see Note 31 to the Financial

Statements).

2) LTIP awards granted in 2020 and 2021 vest subject to Pharos’s relative TSR performance against a group of comparator companies and subject to a further

holding requirement. The performance measures for the 2022 LTIP are set out on pages 140 and 141. DSBP awards vest subject to continued service over

a two-year vesting period. S Rivett’s 2020 LTIP award prior to being appointed to the Board is not subject to TSR performance, but is instead based on

continuous employment and effective performance ratings for the vesting period.

3) LTIP awards with a potential vest date of 7 March 2022 did not achieve the performance threshold and lapsed.

4) DSBP Awards granted in 2020 to J Brown were structured as conditional awards.

5) DSBP Awards granted in 2019 and 2022 to J Brown and to S Rivett in 2022 were structured as nil-cost options.

6) LTIP Awards to J Brown and S Rivett were structured as nil cost options.

7) LTIP awards vest at 25% when the threshold is met.

8) DSOP awards have an exercise price of 120 pence and do not have any performance conditions.

Payments for loss of office and payments to former Directors

There have been no payments for loss of office during the year nor any payments to former Directors.

As originally announced on 13 January 2022, Ed Story and Dr Mike Watts stepped down from the Board following completion of the

farm-out of the Egyptian assets to IPR in March 2022. Ed Story has remained employed as President of the Vietnam business and

remuneration arrangements have been adjusted to reflect this role.

Dr Mike Watts has continued to work for the Company and be paid base salary (on a pre-waiver level), benefits and pension provision for

his contractual notice period, which expires on 21 March 2023. He remained eligible for a bonus in relation to 2022 for the period actively

worked. The bonus outcome for his period as a director is set out on page 136. He was not eligible for any 2022 LTIP awards and he

will be treated as a good leaver for the purposes of his outstanding LTIP awards, which shall remain subject to the original performance

conditions and time pro-rating. He remains subject to the post-cessation shareholding requirement whereby he will be expected to

retain the lower of actual shares held and shares equal to 200% of salary for one year post-cessation and 100% of salary for up to two

years post-cessation (unless the Committee exceptionally determines that it is appropriate to release this requirement). The vesting and

release of these awards will be set out in the respective Directors’ Remuneration Report.

DIRECTORS’ REMUNERATION COMMITTEE REPORT - CONTINUED

Pharos Energy Annual Report and Accounts 2022

143

Unaudited Section

Historical TSR performance and CEO outcomes

TSR performance

The chart below illustrates Pharos’ ten-year TSR performance against the FTSE All Share Oil & Gas Index, being a broad market index

which is sector specific. In addition, we have shown a comparison against the current TSR comparator group used for the 2020 LTIP

award. Note that this does not represent the time period against which performance is assessed under the LTIP is assessed in relation to

the performance period ending in May 2023.

2012 2013 2014 2015 2016 2017 2018 2019 2020

2021 2022

100

120

140

160

180

200

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:

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

CEO single figure of remuneration (£000s)

2,551 2,959 2,325 1,632 1,716 1,829 1,567 669 894

909

Annual bonus pay-out (% of maximum) 100% 80% 75% 35% 65% 105% 50% 0% 58%

66%

LTIP vesting (% of maximum) 66% 100% 96% 46% 0% 0% 0% 0% 0%

1) The current year average exchange rate for 2022 has been applied to convert US dollars to GB dollars for all periods to ensure consistency between periods.

2) 2022 includes the total remuneration of Ed Story for 1 January 2022 to 22 March 2022, reflecting the period he served on the Board as CEO. Jann Brown’s

total remuneration is then presented for the period 23 March 2023 to 31 December 2022.

Pharos Energy FTSE All Share Oil & Gas TSR Comparator Group

DIRECTORS’ REMUNERATION COMMITTEE REPORT - CONTINUED

Pharos Energy Annual Report and Accounts 2022

144

Financial Statements

Additional Information

Strategic Report

Governance Report

Percentage change in remuneration of the Directors

The table below illustrates the percentage change in salary, benefits and annual bonus for each Director and all other employees.

% change in

salary

(2022/2021)

% change in

salary

(2021/2020)

% change in

salary

(2020/2019)

% change in

benefits

(2022/2021)

% change in

benefits

(2021/2020)

% change in

benefits

(2020/2019)

% change

in annual

bonus

(2022/2021)

% change

in annual

bonus

(2021/2020)

% change

inannual

bonus

(2020/2019)

E Story

N/A -32.1% -39.9% N/A -67.8% 4.4% N/A 100.0% -100.0%

M Watts

N/A -32.1% -5.9% N/A 26.4% 4.5% N/A 100.0% -100.0%

J Brown 35.1% -32.1% -5.9% -0.8% 5.5% 3.3% -5.4% 100.0% -100.0%

S Rivett

N/A N/A N/A N/A N/A N/A N/A N/A N/A

J Martin 26.7% N/A N/A N/A N/A N/A N/A N/A N/A

M Daryabegui 26.7% -10.0% 5.2% N/A N/A N/A N/A N/A N/A

R Gray N/A -11.2% -16.7% N/A -100.0% -31.1% N/A N/A N/A

L Mitchell 26.7% N/A N/A N/A N/A N/A N/A N/A N/A

G Green 40.6% N/A N/A 100.0% N/A N/A N/A N/A N/A

All other employees 29.5% 7.0% -4.4% 15.5% -25.8% 10.0% 24.1% 100% -100.0%

1) Bonuses are normally awarded in respect of the calendar year. No bonuses were awarded in relation to 2020.

2) E Story and M Watts resigned from the Board on 23 March 2022.

3) The figures detailed above reflect the salary reductions that have been taken by the Directors. The Executive Directors took a reduction of 35% of their

salaries for the first quarter of 2021 and then further reduced this by another 15% (to a total reduction of 50%) from 1 April 2021 for the Executive Directors

in office at that date. These reductions stayed in place for the remainder of 2021 and through to 20 March 2022. The Chair, who had reduced his fee by 25%

on assuming the role in March 2020, also took an additional 25% reduction along with the other Non-Executive Directors from 1 May 2021 which continued

through the full year 2021 and up until 20 March 2022.

4) S Rivett was appointed to the Board on 1 July 2021.

Chief Executive Officer’s pay ratio

The Company currently has 17 UK employees and therefore has no statutory requirement to publish a CEO pay ratio. Given the relatively

few employees, the Committee is aware of pay levels and does not feel the need to produce a ratio. The Committee will continue to

review the appropriateness of publishing pay ratios in the future.

Relative importance of spend on pay

The chart below illustrates the year on year change in total remuneration as per Note 11 to the Financial Statements compared to the

change in shareholder returns, which would include capital returns, dividends and share buybacks.

External appointments

With prior approval of the Board, Executive Directors are allowed to accept non-executive appointments on other boards and to retain

the associated directors’ fees. Under this Policy:

• Jann Brown serves on the boards of Troy Income and Growth Trust and RHI Magnesita, for which she retained associated fees for

2022 in the amounts of £1,538 (2021: £28,625) and €97,977 (2021: €52,566) respectively; and

• Ed Story served on the boards of Vedanta Resources PLC and Essar Exploration and Production Limited Mauritius in 2021, for which

he retained associated fees in the amounts of $35,932 and $23,757 respectively. Ed did not receive any associated fees for the

period 1 January 2022 to 23 March 2022, when he resigned from the Board.

2022

2021

Wages and Salaries ($m)

Shareholder Distribution ($m)

14.3

11.6

DIRECTORS’ REMUNERATION COMMITTEE REPORT - CONTINUED

Pharos Energy Annual Report and Accounts 2022

145

Implementation for 2023

Base salary

The following table shows the Executive Director base contractual salary levels.

2023 Base salary 000s 2022 Base salary 000s Increase from 2022 %

J Brown

£420

£420 (reduced on 21 March 2022 from her pre-waiver salary of £535) 0%

S Rivett

£280

£280 (increased on 21 March 2022 from £260) 0%

There will be no salary increases for the Executive Directors for 2023. The average salary increase across the workforce is 10%. Jann

voluntarily invests a third of her after tax salary into buying shares in the Company, subject to share dealing restrictions. Furthermore,

Sue Rivett voluntarily invests an after tax salary equivalent to £20,000 gross pay into buying shares, subject to the same share dealing

restrictions.

Benefits

For 2023, benefits available to Executive Directors will be consistent with those set out in the Directors’ Remuneration Policy to be

approved at the 2023 AGM.

Pension

For 2023, a pension benefit at 15% of salary will be provided to each Executive Director through contributions to the Company’s money

purchase plan up to plan limits or a cash supplement. Our Pension Policy for Executive Directors is already consistent with that for all

employees (as a percentage of salary).

Annual bonus

It is intended that annual bonus awards will be considered for Executive Directors in December 2023. The maximum total bonus

opportunity for an Executive Director in each year is 150% of salary, including cash and deferred components in accordance with the

approved Policy. The table below sets out the weighted performance measures which will be applied in determining annual bonus

awards for 2023, and identifies the link from each of these measures to our core strategy of:

2023 KPI’s

Metric Weight Performance criteria which will be considered

Safety & environment / Sustainability

27%

Strategic objectives: to preserve the safety of all

our people, staff and contractors and preserve the

environment through sound oil field practices and

management of our own carbon footprint wherever

we work.

• Zero LTIs

• TRIR target

• Zero environment spills

• Crisis response training

• Publication of Net Zero roadmap

• Carbon footprint improvements / GHG emissions lower than baseline

2020

• TCFD compliance

• Social investment plan implemented

Operational & Business Plan

38%

Strategic objectives: to replace produced reserves

and add to the reserve base in a way which value

and/or cashflow accretive.

• Production volumes for all producing assets

• Operational uptime

• Achieve agreed work plan

• Secure licence extensions

• Secure funding partner for 125

Financial & Capital Structure

30%

Strategic objectives: to control expenditure and

access affordable sources of funding in order to

maintain a strong balance sheet with sufficient liquid

resource to fund planned activities.

• Underlying Operating Costs

• All bank covenants met

• Reduce debtor days

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Financial Statements

Additional Information

Strategic Report

Governance Report

Metric Weight Performance criteria which will be considered

Culture & Governance

Strategic objectives: to instil a way of working that

is strong on governance and personal codes of

conduct; to develop talent throughout our business

to support overall performance and succession

planning.

• Training and development

• Key policy compliance

Details of how the Committee assessed performance against these weighted measures will be set out in next year’s report. The

Committee retains discretion over the amount of bonus paid out to ensure that appropriate consideration is given to the relative

importance of the achievements in the year and the actual contribution of these towards furthering the Group’s strategy, as well as the

prevailing economic environment.

LTIP

The LTIP grant level for 2020 and 2021 was reduced substantially and the Committee will take this and all other relevant circumstances

into account in considering the appropriate grant level for 2023.

The performance conditions for the 2023 awards are expected to be a mixed weighting as follows: of TSR (35%) relative and (20%)

absolute and 15% weighting to each of cash flow from operations, return on capital employed, and emission reduction targets

Metric Weight Targets

TSR – Relative

35% Median to Upper Quartile ranking

TSR – Absolute

Achieve 20% growth over the 3 year period, sliding scale to 30% for the full 15%

20% 20% to 30%

ESG medium term measures (base 2022)

Achieve 10% reduction over a 3 year period, sliding scale to 15% for the full 15%.

15% 10% to 15% reduction in emissions.

Cash flow from operations

Achieve $150m cash flow from operations over the 3 year period, sliding scale to

$200m for the full 15%

15% $150m to $200m

Return on Capital Employed

Achieve over 6% average per year for the 3 year period, sliding scale to 10% for

the full 15%

15% 6% to 10%

Shareholder dilution

Pharos monitors the number of shares issued under employee share plans and their impact on dilution limits. These will not exceed the

limits set by The Investment Association Principles of Remuneration currently in force, in respect of all share plans (10% in any rolling

ten-year period).

Malus and clawback provisions

All variable pay arrangements for Executive Directors are subject to provisions which enable the Committee to reduce vesting, or recover

value delivered if certain circumstances occur. These circumstances include serious misconduct, an error in calculation, misstatement

of the Company’s financial results, fraud, insolvency of the Company or serious reputational damage to the Company. In each case the

occurrence of those circumstances and the effect on variable pay arrangements will be determined by the Committee.

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147

Non-Executive Director remuneration

Non-Executive Director fees, which have been set within the aggregate limits set out in the Company’s articles of association and

approved by shareholders, are set out in the table below:

Fee from 1 January 2023 Fee from 1 January 2022

Chair of the Company

£150,000

Deputy Chair & Senior Independent Director

1,2

–

£120,000

Non-Executive Director

£60,000

Additional fee: Senior Independent Director

£12,500

Additional fee: Chair of Audit and Risk Committee

£15,000

Additional fee: Chair of Remuneration Committee

£15,000

Additional fee: Workforce Engagement Nominated Director

£5,000

1) Includes fees for any Committee role

2) Shows fees for the combined role of Deputy Chair and Senior Independent Director to 19 May 2022 - the role of Deputy Chair was not continued following

Rob Gray stepping down from the Board on this date.

3) Geoffrey Green was appointed to the role of Senior Independent Director on 19 May 2022 and the additional fees for this are shown in the table.

The Chair fees were reviewed and approved by the Remuneration Committee. The Non-Executive Director fees were reviewed and

approved by the Board, excluding the Non-Executive Directors.

For 2023, benefits available to Non-Executive Directors will be consistent with those set out in the Policy approved at the 2023 AGM.

Non-Executive Directors are not eligible for participation in the Company’s incentive or pension schemes.

Service Contract (reference Table A: Directors Contract on page 157)

Consideration by Committee of matters relating to Executive Directors’ remuneration

The Directors who were members of the Remuneration Committee when matters relating to Directors’ remuneration for the year were

being considered were Rob Gray (until 19 May 2022), Marianne Daryabegui, Lisa Mitchell (from 15 March 2022) and Geoffrey Green as

Remuneration Committee Chair.

The Committee received assistance from Jann Brown and Sue Rivett, except when matters relating to their own remuneration were

being discussed. The Committee additionally received assistance from other Non-Executives Directors when required.

The Committee has appointed FIT Remuneration Consultants LLP (“FIT”) as its remuneration advisers, and fees of £23,702 were paid in

2022 for their advisory services. FIT is a member of the Remuneration Consultants Group and complies with their professional code of

conduct. FIT do not provide any other services to the Group which, along with FIT’s credentials and proven performance, contributes to

the Committee’s view that the advice received has been appropriate, objective and independent.

The Committee reviews all aspects of remuneration on an annual basis and with respect to individual and corporate performance during

the year. The review is aided by comparison to published data on executive pay in the sector and in similar sized companies. More

detailed benchmarking may be conducted, such as upon an indication of a change in market ranges, with results being monitored for

indications of potential unwarranted upward ratcheting. The Committee receives regular updates on evolving regulatory and market

practice including market trends, key developments, and a broad range of published principles and guidelines. The Committee takes into

account pay conditions elsewhere in the Company, and considered matters related to Group remuneration.

Shareholder voting

The most recent binding resolution on the Directors’ Remuneration Policy was passed at 2020 AGM. The advisory vote on the Directors’

Remuneration Report was approved at last years’ AGM. The table below shows votes from shareholders on the relevant resolutions:

Directors’ Remuneration Report (2022 AGM)

Directors’ Remuneration Policy (2020 AGM)

Votes % Votes %

Votes in favour

266,253,779 97.15%

217,778,159 92.62%

Votes against

7,810,866 2.85%

17,354,025 7.38%

Total votes

274,064,645 100.00%

235,132,184 100.00%

Votes withheld

41,368 –

3,773 –

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Financial Statements

Additional Information

Strategic Report

Governance Report

Policy Report

This Remuneration Policy will be effective from the date of the 2023 AGM, subject to shareholder approval at that meeting.

The Policy is intended to apply for a period of three years. However, the Committee monitors the Remuneration Policy on a continuing

basis including consideration of evolving market practice and relevant guidance; shareholder views and results of previous voting;

policies applied to the wider employee base; and with due regard to the current economic climate. Should the Committee resolve that

the Remuneration Policy should be revised, such revisions will be subject to a binding shareholder vote.

The overarching aim is to operate a Remuneration Policy which rewards senior Executives at an appropriate level for delivering against

the Company’s annual and longer-term strategic objectives. The Policy is intended to create strong alignment between Executive

Directors and shareholders through a heavy focus on the use of equity. The Committee is comfortable that the structure and operation of

the Policy does not create any environmental, social and corporate governance matters and is managed within an acceptable risk profile.

When reviewing the Policy, the Committee involved the use of our external advisers to provide data and opinion on market practice

and developments in corporate governance. The Committee also called upon the Executive Directors to provide business strategy and

wider employee context. However, the Committee made its decisions based on the outcomes of its own deliberations and considering

feedback provided from shareholders and proxy agencies who were consulted at an early stage.

When considering the development of the new Policy, the Committee was mindful of how it would address the six factors set out in the

UK Corporate Governance Code and which are explained in more detail below:

Clarity

• The proposed Policy has a clear

objective: to enable the Company

to recruit, retain and motivate high

calibre individuals to deliver long-term

sustainable performance which benefits

all stakeholders

• The Policy itself is in line with standard

UK market practice, and is an update

of the current Policy, so should be

well understood by shareholders and

participants

• The Policy is fully embedded into the

business, so it is well understood by

participants and is managed efficiently

from an administrative perspective

• The terms of the Policy are clearly

described in this Report, including

full disclosure on limits, measures

and discretions. There should be no

ambiguity on how it is intended to be

operated

• Full retrospective disclosure of the

relevant performance assessments and

outcomes is provided for shareholders

to consider

• Full prospective disclosure is provided

in relation to LTIP awards, including the

award levels, performance measures

and targets

Simplicity

• The Policy includes a standard annual

bonus plan and a single LTIP so the

incentive arrangements are considered

easy to communicate

• Payments are made either in cash or

via Company shares. No artificial or

complex structures are used to facilitate

the operation of the incentive plans

• The rationale for each element of the

Policy is clearly explained in the Policy

table and links to the overall Company

strategy

Risk

• Relevant individual and plan limits

prevent excessive outcomes under the

annual bonus or LTIP

• Regular interaction with the Audit and

Risk Committee ensures relevant risk

implications are understood when

setting or assessing performance targets

• Periodic risk reviews to ensure the Policy

remains within an acceptable risk profile

and that the performance measures

used do not incentivise or reward for

inappropriate behaviour

• Any unintended consequences of

a particular performance metric

are considered when assessing its

appropriateness

• Comprehensive clawback and malus

provisions are in place across all

incentive plans and the Committee’s

ability to use its discretion to override

formulaic outcomes is considered

an important control to prevent

inappropriate reward outcomes

• Flight risk and succession issues are

considered as part of the wider remit

of the Remuneration Committee and

the Nominations Committee, and are

considered on at least an annual basis,

generally as part of the annual pay

review

Predictability

• The possible reward outcomes are

quantified and reviewed at the outset of

the performance period. The illustrations

provided in the Policy section of the

DRR clearly show the potential scenarios

of performance and the resulting pay

outcomes which could be expected

• Relevant individual and plan limits

prevent excessive outcomes

• Regular monitoring of performance

by the Committee ensures that there

are “no surprises” at the end of period

assessment

Proportionality

• Incentives only pay-out if strong

performance has been delivered by the

Executive Directors

• The performance measures used have

a direct link to the KPIs of the business

and there is a clear separation between

those used in the annual bonus and LTIP

• Appropriate underpins can be (and have

been) used to ensure that any pay-

outs are affordable based on financial

performance

• The Committee has the discretion to

override formulaic outcomes if they are

deemed inappropriate in light of the

wider performance of the Company

and considering the experience of

stakeholders

Alignment to culture

• Incentive structures incentivise and

reward for strong performance

• They do not reward poor performance

• The Policy seeks to retain Executives

to deliver long-term, sustainable

performance which benefits all

stakeholders

• The relevant discretions in the Policy are

intended to ensure that performance is

assessed on a “like for like basis” and

that participants are rewarded for “doing

the right thing” for the Company, not for

themselves

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Policy table for Executive Directors

The table below summarises our Policy for each component of Executive Directors’ Remuneration:

Fixed pay

Base salary

Core element of remuneration set at a sufficient level to attract and retain people of the necessary calibre to shape and execute the

Company’s strategy.

Operation Maximum Performance criteria

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 previous CEO’s

unadjusted salary of $924,000.

N/A

Benefits

Purpose and link to strategy

• To provide Executive Directors with market competitive benefits consistent with the role.

Operation Maximum Performance criteria

Executive Directors receive benefits which may

include (but are not limited to) medical care

and insurance, permanent health insurance,

life assurance cover, critical illness cover, travel

benefits, expatriate benefits, car benefits and

relocation expenses.

Reasonable business related expenses will be

reimbursed (including any tax payable thereon).

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

Purpose and link to strategy

• To provide retirement benefits consistent with the role

Operation Maximum Performance criteria

Pension benefits are delivered through

contributions to Pharos’ money purchase

plan up to relevant plan limits and/or a cash

supplement.

15% of base salary per annum which remains

aligned with the wider workforce.

N/A

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Additional Information

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Governance Report

Variable pay

Annual bonus

Purpose and link to strategy

• Incentivises and rewards for the delivery of the strategic plan on an annual basis.

Operation Maximum Performance criteria

Payments are based on performance in the

relevant financial year.

At the beginning of the year, the Committee

sets objectives which it considers are critical to

the delivery of the business strategy.

Performance against these key strategic

objectives is assessed by the Committee at the

end of the year.

The Committee retains the discretion to amend

the bonus payout (negatively or positively) to

ensure it reflects the performance of either the

individual or the Company.

One-third of any bonus payout is subject to

deferral into Pharos shares under the Deferred

Share Bonus Plan.

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.

LTIP

Purpose and link to strategy

• Incentivises and rewards for the Company’s strategic plan of building shareholder value

Operation Maximum Performance criteria

Typically a conditional award of shares or a

nil price option is made annually, normally

in March/April, following the year end close

period.

Vesting of the awards is dependent on the

achievement of performance targets, which

are typically measured over a three-year

performance period.

Awards (post of tax) will also be subject

to a two-year post-vesting holding period

during which they cannot be sold (except

in exceptional circumstances and with the

Committee’s prior approval).

Usually 200% of base salary per annum. Awards vest based on performance against

financial, operational and/or share price

measures, as set by the Committee, which

are aligned with the long-term strategic

objectives of Pharos.

No less than 50% of the award will be based

on share price measures. The remainder

will be based on financial, operational, or

strategic measures.

For ‘threshold’ levels of performance, 25% of

the award vests. 100% of the award will vest

for maximum performance. Pro-rating applies

between these points and between ranking

positions.

The Committee may reduce LTIP vesting

outcomes (including to zero), based on the

result of testing the performance condition,

if it considers the potential outcome to be

inconsistent with the performance of the

Company, business or individual during

the performance period. Any use of such

discretion would be detailed in the Annual

Report on Remuneration.

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Shareholding guidelines

Purpose and link to strategy

• Further increases alignment between Executive Directors and shareholders.

Operation 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 a two year post-

cessation (unless the Committee exceptionally

determines that it is appropriate to release this

requirement). Pharos shares which vest from

future deferred bonus and LTIP awards will be

retained until a sufficient holding has been

built up.

N/A N/A

Notes to the Policy table

Discretion

The Committee reserves the right to make

any remuneration payments and payments

for loss of office (including exercising any

discretions available to it in connection

with such payments) that are not in line

with the Policy set out above where the

terms of the payment were agreed:

• Before the Policy came into effect; or

• At a time when the relevant individual

was not an Executive Director of the

Company and, in the opinion of the

Committee, the payment was not

in consideration for the individual

becoming an Executive Director of the

Company

For these purposes, (i) ‘payments’ includes

the Committee satisfying awards of

variable remuneration and (ii) an award

over shares is “agreed” at the time the

award is granted.

The Committee will operate the annual

bonus, LTIP and share option plan in

accordance with the relevant plan rules.

In line with best practice the Committee

retains discretion on the operation and

administration of these plans, including as

follows:

• Dividend equivalents may be paid on

awards up to the point of vesting

• Awards will be subject to recovery and

withholding provisions and therefore

may be reduced at the discretion of

the Committee for instances of serious

misconduct, an error in calculation,

a misstatement of the Company’s

financial results or for serious

reputational damage to the Company

(as determined by the Committee).

Provisions will apply for a period of

three years from date of payment/

vesting

• The Committee may settle an award in

cash

• In the event of a variation of share

capital or any other exceptional event

which, in the reasonable opinion of the

Committee, requires an adjustment, the

Committee may adjust the number of

shares or the exercise price

• If an event occurs which results in the

performance conditions for outstanding

incentive plans being no longer

appropriate, then the Committee may

adjust the measures and/or targets,

with the caveat that they will, in the

opinion of the Committee, be no less

challenging to achieve

Any use of the above discretions would,

where relevant, be explained in the Annual

Report on Remuneration and may, as

appropriate, be the subject of consultation

with the Company’s major shareholders.

Takeover or other equivalent

corporate event

On a takeover or other equivalent

corporate event, outstanding deferred

bonus awards will vest in full as soon

as practicable after the date of the

event, unless the Committee determines

otherwise. For outstanding LTIP and

share option awards, on a takeover

or other equivalent corporate event,

generally the performance period will

end on the date of the event. The

Committee will determine the extent to

which performance conditions have been

achieved at this point, taking into account

relevant factors as appropriate. Unless the

Committee determines otherwise, awards

will generally vest on a time pro-rata

basis taking into account the shortened

performance period. Alternatively,

outstanding LTIP and share option awards

may be subject to rollover, with the

agreement of the acquiring company.

Minor changes

The Committee may make minor

amendments to the Policy set out in this

report (for regulatory, exchange control,

tax or administrative purposes or to take

account of a change in legislation) without

obtaining shareholder approval for the

amendment.

Performance measures and target

setting

The Policy table for Executive Directors

above describes the policy for setting

performance measures used for the annual

bonus and LTIP, which are intended to

ensure that executives are appropriately

focused on the successful delivery of the

strategic plan over both the short and

medium term. When setting the relevant

performance targets, the Committee will

take into account a number of internal and

external reference points that are linked to

Pharos’ strategic priorities, as well as the

economic environment.

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Financial Statements

Additional Information

Strategic Report

Governance Report

Illustration of Policy

The charts below show the illustration of Policy

£0

£500

£1,000

£1,500

£2,000

£2,500

£3,000

Min Target Max Max with

growth

CEO CFO

£523

£’000

Min Target Max Max with

growth

£1,048

£1,993

£2,413

£326

£1,306

£676

£1,586

100%

50%

30%

20%

26% 22%

32% 26%

42%

35%

17%

100%

48%

31%

21%

25%

32%

43%

21%

26%

35%

18%

Total Fixed Remuneration Annual Bonus PSP Share Price Growth

Levels of performance Assumptions Performance criteria

Fixed pay

All scenarios

• Total fixed pay comprises base salary, benefits and pension

• Base salary – effective as at 1 January 2023

• Benefits – £9,000 car allowance received by each Director

• Pension – 15% of salary, the benefit currently set for all Executive

Directors

Variable pay

Minimum performance

• No payout under the annual bonus and no vesting under the LTIP

Performance in line with

expectations

• 50% of the maximum payout under the annual bonus

(i.e. 75% of salary)

• 25% vesting under the LTIP (i.e. 50% of salary)

Maximum performance

• 100% of maximum payout under the annual bonus (i.e. 150% of

salary)

• 100% of maximum vesting under the LTIP (i.e. 200% of salary)

Maximum performance

with growth

• As above but with 50% share price growth assumed on the LTIP

vesting

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Policy table for Non-Executive Directors

Component Pharos’ approach

Chairman

fees

• Comprises an all-inclusive fee for

Board and Committee positions

• Determined by the Remuneration

Committee and approved by the

Board

Non- Executive

Director

• Comprises a basic fee in respect of

their Board duties

• Further fees may be paid in respect of

additional Board or Committee roles

• Recommended by the Chair and Chief

Executive Officer and approved by the

Board

Other

• In the event of a temporary but

material increase in the time

commitment required, fees may be

increased on a pro-rata basis to reflect

the additional workload

• Reasonable business related expenses

will be reimbursed (including any tax

payable thereon)

No Director plays a role in determining their own remuneration.

The Committee consults with the CEO in determining the

Chairman’s fee. Fees for all Non-Executive Directors reflect the

time commitment and responsibilities of the role and are set at a

level sufficient to attract and retain individuals with the required

skills, experience and knowledge to allow the Board to carry

out its duties. The fees set out above are the sole element of

Non-Executive Director remuneration. They are not eligible for

participation in the Company’s incentive or pension plans.

The fees have been set within the aggregate limits set out in

the Company’s Articles of Association (currently £800,000) and

approved by shareholders.

Recruitment Principles

On the appointment of a new Executive Director, we seek to

apply the following principles when determining the remuneration

arrangements:

• The package should be competitive to facilitate the recruitment

of individuals of the calibre needed to shape and execute

Pharos’ strategy and build shareholder value

• The Committee reserves the right not to apply the caps

contained within the Policy table for fixed pay, either on joining

or for any subsequent review within the Policy period, although,

in practice, the Committee does not envisage exceeding these

caps

• The Committee will consider all relevant factors as appropriate.

This may include, but is not limited to, the calibre and

experience of the individual, market practice and the current

Directors’ Remuneration Policy. The Committee will be mindful

that any arrangements must be structured in the interests of

Pharos’ shareholders without paying more than is necessary

• Typically, a new appointment will have (or be transitioned onto)

the same framework that applies to other Executive Directors

as set out in the Policy table above. Salaries would reflect the

skills and experience of the individual, and may be set at a level

to allow future salary progression to reflect development and

performance in the role

• An Executive Director may initially be hired on a contract

requiring up to 24 months’ notice which then reduces pro-rata

over the course of the first year of the contract, to requiring not

more than 12 months’ notice

• It would be expected that the structure and quantum of the

variable pay elements would reflect those set out in the Policy

table for Executive Directors

• Depending on the timing of appointment it may be necessary

to set different performance measures and targets to those

used for existing Executive Directors, although this would only

be expected to operate for the remainder of the first financial

year of appointment

In the remuneration report following appointment, the Committee

will explain the rationale for any such relevant arrangements.

The Committee retains discretion to make appropriate

remuneration decisions outside the standard policy to meet the

individual circumstances of recruitment when:

• An interim appointment is made to fill an Executive Director role

on a short-term basis

• Exceptional circumstances require that the Chair or a Non-

Executive Director takes on an executive function on a short-

term basis

Buy-outs

To facilitate recruitment, the Committee may make compensatory

payments and/or awards for any remuneration arrangements

subject to forfeit on leaving a previous employer. Such payments

or awards could include cash as well as performance and non-

performance related share awards and would be in such form

as the Committee considers appropriate taking into account all

relevant factors such as the form, expected value, timing, impact

of any performance conditions and the anticipated vesting of

the forfeited remuneration. There is not a specified limit on the

value of such awards, but the estimated value awarded would be

equivalent to the value forfeited.

Recruitment of Non-Executive Directors

On the appointment of a new Chair or Non-Executive Director,

remuneration arrangements will be consistent with the Policy set

out in this report.

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Financial Statements

Additional Information

Strategic Report

Governance Report

Policy on payment for loss of office

Where an Executive Director leaves employment, the Committee’s approach to determining any payment for loss of office will normally

be based on the following principles:

• The Committee’s objective is to find an outcome which is in the best interests of both Pharos and its shareholders while taking into

account the specific circumstances of cessation of employment

• The Committee must satisfy any contractual obligations agreed with the Executive Director. This is dependent on the contractual

obligations (i) not being in contradiction with the Policy set out in this report, or (ii) if so, not having been entered into on a date later

than 27 June 2012, in accordance with the relevant legislation

• The Committee may seek to compromise any claims made against the Company in relation to a termination and reserves the right to

pay reasonable legal fees and/or for outplacement services if considered necessary

• The Committee may make an annual bonus payment for the year of cessation depending on the reason for leaving. Typically, the

Committee will take into consideration the period served during the year and the individual’s performance up to cessation. Any such

payment is at the discretion of the Committee

• The treatment of outstanding share awards will be governed by the relevant plan rules as set out in the table shown below

Plan Automatic good leaver Treatment for good leaver Treatment for all other reasons

Deferred

bonus

• Death

• Ill-health, injury or

disability

• Redundancy

• Retirement with

agreement of the

employer

• Any other reason

as determined at

the discretion of the

Committee

• Awards will usually vest on the normal

vesting date

• The Committee retains the discretion

to accelerate vesting so that awards

vest as soon as practicable following

cessation

• Awards will normally lapse in full

(unless otherwise determined by

the Committee)

LTIP and share

option plan

• Death

• Ill-health, injury or

disability

• Redundancy

• Retirement with

agreement of the

employer

• Any other reason

as determined at

the discretion of the

Committee

• The Committee will determine the

proportion of the award that will

vest, normally taking into account

the achievement of the relevant

performance conditions at the vesting

date and the time elapsed between

the date of grant and cessation of

employment

• The vesting date for such award will

normally be the original vesting date,

although the Committee has the

flexibility to determine that awards can

vest upon cessation of employment

• Where options are granted, vesting

options will be exercisable within a

period of six months, or 12 months in

the event of death, commencing on the

date on which such options vest (being

either the date of cessation or the

original vesting date as determined by

the Committee as per above)

• The Committee has the discretion to

vary the period in which vested options

are exercisable

• For grants under the share option

plan, vested options will remain

exercisable for six months

• All other awards will normally

lapse in full (unless otherwise

determined by the Committee)

DIRECTORS’ REMUNERATION COMMITTEE REPORT - CONTINUED

Pharos Energy Annual Report and Accounts 2022

155

Service contracts

Executive Directors’ contracts are for an

indefinite period and are terminable by

either party on giving one year’s notice,

which may be satisfied with a payment in

lieu of notice. The contracts do not contain

specific termination provisions.

The Committee has a duty to prevent

the requirement to make payments that

are not strictly merited and endorses the

principle of mitigation of damages on

early termination of a service contract.

Any payment on early termination will be

assessed on the basis of the particular

circumstances, but in any event will not be

in respect of any period beyond the notice

period specified by the contract.

The Non-Executive Directors’

appointments are terminable at the will of

the parties but are envisaged to establish

an initial term of three years after which

they will be reviewed annually.

The Executive Directors’ service contracts

and the Non-Executive Directors’ letters

of appointment are available at the

Company’s registered office.

Consideration of pay and

employment conditions elsewhere

in Pharos and differences in

Directors’ Remuneration Policy

compared with other employees

The Committee monitors the remuneration

of senior management and makes

recommendations as deemed appropriate.

Pay and employment conditions elsewhere

in the Company are taken into account to

ensure the relationship between the pay of

the Executive Directors and its employees

is consistent throughout the Company.

Similar benchmarking techniques are

applied to non-Board employees using

relevant market data and the Committee

monitors staff remuneration packages

during the review of Executive Directors’

remuneration packages.

All eligible employees have the same

access to the same pension contribution

rate (15% of salary) and access to a similar

level of benefits.

As for our Executive Directors, it is

intended that a meaningful amount of

employee pay is weighted towards variable

remuneration. All employees participate in

the annual bonus plan, with the emphasis

between corporate and individual goals

dependent on the role and its level of

direct influence on Pharos’ Group-wide

results. All employees have an opportunity

to share in the success of the Company

through participation in the LTIP scheme.

The Committee does not formally consult

with employees when formulating the

Directors’ Remuneration Policy, but during

the course of the year, Non-Executive

Directors have attended various workforce

engagement sessions where, amongst

other issues, executive pay has been

discussed.

Consideration of shareholder

views

The Committee takes an active interest in

shareholder views and these help shape

the structure of the Directors’ remuneration

arrangements at Pharos. In advance of

any significant changes in the Policy or its

operation, the Committee will liaise with

major shareholders (and relevant proxy

agencies) to seek out their views. Any

feedback is shared with the Committee

and will form part of the consideration

when finalising our approach.

The Committee also monitors published

shareholder guidelines and will incorporate

further requirements and best practice

features as appropriate.

GEOFFREY GREEN

Remuneration Committee Chair

21 March 2023

DIRECTORS’ REMUNERATION COMMITTEE REPORT - CONTINUED

Pharos Energy Annual Report and Accounts 2022

156

Financial Statements

Additional Information

Strategic Report

Governance Report

DIRECTORS’ REPORT

Directors’ report

Annual Report of the Directors

The Directors present their annual report, along with the audited

Financial Statements of the Group for the year ended 31

December 2022.

The following sections of this report are incorporated herein by

reference and form part of this Directors’ report.

Page(s)

Strategic report 2-107

Board of Directors 113-114

UK Corporate Governance report 115-121

ESG Committee report 122-124

Nominations Committee report 125-126

Audit and Risk Committee report 127-133

Directors’ Remuneration report 134-155

Financial Statements 171-202

Additional Information 203-211

Developments during the 2022 reporting period

An indication of the likely future developments in the business of

the Group is included in the Strategic Report on pages 2 to 107.

On 13 January 2022, the Company announced Directorate

Changes as mentioned in Chair’s Introduction to Governance on

pages 109 to 110.

On 19 January 2022, the Third Amendment to the El Fayum

Concession Agreement was signed by His Excellency Eng. Tarek

El Molla (Minister of Petroleum & Mineral Resources of the Arab

Republic of Egypt), EGPC and the Company. Signature of the

Third Amendment was a key Condition Precedent for the transfer

of a 55% participating interest (and operatorship) in the El Fayum

and North Beni Suef Concessions to IPR Lake Qarun. The net

assets of El Fayum and North Beni Suef associated with the 55%

participating interest have been reclassified as assets held for sale

at 31 December 2021.

Under the terms, the cost recovery percentage will be increased

from 30% to 40% allowing Pharos a significantly faster recovery

of all its past and future investments. In return, Pharos has agreed

to waive its rights to recover a portion of the past costs pool

($115 million) and reduce its share of Excess Cost Recovery

Petroleum from 15% to 7.5%. While in full cost recovery mode,

Contractor’s share of revenue increases from 42.6% to 50.8% as

from November 2020 (corresponding to additional net revenues to

Contractor of $7.0m to the date of signature).

Assuming conditions at 31 December 2021, the discounted

cash flows from the remaining 45% share held and calculated for

impairment purposes would increase from $49.2m to $77.4m.

Dividends

After a period of dividend suspension, in 2023, the Company

plans to recommence regular dividend payments, the first to be

a proposed final dividend for the financial year to 31 December

2022, based on 2022 Operating Cash Flow.

The Board has recommended a final dividend of 1 pence per

Ordinary Share, which amounts to approximately $53.4m and

which, if approved at the 2023 Annual General Meeting (“AGM”),

will be paid on 12 July 2023 to shareholders on the register at the

close of business on 16 June 2023. Total dividends for the year

therefore amount to 1 pence per Ordinary Share.

Directors

The business of the Company is managed by the Directors who

may exercise all powers of the Company subject to the articles

of association of the Company (“Articles”) and applicable law.

The Directors who held office during the year, and up to the

date of signing this Annual Report, and the dates of their current

service contracts or letters of appointment, which are available

for inspection, are listed in Table A of this report. All Directors held

office throughout the year except as noted in the table. The NEDs’

appointments are terminable by either party on notice at any time.

Executive Directors’ contracts are terminable by either party on

giving one year’s notice.

In accordance with the provisions of the UK Corporate

Governance Code, all Directors will retire at the 2023 AGM and,

being eligible, offer themselves for reappointment. Relevant details

of the Directors, which include their Committee memberships, are

set out in the section headed ‘Board of Directors’ on pages 113

to 114.

Pharos provides liability insurance for its Directors and Officers.

The annual cost of the cover is not material to the Group. The

Articles allow it to provide an indemnity for the benefit of its

Directors, which is a qualifying indemnity provision for the purpose

of section 233 of the Companies Act 2006 (“2006 Act”). The

Company has made such provisions for the benefit of its Directors

in relation to certain losses and liabilities that they may incur in the

course of acting as Directors of the Company, its subsidiaries or

associates, which remain in force at the date of this report.

No member of the Board had a material interest in any contract

of significance with the Company or any of its subsidiaries at

any time during the year, except for their interests in shares and

in share awards and under their service agreements and letters

of appointment disclosed in the Directors’ Remuneration report

commencing on page 134.

Pharos Energy Annual Report and Accounts 2022

157

DIRECTORS’ REPORT - CONTINUED

Table A: Directors holding office during 2022 and up to the

date of signing of this report

Director Date of contract

John Martin - Chair* 23 August 2021

Jann Brown

Chief Executive Officer (following

completion of the transaction

with IPR)

6 December 2017

Sue Rivett, Chief Financial Officer 21 September 2021

Marianne Daryabegui * 15 March 2019

Geoffrey Green* 16 April 2020

Lisa Mitchell* 10 March 2020

Edward Story

President and Chief Executive Officer

(retired from Board March 2022)

14 May 1997

Mike Watts

Managing Director (retired from Board

March 2022)

6 December 2017

Rob Gray*

Deputy Chair and Senior Independent

Director (retired from Board May 2022)

9 December 2013

* Denotes those determined by the Board to be Independent

Non-Executive Directors as described in the Corporate

Governance report on page 111. The Chair was determined to

be independent on appointment.

Contributions

The Group’s policies prohibit political donations.

AGM

An explanation of the resolutions to be proposed at the 2023

AGM, and the recommendation of Directors in relation to these, is

included in the circular to shareholders which is available on the

Company’s website (www.pharos.energy). Resolutions regarding

the authority to issue shares are commented upon in this report

under share capital.

A separate communication will be sent to shareholders and

published on the Company’s website regarding the AGM.

Share capital

Details of changes to share capital in the period are set out in

Note 27 to the Financial Statements. The Company currently has

one class of shares in issue, ordinary shares of £0.05 each, all

of which are fully paid. Each ordinary share in issue carries equal

rights including one vote per share on a poll at general meetings of

the Company, subject to the terms of the Articles and law. Shares

held in treasury carry no such rights for so long as they are held

in treasury. Votes may be exercised by shareholders attending or

otherwise duly represented at general meetings. Deadlines for the

exercise of voting rights by proxy on a poll at a general meeting

are detailed in the notice of meeting and proxy cards issued in

connection with the relevant meeting. Voting rights relating to the

ordinary shares held by the EBT are not exercised. The Articles

may only be amended by a special resolution of the shareholders.

No shareholder, unless the Board decides otherwise, is entitled to

attend or to vote either personally or by proxy at a general meeting

or to exercise any other right conferred by being a shareholder

if he or she or any person with an interest in ordinary shares has

been sent a notice under section 793 of the 2006 Act (which

confers upon public companies the power to require information

with respect to interests in their voting shares) and he or she

or any interested person failed to supply the Company with the

information requested within 14 days after delivery of that notice.

The Board may also decide that no dividend is payable in respect

of those default shares and that no transfer of any default shares

shall be registered. These restrictions end seven days after receipt

by the Company of a notice of an approved transfer of the shares

or all the information required by the relevant section 793 notice,

whichever is earlier.

The Directors may refuse to register any transfer of any share

which is not a fully-paid share, although such discretion may

not be exercised in a way which the Financial Conduct Authority

regards as preventing dealings in shares of that class from taking

place on an open or proper basis. The Directors may likewise

refuse any transfer of a share in favour of more than four persons

jointly.

The Company is not aware of any other restrictions on the transfer

of ordinary shares in the Company other than certain restrictions

that may from time to time be imposed by laws and regulations

(for example, insider trading laws); and pursuant to the Listing

Rules whereby certain employees of the Company require

approval of the Company to deal in the Company’s shares.

The Company is not aware of any agreements between

shareholders that may result in restrictions on the transfer of

securities or voting rights. Resolutions will be proposed at the

2023 AGM, as is customary, to authorise the Directors to exercise

all powers to allot shares and approve a limited disapplication of

pre-emption rights. This authority will be sought in line with the

recently updated Statement of Principles published by the Pre-

Emption Group in November 2022 (the “Pre-Emption Principles”).

The authority sought for disapplication of pre-emption rights will

be in two parts: (a) 10% of the issued ordinary share capital, which

may be issued on an unrestricted basis; and (b) an additional

10%, which may be used in connection with an acquisition, or a

specified capital investment, in either case announced with the

issue or which has taken place in the preceding 12 months and

is disclosed in the announcement. In addition, both legs of the

disapplication resolution will seek up to a further 2% authority (4%

in total) to disapply pre-emption rights in making ‘follow-on’ offers

to retail investors and existing shareholders who are not allocated

shares as part of the placing. Further information regarding

these resolutions, which are based on the template resolutions

published by the Pre-Emption Group, is set out in the circular to

shareholders containing the notice of the AGM. A resolution will

also be proposed at the 2023 AGM, as is customary, to renew

the Directors’ existing authority to make market purchases of the

Company’s Ordinary Share capital, and to limit such authority to

purchases of up to approximately 10% of the Company’s issued

Ordinary Share capital. Shares purchased under this authority may

either be cancelled or held as treasury shares.

Pharos Energy Annual Report and Accounts 2022

158

Financial Statements

Additional Information

Strategic Report

Governance Report

DIRECTORS’ REPORT - CONTINUED

Auditor

A resolution to reappoint Deloitte LLP as the Company’s auditor

will be proposed by the Directors at the 2023 AGM. Deloitte also

provide non-audit services to the Group, and details of the non-

audit services provided in the year to 31 December 2022 are set

out in Note 10 to the Financial Statements. All non-audit services

are approved by the Audit and Risk Committee. The Directors

are currently satisfied, and will continue to ensure, that this range

of services is delivered in compliance with the relevant ethical

guidance of the accountancy profession and does not impair the

judgement or independence of the auditor. Further details of the

Group policy on non-audit services are set out in the Audit and

Risk Committee Report on pages 127 to 133.

The Directors at the date of approval of this report confirm that, so

far as they are each aware, there is no relevant audit information,

being information needed by the auditor in connection with

preparing its report, of which the auditor are unaware. Each

Director has taken all steps that they ought to have taken as a

Director, having made such enquiries of fellow Directors and the

auditor and taken such other steps as are required under their

duties as a Director, to make themselves aware of any relevant

audit information and to establish that the auditor is aware of that

information. This confirmation is given and should be interpreted in

accordance with the provisions of section 418 of the 2006 Act.

Greenhouse gas emissions reporting

Reporting on emission sources, as required under the Companies

Act 2006 (Strategic and Directors’ Reports) Regulations 2013 and

the Energy and Carbon Report Regulations 2018, is included in

the Corporate Responsibility report on pages 71 to 76.

Tax governance

The Company is committed to high standards of tax governance

and strives to meet its tax obligations. Tax contributions benefit the

communities in which we operate by providing a framework within

which the Company can grow. Pharos’ Tax Strategy Statement,

which the Board has approved, defines the key tax objectives

of the Group and is available on the Company’s website (www.

pharos.energy).

Risk management

The Directors carried out a robust review of the principal

and emerging risks facing the Group that could threaten the

Company’s business model, future performance, solvency and

liquidity. The Risk Management report on pages 47 to 60 details

how we manage and mitigate these risks.

Substantial shareholdings

As at the date of this report, the Company had been notified, in

accordance with Chapter 5 of the Disclosure and Transparency

Rules, of the voting rights as a shareholder of the Company shown

in Table B of this report.

Table B: Substantial shareholdings in the Company

As at the date of this report, the Company had been notified, in accordance with Chapter 5 of the Disclosure and Transparency Rules, or

is aware of, the voting rights as a shareholder of the Company shown in Table B of this report.

No of Ordinary Shares held as % of voting rights

Nature of holding

Aberforth Partners LLP 33,311,989 7.72 Direct

Ettore Contini 32,613,577 7.56 Direct and indirect

Blue Albacore Business Ltd 31,617,359 7.32 Direct

Bradley Radoff

30,275,000 7.01 Direct

Lombard Odier Asset Management (Europe) Limited 30,220,530 7.00 Direct

Globe Deals Ltd 27,444,382 6.36 Direct

Chemsa Ltd 24,426,925 5.66 Direct

Yorktown Energy Partners VII, LP 19,726,495 4.57 Direct

Ed Story 16,271,613 3.77 Direct and indirect

1) As at 21 March 2023, the total voting rights attached to the issued share capital of the Company comprised 440,795,126 Ordinary shares each of £0.05

nominal value, being 431,672,858 Ordinary shares in issue less 9,122,268 Ordinary shares currently held in treasury.

2) As at 31 December 2022: Bradley Radoff held 21,850,000 Shares representing 5.029% of the voting rights in the Company at that time.

During the period between 31 December 2022 and the date of this report, the Company did not receive any notifications under chapter

5 of the Disclosure and Transparency Rules indicating a different whole percentage holding than as at 31 December 2022 other than as

shown in the footnotes to the table above. For further information on Directors’ interests, please see page 141.

Pharos Energy Annual Report and Accounts 2022

159

DIRECTORS’ REPORT - CONTINUED

Requirements of the UK Listing Rules

Table C of this report provides references to where the information

required by Listing Rule 9.8.4R is disclosed within this Annual

Report:

Table C: Listing Rules requirements

Listing Rule requirement

Details of any long term incentive schemes

as required by Listing Rule 9.4.3 R.

Directors’

Remuneration Report

pages 134 to 155

Details of any arrangements under which

a director of the company has waived or

agreed to waive any emoluments from the

company or any subsidiary undertaking.

Where a director has agreed to waive future

emoluments, details of such waiver together

with those relating to emoluments which

were waived during the period under review.

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 199

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 196

Whistleblowing procedure

The Board has reviewed, and is satisfied with, the Group’s

Whistleblowing Policy and associated procedures, enabling

employees to raise issues in confidence concerning improprieties

which would be addressed with appropriate follow-up action.

The Group has in place an Ethics Hotline using a dedicated,

confidential and anonymous telephone service available to staff

to report a suspected breach of the Group’s Code of Business

Conduct and Ethics.

Business Relationships

In order to foster relationships with suppliers and customers,

Pharos ensures a robust engagement process before contracts

are awarded. Every vendor is required to complete due diligence

so that the Company may ensure all corporate and banking details

are recorded and checked before invoices are issued; this allows

for prompt and accurate payment. Where possible, payment

terms are 30 days from date of receipt of a validly submitted

invoice. A comprehensive contracts register is maintained to

ensure that post award contract management is addressed to

consider delivery of appropriate notices of renewal of termination.

We strive to work constructively with all our suppliers, customers

and other business partners to build and maintain productive

relationships.

Going concern

It should be recognised that any consideration of the foreseeable

future involves making a judgement, at a particular point in time,

about future events which are inherently uncertain. Nevertheless,

at the time of preparation of these accounts and after making

enquiries, the Directors have a reasonable expectation that the

Group has adequate resources to continue operating for the

foreseeable future. For this reason, and taking into consideration

the additional factors in the Strategic Report on pages 2 to

107 including the Going Concern section of the Chief Financial

Officer’s statement on pages 39 to 46, they continue to adopt the

going concern basis in preparing the accounts.

Pharos Energy Annual Report and Accounts 2022

160

Financial Statements

Additional Information

Strategic Report

Governance Report

DIRECTORS’ REPORT - CONTINUED

Directors’ responsibilities for the Financial

Statements

The Directors are responsible for preparing the annual report

and the Financial Statements in accordance with international

accounting standards in conformity with the requirements of

the Companies Act 2006 and International Financial Reporting

Standards adopted pursuant to Regulation (EC) No 1606/2002 as

it applies in the European Union. The Financial Statements have

also been prepared in accordance with International Financial

Reporting Standards as issued by the IASB. The Directors are

required to prepare Financial Statements for each financial

year that give a true and fair view of the financial position of

the Company and of the Group and the financial performance

and cash flows of the Group for that period. In preparing those

accounts the Directors are required to select suitable accounting

policies and then apply them consistently; present information and

accounting policies in a manner that provides relevant, reliable

and comparable information; and state that the Company and

the Group have complied with applicable accounting standards,

subject to any material departures disclosed and explained in the

accounts.

The Directors are responsible for keeping proper accounting

records which disclose with reasonable accuracy at any time the

financial position of the Company and the Group and enable them

to ensure that the accounts comply with relevant legislation. They

are also responsible for safeguarding the assets of the Company

and the Group and hence for taking reasonable steps for the

prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of

the corporate and financial information included on the Company’s

website. Information published on the internet is accessible in

many countries with different legal requirements. Legislation in

the United Kingdom governing the preparation and dissemination

of Financial Statements may differ from legislation in other

jurisdictions.

Directors’ responsibility statement

The Directors confirm that, to the best of each person’s

knowledge:

a) the Financial Statements set out on pages 171 to 202, which

have been prepared in accordance with international accounting

standards in conformity with the requirements of the Companies

Act 2006 and International Financial Reporting Standards adopted

pursuant to Regulation (EC) No 1606/2002 as it applies in the

European Union and in accordance with International Financial

Reporting Standards as issued by the IASB, give a true and fair

view of the assets, liabilities, financial position and loss of the

Company and the Group taken as a whole;

b) this Directors’ Report along with the Strategic Report, including

each of the management reports forming part of these reports,

includes a fair review of the development and performance of the

business and the position of the Company and the Group taken

as a whole, together with a description of the principal risks and

uncertainties that they face and how these are being managed

and mitigated as set out in the Risk Management Report on

pages 47 to 60; and

c) the annual report and the Financial Statements, taken as a

whole, are fair, balanced and understandable and provide the

information necessary for the shareholders to assess the Group’s

position, performance, business model and strategy.

Approved by the Board and signed on its behalf.

SUE RIVETT

Chief Financial Officer

21 March 2023

Pharos Energy Annual Report and Accounts 2022

161

Financial

Statements

Independent Auditor’s Report 162

Consolidated Financial Statements 171

Consolidated Income Statement 171

Consolidated Statement of Comprehensive Income 171

Balance Sheets 172

Statements of Changes in Equity 173

Cash Flow Statements 174

Notes to the Consolidated Financial Statements 175

Pharos Energy Annual Report and Accounts 2022

161

Pharos Energy Annual Report and Accounts 2022

162

Additional Information

Strategic Report

Financial Statements

Governance 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 2022 and of the group’s profit for the year

then ended;

• the group financial statements have been properly

prepared in accordance with United Kingdom

adopted international accounting standards and

International Financial Reporting Standards (IFRSs)

as issued by the International Standards Board

(IASB);

• the parent company financial statements have

been properly prepared in accordance with

United Kingdom adopted international accounting

standards and as applied in accordance with the

provisions of the Companies Act 2006; and

• the financial statements have been prepared in

accordance with the requirements of the Companies

Act 2006.

We have audited the financial statements which comprise:

• the consolidated income statement;

• the consolidated statement of comprehensive income;

• the consolidated and parent company balance sheets;

• the consolidated and parent company statements of changes

in equity;

• the consolidated cash flow statement; and

• the related notes 1 to 37.

The financial reporting framework that has been applied in their

preparation is applicable law and United Kingdom adopted

international accounting standards and IFRSs as issued by the

IASB. The financial reporting framework that has been applied

in the preparation of the parent company financial statements

is applicable law and United Kingdom adopted international

accounting standards and as applied in accordance with the

provisions of the Companies Act 2006.

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.

Pharos Energy Annual Report and Accounts 2022

163

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PHAROS ENERGY PLC - CONTINUED

3. Summary of our audit approach

Key audit matters

The key audit matter that we identified in the current year was:

• Impairment and impairment reversal of producing oil & gas assets

Within this report, key audit matters are identified as follows:

Newly identified

Increased level of risk

Similar level of risk

Decreased level of risk

Materiality

The materiality that we used for the group financial statements was $3.4m which was determined on

the basis of 4% of 3-year average earnings from continuing activities before interest, tax, Depreciation,

Depletion & Amortisation “DD&A”, impairment of Property, Plant & Equipment “PP&E “and intangibles,

exploration other/expenditure and Other/restructuring expense “EBITDAX”.

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, 100% of the group’s revenue and 100% of the group’s profit before

tax from loss making entities.

Significant changes in

our approach

No changes were noted to the key audit matters or our overall audit approach as compared to the prior

year.

4. Conclusions relating to going concern

In auditing the financial statements, we have concluded that the

directors’ use of the going concern basis of accounting in the

preparation of the financial statements is appropriate.

Our evaluation of the directors’ assessment of the group’s and

parent company’s ability to continue to adopt the going concern

basis of accounting included:

• assessed that the forecasts incorporated in the base case

model are consistent with the budget approved by the Board;

• compared the key assumptions in the base case forecast to

those used in the impairment models for oil and gas producing

assets and understood the basis for any differences;

• assessed the historical accuracy of budgets prepared by

management;

• compared the oil prices in the aggregated downside scenario

with both the spot oil price and publicly available forward

curves as of the date of approval of the financial statements;

• assessed and recalculated the impact of the aggregated

downside scenario on the financial covenants included in the

reserve based lending (RBL) during the going concern period;

• assessed the ability of management to execute the mitigating

actions in its aggregated downside scenario, including the

extent to which the adjustments made to capital expenditure

are uncommitted as of the date of this report;

• assessed the results of the oil price reverse stress test (after

considering hedging arrangements) by comparing to currently

prevailing prices;

• tested the going concern model for mechanical accuracy; and

• assessed whether the disclosures relating to going concern are

appropriate.

Based on the work we have performed, we have not identified

any material uncertainties relating to events or conditions that,

individually or collectively, may cast significant doubt on the

group's and parent company’s ability to continue as a going

concern for a period of at least twelve months from when the

financial statements are authorised for issue.

In relation to the reporting on how the group has applied the UK

Corporate Governance Code, we have nothing material to add

or draw attention to in relation to the directors’ statement in the

financial statements about whether the directors considered it

appropriate to adopt the going concern basis of accounting.

Our responsibilities and the responsibilities of the directors with

respect to going concern are described in the relevant sections of

this report.

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Additional Information

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Financial Statements

Governance Report

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PHAROS ENERGY PLC - CONTINUED

5. Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements

of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we

identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the

audit; and directing the efforts of the engagement team.

These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and

we do not provide a separate opinion on these matters.

5.1. Impairment and impairment reversal of producing oil and gas assets

Key audit matter

description

The value of property, plant and equipment relating to the group’s producing oil and gas assets as at

31 December 2022 was $381.3 million (2021: $399.4 million). Impairment and impairment reversal

of producing oil & gas assets is considered a key audit matter due to the significant judgements and

estimates involved in assessing whether any impairment charges or reversals have arisen at year-

end, and in quantifying any such impairment charges or reversals. In addition, we considered that

there was a risk of impairment due to the potential impact of climate change on long term oil prices.

Given the importance of producing oil and gas assets to the group and the judgemental nature of the

inputs used in determining the recoverable amounts, we also considered there to be a potential for

fraud in this area.

Management reviewed its two producing assets in Vietnam, being Te Giac Trang (‘TGT’) and Ca Ngu

Vang (‘CNV’), and its one producing asset in Egypt, being El Fayum, for indicators of impairment.

As a result of volatility in oil prices in 2022 compared to 2021, Management revised their oil price

assumptions upwards during 2022 compared to the prior year assumptions, as set out in note 16 of

the financial statements. Given the significance of the revision, together with changes to estimates

of oil and gas reserves and the changes in discount rates resulting from the current economic

uncertainty, Management concluded that there were indicators of impairment reversals for all three

of those fields. Management have estimated the recoverable amount of each field, being its Value-in-

Use “VIU”, and compared this to its balance sheet carrying amount.

Management recorded pre-tax impairment reversal of $3.6 million on CNV (2021: $3.8 million), pre-

tax impairment reversal of $19.7 million on TGT (2021: $49.1 million) and pre-tax impairment reversal

of $3.8 million on El Fayum (2021: $1.7 million).

Management’s recoverable amount estimates were based on key assumptions which included:

• oil price forecasts, being $88.3/bbl in 2023, $84.8/bbl in 2024, $79.4/bbl in 2025, $74.5/bbl in

2026 plus inflation of 2% thereafter;

• reserves estimates and production profiles; and,

• post-tax nominal discount rates of 13.3% for TGT and CNV, and 15.9% for El Fayum

For the purpose of Impairment of producing oil & gas assets, management is required under IAS 36

to apply its current “best estimate” of future oil prices.

In relation to reserves estimates and production profiles, Management have engaged third party

reservoir engineering experts to provide an independent report on the group’s reserves estimates

using standard industry reserve estimation methods and definitions for each of the CNV, TGT and

El Fayum fields. Management have explained the scope of work of the third party experts and their

findings in the operations review, as well as highlighting oil and gas reserves as a key source of

estimation uncertainty in note 4(b) to the financial statements.

As referenced in note 4(b) of the financial statements, the impairment of producing oil & gas assets is

considered by management as a key source of estimation uncertainty.

Further details of the key assumptions used by management in their impairment evaluation are

provided in note 16 of the financial statements and in the Report of the Audit & Risk Committee on

pages 127 to 133. The disclosures in note 16 include the sensitivity of the impairment reversals to

changes in key assumptions, including the impact to reach net zero by 2050 (the “Net Zero price

scenario”).

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165

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PHAROS ENERGY PLC - CONTINUED

How the scope of our

audit responded to the

key audit matter

For the TGT, CNV and El Fayum impairment assessments, we obtained an understanding of management’s

relevant controls related to the valuation of each producing oil and gas asset. We evaluated management’s

assessment of whether or not impairment reversals or charges indicators were present in respect of each

producing oil and gas asset, and thus the completeness of management’s impairment tests.

Where indicators were identified, we assessed the methods and models used for consistency with the

requirements of IAS 36 “Impairment of Assets”.

We evaluated the key assumptions made by management in the measurement of recoverable amounts by

performing the following substantive procedures:

Oil Prices:

We assessed group’s forecast oil price assumptions by:

• Independently developing a reasonable range of forecasts based on a variety of reputable external

forecasts, peer information and market data, against which we compared the group’s future oil price

assumptions in order to challenge whether they are reasonable;

• In developing our range, we also considered a certain scenario that was described as focussed on the

risk of climate change which aligns with the goals to limit temperature rises to well below 2°C; and

• We assessed management’s current ‘best estimate’ of future oil prices including consideration of third

party forecasts under scenarios that we interpreted to be consistent with this measurement objective.

Reserve estimates and production profiles:

Through working with our internal oil and gas reserve specialists, we:

• Understood the process used by management to derive their reserves estimates and associated

production profiles and how they provide information to, and interact with, the external third party

reserve experts;

• Assessed the competence, capability and objectivity of the company’s internal and external third party

reserve experts, through obtaining their relevant professional qualifications and experience;

• Reviewed the external third party experts’ reports on Pharos’ reserves estimates as summarised in

the operations review and evaluated whether these estimates were used consistently throughout the

accounting calculations reflected in the financial statements;

• Communicated directly with the external third party reserves experts to discuss their scope of work and

assess their methodologies used and outputs;

• Compared the production forecasts used in the impairment tests with management’s approved reserves

and resources estimates;

• Assessed the cash flow forecasts to determine the significant assumptions to which the impairment

outcome was most sensitive;

• Substantively tested the hydrocarbon production and cost forecasts used in the impairment tests,

including challenging the significant assumptions;

• Compared the production and cost forecasts with similar forecasts from the prior year and challenged

significant changes;

• Assessed the reasonableness of the production and cost forecasts relative to each other;

• Performed a retrospective review to check for indications of estimation bias over time; and

• Where relevant, assessed the company’s historical forecasting accuracy and whether the estimates had

been determined and applied on a consistent basis.

Discount rates:

We assessed the Group’s discount rates by working with our internal valuation specialists to develop

independent range estimates using independent third party information for TGT, CNV and El-Fayum and

comparing those assumptions to management’s assumptions.

Other procedures:

• We assessed management’s other assumptions by reference to third party information, our knowledge

of the group and industry and also budgeted and forecast performance.

• We assessed whether the Group’s impairment methodology was acceptable under IFRS and tested the

integrity and mechanical accuracy of the impairment models.

• We assessed whether management’s presentation and disclosures relating to impairment and

associated estimation uncertainty were adequate.

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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PHAROS ENERGY PLC - CONTINUED

Key observations

Oil Prices

We observed that throughout, the Group’s oil price assumptions sit within our reasonable range,

albeit towards the higher end. Accordingly, we found the Group’s oil price assumptions to be within

our reasonable range, and therefore we determined that the Group’s “best estimate” oil price

assumptions are reasonable.

We also observe that the forecast oil price assumptions aligned with the Paris goals to be lower than

the Group’s oil price assumptions. The disclosures in note 16 to the financial statements includes the

impact of adopting an oil price described as being compliant with achieving the Paris agreement goal

to limit temperature rises to well below 2°C (“Paris 2°C Goal”).

Reserves estimates and production profiles:

We found that the reserves estimates and production profiles used in the impairment tests to have

been appropriately prepared, and found the underlying assumptions we tested to be reasonable.

Discount rates:

The Group’s discount rate used for impairment testing, was materially consistent with our

independent range estimates and therefore considered appropriate.

Other procedures:

We concluded that the impairment reversals recorded by management are appropriate. We are

also satisfied that appropriate disclosures relating to management’s impairment assessment and

sensitivities have been provided in note 16.

6. Our application of materiality

6.1. Materiality

We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions

of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work

and in evaluating the results of our work.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

Group financial statements Parent company financial statements

Materiality

$3.4m (2021: $3.2m) $3m (2021: $2.8m)

Basis for

determining

materiality

4% of the 3-year average of EBITDAX (2021: 4% of

the 3-year average of EBITDAX)

Parent company materiality equates to 1.5% of net

assets, which is capped at 90% of group materiality

(2021: 1.5% of net assets capped at 90% of group

materiality)

Rationale for

the benchmark

applied

We consider a 3-year average of EBITDAX as the

most relevant benchmark given the volatility in oil

prices, the majority of the group’s oil & gas assets

are now at the producing stage and the group

is in its second full year of operations in Egypt.

This reflects the group’s performance, noting that

EBITDAX is also an input to one of the covenants

under the group’s Reserve Based Lending facility.

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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167

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% (2021: 70%) of group materiality 70% (2021: 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 Committee that we would report to the Committee all audit differences in excess of $0.17 million (2021: $0.16

million), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the

Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PHAROS ENERGY PLC - CONTINUED

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 100% (2021: 100%) of the group’s total assets,

100% (2021: 100%) of the group’s revenue and 100% (2021:

100%) of the group’s profit before tax.

The Vietnamese component materiality was $2.1 million (2021:

$2.0 million) and the Egyptian component materiality was $1.2

million (2021: $1.1 million). We also audited the consolidation

of the group’s business units. In both the current and the prior

year, all of the key audit matters that had the greatest effect on

our audit strategy, as described above, were audited directly

by the group audit team in London. At the group level, we also

tested the consolidation process, impairment of producing oil &

gas assets, going concern, accounting for leases, borrowings

and intercompany. We also carried out analytical procedures to

support our conclusion that there were no significant risks of

material misstatement of the aggregated financial information of

the remaining components not subject to audit.

7.2. Our consideration of the control environment

Reflecting the non-complex controls environment, we did not

plan to take a controls reliance approach over financial or IT

controls in the current year and we therefore adopted a non-

controls reliance approach for our testing. We understood both

the IT and financial control environment, and considered the

design and implementation of controls over key audit matters set

out in section 5.1 above along with revenue and management

override of controls to assist and inform the fully substantive audit

approach adopted. The Group’s consideration of controls is set

out in the section ‘Internal controls and risk management systems’

on page 129 in the Audit, Risk and Internal Control Committee

report of the 2022 Annual Report

7.3. Our consideration of climate-related risks

Climate change is considered a principal risk to the Group and

its business by Management. Further details are disclosed in

the Strategic report of the 2022 Annual Report pages 2 to 107.

Through our audit procedures, we:

• Obtained an understanding of management’s process for

considering the impact of climate-related risks and relevant

controls through enquiries performed with the Audit &

Risk committee, enquiries and observations of relevant

documentation with the ESG committee as well as regular

meetings with management;

• To assess the completeness of climate related risks identified

by management, we read the minutes of meeting of the ESG

committee and specifically inquired management of any

climate-related litigations or claims involving the group.

• As disclosed in note 4(b) to the financial statements,

Management identified that the group’s producing oil &

gas properties are short-term in nature are likely to be fully

depreciated within 12 years, during which timeframe it is

expected that global demand for oil will remain robust.

Therefore, due to the relatively short-time frame, Management

concluded that the impact of climate change on the group’s

oil & gas properties depletion, economic useful lives and

decommissioning not to be material. Management further

identified that the impact of climate change on the group’s

Exploration & Evaluation assets is similar to the group’s

producing oil & gas properties, but the potential longevity

of those assets has not yet been determined for further

consideration. Accordingly, the related risk of material

misstatement that we have identified for our audit is the

forecast oil assumptions used in the fair value estimates of

group’s producing oil & gas properties may not appropriately

reflect changes in supply and demand, or policy changes such

as carbon tax/pricing due to climate change and the energy

transition (see the key audit matter in section ‘5.1 Impairment

of producing oil & gas assets’ above).

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In order to address the risk identified, we performed the following

procedures:

• With the involvement of our climate change specialists, we

read the climate change related disclosures presented in

the Strategic Report to consider whether they are materially

consistent with the financial statements and our knowledge

obtained in the audit, including the disclosure of sensitivities

showing the impact on impairment of producing oil & gas

assets included in note 16 of the financial statements. We

also evaluated management’s Task Force on Climate-Related

Disclosures in line with the latest guidance, and;

• We challenged management’s forecast oil price assumptions

to assess whether they are reasonable and present

management’s current ‘best estimate’ in accordance with

IAS 36 (see the key audit matter in section ‘5.1 Impairment of

producing oil & gas assets’ above).

7.4. Working with other auditors

The group audit team assesses each year how best to be

appropriately involved in the audit work undertaken in Vietnam

and Egypt. In the current year, this was achieved by regular

interaction and review through correspondence, telephone and

other electronic media as well as performing a remote review of

the underlying work of the component auditors in selected key

areas by a senior member of the audit team.

In addition to our direct interactions, we sent detailed instructions

to our component audit teams, and reviewed their audit working

papers.

8. Other information

The other information comprises the information included in the

annual report, other than the financial statements and our auditor’s

report thereon. The directors are responsible for the other

information contained within the annual report.

Our opinion on the financial statements does not cover the other

information and, except to the extent otherwise explicitly stated in

our report, we do not express any form of assurance conclusion

thereon.

Our responsibility is to read the other information and, in doing so,

consider whether the other information is materially inconsistent

with the financial statements or our knowledge obtained in

the course of the audit, or otherwise appears to be materially

misstated.

If we identify such material inconsistencies or apparent material

misstatements, we are required to determine whether this

gives rise to a material misstatement in the financial statements

themselves. If, based on the work we have performed, we

conclude that there is a material misstatement of this other

information, we are required to report that fact.

We have nothing to report in this regard.

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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169

11. Extent to which the audit was considered

capable of detecting irregularities,

including fraud

Irregularities, including fraud, are instances of non-compliance

with laws and regulations. We design procedures in line with our

responsibilities, outlined above, to detect material misstatements

in respect of irregularities, including fraud. The extent to which our

procedures are capable of detecting irregularities, including fraud

is detailed below.

11.1. Identifying and assessing potential risks

related to irregularities

In identifying and assessing risks of material misstatement in

respect of irregularities, including fraud and non-compliance with

laws and regulations, we considered the following:

• the nature of the industry and sector, control environment

and business performance including the design of the group’s

remuneration policies, key drivers for directors’ remuneration,

bonus levels and performance targets;

• results of our enquiries of management, the directors and the

audit committee about their own identification and assessment

of the risks of irregularities including those that are specific to

the group’s sector;

• any matters we identified having obtained and reviewed the

group’s documentation of their policies and procedures relating

to:

- identifying, evaluating and complying with laws and regulations

and whether they were aware of any instances of non-

compliance;

- detecting and responding to the risks of fraud and whether they

have knowledge of any actual, suspected or alleged fraud;

- the internal controls established to mitigate risks of fraud or non-

compliance with laws and regulations.

• the matters discussed among the audit engagement team

including significant component audit teams and relevant

internal specialists, including tax, valuations, and reserves

specialists regarding how and where fraud might occur in the

financial statements and any potential indicators of fraud.

As a result of these procedures, we considered the opportunities

and incentives that may exist within the organisation for fraud

and identified the greatest potential for fraud in management’s

assessment of the impairment and impairment reversal of

producing oil & gas assets.

In common with all audits under ISAs (UK), we are also required to

perform specific procedures to respond to the risk of management

override.

We also obtained an understanding of the legal and regulatory

frameworks that the group operates in, focusing on provisions

of those laws and regulations that had a direct effect on the

determination of material amounts and disclosures in the financial

statements. The key laws and regulations we considered in this

context included the UK Companies Act, the Listing Rules, tax

legislation in the UK, Vietnam and Egypt.

In addition, we considered provisions of other laws and regulations

that do not have a direct effect on the financial statements but

compliance with which may be fundamental to the group’s ability

to operate or to avoid a material penalty. These included the

group’s operating licence and environmental regulations.

11.2. Audit response to risks identified

As a result of performing the above, we identified impairment and

impairment reversal of producing oil & gas assets as a key audit

matter related to the potential risk of fraud. The key audit matters

section of our report explains the matter in more detail and also

describes the specific procedures we performed in response to

that key audit matter.

In addition to the above, our procedures to respond to risks

identified included the following:

• reviewing the financial statement disclosures and testing

to supporting documentation to assess compliance with

provisions of relevant laws and regulations described as having

a direct effect on the financial statements;

• enquiring of management, the audit committee and risk

committee and in-house legal counsel concerning actual and

potential litigation and claims;

• performing analytical procedures to identify any unusual or

unexpected relationships that may indicate risks of material

misstatement due to fraud;

• reading minutes of meetings of those charged with

governance; and

• in addressing the risk of fraud through management override

of controls, testing the appropriateness of journal entries and

other adjustments; assessing whether the judgements made

in making accounting estimates are indicative of a potential

bias; and evaluating the business rationale of any significant

transactions that are unusual or outside the normal course of

business.

We also communicated relevant identified laws and regulations

and potential fraud risks to all engagement team members

including internal specialists and significant component audit

teams, and remained alert to any indications of fraud or non-

compliance with laws and regulations throughout the audit.

Report on other legal and regulatory

requirements

12. Opinions on other matters prescribed by

the companies act 2006

In our opinion the part of the directors’

remuneration report to be audited has been

properly prepared in accordance with the

Companies Act 2006.

In our opinion, based on the work undertaken in

the course of the audit:

• the information given in the strategic report and the

directors’ report for the financial year for which the

financial statements are prepared is consistent with

the financial statements; and

• the strategic report and the directors’ report have

been prepared in accordance with applicable legal

requirements.

In the light of the knowledge and understanding of the

group and the parent company and their environment

obtained in the course of the audit, we have not

identified any material misstatements in the strategic

report or the directors’ report.

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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 118);

• the directors’ explanation as to its assessment of

the group’s prospects, the period this assessment

covers and why the period is appropriate (set out on

page 118);

• the directors’ statement on fair, balanced and

understandable (set out on page 118);

• the board’s confirmation that it has carried out a

robust assessment of the emerging and principal

risks (set out on page 119);

• the section of the annual report that describes the

review of effectiveness of risk management and

internal control systems (set out on page 119); and

• the section describing the work of the audit

committee (set out on page 127).

14. Matters on which we are required to report

by exception

14.1. Adequacy of explanations received and

accounting records

Under the Companies Act 2006 we are required to report to you if,

in our opinion:

• we have not received all the information and explanations we

require for our audit; or

• adequate accounting records have not been kept by the parent

company, or returns adequate for our audit have not been

received from branches not visited by us; or

• the parent company financial statements are not in agreement

with the accounting records and returns.

We have nothing to report in respect

of these matters.

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 directors on 01 August 2002 to audit the

financial statements for the year ending 31 December 2023 and

subsequent financial periods. The period of total uninterrupted

engagement including previous renewals and reappointments of

the firm is 21 years, covering the years ending 31 December 2002

to 31 December 2022.

15.2. Consistency of the audit report with the

additional report to the audit committee

Our audit opinion is consistent with the additional report to the

audit committee we are required to provide in accordance with

ISAs (UK).

16. Use of our report

This report is made solely to the company’s members, as a body,

in accordance with Chapter 3 of Part 16 of the Companies Act

2006. Our audit work has been undertaken so that we might

state to the company’s members those matters we are required

to state to them in an auditor’s report and for no other purpose.

To the fullest extent permitted by law, we do not accept or

assume responsibility to anyone other than the company and the

company’s members as a body, for our audit work, for this report,

or for the opinions we have formed.

As required by the Financial Conduct Authority (FCA) Disclosure

Guidance and Transparency Rule (DTR) 4.1.14R, these financial

statements form part of the European Single Electronic Format

(ESEF) prepared Annual Financial Report filed on the National

Storage Mechanism of the UK FCA in accordance with the ESEF

Regulatory Technical Standard (‘ESEF RTS’). This auditor’s report

provides no assurance over whether the annual financial report

has been prepared using the single electronic format specified in

the ESEF RTS.

ANTHONY MATTHEWS, FCA

(SENIOR STATUTORY AUDITOR)

For and on behalf of Deloitte LLP

Statutory Auditor

London, United Kingdom

21 March 2023

Pharos Energy Annual Report and Accounts 2022

171

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Income Statement

Consolidated Statement of

Comprehensive Income

Notes 2022 $ million 2021 $ million

Continuing operations

Revenue 5, 6

199.1

134.1

Cost of sales 7

(116.8)

(114.6)

Gross profit 82.3

19.5

Administrative expenses

(10.0)

(13.2)

Impairment reversal/(charge) – Intangible assets 6, 15

0.8

(2.2)

Impairment reversal – Property, plant and equipment 6, 16

27.1

54.6

Impairment charge – Assets classified as held for sale 6, 37

–

(10.4)

Operating profit 100.2

48.3

Other/restructuring expense 8

(0.8)

(3.3)

Loss on disposal 37

(6.3)

–

Investment revenue 5

0.2

–

Finance costs

(12.7)

(6.4)

Profit before tax

80.6

38.6

Income tax charge 6, 12

(56.2)

(43.3)

Profit/(Loss) for the year

24.4

(4.7)

Profit/(Loss) per share (cents) 14

Basic 5.6

(1.1)

Diluted

5.4

(1.1)

Notes 2022 $ million 2021 $ million

Profit/(Loss) for the year 30

24.4

(4.7)

Items that may be subsequently reclassified to profit or loss:

Fair value loss arising on hedging instruments during the year 25

(18.9)

(27.7)

Less: Loss arising on hedging Instruments reclassified to profit or loss 25

22.5

29.7

Total comprehensive gain/(loss) for the year 28.0

(2.7)

The above consolidated income statement and consolidated statement of comprehensive income should be read in conjunction with the

accompanying notes.

for the year to 31 December 2022

Pharos Energy Annual Report and Accounts 2022

172

Additional Information

Strategic Report

Financial Statements

Governance Report

CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Balance Sheets

as at 31 December 2022

Group Company

Notes

2022

$ million

2021

$ million

2022

$ million

2021

$ million

Non-current assets

Intangible assets 15 16.5 12.4 – –

Property, plant and equipment 16 381.0 399.8 – –

Right-of-use assets 16, 33 0.8 – – –

Investments 17 – – 335.5 278.7

Loan to subsidiaries – – 23.0 27.4

Other assets 18 59.1 48.1 – –

457.4 460.3 358.5 306.1

Current assets

Inventories 19 7.2 10.7 – –

Trade and other receivables 20 60.9 28.1 0.4 1.4

Tax receivables 2.1 1.5 0.1 0.4

Cash and cash equivalents 21 45.3 27.1 8.8 5.3

Assets classified as held for sale 37 – 62.0 – –

115.5 129.4 9.3 7.1

Total assets 572.9 589.7 367.8 313.2

Current liabilities

Trade and other payables 22 (14.0) (30.6) (1.9) (4.3)

Borrowings 24 (39.6) (33.3) – –

Lease liabilities 33 (0.3) – – –

Tax payable (5.2) (5.4) (1.2) (1.0)

Liabilities directly associated with assets classified as held for sale 37 – (8.5) – –

(59.1) (77.8) (3.1) (5.3)

Non-current liabilities

Other payables 22 (0.9) – – –

Deferred tax liabilities 23 (92.9) (91.2) – –

Borrowings 24 (34.6) (47.2) – –

Lease liabilities 33 (0.5) – – –

Long term provisions 26 (54.3) (69.1) – –

(183.2) (207.5) – –

Total liabilities (242.3) (285.3) (3.1) (5.3)

Net assets 330.6 304.4 364.7 307.9

Equity

Share capital 27

34.3

34.9

34.3

34.9

Share premium 27

58.0

Other reserves 28

253.6

250.5

199.7

202.4

Retained (deficit)/earnings 30

(15.3)

(39.0) 72.7 12.6

Total equity 330.6 304.4 364.7 307.9

The above consolidated balance sheets should be read in conjunction with the accompanying notes.

The profit for the financial year in the accounts of the Company (Co number 3300821) was $60.7m inclusive of dividends from subsidiary

undertakings (2021: $1.9m profit). As provided by section 408 of the Companies Act 2006, no income statement or statement of comprehensive

income is presented in respect of the Company.

The financial statements were approved by the Board of Directors on 21 March 2023 and signed on its behalf by:

JOHN MARTIN Chair SUE RIVETT Director

Pharos Energy Annual Report and Accounts 2022

173

CONSOLIDATED FINANCIAL STATEMENTS

Statements of Changes in Equity

for the year to 31 December 2022

Group

Notes

Called up

share capital

(see Note 27)

$ million

premium

(see Note 27)

$ million

Other

reserves

(see Note 28)

$ million

Retained

earnings/(deficit)

(see Note 30)

$ million

Total

$ million

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 1 January 2022 34.9 58.0 250.5 (39.0) 304.4

Profit for the year

– – – 24.4 24.4

Other comprehensive income

– – 3.6 – 3.6

Share buy back

27, 28

(0.6) – 0.6 (2.9) (2.9)

Treasury shares repurchased

– – (0.6) – (0.6)

Share-based payments

– – 1.7 – 1.7

Transfer relating to share-based payments 28, 30 – – (2.2) 2.2 –

As at 31 December 2022 34.3 58.0 253.6 (15.3) 330.6

Company

Notes

Called up

share capital

(see Note 27)

$ million

premium

(see Note 27)

$ million

Other

reserves

(see Note 28)

$ million

Retained

earnings/(deficit)

(see Note 30)

$ million

Total

$ million

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 1 January 2022 34.9 58.0 202.4 12.6 307.9

Profit for the year

13, 30

– – – 60.7 60.7

Share buy back

27, 28

(0.6) – 0.6 (2.9) (2.9)

Share-based payments

– – 1.7 – 1.7

Transfer relating to share-based payments 28, 30 – – (5.0) 2.3 (2.7)

As at 31 December 2022 34.3 58.0 199.7 72.7 364.7

The above consolidated statements of changes in equity should be read in conjunction with the accompanying notes.

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174

Additional Information

Strategic Report

Financial Statements

Governance Report

CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Cash Flow Statements

for the year to 31 December 2022

Group Company

Notes

2022

$ million

2021

$ million

2022

$ million

2021

$ million

Net cash from (used in) operating activities

53.4

10.8

(11.6)

(7.1)

Investing activities

Purchase of intangible assets

(4.4)

(15.2)

–

Purchase of property, plant and equipment

(25.4)

(24.4)

–

Payment to abandonment fund 18

(2.1)

(2.2)

–

Consideration in relation to farm out of Egyptian assets

18.4

2.0

–

Assignment fee in relation to farm out of Egyptian assets

(0.5)

–

Other investment in subsidiary undertakings

–

(8.4)

Dividends received from subsidiary undertakings

–

19.0

6.1

Net cash (used in) from investing activities

(14.0)

(39.8)

19.0

(2.3)

Financing activities

Share based payments

(0.4)

–

Repayment of borrowings 24

(27.1)

(12.5)

–

Proceeds from borrowings 24

16.7

39.9

–

Interest paid on borrowings 24

(6.0)

(6.8)

–

Lease payments 33

(0.1)

(0.4)

–

Net proceeds from issue of share capital

–

10.9

–

10.9

Share buy back 30

(2.9)

–

(2.9)

–

Funding movements with subsidiaries

–

(1.0)

–

Net cash (used in) from financing activities

(19.8)

31.1

(3.9)

10.9

Net increase in cash and cash equivalents

19.6

2.1

3.5

1.5

Cash and cash equivalents at beginning of year

27.1

24.6

5.3

3.5

Effect of foreign exchange rate changes

(1.4)

0.4

–

0.3

Cash and cash equivalents at end of year 21

45.3

27.1

8.8

5.3

1) During the year IPR, acting as operator and agent, was authorised to settle its operating liabilities of $6.6m and investing liabilities of $8.8m against the

consideration due from the associated carry debtor (Note 37) amounting to $15.4m. The Company has disclosed the underlying cash flows as operating,

investing or financing according to their nature on the basis that, as a principal, the entity has the right to the cash inflows and/or the obligation to settle the

liability and ensure clarity of disclosure of the operating cash costs of the business.

The above consolidated cash flow statements should be read in conjunction with the accompanying notes.

Pharos Energy Annual Report and Accounts 2022

175

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Notes to the Consolidated Financial Statements

1. General information

Pharos Energy plc is a company limited by shares and

incorporated in England and Wales under the Companies Act. The

address of the registered office is given on the inside back cover.

The nature of the Group’s operations and its principal activities are

set out in Note 6, in the Operational Review and CFO’s statement

on pages 28 to 34 and 39 to 46, respectively. Pharos Energy plc

is the ultimate parent company of the Group and except where

otherwise indicated the following accounting policies apply to both

the Group and the Company.

2. Significant accounting policies

a) Basis of preparation

The financial statements have been prepared in accordance

with international accounting standards in conformity with the

requirements of the Companies Act 2006 and International

Financial Reporting Standards as issued by the International

Accounting Standard Board (IASB).

The Financial Statements have also been prepared on a going

concern basis of accounting for the reasons set out in the

Directors’ Report on page 160 and in the CFO’s Statement on

page 46.

The Financial Statements have been prepared under the historical

cost basis, except for the valuation of hydrocarbon inventories

(Note 19) and the revaluation of certain financial instruments (Note

25). The Financial Statements are presented in US dollars as it

is the functional currency of each of the Company’s subsidiary

undertakings and is generally accepted practice in the oil and gas

sector.

The principal accounting policies adopted are set out below.

b) New and amended standards adopted by the Group

A number of new or amended standards became applicable for

the current reporting period. The group did not have to change its

accounting policies or make retrospective adjustments as a result

of adopting these standards.

• Property, Plant and Equipment: Proceeds before Intended Use

– Amendments to IAS 16

• Onerous Contracts – Cost of Fulfilling a Contract –

Amendments to IAS 37

• Annual Improvements to IFRS Standards 2018-2020

• Reference to the Conceptual Framework – Amendments to

IFRS 3

c) New standards and interpretations not yet adopted

Certain new accounting standards and interpretations have been

published that are not mandatory for 31 December 2022 year end

and have not been early adopted by the Group. These standards

are not expected to have a material impact on the Group in the

current or future reporting periods nor on foreseeable future

transactions.

d) Basis of consolidation

The Group Financial Statements consolidate the accounts of

Pharos Energy plc and entities controlled by the Company (its

subsidiary undertakings) drawn up to the balance sheet date.

Control is achieved where the investor is exposed or has rights to

variable returns from its involvement with the investee and has the

ability to affect those returns through its power over the investee.

The Company reassesses whether or not it controls an investee

if facts and circumstances indicate that there are changes to one

or more of the elements of control. The results of subsidiaries

acquired or sold are consolidated for the periods from or to the

date on which control passed.

Where necessary, adjustments are made at the Group level to

align the accounting policies of the subsidiaries to the Group’s

accounting policies.

All intragroup assets and liabilities, equity, income, expenses and

cash flows relating to transactions between the members of the

Group are eliminated on consolidation.

e) Assets held for sale

Non-current assets are classified as held-for-sale if it is highly

probable that they will be recovered primarily through sale rather

than through continuing use. This condition is regarded as met

only when the sale is highly probable and the asset is available for

immediate sale in its present condition subject only to terms that

are usual and customary for sales of such assets. Management

must be committed to the sale, which should be expected to

qualify for recognition as a completed sale within one year from

the date of classification as held-for-sale, and actions required

to complete the plan of sale should indicate that it is unlikely that

significant changes to the plan will be made or that the plan will be

withdrawn.

Such assets are measured at the lower of their carrying amount

and fair value less costs to sell. Impairment losses on initial

classification as held for sale and subsequent gains or losses on

remeasurement are recognised in profit and loss.

Once classified as held for sale, intangible assets and property,

plant and equipment are no longer amortised or depreciated.

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. Short-term investments with maturities of three to six months

are classified as liquid investments.

Pharos Energy Annual Report and Accounts 2022

176

Additional Information

Strategic Report

Financial Statements

Governance Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

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 lifting basis and is recognised when

the Group satisfies a performance obligation by transferring oil

and gas to a customer. In accordance with the Group’s sales

agreements for oil and gas, the title to oil and gas typically

transfers to a customer at the same time as the customer takes

physical possession of the oil or gas. Typically, at this point in time,

the performance obligations of the Group are fully satisfied.

Investment revenue is accrued on a time basis, by reference to the

principal outstanding and at the effective interest rate applicable.

i) Other/restructuring items

Other/restructuring items represent income and expenses that

arise from events or transactions that are clearly distinct from the

ordinary activities of the Group and, therefore, are not expected to

recur frequently or regularly. Refer to Note 8 for further details.

j) Intangible and tangible non-current assets

Oil and gas exploration, evaluation and development

expenditure

The Group adopts the successful efforts method of accounting for

exploration and evaluation costs. Pre-licence costs are expensed

in the period in which they are incurred. All licence acquisition,

exploration and evaluation costs and direct administration costs

are initially capitalised as intangible non-current assets in cost

centres by well (most typically), field or exploration area, as

appropriate. Interest payable is capitalised insofar as it relates to

specific development activities.

These costs are then written off as exploration costs in the income

statement unless commercial reserves have been established or

the determination process has not been completed and there are

no indicators of impairment.

All field development costs are capitalised as property, plant

and equipment. Property, plant and equipment related to

production activities is amortised in accordance with the Group’s

depreciation, depletion and amortisation accounting policy.

Depreciation, depletion and amortisation

Depletion is provided on oil and gas assets in production using

the unit of production method, based on proven and probable

reserves, applied to the sum of the total capitalised exploration,

evaluation and development costs, together with estimated future

development costs at current prices. Oil and gas assets with a

similar economic lives are aggregated for depreciation purposes.

Impairment of value

Where there has been a change in economic conditions or in

the expected use of a tangible non-current asset that indicates

a possible impairment of an asset, management tests the

recoverability of the net book value of the asset by comparison

with the estimated discounted future net cash flows based on

management’s expectations of future oil prices and future costs.

Any identified impairment is charged/credited to the income

statement in the period in which it is identified.

Intangible non-current assets are considered for impairment

at least annually by reference to the indicators specified in

paragraphs 18 to 20 of IFRS 6. The impairment indicators in IFRS

6 for each exploration asset are:

• The period for which the entity has the right to explore in the

specific area has expired during the period or will expire in the

near future, and is not expected to be renewed;

• Substantive expenditure on further exploration for and

evaluation of mineral resources in the specific area is neither

budgeted nor planned;

• Exploration for and evaluation of mineral resources in the

specific area have not led to the discovery of commercially

viable quantities of mineral resources and the entity has

decided to discontinue such activities in the specific area; and

• Sufficient data exist to indicate that, although a development in

the specific area is likely to proceed, the carrying amount of the

exploration and evaluation asset is unlikely to be recovered in

full from successful development or by sale.

Other tangible non-current assets

Other tangible non-current assets are stated at historical cost less

accumulated depreciation. Depreciation is provided on a straight-

line basis at rates calculated to write off the cost of those assets,

less residual value, over their expected useful lives of three to

seven years.

Decommissioning

The decommissioning provision is calculated as the net present

value of the Group’s share of the expenditure which is expected

to be incurred at the end of the producing life of each field in the

removal and decommissioning of the production, storage and

transportation facilities currently in place. The cost of recognising

the decommissioning provision is included as part of the cost of

the relevant property, plant and equipment and is thus charged to

the income statement on a unit of production basis in accordance

with the Group’s policy for depletion and depreciation of tangible

non-current assets. Period charges for changes in the net present

value of the decommissioning provision arising from discounting

are included in finance costs.

k) Changes in estimates

The effects of changes in estimates on the unit of production

calculations are accounted for prospectively, from the date of

adoption of the revised estimates, over the estimated remaining

proven and probable reserves.

Pharos Energy Annual Report and Accounts 2022

177

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

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 practices. Underlifts and

overlifts are valued at market value and are included in accrued

income and prepayments, and accruals and deferred income,

respectively. Changes in hydrocarbon inventories, underlifts and

overlifts are adjusted through cost of sales.

m) Leases

On inception of a contract, the Group assesses whether the

contract is, or contains, a lease. The contract is, or contains, a

lease if it conveys the right to control the use of an identified asset

for a period of time in exchange for consideration. To determine

whether the contract conveys the right to control the use of an

identified asset, the Group assesses whether the contract involves

the use of an identified asset, the Group has the right to obtain

substantially all of the economic benefits from the use of the asset

throughout the period of use, and the Group has the right to direct

the use of the asset.

For short-term leases (lease term less than 12 months) and leases

for which the underlying asset is of low value assets, the Group

has opted to recognise a lease expense on a straight-line basis.

The right-of-use assets comprise the initial measurement of the

corresponding lease liability, lease payments made at or before

the commencement day, less any lease incentives received

and any initial direct costs. They are subsequently measured

at cost less accumulated depreciation and impairment losses.

The lease liability is initially measured at the present value of the

lease payments that are not paid at the commencement date,

discounted by using the rate implicit in the lease. If this rate

cannot be readily determined, the Group uses its incremental

borrowing rate.

The lease liability is presented as a separate line in the

consolidated statement of financial position.

The lease liability is subsequently measured by increasing the

carrying amount to reflect interest on the lease liability (using the

effective interest method) and by reducing the carrying amount to

reflect the lease payments made.

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

and measured initially at fair value. At each balance sheet date

until the liability is settled, and at the date of settlement, the fair

value of the liability is measured, with any changes in fair value

recognised in profit or loss for the year.

o) Taxation

The tax expense represents the sum of the tax currently payable

and deferred tax.

The tax currently payable is based on taxable profit for the year.

Taxable profit differs from net profit as reported in profit or loss

because it excludes items of income or expense that are taxable

or deductible in other years and it further excludes items that are

never taxable or deductible. The Group’s liability for current tax is

calculated using tax rates that have been enacted or substantively

enacted by the balance sheet date.

Deferred tax is the tax expected to be payable or recoverable on

differences between the carrying amounts of assets and liabilities

in the financial statements and the corresponding tax bases, and

is accounted for using the balance sheet liability method. Deferred

tax liabilities are generally recognised for all taxable temporary

differences and deferred tax assets are recognised to the extent

that it is probable that sufficient taxable profits will be available to

recover the asset. Deferred tax is not recognised where an asset

or liability is acquired in a transaction which is not a business

combination for an amount which differs from its tax value.

Deferred tax is calculated at the tax rates that are expected

to be applied in the period when the liability is settled or the

asset is realised based on tax rates that have been enacted or

substantively enacted by the balance sheet date. Deferred tax

is charged or credited in the income statement, except when it

relates to items charged or credited directly to equity, in which

case the deferred tax is also dealt with in equity.

p) Financial instruments

Financial assets and financial liabilities are recognised on the

Group’s balance sheet when the Group becomes a party to the

contractual provisions of the instrument.

There are no material financial assets and liabilities for which

differences between carrying amounts and fair values are required

to be disclosed. The classification of financial instruments as

required by IFRS 7 is disclosed in Notes 20, 21, 22, 24, 33 and

36.

Financial asset at fair value through profit or loss

Where a financial instrument is classified as a financial asset at fair

value through profit or loss it is initially recognised at fair value. At

each balance sheet date the fair value is reviewed and any gain or

loss arising is recognised in the income statement. Changes in the

net present value of the financial asset arising from discounting are

included in other income and expense. As at 31 December 2022

and 2021 no financial assets were classified at fair value through

profit or loss.

Trade receivables

Trade receivables are recognised initially at fair value and

subsequently measured at amortised cost, less expected credit

losses provision, when required.

Pharos Energy Annual Report and Accounts 2022

178

Additional Information

Strategic Report

Financial Statements

Governance Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Other financial assets

The amount booked as abandonment fund is the share of the

fair value of the fund net assets. Cash is contributed into the

abandonment funds for both our Vietnam producing fields

TGT and CNV. These abandonment funds are controlled by

PetroVietnam and, as Pharos retains the rights to the full amount

funded, pending commencement of abandonment operations,

they are treated as other non-current assets.

The abandonment fund is measured at the lower of the amount

of the decommissioning obligation recognised and the Pharos’

share of the fair value of the net assets of the fund available to

contributors.

Loans to subsidiaries

Loans to subsidiaries are recognised at amortised cost, less

expected credit losses provision, when required.

Impairment of financial assets

The Group recognises a loss allowance for expected credit losses

on trade receivables and loans to subsidiaries. The amount of

expected credit losses is updated at each reporting date to reflect

changes in credit risk since initial recognition of the respective

financial instrument.

The expected credit losses on these financial assets are estimated

using the Group’s historical credit loss experience, adjusted

for factors that are specific to the debtors, general economic

conditions and an assessment of both the current as well as the

forecast direction of conditions at the reporting date, including

time value of money where appropriate.

Trade payables

Trade payables are generally stated at amortised cost using the

effective interest rate.

Derivative and hedging instruments

Derivatives are initially recognised at fair value on the date that

a derivative contract is entered into, and they are subsequently

remeasured to their fair value at the end of each reporting period.

The accounting treatment for subsequent changes in fair value

depends on whether the derivative is designated as a hedging

instrument and, if so, the nature of the item being hedged.

At inception of the hedge relationship, the Group documents the

economic relationship between hedging instruments and hedged

items, including whether changes in the cash flows of the hedging

instruments are expected to offset changes in the cash flows

of hedged items. The Group documents its risk management

objective and strategy for undertaking its hedge transactions.

Pharos entered into different commodity (swap and zero cost

collar) hedges to protect the Brent component of forecast oil

sales and to ensure future compliance with its obligations under

the RBL. Pharos has designated the swaps and zero cost collars

as cash flow hedges. For cash flow hedges, the portion of the

gains and losses on the hedging instrument that is determined

to be an effective hedge is taken to other comprehensive income

and the ineffective portion is recognised in the income statement.

The gains and losses taken to other comprehensive income

are subsequently transferred to the income statement during

the period in which the hedged transaction affects the income

statement.

Borrowings

Interest-bearing bank loans are recorded at the proceeds

received, net of direct issue costs. Finance charges, including

any direct issue costs, are accounted for on an accrual basis in

the income statement using the effective interest method and are

added to the carrying amount of the instrument to the extent that

they are not settled in the year in which they arise.

The effective interest method is a method of calculating the

amortised cost of a financial liability and of allocating interest

expense over the relevant period. The effective interest rate is

the rate that exactly discounts estimated future cash payments

(including all fees and transaction costs) through the expected life

of the financial liability to the amortised cost of a financial liability.

The Group derecognises financial liabilities when, and only when,

the Group’s obligations are discharged, cancelled or have expired.

The difference between the carrying amount of the financial

liability derecognised and the consideration paid and payable is

recognised in profit or loss.

When the Group exchanges with the existing lender one debt

instrument into another one with substantially different terms, such

exchange is accounted for as an extinguishment of the original

financial liability and the recognition of a new financial liability.

Similarly, the Group accounts for substantial modification of terms

of an existing liability or part of it as an extinguishment of the

original financial liability and the recognition of a new liability. It is

assumed that the terms are substantially different if the discounted

present value of the cash flows under the new terms, including

any fees paid net of any fees received and discounted using the

original effective interest rate is at least 10 per cent different from

the discounted present value of the remaining cash flows of the

original financial liability. If the modification is not substantial, the

difference between: (1) the carrying amount of the liability before

the modification; and (2) the present value of the cash flows after

modification is recognised in profit or loss as the modification gain

or loss within other gains and losses.

Equity instruments

Equity instruments issued by the Company are recorded at the

proceeds received, net of direct issue costs. Equity instruments

repurchased are deducted from equity at cost.

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

Pharos Energy Annual Report and Accounts 2022

179

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

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 under the terms

and conditions of the agreements and when a reliable estimate

can be made.

The abandonment security fund is measured at the lower of the

amount of the decommissioning obligation recognised and the

contributor’s share of the fair value of the net assets of the fund

available to contributors.

The provision for the costs of decommissioning oil & gas

properties at the end of their economic lives is estimated based

on technology, future prices, the expected timing of the activity,

and is discounted using the nominal discount rate. The estimates

are regularly reviewed and adjusted as appropriate for new

circumstances.

r) Foreign currencies

The individual financial statements of each Group company are

stated in the currency of the primary economic environment

in which it operates (its functional currency). Transactions in

currencies other than the entity’s functional currency (foreign

currency) are recorded at the rate of exchange at the date of the

transaction. Monetary assets and liabilities denominated in foreign

currencies at the balance sheet date are recorded at the rates of

exchange prevailing at that date, or if appropriate, at the forward

contract rate. Any resulting gains and losses are included in net

profit or loss for the period.

For the purpose of presenting consolidated financial statements

the results of entities denominated in currencies other than US

dollars are translated at the daily rate of exchange and their

balance sheets are translated at the rates ruling at the balance

sheet date. Any resulting gains or losses are taken to other

comprehensive income.

s) Pension costs

The contributions payable in the year in respect of pension costs

for defined contribution schemes and other post-retirement

benefits are charged to the income statement. Differences

between contributions payable in the year and contributions

actually paid are shown either as accruals or prepayments in the

balance sheet.

3. Financial risk management

The Board reviews and agrees policies for managing financial risks

that may affect the Group. In certain cases the Board delegates

responsibility for such reviews and policy setting to the Audit and

Risk Committee. The principal financial risks affecting the Group

are discussed in the Risk Management Report on pages 47 to 60.

4. Critical judgements and accounting

estimates

a) Critical judgements in applying the Group’s

accounting policies

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 prices, together with ensuring that the forecasts included all

expenditure that was either committed or expected to be incurred

in relation to estimated production volumes. Consideration was

also given to the potential ongoing impact of the Ukraine war

with increased uncertainties and volatilities on world commodity

markets. This risk has been taken into consideration through

downside oil price sensitivities, including the application of a

reverse stress test. Further details in this area are provided in the

Directors’ Report on page 160 and in the CFO’s Statement on

page 46.

Pharos Energy Annual Report and Accounts 2022

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Financial Statements

Governance Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

b) Key sources of estimation uncertainty

The key assumptions concerning the future, and other key

sources of estimation uncertainty at the balance sheet date, other

than those mentioned above, that may have a significant risk of

causing a material adjustment to the carrying amounts of assets

and liabilities within the next financial year are discussed below:

Oil and gas reserves and DD&A

Note 2(j) sets out the Group’s accounting policy on DD&A. Proven

and probable reserves are estimated using standard recognised

evaluation techniques, and are disclosed on pages 32 to 34.

The estimate is reviewed at least twice a year and is audited by

third-party reservoir engineers at year end. Future development

costs are estimated taking into account the level of development

required to produce the reserves by reference to operators, where

applicable, and internal engineers. As discussed in the Operations

Review on page 32, the Vietnam fields, TGT and CNV proved and

probable reserves estimates have been revised based on ongoing

work of ERCE and audited by our Reserves Auditors, RISC

Advisory Pty Ltd. Egypt proved and probable reserves estimates

have been revised based on work of ERCE and audited by

McDaniels. Reserves estimates are inherently uncertain, especially

in the early stages of a field’s life, and are routinely revised over the

producing lives of oil and gas fields as new information becomes

available and as economic conditions evolve. Such revisions may

impact the Group’s future financial position and results, particularly

in relation to DD&A and impairment testing of oil and gas property,

plant and equipment.

Impairment of producing oil and gas assets

If impairment indicators are identified in relation to a producing

oil and gas field, management is required to compare the net

carrying value of the assets and liabilities which represent the

field cash generating unit (CGU) with the estimated recoverable

amount of the field. Management generally determines the

recoverable amount of the field by estimating its value in use,

using a discounted cash flow method. Calculating the net present

value of the discounted cash flows involves key assumptions

which include commodity prices, 2P reserves estimates and

discount rates. Other assumptions include production profiles,

future operating and capital expenditures and the relevant fiscal

terms. Further information relating to the specific assumptions and

uncertainties relevant to impairment tests performed in the year is

discussed in Note 16.

Climate change and the energy transition

In preparing the consolidated financial statements, the Directors

have considered the impact of climate change and the transition

to a low carbon economy, particularly in the context of the risks

identified in the TCFD disclosure on pages 79 to 106.

The Directors have also considered the impact of climate change

in respect of going concern and viability of the Group over the

next three years. In particular, the energy transition is likely to

impact future oil and gas prices which in turn may affect the

recoverable amount of the group’s property, plant and equipment

(PP&E). Management’s best estimate of future oil prices was

revised down significantly in 2020 but was adjusted upwards

in 2021 and 2022, partly due to expectations of the impact of

the energy transition. In developing these price assumptions,

consideration was given to a range of third-party forecasts,

including a number that were described as being consistent with

achieving the goal to reach Net Zero by 2050 and aligning with

COP26 (the “Net Zero price scenario”). Further details of the key

assumptions in this area have been provided in Note 16, including

sensitivity analysis outlining the impact on the impairment

charges of using the average of the Paris compliant scenarios.

In addition to impairment, climate change pressures could

curtail the expected useful lives of the group’s oil and gas PP&E,

thereby accelerating depreciation charges. However, the group’s

producing fields are likely to be fully depreciated within 12 years,

during which timeframe it is expected that global demand for

oil will remain robust. Accordingly, the impact of climate change

on expected useful lives is not considered to be a significant

judgement or estimate.

In addition to PP&E, climate change could: (1) adversely impact

the future development or viability of exploration and evaluation

(E&E) prospects. However, the impact of climate change will

be taken into consideration when the field is transferred from

exploration to development stage; (2) bring forward the date of

decommissioning of the group’s producing oil and gas assets

in Vietnam, thereby increasing the net present value of the

associated provision. However, decommissioning is currently

forecast to occur within the next 8-9 years and, due to the

relatively short timeframe, it is not considered that any reasonably

possible acceleration in the timing of decommissioning will have

a material impact on the provision, assuming the underlying cost

estimates remain unchanged.

The Directors are aware of the ever-changing risks attached

to climate change and will regularly assess these risks against

judgements and estimates made in preparation of the Group’s

financial statements.

5. Total revenue

An analysis of the Group’s revenue is as follows:

2022

$ million

2021

$ million

Oil and gas sales (see Note 6)

221.6

163.8

Realised losses on commodity hedges

(see Note 6 and Note 25)

(22.5)

(29.7)

Investment revenue

0.2

–

199.3

134.1

Pharos Energy Annual Report and Accounts 2022

181

6. Segment information

The Group has one principal business activity being oil and gas exploration and production. The Group’s continuing operations are

located in South East Asia and Egypt (the Group’s operating segments). There are no inter-segment sales. South East Asia and Egypt

form the basis on which the Group reports its segment information.

2022

SE Asia

$ million

Egypt

$ million

Unallocated

$ million

Group

$ million

Oil and gas sales (see Note 5)

184.8 36.8 – 221.6

Realised loss on commodity hedges (see Note 5 and Note 25)

– – (22.5) (22.5)

Total revenue

184.8 36.8 (22.5) 199.1

Depreciation, depletion and amortisation - Oil and gas (see Note 7 and Note 16)

(51.0) (4.1) – (55.1)

Depreciation, depletion and amortisation - Other (see Note 16)

– (0.1) – (0.1)

Impairment reversal/(charge) – Intangibles (see Note 15)

1.0 – (0.2) 0.8

Impairment reversal – PP&E (see Note 16)

23.3 3.8 – 27.1

Loss on disposal (see Note 37)

– (6.3) – (6.3)

Profit/(loss) before tax

108.3 16.9 (44.6) 80.6

Tax charge on operations (see Note 12)

(47.9) – – (47.9)

Tax charge on impairment reversal (see Note 12)

(8.3) – – (8.3)

2021

SE Asia

$ million

Egypt

$ 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) – – (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

98.8 (10.1) (50.1) 38.6

Tax charge on operations (see Note 12) (24.8) – – (24.8)

Tax charge on impairment reversal (see Note 12) (18.5) – – (18.5)

1) Unallocated amounts included in profit/(loss) before tax comprise corporate costs not attributable to an operating segment, investment revenue, other gains

and losses and finance costs.

2) Includes $1.0m reversal of impairment of Block 125&126 tax receivable (other receivable – current), offset by $(0.2)m write-off of seismic costs relating to

Israel exploration Zones A and C.

The accounting policies of the reportable segments are the same as the Group’s accounting policies as described in Note 2.

Included in revenues arising from South East Asia and Egypt are revenues of $182.5m and $36.8m which arose from the Group’s three

largest customers, who contributed more than 10% to the Group’s oil and gas revenue (2021: $128.3m and $32.8m in South East Asia

and Egypt from the Group’s two largest customers).

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Pharos Energy Annual Report and Accounts 2022

182

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Strategic Report

Financial Statements

Governance Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

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.

2022

$ million

2021

$ million

Vietnam

97.1

131.0

Egypt

36.8

32.8

China

87.7

221.6

163.8

Non-current assets

2022

$ million

2021

$ million

Vietnam

332.5

360.8

Egypt

65.8

51.4

398.3

412.2

Excludes other assets.

7. Cost of sales

2022

$ million

2021

$ million

Depreciation, depletion and

amortisation (see Note 16)

55.1

51.0

Production based taxes

14.7

10.1

Export duty

3.2

–

Production operating costs

45.6

53.6

Inventories

(1.8)

(0.1)

116.8

114.6

8. Other/restructuring expense

2022

$ million

2021

$ million

Redundancy costs

0.1

3.0

Premium – lease transfer

0.7

0.3

0.8

3.3

1) Relates to the transfer of the London office lease to a third party, at which

point the Company derecognised the right-of-use asset and associated

lease liability. In 2020, $1.2m was transferred to an escrow account held

by a third party (recorded within prepayments). The amount was released

to the income statement over 21 months on the condition the new tenant

paid the rent to the landlord. In 2022, the remaining balance of $0.7m

(2021: $0.3m) was released from the escrow account and paid to the new

tenant.

9. Finance costs

2022

$ million

2021

$ million

Unwinding of discount on provisions

(see Note 26)

1.3

0.8

Interest expense payable and similar fees

(see Note 24)

6.0

3.8

Interest on lease liabilities (see Note 33)

Amortisation of capitalised borrowing costs

(see Note 24)

4.1

2.4

Net foreign exchange losses/(gains)

1.3

(0.6)

12.7

6.4

In 2022, $1.3m relates to the unwinding of discount on the

provisions for decommissioning (2021: $0.8m). The provisions

are based on the net present value of the Group’s share of the

expenditure which may be incurred at the end of the producing

life of TGT and CNV (currently estimated to be 8-9 years) in the

removal and decommissioning of the facilities currently in place

(see Note 26).

Following the June and December 2022 redeterminations in

relation to the Group’s reserve based lending facility, there was a

change in estimated future cash flows, as a result a one off loss

of $2.6m and amortised cost of $1.5m have been recognised in

profit or loss.

10. Auditor’s remuneration

The analysis of the auditor’s remuneration is as follows:

2022

$ million

2021

$ million

Fees payable to the Company’s auditor

and their associates for the audit of the

Company’s annual accounts

418

385

Fees payable to the Company’s auditor and their associates

for other services to the Group:

Audit of the Company’s subsidiaries

100

101

Audit of the Company’s subsidiaries relating

to the prior year

Total audit fees

554

549

Audit related assurance services

– half year review

127

130

Other assurance services

134

Total non-audit fees

167

264

The non-audit fees during 2022 included the half year review and

other assurance services associated primarily with agreed upon

procedures relating to Vietnam (2021: associated primarily with

the reporting accountant work in relation to the farm-out of the

Egypt concessions, of which $27,400 are required by UK law

or regulation, and the agreed upon procedures relating to the

Vietnam region).

All non-audit fees were fully approved by the Audit and Risk

Committee, having concluded such services were compatible with

auditor independence and were consistent with relevant ethical

guidance in place.

Pharos Energy Annual Report and Accounts 2022

183

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Details of the Company’s policy on the use of auditors for non-

audit services are set out in the Audit and Risk Committee Report

on page 133.

Fees payable to Deloitte LLP for non-audit services to the

Company are not required to be disclosed separately because

the consolidated financial statements disclose such fees on a

consolidated basis.

11. Staff costs

The average monthly number of employees of the Group including

Executive Directors was 52 (2021: 74), of which 47 (2021: 69)

were administrative personnel and 5 (2021: 5) were operations

personnel. Their aggregate remuneration comprised:

Group

2022

$ million

2021

$ million

Wages and salaries

8.0

9.1

Social security costs

0.8

Share-based payment expense

(see Note 31)

1.7

2.7

Other pension costs under money

purchase schemes

0.5

0.9

Other benefits

0.6

0.7

11.6

14.2

In accordance with the Group’s accounting policy $2.4m (2021:

$1.2m) of the Group’s staff costs above have been capitalised,

of which $1.8m (2021: $1.0m) relates to our Vietnam assets and

$0.6m (2021: $0.2m) relates to our Egypt assets.

In 2022, total staff costs were $11.6m (2021: $14.2m) and

includes the costs of head office and Pharos’ subsidiary

employees. Excluding the impact of IFRS 2 share-based payment

expense and bonuses paid to staff, the underlying costs have

fallen 15% year on year - $7.2m (2021: $8.5m).

Redundancy costs of $0.1m (2021: $3.0m) for both the head

office in London and the Egypt office in Cairo are disclosed in

other/restructuring expense in the Income Statement (Note 8).

12. Tax

2022

$ million

2021

$ million

Current tax charge

54.5

37.6

Deferred tax credit on operations

(see Note 23)

(6.6)

(12.8)

Deferred tax charge on impairment reversals

(see Note 16 and 23)

8.3

18.5

Total tax charge

56.2

43.3

The Group’s corporation tax is calculated at 50% (2021: 50%)

of the estimated assessable profit for the year in Vietnam. In

Egypt, under the terms of the concession, any local taxes arising

are settled by EGPC. During 2022 and 2021, both current and

deferred taxation have arisen in overseas jurisdictions only.

The charge for the year can be reconciled to the profit per the

income statement as follows:

2022

$ million

2021

$ million

Profit before tax

80.6

38.6

Profit before tax at 50% (2021: 50%)

40.3

19.3

Effects of:

Non-taxable income

(3.3)

(8.0)

Non-deductible expenses

5.6

4.5

Tax losses not recognised

13.8

28.7

Adjustments to tax charge in respect of

previous periods

(0.2)

(1.2)

Tax charge for the year

56.2

43.3

The prevailing tax rate in Vietnam, where the Group produces oil

and gas, is 50%. The tax charge in future periods may also be

affected by the factors in the reconciliation above.

The effect of non-deductible exploration costs written back of

$(0.5)m in 2022 related to the partial reversal of an impairment of

exploration assets in Vietnam.

Non-taxable income principally relates to Vietnam impairment

reversal of $(3.3)m (2021: $(8.0)m). Non-deductible expenses

primarily relate to Vietnam DD&A charges for costs previously

capitalised, which are non-deductible for Vietnamese tax

purposes of $5.6m (2021: $1.8m). A further $nil (2021: $2.7m)

relates to non-deductible corporate costs including share scheme

incentives.

The Egypt concessions are subject to corporate income tax at

the standard rate of 40.55%, however responsibility for payment

of corporate income taxes falls upon EGPC on behalf of our

local subsidiary Pharos El Fayum (PEF). The Group records a

tax charge, with a corresponding increase in revenues, for the

tax paid by EGPC on its behalf. However, this is only valid if PEF

is in a historic profit making position and no such tax has been

recorded this year.

The effect from tax losses not recognised relates to costs,

primarily of the Company, deductible for tax in the UK but not

expected to be utilised in the foreseeable future. For 2021, it

also includes losses arising in Egypt for which no future benefit

can be obtained under the terms of the concession agreement.

During 2022, Egypt concessions recorded a net profit before tax

of $16.9m (profit after tax impact of $8.5m) which has been offset

against tax losses not recognised, as Egypt is in a historic loss

making position. The group did not recognise deferred tax assets

in relation to historical tax losses available to offset future taxable

profits of $28m on the basis that there will be no future benefits

arising from these losses as any taxes in the future will be paid by

EGPC on behalf of the group.

13. Profit/(loss) attributable to

Pharos Energy Plc

The profit for the financial year in the accounts of the Company

was $60.7m inclusive of dividends from subsidiary undertakings

(2021: profit of $1.9m). As provided by section 408 of the

Companies Act 2006, no income statement or statement of

comprehensive income is presented in respect of the Company.

Pharos Energy Annual Report and Accounts 2022

184

Additional Information

Strategic Report

Financial Statements

Governance Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

14. Earnings per share

The calculation of the basic and diluted earnings per share is

based on the following data:

Group

2022

$ million

2021

$ million

Gain/(Loss) for the purposes of basic profit/

(loss) per share

24.4

(4.7)

Effect of dilutive potential ordinary shares

– Cash settled share awards and options

(0.3)

–

Gain/(Loss) for the purposes of diluted

profit/(loss) per share

24.1

(4.7)

Number of shares

(million)

2022

2021

Weighted average number of ordinary

439.3

437.8

Effect of dilutive potential ordinary shares

– Share awards and options

0.9

–

Weighted average number of ordinary

shares for the purpose of diluted profit/(loss)

per share

440.2

452.0

In accordance with IAS 33 “Earnings per Share”, the effects of

14.2m antidilutive potential shares have not been included when

calculating dilutive earnings per share for the year ended 31

December 2021, as the Group was loss making.

15. Intangible assets

Group Company

2022

$ million

2021

$ million

2022

$ million

2021

$ million

Exploration and evaluation expenditure

As at 1 January

12.4

1.5

–

Additions

4.3

15.2

–

Impairment – Intangibles

(0.2)

(2.2)

–

Reclassified as assets held for sale (see Note 37)

–

(2.1)

–

As at 31 December

16.5

12.4

–

1) 2022 excludes $1.0m impairment reversal of Block 125&126 tax receivable (other receivable – current) which was dependent on the E&E being developed.

Intangible assets at 2022 year-end comprise the Group’s

exploration and evaluation projects which are pending

determination. Included in the additions is Blocks 125 & 126 in

Vietnam $3.1m (2021: $10.6m), Egypt $1.0m (2021: $3.9m) of

which $0.9m (2021: $0.6m) relates to North Beni Suef, and $0.2m

(2021: $0.7m) for Israel.

During 2022, $0.2m was spent in Israel on geoscience and

geophysical studies (2021: $0.7m). Following completion of the

seismic processing in order to mature prospectivity ahead of a

drilling decision, Capricorn as the operator and along with the

Company and other JV partners, informed the Ministry of Energy

of the JV’s intention to relinquish the licences. The bank guarantee

of $2.7m held, as at 31 December 2021, for the Israeli offshore

exploration licenses, was released accordingly. At 31 December

2022, the Group has therefore decided to write off the $0.2m

in Israel as no substantive expenditure has been identified as

indicated in IFRS 6.

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.

Pharos Energy Annual Report and Accounts 2022

185

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Exploration costs including costs associated with Blocks 125

& 126 in Vietnam of $17.9m and costs associated with Egypt

projects in the amount of $5.3m were written off in the income

statement in accordance with the Group’s accounting policy on oil

and gas exploration and evaluation expenditure.

At 31 December 2021, interpretation of the seismic data in relation

to Blocks 125 and 126 in Vietnam was ongoing and the carrying

value of Egypt exploration and evaluation expenditure was to

be reviewed following completion of the farm out of the Egypt

concessions.

At 31 December 2022, on Block 125, the 3D seismic processing

was complete and the ongoing interpretation of the data

resulted in the mapping of a variety of Prospects in the relatively

unexplored deep water basin. A commitment well was planned

for 2023 with an estimated cost of $15m, but the focus on deep

water means that a drillship is needed and the Company has been

unable to source one for 2023. An application has therefore been

submitted for an extension of the license and the Company now

plans to drill a commitment well in 2024. In Egypt, as part of the

planned work programme for 2023, two commitment wells are

expected to be drilled in the El Fayum Concession. In order to

meet a commitment on North Beni Suef, two exploration wells are

expected to be drilled in calendar year 2023.

Whilst ongoing costs for exploration are therefore forecast and

funds available for future exploration, there is insufficient certainty

of full recovery to justify the reversal of the previous impairment

charges in 2020. The accumulated impairment charges against

exploration and evaluation expenditure at 31 December 2022

stands at $25.6m (2021: $25.4m). This will be kept under review

as the exploration activity continues.

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16. Property, plant and equipment and right of use assets

Group Company

Oil and gas

properties

$ million

Other

$ million

Total

$ million

Other

$ million

Cost

As at 1 January 2021 1,208.6 1.9 1,210.5 –

Additions 24.6 0.1 24.7 –

Revision in decommissioning asset (1.9) – (1.9) –

Reclassified as assets held for sale (see Note 37) (139.4) (1.1) (140.5) –

As at 1 January 2022 1,091.9 0.9 1,092.8 –

Additions 23.8 0.2 24.0 –

Revision in decommissioning asset (see Note 26) (13.9) – (13.9) –

As at 31 December 2022 1,101.8 1.1 1,102.9 –

Depreciation

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 1 January 2022 692.5 0.5 693.0 –

Charge for the year 55.1 0.1 55.2 –

Impairment (reversal) (27.1) – (27.1) –

As at 31 December 2022 720.5 0.6 721.1 –

Carrying amount

As at 31 December 2022 381.3 0.5

381.8

–

As at 31 December 2021 399.4 0.4

399.8

–

Property, plant and equipment 380.5 0.5 381.0 –

Right-of-use assets (see Note 33) 0.8 – 0.8 –

As at 31 December 2022 381.3 0.5 381.8 –

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 –

As a result of previously recognised impairment losses, combined with the ongoing oil price volatility, economic uncertainty leading to

an increase in inflation and discount rates, and movements in 2P reserves, we have tested each of our oil and gas producing properties

for impairment. The results of these impairment tests are summarised below. For each producing property, the recoverable amount has

been determined using the value in use method which constitutes a level 3 valuation within the fair value hierarchy. The recoverable

amount is supported by the fair value derived from a discounted cash flow valuation of the 2P production profile.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Summary of Impairments - Oil and Gas properties

TGT $m CNV $m Egypt $m Total $m

2022

Pre-tax impairment reversal 19.7 3.6 3.8 27.1

Deferred tax charge (6.9) (1.4) – (8.3)

Post-tax impairment reversal 12.8 2.2 3.8 18.8

Reconciliation of carrying amount:

As at 1 Jan 2022

266.0 84.2 49.2 399.4

Additions

7.0 3.2 13.6 23.8

Changes in decommissioning asset

(11.1) (2.8) – (13.9)

DD&A (39.2) (11.8) (4.1) (55.1)

Impairment reversal 19.7 3.6 3.8 27.1

As at 31 Dec 2022 242.4 76.4 62.5 381.3

2021

Pre-tax impairment reversal 49.1 3.8 1.7 54.6

Deferred tax charge (17.1) (1.4) – (18.5)

Post-tax impairment reversal 32.0 2.4 1.7 36.1

Reconciliation of carrying amount:

As at 1 Jan 2021

239.3 91.2 104.2 434.7

Additions

11.4 0.3 12.9 24.6

Reclassified as assets held for sale

– – (1.4) (1.4)

Changes in decommissioning asset

(1.0) (0.9) – (1.9)

DD&A

(32.8) (10.2) (8.0) (51.0)

Impairment reversal

49.1 3.8 1.7 54.6

Sub-total 266.0 84.2 109.4 459.6

Reclassified as assets held for sale – – (60.2) (60.2)

As at 31 Dec 2021 266.0 84.2 49.2 399.4

1) Egypt carrying value reflects 45% share (2021: 100%).

2) Changes in decommissioning asset for TGT is due to changes in discount rate and the field abandonment plan, whereas CNV reflects the change in discount

rate only (2021: change in discount rate only for both TGT and CNV).

Vietnam

The key assumptions to which the fair value measurement is most sensitive are oil price, discount rate and 2P reserves (2021: oil

price, discount rate and 2P reserves). As at 31 December 2022, the fair value of the assets are estimated based on a post-tax nominal

discount rate of 13.3% (2021: 11.4%) and a Brent oil price of $88.3/bbl in 2023, $84.8/bbl in 2024, $79.4/bbl in 2025, $74.5/bbl in

2026 plus inflation of 2.0% thereafter (2021: an oil price of $73.9/bbl in 2022, $70.2/bbl in 2023, $67.8/bbl in 2024, $68.0/bbl in 2025

plus inflation of 2.0% thereafter).

Testing of sensitivity cases indicated that a $5/bbl reduction in long-term oil price used when determining the value in use method would

result in post-tax impairments charge (compare to new NBV) of $11.8m on TGT and $3.7m on CNV. A 1% increase in discount rate

would result in post-tax impairments of $4.0m on TGT and $1.0m on CNV.

We have also run sensitivities utilising the IEA (International Energy Agency) scenarios described as being consistent with achieving the

COP26 agreement goal to reach net zero by 2050 (the “Net Zero price scenario”). The nominal Brent prices used in this scenario were as

follows; $88.3/bbl in 2023, $84.8/bbl in 2024, $79.4/bbl in 2025, $72.7/bbl in 2026, $65.6/bbl in 2027, $58.3/bbl in 2028, $50.7/bbl in

2029 and $42.7/bbl in 2030. Using these prices and an 13.3% discount rate would result in additional post-tax impairments of $13.8m

on TGT and $5.0m on CNV.

The impairment tests for TGT and CNV assume that production ceases in 2029 and 2030 respectively.

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Egypt

The key assumptions to which the fair value measurement is most sensitive are oil price, discount rate, capital spend and 2P reserves

(2021: oil price, discount rate, capital spend and 2P reserves). As at 31 December 2022, the fair value of the assets are estimated based

on a post-tax nominal discount rate of 15.9% (2021: 14%) and a Brent oil price of $88.3/bbl in 2023, $84.8/bbl in 2024, $79.4/bbl in

2025, $74.5/bbl in 2026 plus inflation of 2.0% thereafter (2021: an oil price of $73.9/bbl in 2022, $70.2/bbl in 2023, $67.8/bbl in 2024,

$68.0/bbl in 2025 plus inflation of 2.0% thereafter).

Testing of sensitivity cases indicated that a $5/bbl reduction in long term oil price used would result in an impairment of $7.8m (compare

to new NBV). A 1% increase in discount rate would result in an impairment charge of $2.8m. We have also run a sensitivity using a

15.9% discount rate and the Net Zero price scenario which would result in an additional impairment of $25.5m.

Other considerations

It is not considered possible to provide meaningful sensitivities in relation to 2P reserves for any of the Group’s oil and gas producing

properties, as the impact of any changes in 2P reserves on recoverable amount would depend on a variety of factors, including the

timing of changes in production profile and the consequential effect on the expenditure required to both develop and extract the

reserves.

Other fixed assets comprise office fixtures and fittings and computer equipment.

17. Fixed asset investments and joint arrangements

The Company and the Group had investments in the following subsidiary undertakings as at 31 December 2022.

Country

of incorporation

Country

of operation Principal activity

Percentage

holding Footnotes

Registered

address

OPECO Vietnam Limited

Cook Islands Vietnam

Oil and gas development

and production

100 2,4 e

SOCO Vietnam Ltd

Cayman Islands Vietnam

Oil and gas development

and production

100 2,3 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 2,5 d

OPECO, Inc

USA – Investment holding 100 2,4 c

Pharos El Fayum

Cayman Islands Egypt

Oil and gas development

and production

100 1,6 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

Footnotes:

Group investments

1) Investments held directly by Pharos Energy Plc.

2) Investments held indirectly by Pharos Energy Plc.

Joint operations

3) SOCO Vietnam Ltd holds a 28.5% working interest in Block 16-1, TGT

Field. The Field operational base is development/production and is

operated by Hoang Long Joint Operating Company which is registered

in Vietnam. SOCO Vietnam Ltd holds a 25% working interest in Block

9-2, CNV Field. The Field operational base is development/production

and is operated by Hoan Vu Joint Operating Company which is

registered in Vietnam.

4) OPECO Vietnam Limited holds a 2% working interest in Block 16-1,

TGT Field. The Field operational base is development/production and is

operated by Hoang Long Joint Operating Company which is registered

in Vietnam.

5) SOCO Exploration (Vietnam) Limited holds a 70% working interest in

Blocks 125 & 126 and is the Operator. The operating office is registered

in Vietnam. The main activity is exploration.

6) Pharos El Fayum holds a 45% working interest in the El Fayum

Concession and a 45% working interest in the North Beni Suef

Concession. The Field operational base for the El Fayum Concession

is development/production. The remaining 55% working interest in

the El Fayum Concession is held by IPR Lake Qarun Petroleum Co

(“IPR Lake Qarun”), a wholly owned subsidiary of IPR Energy AG. IPR

Lake Qarun is nominally the operator of the El Fayum Concession,

but development and production operations on the Concession

are undertaken through the joint operating company Petrosilah, an

Egyptian joint stock company owned jointly by IPR Lake Qarun, Pharos

El Fayum and the Egyptian state oil and gas company Egyptian General

Petroleum Corporation (EGPC). The North Beni Suef Concession is in

the exploration phase and is operated by IPR Lake Qarun, which holds

the remaining 55% working interest.

Registered addresses

a) 47 Esplanade, St Helier, Jersey, JE1 0BD, Channel Islands

b) Eastcastle House, 27/28 Eastcastle Street, London W1W 8DH,

United Kingdom

c) Corporation Trust Center, 1209 Orange Street, Wilmington, DE

19801, USA

d) 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

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Divestments:

The following subsidiary undertaking was dissolved during the year:

Pharos Energy NBS

The Company’s investments in subsidiary undertakings include contributions to the Pharos Employee Benefit Trust (see Note 28) and are

otherwise held in the form of share capital.

Investments

2022

$ million

2021

$ million

Subsidiary undertakings

As at 1 January

278.7

268.1

Additions to investments

0.6

2.7

Impairment reversal

56.2

7.9

As at 31 December 335.5

278.7

The Directors believe that the carrying value of the investments is supported by their underlying net assets.

At each year end, the carrying value of investments in subsidiaries is compared against recoverable amount determined using the value

in use method. During 2022, the Company recorded a net impairment reversal of $56.2m in investments in subsidiaries in relation to the

underlying net asset values of Vietnam and Egypt operations.

Loans to subsidiary undertakings are unsecured and payable on demand. The carrying value of the loans is compared to liquid assets

held by the subsidiary and an assessment is made on the ability of the entity to settle the liability. For 2022, a loss allowance of $2.3m

was recognised in relation to loans to subsidiary undertakings during the year.

Audit exemptions for subsidiary company

The Group has elected to take advantage of the exemption from audit available under section 479A of the Companies Act 2006

in respect of its wholly owned subsidiary, Pharos Energy Israel Limited (incorporated in England and Wales with company number

12645819), for the year ended 31 December 2022. The exemption is available for qualifying subsidiaries that fulfil a set of conditions.

As a result, statutory financial statements will not be audited for Pharos Energy Israel Limited. In accordance with section 479C of the

Companies Act 2006, the Company will guarantee the liabilities and commitments of Pharos Energy Israel Limited. As at 31 December

2022, the total sum of these liabilities and commitments is $0.1m (2021: $0.8m).

18. Other non-current assets

Group Company

2022

$ million

2021

$ million

2022

$ million

2021

$ million

Amounts falling due after one year:

Abandonment security fund

50.2

48.1

–

Contingent consideration on Egypt farm-out (see Note 37)

8.9

–

59.1

48.1

–

Other non-current assets mainly comprise the Group’s share of contributions made into two abandonment security funds which were

established to ensure that sufficient funds exist to meet future abandonment obligations on TGT and CNV fields. The funds are controlled

by PetroVietnam and the JOC partners retain the legal rights to the funds pending commencement of abandonment operations. The

Group doesn’t expect to receive cash or another financial asset from PetroVietnam. During 2022, the Group has contributed $2.1m

(2021: $2.2m). As at 31 December 2022, the Group’s total contribution to the funds was $50.2m (2021: $48.1m).

A further $8.9m (2021: $nil) relates to Egypt and non-current contingent consideration due from farm-out with IPR. The Group is entitled

to contingent consideration depending on the average Brent Price each year from 2022 to the end of 2025 (with floor and cap at $62/bbl

and c.$90/bbl respectively). The contingent consideration is calculated yearly and is capped at a maximum total payment of $20.0m (see

Note 37).

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19. Inventories

Group Company

2022

$ million

2021

$ million

2022

$ million

2021

$ million

Crude oil and condensate

7.2

5.9

–

Warehouse stocks and materials

–

11.1

–

Reclassified as assets held for sale (see Note 37)

–

(6.3)

–

7.2

10.7

–

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 $nil (2021: $11.1m) all relates to

Egypt.

20. Trade and other receivables

Group Company

2022

$ million

2021

$ million

2022

$ million

2021

$ million

Amounts falling due within one year

Trade receivables

33.2

23.8

–

Other receivables

27.0

1.0

–

0.9

Prepayments and accrued income

0.7

5.3

0.4

0.5

Reclassified as assets held for sale (see Note 37)

–

(2.0)

–

60.9

28.1

0.4

1.4

There is no material difference between the carrying amount of trade and other receivables and their fair value.

Included in trade and other receivables arising from South East Asia and Egypt at 31 December 2022 are trade receivables of $10.3m

and $22.4m (after risk factor provision of $1.8m) respectively, which arose from the Group’s two largest customers (2021: $16.3m and

$7.1m from the Group’s two largest customers in South East Asia and Egypt respectively).

In Vietnam, there are no amounts overdue or allowances for doubtful debts in respect of trade or other receivables (2021: nil). In Egypt,

the average credit period on sales is 194 days (2021: 78 days). No interest is charged on outstanding trade receivables.

Trade and other receivables are financial assets and measured at amortised cost. The Group applies the IFRS 9 simplified approach to

measuring expected credit losses (‘ECL’) which uses a lifetime expected loss allowance for all trade receivables. As mentioned above,

99% (2021: 98%) of our trade receivables are concentrated with two largest customers, one of them being a subsidiary of a government

regulated entity and the other being a major global oil & gas company. As of 31 December 2022, an ECL provision of $1.8m has been

recorded against trade receivables in Egypt due to collection delays caused by the devaluation of EGP and ongoing restrictions on

outgoing USD transfers by the Central Bank of Egypt. At 31 December 2021, it was concluded that the ECL related to trade receivables

was immaterial.

Included in other receivables is $20.9m (2021: $nil) of carry, the remaining balance of disproportionate funding contribution from IPR

following completion of the farm-out transaction of Egyptian assets, as disclosed in Note 37.

Included in prepayments is $nil (2021: $0.9m) held by Sheppard & Wedderburn LLP on a ’quasi escrow’ basis to be released to the

London office tenant over the next 12 months as the tenant makes payments to the landlord (see Note 33).

21. Cash and cash equivalents

As at 31 December 2022, cash and cash equivalents was $45.3m (2021: $27.1m). Of this balance, $7.4m (2021: $0.7m) were in Money

Market Funds that are valued at quoted prices of the funds in the active markets for the financial instruments. The Money Market Funds

were recorded at fair value at the year end.

At 31 December 2021, Pharos held $2.7m cash in relation to bank guarantees for the Israeli offshore exploration licenses. In 2022,

Capricorn, Ratio and Pharos reached agreement to relinquish the Israeli licences, and Capricorn as operator has informed the Israeli

Ministry of Energy of the parties’ intention. The bank guarantees were no longer required and released accordingly.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

22. Trade and other payables

Group Company

2022

$ million

2021

$ million

2022

$ million

2021

$ million

Amounts falling due within one year:

Trade payables

–

7.9

–

Other payables

6.3

8.0

1.1

1.2

Derivative financial instruments (see Note 25)

1.1

6.5

–

Accruals and deferred income

6.6

16.7

0.8

3.1

Reclassified as liabilities associated with assets held for sale (see Note 37)

–

(8.5)

–

14.0

30.6

1.9

4.3

Amounts falling due after one year:

Other payables

0.9

–

0.9

–

There is no material difference between the carrying value of trade payables and their fair value. The above trade and other payables are

held at amortised cost and are not discounted as the impact would not be material. Trade and other payables are financial liabilities and

are therefore measured at amortised cost.

The Group does not utilise any supplier financing (reverse factoring) arrangements. The Group has financial risk management policies in

place to ensure that all payables are paid within the pre-agreed credit terms. Further information relating to financial risks and how the

Group mitigate these risks are discussed in the Risk Management Report on pages 47 to 60.

Accruals and deferred income include $2.5m (2021: $3.4m) in respect of a royalty provision for Egypt and reflects the amount payable

in the next year. The royalty provision relates to a historical arrangement granting a 3% royalty on Pharos’s share of profit oil and excess

cost recovery from El Fayum in Egypt.

23. Deferred tax

The following are the major deferred tax liabilities recognised by the Group and movements thereon during the current and prior reporting

period:

Accelerated tax

depreciation

$ million

Other temporary

differences

$ million

Group

$ million

As at 1 January 2021 82.6 2.9 85.5

Charge to income (see Note 12) 5.7 – 5.7

As at 1 January 2022 88.3 2.9 91.2

Charge to income (see Note 12) 0.9 0.8 1.7

As at 31 December 2022 89.2 3.7 92.9

The charge to income includes a deferred tax charge of $8.3m (2021: $18.5m charge) that arises from the impairment of the TGT and

CNV producing assets as discussed in Note 16.

There are no unrecognised deferred taxation balances at either balance sheet date except in relation to gross losses that are not

expected to be utilised in the amount of $143.2m (2021: $129.0m). The gross losses have no expiry date.

A UK entity in the Group has entered into commodity swaps designated as cash flow hedges. In accordance with IAS 12, a deferred tax

asset has not been recognised in relation to the hedging losses of $22.5m recorded in the year as it is unlikely that the UK tax group will

generate sufficient taxable profit in the future, against which the deductible temporary differences can be utilised.

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24. Borrowings

Group

2022

$ million

2021

$ million

Borrowings:

Uncommitted Revolving credit facility

9.2

6.5

Reserve Based Lending Facility

65.0

78.1

Less one-off adjustments and amortisation of capitalised borrowing costs

(4.1)

Carrying value of total debt 74.2

80.5

Current

39.6

33.3

Non-current

34.6

47.2

Carrying value of total debt 74.2

80.5

less than 1 year

$ million

1-2 years

$ million

2-5 years

$ million

Group

$ million

Maturity - borrowings:

Uncommitted Revolving credit facility 9.2 – – 9.2

Reserve Based Lending Facility 30.4 24.6 10.0 65.0

39.6 24.6 10.0 74.2

The maturity analysis for borrowings details the Group’s remaining contractual maturity for its borrowings with agreed repayment periods.

The tables have been drawn up based on the undiscounted cash flows of borrowings based on the earliest date on which the Group can

be required to pay. The reserve based lending facility is based on December 2022 redetermination.

Changes in liabilities arising from financing activities:

2022

$ million

2022

$ million

2022

$ million

2021

$ million

Credit

facility RBL

Total

Borrowings

Total

Borrowings

Carrying value as of 1 January

6.5 74.0 80.5

53.7

Proceeds from Uncommitted Revolving credit facility

16.7 – 16.7

18.1

Proceeds from RBL

– – –

21.8

Repayments of borrowings

(14.0) (13.1) (27.1)

(12.5)

Amortisation of capitalised borrowing costs (see Note 9)

– 4.1 4.1

2.4

Interest payable and similar fees (see Note 9)

0.6 5.4 6.0

3.8

Interest paid during the year

(0.6) (5.4) (6.0)

(6.8)

Carrying value as of 31 December

9.2 65.0 74.2

80.5

See Note 33 for movements in lease liabilities which, together with borrowings, represent the Group’s financing related liabilities.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Reserve Based Lending facility (RBL)

In September 2018, the Group signed a $125m Reserve Based

Lending facility (RBL) secured against the Group’s producing

assets in Vietnam. The RBL had a five-year term and was due to

mature in September 2023. In July 2021, the Group completed

the refinancing of its RBL. The new RBL provides access to up

to a committed US$100m with a further US$50m available on an

uncommitted “accordion” basis, has a four-year term that matures

in July 2025 and bears a per annum interest rate of 4.75% plus

USD LIBOR until July 2023 and then 5.25% plus LIBOR until the

final maturity date.

Extending the tenor of the facility by 22 months in June 2021,

allowed for a re-phasing of the repayment schedule and the

provision of additional funds available for general corporate

purposes. Immediately prior to the refinancing the outstanding

loan balance on the original RBL stood at $56.3m, following the

refinancing this was increased to $78.1m.

As the terms of the refinanced RBL did not result in a substantially

different discounted present value of cash flows from the original

facility (less than 10%), the refinancing of the RBL was considered

as a modification rather than an extinguishment of the original

facility. Accordingly, the refinancing of the RBL was accounted for

as a non-substantial modification and the fees paid to the lenders

together with legal fees, totalling $2.9m, related to the refinancing

will be amortised over the remaining term of the modified liability

along with the remaining unamortised costs associated with the

original facility.

The maximum borrowing base available under the RBL is revised

every six months via a redetermination process by the relevant

banks, based on an estimate of the value of the Group’s reserves

from its producing interests in Vietnam. For the year 2022, the

principal repayment made amounted to $13.1m (2021: $0.9m).

The $30.4m, categorised as current, is based on the outcome of

the December 2022 RBL redetermination criteria and will likely

change following the June 2023 redetermination.

Discussions are ongoing with the RBL banking group to amend

the reference benchmark interest rate of USD LIBOR to the

Secured Overnight Financing Rate (SOFR). The Group anticipates

finalising this amendment in the first half of 2023.

The RBL is subject to a number of financial covenants, all of which

have been complied with during the 2022 and 2021 reporting

periods.

Uncommitted revolving credit facility - National Bank of

Egypt

Pharos El Fayum signed an uncommitted revolving credit facility

for discounting (with recourse) of up to $18m with the National

Bank of Egypt (UK). In January 2023, another addendum was

signed extending the availability of the facility to 31 March 2024.

This facility has been put in place to mitigate the risk of late

payment of our debtors. Under this arrangement, Pharos is able

to access cash from the facility, of up to 60% of the value of each

El Fayum oil sales invoice, presenting the invoices as evidence to

support its ability to repay the facility. The oil sales invoices remain

due to Pharos and it retains the credit risk. The Group therefore

continues to recognise the receivables in their entirety in its

balance sheet.

Loans are available for up to one year from the date of utilisation

and bear a per annum interest rate of USD LIBOR plus 3.00%

for initial advances and 3.50% for any extensions beyond 180

days from the date of the utilisation. Discussions are ongoing with

the National Bank of Egypt to amend the reference benchmark

interest rate of USD LIBOR to the Secured Overnight Financing

Rate (SOFR). The Group anticipates finalising this amendment in

the first half of 2023. The amount repayable under the agreement

at 31 December 2022 was $9.2m (2021: $6.5m) and it is

presented as borrowing under current liabilities. Performance

under the facility agreement is subject to a parent company

guarantee from Pharos Energy plc.

25. Hedge transactions

During 2022, Pharos entered into different commodity (swap

and zero cost collar) hedges to protect the Brent component

of forecast oil sales and to ensure future compliance with its

obligations under the reserve based lending facility (RBL) over

the producing assets in Vietnam. Pharos was hedged more than

required under the conditions of the RBL and higher than the

Company would normally commit to in order to support stress

testing for going concern and the working capital test required for

the prospectus for the Egypt farm down. As a result, the majority

of hedged production volumes (61%) were in H1 2022, leading to

realised losses of $17.3m out of total realised losses of $22.5m for

the year in order to meet these requirements.

The commodity hedges run until December 2023 and are settled

monthly. For 2022, 30% of the Group’s total production was

hedged, securing a minimum price for the hedged volumes of

$67.9/bbl. The Group’s RBL requires the Company to hedge at

least 35% of Vietnam RBL production volumes and the current

hedging programme meets this requirement through to December

2023, leaving 71% of Group production unhedged (2021: cover

was 23% of the Group’s forecast production until December

2022, securing a minimum price for this hedged volume of $68.2

per barrel).

A summary of hedges outstanding as at 31 December 2022 is

presented below, which are all zero cost collar.

1Q23 2Q23 3Q23 4Q23

Production hedge per quarter

- 000/bbls

180 180 180 45

Min. Average value of hedge

- $/bbl

65.33 65.33 63.33 63.33

Max. Average value of hedge

- $/bbl

102.88 102.88 102.23 107.80

Pharos has designated the swaps and zero cost collars as cash

flow hedges. This means that the effective portion of unrealised

gains or losses on open positions will be reflected in other

comprehensive income. Every month, the realised gain or loss

will be reflected in the revenue line of the income statement. For

the year end 31 December 2022 a loss of $22.5m was realised

(2021: loss of $29.7m). The outstanding unrealised loss on open

position as at 31 December 2022 amounts to $0.7m (2021: loss

of $4.3m).

The carrying amount of the swaps and zero cost collars is based

on the fair value determined by a financial institution. As all

material inputs are observable, they are categorised within Level

2 in the fair value hierarchy. It is presented in “Trade and other

receivables” or “Trade and other payables” in the consolidated

statement of financial position. The liability position as of

December 2022 was $1.1m (2021: liability position $6.5m).

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Financial Statements

Governance Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

26. Long-term provisions

Group Company

2022

$ million

2021

$ million

2022

$ million

2021

$ million

Decommissioning provision

54.3

66.9

–

Royalty provision

–

2.2

–

54.3

69.1

–

Group

Movement in decommissioning

2022

$ million

2021

$ million

As at 1 January

66.9

68.0

New provisions and changes in estimates

(13.9)

(1.9)

Unwinding of discount (see Note 9)

1.3

0.8

As at 31 December 54.3

66.9

The provision for decommissioning is based on the net present value of the Group’s share of the expenditure which may be incurred

at the end of the producing life of the TGT and CNV fields in Vietnam (currently estimated to be 8-9 years) in the removal and

decommissioning of the facilities currently in place. The provision is calculated using an inflation rate of 2.0% (2021: 2.0%) and a

discount rate of 3.8% (2021: 1.5%). The $13.9m decrease in provision in 2022 was driven by the increase in discount rate compared

to prior year and also a revision to the TGT field abandonment plan, partially offset by the increase in abandonment costs relating to the

TGT infill wells drilling programme completed during the year. The $1.9m decrease in provision in 2021 was also driven by an increase

in discount rate compared to prior year, partially offset by the increase in abandonment costs relating to the TGT infill wells drilling

programme completed during the year. No decommissioning obligations exist in Egypt under the terms of the concession agreement.

The royalty provision in 2021 related to a historical arrangement granting a 3% royalty on Pharos’s share of profit oil and excess cost

recovery from El Fayum in Egypt. The balance as at 31 December 2022 of $2.5m falls due for payment in 2023 and has therefore been

disclosed in current trade and other payables in Note 22.

27. Share capital and Share premium

Share capital

Ordinary Shares of £0.05 each

Group and Company

2022

2021

2022

$ million

2021

$ million

Issued and fully paid

441,795,126

451,684,869

34.3

34.9

Group and Company

Share capital

2022

$ million

2021

$ million

As at 1 January

34.9

31.9

Shares issued

–

3.0

Share buy back

(0.6)

–

Issued and fully paid 34.3

34.9

Group and Company

Share premium

2022

$ million

2021

$ million

As at 1 January

58.0

55.4

Premium arising on issue of equity shares

–

3.4

Share issue costs

–

(0.8)

As at 31 December 58.0

58.0

As at 31 December 2022, authorised share capital comprised 600 million (2021: 600 million) ordinary shares of £0.05 each with a total nominal

value of £30m (2021: £30m).

In July 2022, in order to deliver increased value to shareholders through share price accretion, the Company initiated a share buyback

programme to purchase $3m (excluding stamp duty and expenses) of the Company's ordinary shares and this programme successfully

completed by year end. A total of 10.3 million shares were bought, at a daily average price of 24.4p.

The Board strongly believes that the Company's shares are still trading at a material discount to their underlying net asset value, despite the

performance across the Group’s asset base, and the Board remains of the view that a continuation of share buybacks is an appropriate means of

returning value to shareholders. Therefore, the Company plans to continue with the share buyback programme in 2023 and has pledged a further

$3m commitment (excluding stamp duty and expenses).

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195

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

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 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 1 January 2022 100.3 194.0 (44.3) (4.3) 4.8 250.5

Other comprehensive income – – – 3.6 – 3.6

Share buy back 0.6 – – – – 0.6

Treasury shares repurchased – – (0.6) – – (0.6)

Share-based payments – – – – 1.7 1.7

Transfer relating to share-based payments – – 2.2 – (4.4) (2.2)

As at 31 December 2022 100.9 194.0 (42.7) (0.7) 2.1 253.6

Company

Capital

redemption

reserve

$ million

Merger

reserve

$ million

Own shares

$ million

Share-based

payments

$ million

Total

$ million

As at 1 January 2021 100.3 131.8 (40.3) 5.8 197.6

Shares issued – 5.3 – – 5.3

Currency exchange translation differences – – – 0.1 0.1

Share-based payments – – – 2.5 2.5

Transfer relating to share-based payments – – – (3.1) (3.1)

As at 1 January 2022 100.3 137.1 (40.3) 5.3 202.4

Share buy back 0.6 – – – 0.6

Share-based payments – – – 1.7 1.7

Transfer relating to share-based payments – – – (5.0) (5.0)

As at 31 December 2022 100.9 137.1 (40.3) 2.0 199.7

The Group’s other reserves comprise reserves arising in respect of merger relief, upon the purchase of the Company’s own shares held

in treasury and held by the Trust, as well as hedging and share-based payments.

The number of treasury shares held by the Group and the number of shares held by the Trust at 31 December 2022 was 9,122,268

(2021: 9,122,268) and 2,126,857 (2021: 1,764,757) respectively. The market price of the shares at 31 December 2022 was £0.2330

(2021: £0.2600). The Trust, a discretionary trust, holds shares for the purpose of satisfying employee share schemes, details of which are

set out in Note 31 and in the Directors’ Remuneration Report on pages 134 to 155.

The trustees purchase shares in the open market which are recognised by the Company within investments and classified as other

reserves by the Group as described above. When award conditions are met, an unconditional transfer of shares is made out of the

Trust to Plan participants. The Group has an obligation to make regular contributions to the Trust to enable it to meet its financing costs.

Rights to dividends on the shares held by the Trust have been waived by the trustees.

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Financial Statements

Governance Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

29. Distribution to shareholders

The Board have recommended a final dividend of 1.00 pence per share (equivalent to $5.46m at the average rate of exchange for 2022)

subject to approval of the shareholders at the Company’s 2023 AGM. This reflects a return to shareholders of at least 10% of Operating

Cash Flow (OCF), consistent with the revised dividend policy after the Company withdrew dividend payments in 2021 and 2020 due

to ongoing uncertainty in the macro environment. The final dividend will be paid in full on 12 July 2023 in Pounds Sterling to ordinary

shareholders on the register at the close of business on 16 June 2023.

30. Retained (deficit) / earnings

Group

Retained

(loss)/profit

$ million

Unrealised currency

translation differences

$ million

Total

$ million

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 1 January 2022 (44.1) 5.1 (39.0)

Profit for the year 24.4 – 24.4

Share buy back (2.9) – (2.9)

Transfer relating to share-based payments 2.2 – 2.2

As at 31 December 2022 (20.4) 5.1 (15.3)

Company

Retained

(loss)/profit

$ million

Unrealised currency

translation differences

$ million

Total

$ million

As at 1 January 2021 230.5 (223.6) 6.9

Profit for the year 1.9 – 1.9

Currency exchange translation differences – 1.5 1.5

Transfer relating to share-based payments 2.3 – 2.3

As at 1 January 2022 234.7 (222.1) 12.6

Profit for the year 60.7 – 60.7

Share buy back (2.9) – (2.9)

Transfer relating to share-based payments 2.3 – 2.3

As at 31 December 2022 294.8 (222.1) 72.7

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197

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

31. Incentive plans

Details of the Group’s employee incentive schemes are set out below. Additional information regarding the schemes is included in the

Directors’ Remuneration Report on pages 134 to 155. The Group recognised total expenses of $1.7m (2021: $2.7m) in respect of the

schemes during the year, a proportion of which was capitalised in accordance with the Group’s accounting policies.

Long Term Incentive Plan

The Company operates a LTIP for employees of the Group. Awards vest over a period of three years, subject to criteria based on their

individual performance. Awards are normally forfeited if the employee leaves the Group before the award vests. Awards normally expire

at the end of 10 years following the date of grant, subject to the requirement to exercise certain awards prior to 15 March of the year

following vesting.

Awards would normally be part cash and part equity-settled through a transfer at nil consideration of the Company’s ordinary shares.

392,779 awards were exercised during 2022. The Company has no legal or constructive obligation to repurchase or settle awards in

cash. Details of awards outstanding during the year are as follows:

2022

No. of share

awards

2021

No. of share

awards

As at 1 January

18,985,754

17,996,007

Granted

5,991,668

6,220,882

Exercised

(392,779)

(385,427)

Forfeited during the year

(6,942,431)

(4,845,708)

As at 31 December

17,642,212

18,985,754

Exercisable as at 31 December

–

Awards outstanding at the end of the year have a weighted average remaining contractual life of 1.4 (2021: 1.4) years. The weighted

average market price and estimated fair value of the 2022 grants (at grant date) were £0.28 and £0.20, respectively.

The fair value of the LTIPs granted during 2022 has been provided by a Remuneration Consultant, which estimates the Company’s

performance against the targets using a Stochastic and Black Scholes model. The future vesting proportion in 2022 was 72%.

Previously, the fair value of awards at the date of grant had been estimated using Black Scholes model, based on the market price at

date of grant and a nil exercise price. The future vesting proportion in 2021 was 64%.

The main assumptions for the calculation are as follows:

2022

2021

Volatility

43.89%

34.46%

Risk free rate of interest

1.51%

1.30%

Correlation with comparator group

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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Financial Statements

Governance Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

2022

2021

No. of share

awards

Weighted average

exercise price

No. of share

awards

Weighted average

exercise price

As at 1 January

2,618,182 0.43

3,176,395 0.46

Granted

2,273,685 –

– –

Forfeited during the year

(570,967) –

– –

Exercised

(1,434,043) 0.33

(558,213) –

As at 31 December

2,886,857 0.40

2,618,182 0.43

Exercisable as at 31 December

578,172 0.41

1,245,077 0.67

The weighted average market price at the date of exercise during 2022 was £0.25 (2021: £0.21). Awards outstanding at the end of the

year have a weighted average remaining contractual life of 6.5 (2021: 6.4) years.

The fair value of the awards granted during 2022 and 2021 have been estimated using Black Scholes model, based on the market price

at date of grant and a nil exercise price. The main assumptions for the calculation are as follows:

2022

2021

Volatility

n/a

32. Reconciliation of operating profit/(loss) to operating cash flows

Group Company

2022

$ million

2021

$ million

2022

$ million

2021

$ million

Operating profit/(loss)

100.2

48.3

44.2

(3.6)

Share-based payments

1.3

2.4

1.3

2.4

Depletion, depreciation and amortisation

55.2

51.4

–

Impairment reversal

(27.9)

(42.0)

(53.9)

(7.9)

Operating cash flows before movements in working capital 128.8

60.1

(8.4)

(9.1)

(Increase)/decrease in inventories

(0.9)

0.8

–

(Increase)/decrease in receivables

(7.7)

(7.2)

1.2

0.4

(Decrease)/increase in payables

(9.5)

(2.2)

(1.8)

2.2

Cash generated by (used in) operations 110.7

51.5

(9.0)

(6.5)

Interest received/(paid)

0.1

(0.1)

0.1

–

Other/restructuring expense outflow

(2.7)

(0.7)

(2.7)

(0.6)

Income taxes paid

(54.7)

(39.9)

–

Net cash from (used in) operating activities 53.4

10.8

(11.6)

(7.1)

1) Includes $1.5m (2021: $0.1m) increase in risk factor provision in respect of Egypt trade receivables.

During the year a total of $4.6m (2021: $8.3m) of trade receivables due from EGPC in Egypt were settled by way of non-cash offset, out

of which $1.0m relates to 3rd Amendment signature bonus (2021: $nil), $1.1m was set against trade payables (2021: $8.3m), $2.0m

Assignment bonus settled on behalf of the Farm out partner, IPR, and $0.5m Group’s share of NBS Concession assignment bonus (see

Note 37).

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199

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

33. Lease arrangements

For short-term leases (lease term less than 12 months) and leases

for which the underlying asset is of low value, the Group has

opted to recognise a lease expense on a straight-line basis as

permitted under IFRS 16.

2022

$ million

2021

$ million

Lease liability recognised

as at 1 January

–

0.4

New leases

0.9

–

Interest expense (see Note 9)

–

Principal repayments

(0.1)

(0.4)

Lease liability recognised

as at 31 December

0.8

–

Of which are:

Current lease liabilities

0.3

–

Non-current lease liabilities

0.5

–

Right-of-use assets recognised

as at 1 January

–

0.1

New leases

0.9

–

Depreciation

(0.1)

Right-of-use assets recognised

as at 31 December

0.8

–

Of which are:

Oil & Gas properties

0.8

–

During 2022, Pharos signed a new agreement for rental of gas

generators in Egypt, the agreement is effective from August 2022

to October 2025 and is accounted for as a lease under IFRS 16.

Pharos 45% share of the asset and liability which is applicable

post completion of the Farm out (21 March 2022) has been

recognised accordingly. The lease was measured at the present

value of the lease payments, discounted using the incremental

borrowing rate at the start of the lease, 6.3%.

The following table presents the amounts reported in the income

statement for short-term leases:

Operating lease expenses

by segment

2022

$ million

2021

$ million

SE Asia

13.1

13.6

Egypt

1.4

2.6

14.5

16.2

At 31 December 2022, the Group is committed to its share

of $10.9m for short-term leases of less than 12 months and

accordingly not included in the above. Certain short-term leases

contain discretionary options to extend the lease period. These

future periods are only included in the assessment of the lease

term only after consideration of the economic incentives and if it is

reasonably certain that the option will be exercised.

34. Capital commitments

At 31 December 2022, the Group had exploration licence

commitments not accrued of approximately $26.6m (2021:

$36.2m).

35. Related party transactions

During the year, the Company recorded a net cost of $0.01m

(2021: net cost of $0.01m) in respect of services rendered

between Group companies.

Remuneration of key management personnel

The remuneration of the Directors of the Company, who are

considered to be its key management personnel, is set out below

in aggregate for each of the categories specified in IAS 24 Related

Party Disclosures. Further information about the remuneration of

individual Directors is provided in the audited part of the Directors’

Remuneration Report on pages 136 to 142.

2022

$ million

2021

$ million

Short-term employee benefits

3.0

4.5

Post-employment benefits

0.1

0.2

Share-based payments

1.0

3.1

4.1

7.8

Directors’ transactions

Pursuant to a lease dated 20 April 1997, Comfort Storyville (a

company wholly owned by Mr Ed Story) has leased to the Group,

office and storage space in Comfort, Texas, USA. The lease,

which was negotiated on an arm’s length basis, has a fixed

monthly rent of $1,000.

36. Financial instruments

Financial Risk Management: Objectives and Policies

The main risks arising from the Group’s financial instruments are

commodity price risk, liquidity risk, credit risk, foreign currency

risk and interest rate risk. The Board of Pharos regularly reviews

and agrees policies for managing financial risks that may affect

the Group. In certain cases, the Board delegates responsibility

for such reviews and policy setting to the Audit Risk Committee.

The management of these risks is carried out by monitoring of

cash flows, investment and funding requirements using a variety

of techniques. These potential exposures are managed while

ensuring that the Company and the Group have adequate liquidity

at all times in order to meet their immediate cash requirements.

There are no significant concentrations of risks unless otherwise

stated. The Group does not enter into or trade financial

instruments, including derivatives, for speculative purposes.

The primary financial assets and liabilities comprise cash, short-

and medium-term deposits, money market liquidity funds, intra

group loans, trade receivables and other receivables and financial

liabilities held at amortised cost. The Group’s strategy has been

to finance its operations through a mixture of retained profits and

bank borrowings. Other alternatives such as equity issues are

reviewed by the Board, when appropriate.

Pharos Energy Annual Report and Accounts 2022

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Strategic Report

Financial Statements

Governance Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Commodity Price Risk

Commodity price risk arises principally from the Group’s Vietnam

and Egypt production, which could adversely affect revenue and

debt availability due to changes in commodity prices.

The Group measures commodity price risk through an analysis

of the potential impact of changing commodity prices. Based on

this analysis and considering materiality and the potential business

impact, the Group may choose to hedge.

During 2022, Pharos entered into different commodity (swap and

zero collar) hedges to protect the Brent component of forecast oil

sales and to ensure future compliance with its obligations under

the RBL over the producing assets in Vietnam. The commodity

hedges run until December 2023 and are settled monthly. Details

of current hedging arrangements and the categorisation of the

swaps in the fair value hierarchy can be found in Note 25.

Transacted derivatives are designated as cash flow hedge

relationships to minimise accounting income statement volatility.

The Group is required to assess the likely effectiveness of any

proposed cash flow hedging relationship and demonstrate that

the hedging relationship is expected to be highly effective prior to

entering into a hedging instrument and at subsequent reporting

dates.

Liquidity Risk

Pharos closely monitors and manages its liquidity risk using both

short- and long-term cash flow projections, supplemented by

debt and equity financing plans and active portfolio management.

Cash forecasts are regularly produced and sensitivities run for

different scenarios including, but not limited to, changes in asset

production profiles and cost schedules.

Details of the Group’s borrowings and debt facilities can be

found in Note 24. The Group is subject to half-yearly forecast

liquidity tests as part of the redetermination process for the RBL

facility agreement. The Group has complied with the liquidity

requirements of this test at all times during the year.

The Group invests cash in a combination of money market

liquidity funds and term deposits with a number of international

and UK financial institutions, ensuring sufficient liquidity to enable

the Group to meet its short and medium-term expenditure

requirements.

Credit Risk

Credit risk arises from cash and cash equivalents, investments

with banks and financial institutions, trade and other receivables

and joint operation receivables.

Customers and joint operation partners are subject to a risk

assessment using publicly available information and credit

reference agencies, with follow-up due diligence and monitoring if

required.

Investment credit risk for investments with banks and other

financial institutions is managed by the Group Treasury function in

accordance with the Board-approved policies of the Group. These

policies limit counterparty exposure, maturity, collateral and take

account of published ratings, market measures and other market

information.

The Company’s policy is to invest with banks or other financial

institutions that, firstly, offer the greatest degree of security in the

view of the Group and, secondly, the most competitive interest

rates. The Board continually re-assesses the Group’s policy and

updates as required.

The maximum credit risk exposure relating to financial assets is

represented by the carrying value as at the balance sheet date.

The Group’s trade receivables in Note 20, although 99% (2021:

98%) concentrated with two customers across both Vietnam and

Egypt producing assets, are predominantly with a major oil & gas

company and the subsidiary of a government regulated entity.

The credit risk is therefore deemed to be negligible, despite the

significant devaluation of the Egyptian Pound against US Dollar

documented in the following section.

Foreign Currency Risk

Pharos manages exposures that arise from non-functional

currency receipts and payments by matching receipts and

payments in the same currency and actively managing the residual

net position. The Group does not hedge any foreign exchange

exposure.

The Group also aims where possible to hold surplus cash, debt

and working capital balances in the functional currency of the

subsidiary, thereby matching the reporting currency and functional

currency of most companies in the Group. This minimises the

impact of foreign exchange movements on the Group’s Balance

Sheet. Oil and gas sales in Vietnam are raised and settled through

a combination of Vietnamese Dong (VND) and US Dollars (USD),

along with associated tax and royalty payments. The Group holds

a number of VND and USD bank accounts that provide a natural

hedge against foreign exchange movements.

In the Egypt business, the recent global macroeconomic volatility

has seen both a significant devaluation of the Egyptian Pound

and continued restrictions on outgoing US Dollar transfers by the

Central Bank of Egypt. The Company has opted not to accept the

payment of trade receivables balance in Egyptian Pounds unless

required for operations. The progressive devaluation of EGP

against USD means that it is preferable to continue to hold USD

denominated receivables. As a result, Pharos’ receivables have

increased to $24.2m at 31 December 2022, inclusive of c.$7m

catch-up invoice for improved fiscal terms and stated prior to a

risk factor provision of $1.8m (2021: $7.4m receivables).

The International Monetary Fund (IMF) recently announced that

its Executive Board had approved the provision of a $3 billion,

46-month extended fund facility to Egypt, which the IMF expects

to catalyse additional financing of approximately $14 billion from

Egypt’s international and regional partners. In addition, Egypt is

seeking access to up to a further $1 billion from the IMF’s newly

created resilience and sustainability facility to support climate-

related policy goals. Taken together, these developments are

widely anticipated to improve Egypt’s FX reserves and overall

liquidity in the first half of 2023. The Company therefore remains

optimistic that outstanding receivables with EGPC will start to be

recovered during 2023.

The Group’s UK head office contributes the majority of

administrative costs which are denominated in GBP. The level

of monetary working capital balances denominated in GBP

is relatively low and therefore the Group’s exposure to foreign

currency changes for all currencies is not considered to be

material.

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201

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Interest Rate Risk

The replacement of benchmark interest rates such as LIBOR

and other IBORs has been a priority for global regulators. The

Group has closely monitored the market and the output from the

various industry working groups managing the transition to new

benchmark interest rates. This includes announcements made by

LIBOR regulators (including the Financial Conduct Authority (FCA)

and the US Commodity Futures Trading Commission) regarding

the transition away from LIBOR (including GBP LIBOR and USD

LIBOR). In addition, the current global high-inflationary economic

environment means that interest rates could potentially rise in the

short to medium-term, thus increasing the cost of borrowing.

As at 31 December 2022, Pharos had total borrowings of $74.2m

(2021: $80.5m) as described in Note 24. If interest rates increased

by 100 basis points, assuming the principal loans stayed

constant, the annualised interest payable by the company would

increase by $0.7m (2021: $0.8m) which would translate through

to profits and net assets. The Group’s interest received on cash

and cash equivalents is immaterial.

37. Disposal of 55% interest in Egypt

Concessions

In December 2021, the company classified 55% of the Group’s

operated interest in each of our Egyptian Concessions, El Fayum

and North Beni Suef, as Assets classified as held for sale (Net

assets classified as held for sale as 31 December 2021: $53.5m).

An impairment of $10.4m was recognised to bring the value of the

net assets classified as held for sale down to the fair value less

costs to sell calculated as at 31 December 2021.

Following the completion of the farm-out transaction of Egyptian

assets to IPR, the accounting for the assets reflect the following:

The economic date of the transaction was 1 July 2020, with

completion on 21 March 2022.

Pharos owned and managed the business up to completion. On

completion, an adjustment to compensate for net cash flows

since the economic date has been adjusted for in the level of carry

to be provided by IPR to Pharos.

In the financial statements, for the period post completion, Pharos

45% share of field costs – capex, opex and G&A – are accounted

for as incurred by Pharos, although all such costs are paid by IPR

and set off against the carry.

All revenues earned are paid direct to Pharos.

The following assets and liabilities were reclassified as held for sale

in relation to the discontinued operation 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

Disposal of asset held for sale:

2022

$ million

Intangible assets (2.3)

Property, plant and equipment (54.4)

Inventories (5.9)

Trade and other receivables (2.3)

Trade and other payables 8.3

Disposal of 55% of El Fayum and NBS (56.6)

Firm consideration received - IPR Cash Receipts 5.0

Other receivable – Carry 36.3

Other receivable - contingent consideration 13.9

Other receivable with IPR 0.5

Consideration received and to be received 55.7

Assignment fees payable to EGPC (3.7)

Success fees paid on completion (1.7)

Loss on disposal (6.3)

Pharos Energy Annual Report and Accounts 2022

202

Additional Information

Strategic Report

Financial Statements

Governance Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

The firm consideration was received in two tranches, $2.0m in

September 2021 and $3.0m on 30 March 2022.

The carry of $36.3m is disproportionate funding contribution from

IPR adjusted for working capital and interim period adjustments

from the effective economic date of 1 July 2020 and completion

date.

The carry decreases every month against the cash calls received

from IPR. The total amount utilised as at 31 December 2022

amounts to $15.4m, which has been disclosed in “Consideration

received on farm out of Egyptian assets” in the cash flow as part

of investing activities (combined with $3.0m firm consideration

received on 30 March 2022). No cash outflow is required until we

utilise the whole amount.

The Group is entitled to contingent consideration depending on

the average Brent Price each year from 2022 to the end of 2025

(with floor and cap at $62/bbl and c.$90/bbl respectively). The

contingent consideration is calculated yearly and is capped at a

maximum total payment of $20.0m. As at 31 December 2022, the

contingent consideration amounts to $13.9m ($5.0m current and

$8.9m non-current). Testing of sensitivity for a $5/bbl reduction

in long term oil price used would result in $1.3m decrease in

contingent consideration to $12.6m.

The loss on disposal has increased by $0.5m from the position

stated as at 30 June 2022 in the Company’s interim financial

statements. This is due primarily to a reduction of the amount

classified as the carry element of the consideration from $37.0m

to $36.3m following a change in the best estimate of the

adjustment relating to the interim period between the economic

date of 1 July 2020 and the completion date. The reduction in the

carry is partially offset by an increase in the amount classified as

contingent consideration from $13.6m to $13.9m, reflecting the

Group’s entitlement to the full $5 million of the first tranche of the

contingent consideration payable in respect of average Brent price

during 2022.

As at 31 December 2022, $3.7m relates to the assignment fee

for the sale of 55% of the Group’s operated interest in each of our

Egyptian Concessions, El Fayum and North Beni Suef, to IPR.

$0.5m Group’s share of NBS Concession assignment bonus was

settled against Trade Receivables. Out of the remaining $3.2m,

$2.3m is booked as current other payable and $0.9m as non-

current other payable.

The final consideration is still being finalised between IPR and

Pharos. The financial exposure from finalising the consideration to

Pharos, reflecting the remaining amounts still under discussion, is

considered immaterial to the financial statements.

Pharos Energy Annual Report and Accounts 2022

203

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, trade receivable

risk factor provision and certain other immaterial cost of sales.

Cash operating costs for the period is then divided by barrels of oil

equivalent produced. This is a useful indicator of cash operating

costs incurred to produce oil and gas from the Group’s producing

assets.

2022

$ million

2021

$ million

Cost of sales

116.8

114.6

Less:

Depreciation, depletion and amortisation

(55.1)

(51.0)

Production based taxes

(14.7)

(10.1)

Export duty

(3.2)

–

Inventories

1.8

0.1

Trade receivable risk factor provision

(1.5)

–

Other cost of sales

(1.3)

(1.6)

Cash operating costs 42.8

52.0

Production (BOEPD) 7,166

8,878

Cash operating cost per BOE ($) 16.36

16.05

Cash operating cost per barrel by segment (2022)

Vietnam

$ million

Egypt

$ million

Total

$ million

Cost of sales 99.6 17.2

116.8

Depreciation, depletion

and amortisation

(51.0) (4.1)

(55.1)

Production based taxes (14.5) (0.2)

(14.7)

Export duty (3.2) –

(3.2)

Inventories 1.6 0.2

1.8

Trade receivable

risk factor provision

– (1.5)

(1.5)

Other cost of sales (0.8) (0.5)

(1.3)

Cash operating costs

31.7 11.1

42.8

Production (BOEPD)

5,418 1,748

7,166

Cash operating cost per BOE ($)

16.03 17.40

16.36

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.

2022

$ million

2021

$ million

Depreciation, depletion and amortisation

(55.1)

(51.0)

Production (BOEPD)

7,166

8,878

DD&A per BOE ($)

21.07

15.74

DD&A per barrel by segment (2022)

Vietnam

$ million

Egypt

$ million

Total

$ million

Depreciation, depletion and

amortisation

(51.0) (4.1)

(55.1)

Production (BOEPD)

5,418 1,748

7,166

DD&A per BOE ($) 25.79 6.43

21.07

Net debt

Net debt comprises interest-bearing bank loans, less cash and

cash equivalents.

2022

$ million

2021

$ million

Cash and cash equivalents

45.3

27.1

Borrowings*

(74.2)

(84.6)

Net Debt (28.9)

(57.5)

* 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.

2022

$ million

2021

$ million

Operating profit

100.2

48.3

Depreciation, depletion and amortisation

55.2

51.4

Impairment reversal

(27.9)

(42.0)

EBITDAX 127.5

57.7

NON-IFRS MEASURES

Non-IFRS Measures (Unaudited)

Pharos Energy Annual Report and Accounts 2022

204

Strategic Report Additional InformationGovernance Report Financial Statements

NON-IFRS MEASURES - CONTINUED

Net debt/EBITDAX

Net Debt/EBITDAX ratio expresses how many years it would take

to repay the debt, if net debt and EBITDAX stay constant.

2022

$ million

2021

$ million

Net Debt

(28.9)

(57.5)

EBITDAX

127.5

57.7

Net Debt/EBITDAX (0.23)

(1.00)

Gearing

Debt to equity ratio is calculated by dividing interest-bearing bank

loans by stockholder equity. The debt to equity ratio expresses the

relationship between external equity (liabilities) and internal equity

(stockholder equity).

2022

$ million

2021

$ million

Total Debt *

74.2

84.6

Total Equity

330.6

304.4

Debt to Equity 0.22

0.28

* Exclude unamortised capitalised set up costs

Operating cash per share

Operating cash per share is calculated by dividing net cash from

(used in) continuing operations by number of shares in the year.

2022

$ million

2021

$ million

Net cash from operating activities

53.4

10.8

Weighted number of shares in the year

439,253,641

437,512,648

Operating cash per share 0.12

0.02

Pharos Energy Annual Report and Accounts 2022

205

FIVE YEAR SUMMARY (UNAUDITED)

Five Year Summary (Unaudited)

Year to

31 Dec 2022

$ million

Year to

31 Dec 2021

$ million

Year to

31 Dec 2020

$ million

(Restated)

Year to

31 Dec 2019

$ million

Year to

31 Dec 2018

$ million

Consolidated income statement

Oil and gas revenues

221.6

163.8 118.3 189.9 175.1

Commodity hedge (losses)/gains

(22.5)

(29.7) 23.7 (0.2) –

Gross profit

82.3

19.5 18.2 61.1 70.5

Operating profit/(loss)

100.2

48.3 (231.3) 38.0 79.9

Profit/(loss) for the year

24.4

(4.7) (215.8) (24.5) 27.7

2022

$ million

2021

$ million

2020

$ million

(Restated)

2019

$ million

2018

$ million

Consolidated balance sheet

Non-current assets

457.4

460.3 483.2 740.9 553.6

Net current assets

56.4

51.6 10.4 45.6 236.3

Non-current liabilities

(183.2)

(207.5) (199.9) (276.4) (289.1)

Net assets

330.6

304.4 293.7 510.1 500.8

Share capital

92.3

92.9 87.3 87.3 27.6

Other reserves

253.6

250.5 243.0 246.6 246.6

Retained earnings/(deficit)

(15.3)

(39.0) (36.6) 176.2 226.6

Total equity

330.6

304.4 293.7 510.1 500.8

Year to

31 Dec 2022

$ million

Year to

31 Dec 2021

$ million

Year to

31 Dec 2020

$ million

(Restated)

Year to

31 Dec 2019

$ million

Year to

31 Dec 2018

$ million

Consolidated cash flow statement

Net cash from operating activities

53.4

10.8 56.4 72.3 54.2

Capital expenditure

31.9

41.8 41.3 63.4 22.4

Distributions

- - 27.4 23.3

Pharos Energy Annual Report and Accounts 2022

206

Strategic Report Additional InformationGovernance Report Financial Statements

RESERVES STATISTICS (UNAUDITED)

Reserves Statistics (Unaudited)

Net working interest, MMBOE

TGT CNV Vietnam

Egypt

Group

Oil and Gas 2P Commercial Reserves

1,2

As at 1 January 2022 10.9 4.3 15.2 37.8 53.0

Production (1.5) (0.5) (2.0) (0.6) (2.6)

Revision (0.6) (0.4) (1.0) (1.5) (2.5)

Change in working interest

– – – (20.7) (20.7)

2P Commercial Reserves as at 31 December 2022 8.8 3.4 12.2 15.0 27.2

Oil and Gas 2C Contingent Resources

1,2

As at 1 January 2022 7.6 3.8 11.4 18.6 30.0

Revision (0.2) (0.4) (0.6) 0.5 (0.1)

Change in working interest

– – – (10.2) (10.2)

2C Contingent Resources as at 31 December 2022 7.4 3.4 10.8 8.9 19.7

Total of 2P Reserves and 2C Contingent Resources

as at 31 December 2022

16.2 6.8 23.0 23.9 46.9

1) Reserves and Contingent Resources are categorised in line with 2018 SPE standards.

2) Assumes oil equivalent conversion factor of 6,000 scf/boe.

3) Reserves and Contingent Resources have been independently audited by Risc Advisory Pty Ltd.

4) Reserves and Contingent Resources have been independently audited by McDaniel.

5) Pharos Energy net working interest in El Fayum is 45% post completion of farm down transaction to IPR Energy on 21 March 2022

Risks associated with reserves evaluation and estimation uncertainty are discussed in Note 4(b) to the Financial Statements.

Pharos Energy Annual Report and Accounts 2022

207

REPORT ON PAYMENTS TO GOVERNMENTS (UNAUDITED)

Report on Payments to Governments (Unaudited)

Disclosure

In accordance with the Financial Conduct Authority’s Disclosure

and Transparency Rule 4.3A in respect of payments made by

the Company to governments for the year ended 31 December

2022 and in compliance with The Reports on Payments to

Governments Regulations 2014 (SI 2014/3209), Pharos presents

its disclosure for the year ending 31 December 2022.

Basis for preparation

Legislation

This report is prepared in accordance with the Reports on

Payments to Governments Regulations 2014 as enacted in the

UK in December 2014 and as amended in December 2015.

The Reports on Payments to Government Regulations (UK

Regulations) were enacted on 1 December 2014 and require

UK companies in extractive industries to publicly disclose

payments they have made to Governments where they

undertake extractive operations. The aim of the regulations is to

enhance the transparency of the payments made by companies

in the extractive sector to host governments in the form of

taxes, bonuses, royalties, fees and support for infrastructure

improvements. The UK Regulations came into effect on 1 January

2015.

The payments disclosed for 2022 are in line with the EU Directive

and UK Regulations and we have provided additional voluntary

disclosures on payroll taxes, export duty, withholding tax and

other taxes.

In line with the UK Regulations, a payment of a series of related

payments which do not exceed $112,780 (£86,000) has not been

disclosed. Where the aggregate payments made in the period for

a project or country are less than $112,780, payments are not

disclosed for the project or country.

All of the payments disclosed in accordance with the EU Directive

have been made to National Governments, either directly or

through a Ministry or Department, or to a national oil company,

who have a working interest in a particular licence.

Payment

The information is reported under the following payment types:

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 2022, there were no reportable dividend payments to

governments.

Bonuses

This represents any bonus paid to governments during the year

on achievement of commercial milestones such as signing of a

petroleum agreement or contract, achieving commercial discovery,

or after first production.

Licence Fees

This represents licence fees, rental fees, entry fees and other

consideration for licences and/or concessions paid for access to

an area during the year (with the exception of signature bonuses

which are captured within bonus payments).

Infrastructure improvement payments

This represents payments made in respect of infrastructure

improvements for projects that are not directly related to oil and

gas activities during the year. This can be a contractually obligated

payment in a Production Sharing Contract or a discretionary

payment for building/improving local infrastructure such as roads,

bridges, ports, schools and hospitals.

Payroll Taxes

This represents payroll and employer taxes including PAYE and

national insurance paid by Pharos as a direct employer.

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 2022

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Strategic Report Additional InformationGovernance Report Financial Statements

TRANSPARENCY DISCLOSURE 2022 (UNAUDITED)

Transparency Disclosure 2022 (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 1,101 110,616 42,251 12,231 – – 78 – 165,176 – 3,183 – – 3,183

Block 9.2 452 30,054 11,295 1,705 – – 75 – 43,129 – – – – –

Total Vietnam 1,553 140,670 53,546 13,936 – – 153 – 208,305 – 3,183 – – 3,183

Egypt

El Fayum 300 28,828 – – – 1,242 – – 30,070 504 – 2 – 506

North Beni Suef – – – – – 725 – – 725 – – – – –

Total Egypt 300 28,828 – – – 1,967 – – 30,795 504 – 2 – 506

United Kingdom (UK)

Corporate – – – – – – – – – 2,154 – – – 2,154

Total UK – – – – – – – – – 2,154 – – – 2,154

United States of America (US)

Corporate – – – – – – – – – 338 – – – 338

Total US – – – – – – – – – 338 – – – 338

Pharos Total 1,853 169,498 53,546 13,936 – 1,967 153 – 239,100 2,996 3,183 2 – 6,181

UK Regulations Voluntary Disclosure

Production

entitlements

Production

entitlements

Income

Taxes Royalties Dividends

Bonus

Payments

Licence

fees

Infrastructure

improvement

payments Total EU

Payroll

Taxes

Export

Duty

With-

holding

Tax

Other

Taxes Total

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

– – 53,546 13,936 – – – – 67,482 – – – – –

Customs Office – – – – – – – – – – 3,183 – – 3,183

PetroVietnam

E&P Corp

(PVEP)

1,553 140,670 – – – – 153 – 140,823 – – – – –

Total Vietnam 1,553 140,670 53,546 13,936 – – 153 – 208,305 – 3,183 – – 3,183

Egypt

Egyptian General

Petroleum

Corporation

(EGPC)

300 28,828 – – – 1,967 – – 30,795 – – – – –

Tax department – – – – – – – – – 504 – 2 – 506

Total Egypt 300 28,828 – – – 1,967 – – 30,795 504 – 2 – 506

United Kingdom (UK)

Inland Revenue – – – – – – – – – 2,154 – – – 2,154

Total UK – – – – – – – – – 2,154 – – – 2,154

United States of America (US)

Internal Revenue

Service

– – – – – – – – – 338 – – – 338

Total US – – – – – – – – – 338 – – – 338

Pharos Total 1,853 169,498 53,546 13,936 – 1,967 153 – 239,100 2,996 3,183 2 – 6,181

* Joint Operating Company Project’s tax payments reported on Pharos Net Working Interest Basis.

Pharos Energy Annual Report and Accounts 2022

209

GLOSSARY OF TERMS

ABC

Anti-Bribery and Corruption

AGM

Annual General Meeting

bbl

Barrel

blpd

Barrels of liquids per day

BMS

Business Management System

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

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

Carbon Dioxide

Carbon Dioxide Equivalent

Company or Pharos

Pharos Energy plc

Contingent Resources

Those quantities of petroleum to be

potentially recoverable from known

accumulations by application of development

projects but which are not currently

considered to be commercially recoverable

due to one or more contingencies

Contractor

The party or parties identified as being, or

forming part of, the “CONTRACTOR” as

defined in the El Fayum Concession or,

as the case may be, the North Beni Suef

Concession

Corporate Responsibility

DD&A

Depreciation, depletion and amortisation

DP Semi-Submersible

Dynamic positioning semi-submersible

drilling rig

E&P

Exploration & Production

EBITDAX

Earnings from continuing activities before

interest, tax, DD&A, impairment of PP&E and

intangibles, exploration other/expenditure

and other/restructuring expense items.

EBT

Employee benefit trust

E&E

Exploration and Evaluation

El Fayum or the El Fayum Concession

The concession agreement for petroleum

exploration and exploitation entered into on

15 July 2004 between the Arab Republic

of Egypt, EGPC and Pharos El Fayum in

respect of the El Fayum area, Western

Desert, as amended from time to time

EGP

Egyptian Pound

EGPC

Egyptian General Petroleum Corporation

European Union

FFDP

Full Field Development Plan

Financial Statements

The preliminary financial statements of the

Company and the Group for the year ended

31 December 2022

FPSO

Floating, Production, Storage and Offloading

Vessel

FRC

Financial Reporting Council

Full year

G&A

General and administration

GDP

Gross domestic product

GHG

Greenhouse gas

Group

Pharos and its direct and indirect subsidiary

undertakings

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

IAS

International Accounting Standards

IFRS

International Financial Reporting Standards

IMF

International Monetary Fund

IOGP

The International Association of Oil & Gas

Producers

IPIECA

The global oil and gas industry association

for environmental and social issues

IPR or IPR Energy Group

The IPR Energy group of companies,

including IPR Lake Qarun and IPR Energy

AG, or such of them as the context may

require

IPR Lake Qarun

IPR Lake Qarun Petroleum Co, an exempted

company with limited liability organised

and existing under the laws of the Cayman

Islands (registration number 379306), a

wholly owned subsidiary of IPR Energy AG

IRR

Internal Rate of Return

JOC

Joint Operating Company

Joint venture

thousands

kbopd

Thousand barrels of oil per day

Kilometre

Square kilometre

LTI

Lost Time Injury

LTIF

Lost Time Injury Frequency

LTIP

Long Term Incentive Plan

Pharos Energy Annual Report and Accounts 2022

210

Strategic Report Additional InformationGovernance Report Financial Statements

million

M&A

Mergers and Acquisitions

McDaniel

McDaniel & Associates Consultants Ltd

MENA

Middle East and North Africa region

Merlon

Merlon El Fayum Company subsequently

name changed to Pharos El Fayum

mmbbl

Million barrels

mmboe

Million barrels of oil equivalent

NAV

Net asset value

NBE

The National Bank of Egypt, the largest

Egyptian commercial bank and owned by the

state of Egypt

NBS, North Beni Suef or the North Beni

Suef Concession

The concession agreement for petroleum

exploration and exploitation entered into

on 24 December 2019 between the Arab

Republic of Egypt, EGPC and Pharos El

Fayum in respect of the North Beni Suef area,

Nile Valley

NPV

Net Present Value

OCF

Operating cash flow

OOIP

Original Oil in Place

OPECO Vietnam

OPECO Vietnam Limited

Opex

Operational expenditure

PEF

Pharos El Fayum, a wholly owned subsidiary

of the Company holding the Group’s

participating interest in El Fayum and North

Beni Suef

Petrosilah

An Egyptian joint stock company held 50/50

between the Pharos Group and the Egyptian

General Petroleum Corporation

PSC

Production sharing contract or production

sharing agreement

Petrovietnam

Vietnam Oil and Gas Group

PP&E

Property, plant and equipment

Prospect or prospect

An identified trap that may contain

hydrocarbons. A potential hydrocarbon

accumulation may be described as a lead

or prospect depending on the degree of

certainty in that accumulation. A prospect

generally is mature enough to be considered

for drilling

PTTEP

PTT Exploration and Production Public

Company Limited

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

Ordinary Shares

SPA

Sales and Purchase Agreement

STOIIP

Stock Tank Oil Initially In Place

TOR

Terms of Reference

TCFD

Task Force on Climate-Related Financial

Disclosures established by the G20 Financial

Stability Board

TGT

Te Giac Trang field located in Block 16-1,

Vietnam

TSR

Total shareholder return

TIA

Tie-in Agreement

United Kingdom

United States of America

WHP

Wellhead Platform

WFH

Work from home

WTI

West Texas Intermediate

YTD

Year-to-date

United States Dollar

UK Pound Sterling

Low estimate scenario of Contingent

Resources

First half

Equivalent to Proved Reserves; denotes

low estimate scenario of Reserves

2018 Code

The 2018 UK Corporate Governance Code

of the Financial Reporting Council

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

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