Annual Report

& Accounts

www.pharos.energy

202 3

Page 7

Our strategy

& purpose

Page 4

Pharos at a

glance

STRATEGIC

Who we are 3

Pharos at a glance 4

Where we operate 6

Our strategy & purpose 7

Our strategic objectives 8

Our investment case 10

− 1. Capital discipline in our DNA 11

− 2. Unique and complementary assets 12

− 3. Operational capability 14

− 4. Diverse & inclusive workforce 15

Chair’s Statement 16

Market overview 18

Chief Executive Officer’s Statement 21

Business model 24

Key metrics 25

Operational Review 29

− Egypt 29

− Vietnam 31

− Group Reserves and Contingent Resources 33

Section 172(1) Statement 36

Chief Financial Officer’s Statement 40

Risk Management 48

Principal risks and mitigations 54

− Viability Statement 60

Corporate Responsibility Report 62

− Governing Corporate Responsibility 63

− Business 66

− Ethics 69

− People 70

− Society 73

− Environment 75

Corporate Responsibility Non-Financial Indicators 82

TCFD Report 83

GOVERNANCE

Chair’s introduction to Governance 100

Leadership & Governance 102

Board of Directors 104

UK Corporate Governance Code 106

Environmental, Social and Governance (‘ESG’) Committee Report 114

Nominations Committee Report 117

Audit and Risk Committee Report 120

Directors’ Remuneration Committee Report 126

− Annual Report on Remuneration (Audited section) 128

− Notes to the single figure table 129

− Unaudited Section 135

Directors’ Report 143

FINANCIAL STATEMENTS

Independent auditor’s report 149

Consolidated Financial Statements 158

− Consolidated Income Statement 158

− Consolidated Statement of Comprehensive Income 158

− Balance Sheets 159

− Statements of Changes in Equity 160

− Cash Flow Statements 161

Notes to the Consolidated Financial Statements 162

ADDITIONAL INFORMATION

Non-IFRS measures (Unaudited) 190

Five year summary (Unaudited) 192

Reserves Statistics (Unaudited) 193

Report on Payments to Governments (Unaudited) 194

Transparency Disclosure 2023 (Unaudited) 195

Glossary of Terms 196

Company Information 198

Annual Report and Accounts 2023

Pharos Energy

Annual Report and Accounts 2022

VIETNAMEGYPT

5,127 boepd

2023 VIETNAM PRODUCTION (NET)

1,381 bopd

2023 EGYPT PRODUCTION (NET)

EGYPT

VIETNAM

D: Development P: Production E: Exploration

D, P, E D, P, E

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

Pharos Energy is an independent energy

company with a focus on delivering long-term

sustainable value for all stakeholders through

regular cash returns and organic growth,

underpinned by robust cash flow and a

resilient balance sheet.

WHO WE ARE

With a registered office in London and listed on the premium segment in the main market of the London Stock

Exchange, we have production, development and exploration interests in Egypt and Vietnam.

Our purpose is to provide energy to support the development and prosperity of the countries, communities and

families wherever we work, in line with recognised social and environmental practices.

1997

Listed on London

Stock Exchange

17,839

Acreage km

Blocks

Oil & Gas fields

Global Employees

(2022: 36 employees)

Countries

Our distinctive portfolio in the energy

regions of Asia and MENA, together

with a robust and disciplined capital

allocation framework, supports our

strategy of delivering long-term

sustainable growth. We have a range of

opportunities in the portfolio to position

us for a positive future. Our purpose

is to continue to provide energy for

communities around the world and fuel

their lives and businesses.

Annual Report and Accounts 2023

Pharos Energy

As a business, our ability to

deliver value is key to our robust

stakeholder investment case.

PHAROS AT A GLANCE

2023 KEY FIGURES

Cash operating

costs* ($/boe)

Revenue ($m)

Prior to hedging loss of $0.2m

Average net

production (boepd)

Operating

Cash Flow ($m)

Share Buybacks

Cash & cash

equivalents ($m)

2022 Dividend paid in 2023

$15.70/boe

$168.1m

6,508 boepd

$44.9m

$2.8m

$5.6m

$32.6m

(or 1p per share,

paid on 12 July 2023)

(2022: $16.36/boe)

(2022: $221.6m, prior to

hedging loss of $22.5m)

(2022: 7,166 boepd net)

(2022: $53.4m)

(2022: $3m)

(2022: $0m)

(2022: $45.3m)

RETURN TO

SHAREHOLDERS

* Read More

Non-IFRS measures on page 190

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

2023 GROUP HIGHLIGHTS

Block 125

Block 126

Block 9-2 CNV Field

Block 16-1 TGT Field

Ho Chi Minh City

VIETNAM

El Fayum Concession

Cairo

EGYPT

North Beni Suef Block

Annual Report and Accounts 2023

Pharos Energy

Focused portfolio of

complementary assets

WHERE WE OPERATE

We have a diversified mix of onshore and offshore producing,

development and exploration assets in two territories - Egypt and

Vietnam.

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, and 1 development lease on the North Beni

Suef (“NBS”) Concession which was awarded in September 2023 and production

started in December 2023. We hold further low-risk low-cost near-term exploration

opportunities in both the El Fayum and NBS Concessions. In March 2022, Pharos

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

working interest and operatorship in each of the El Fayum and North Beni Suef

Concessions, with the Group holding the remaining 45% non-operated working

interest.

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).

1,381bopd*

2023 AVERAGE PRODUCTION (net)

2022: 1,748 bopd*)

5,127boepd

2023 AVERAGE PRODUCTION (net)

(2022: 5,418 boepd)

* The farm-down transaction and transfer of

operatorship of the Group’s Egyptian assets to

IPR completed on 21 March 2022. Although the

economic date of the transaction was 1 July 2020,

working interest production for Egypt in 2022 is

reported as 100% through to completion and 45%

thereafter. Production numbers are given as 100%

working interest until 21 March 2022 and then 45%

for the remainder of 2022 and entirety of 2023.

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

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 through

regular cash returns to shareholders and investment in our assets to generate growth,

underpinned by robust cash flow and a resilient balance sheet.

We invest in a balance of near-term potential and longer-term value, with the aim of

enhancing value creation for all stakeholders.

To achieve this, we focus on maximising reserves from existing producing oil and gas

fields, such as from our El Fayum and NBS Concession in Egypt and TGT & CNV fields

in Vietnam, through flexible capital investment across oil price cycles to unlock reserves

upside and improve operating performance. This is complemented by organic growth

activity through further extensions in existing fields and developments & explorations

offshore Vietnam on Blocks 125 & 126 and onshore Egypt on both the El Fayum and

NBS Concessions, to unlock longer-term value.

Our Stakeholders

To our investors:

Creating and returning value to shareholders through a combination of annual dividends and

organic growth.

To our host countries:

Creating shared prosperity & helping countries use oil revenues to promote sustainable, inclusive

economic development, manage the impact of climate change and achieve their COP and other

domestic and international commitments.

To our people:

Providing an inclusive and diverse workplace, empowering people with differing backgrounds,

skills, and experiences to do meaningful work based on the Pharos Way guiding principles of

safety and care, energy and challenge, openness and integrity, empowerment and accountability,

and pragmatism and focus.

To all stakeholders:

Engaging and dealing with stakeholders in a transparent and constructive manner in accordance

with applicable local and international laws and otherwise aspiring to the highest ethical standards

of business conduct.

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

Annual Report and Accounts 2023

Pharos Energy

Our Strategic Objectives

OUR STRATEGIC OBJECTIVES

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. We have kept a rigorous approach

to drive down costs and created a lean

Board and organisational structure

suitable for the future. This positions us

well to thrive throughout the commodity

price cycle.

Operational 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 2023 has established

a firm foundation for future growth and

support the delivery of our strategy.

Value creation per share

Our goal is to deliver a combination of

regular cash returns plus growth potential

for shareholders. We aim to maximise

value per share for all shareholders, and

we are not chasing scale for its own sake.

We are committed to delivering value on

all sides of the equation.

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 consistent

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

has had over the years would not have

been possible if not for the supportive

relationships we have with our valued

partners and stakeholders. Our assets

are operated predominantly through

JOCs, but we are actively involved in JOC

management and work collaboratively with

our partners to identify areas of mutual

sustainable benefits. A combination

of long-standing in-country presence

and focus on building relationships with

both host governments and regulatory

authorities has cultivated many successes

for the Group, our partners, the JOCs and

the local economies. We also maintain

good relationships with our valued group

of lenders to ensure financial stability in

times of uncertainties.

Transparency in

sustainability

Sustainability is a key value in our

business. We made a formal commitment

to achieve Net Zero on our Scope 1

(direct) and Scope 2 (indirect) GHG

emissions from all our current and

future assets by no later than 2050,

and published a Net Zero roadmap in

December 2023 with interim emission

reduction targets and decarbonisation

levers to achieve our climate target. We

recognise that the journey to Net Zero

and a more sustainable future will not be

simple nor straightforward, but we remain

committed to transparency in our reporting

and to keeping stakeholders updated on

our progress.

Strong balance sheet

Protecting balance sheet strength is

fundamental to our business model.

Costs and the balance sheet are actively

managed through maintaining positive

operational cash 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.

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

OUR STRATEGIC OBJECTIVES - continued

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

Annual Report and Accounts 2023

Pharos Energy

Investment Case

OUR INVESTMENT CASE

CFO’s Statement on page 40

Pharos Energy – Corporate presentation 2023

/ 1

TRACK RECORD OF DELIVERING VALUE

c.$530m total shareholder returns

* Shareholder returns include a combination of purchases of own shares, cash returns, and dividends.

25+ years of experience

in 12 countries

Invest

Monetise

Return

23 November 2023

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, special 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

$537.6m

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

2023

$8.4m

We exhibit capital discipline through a

focus on cost management, a part of our

DNA, which is underpinned and enhanced

by our commitment to annual cash

returns to shareholders. Capital allocation

decisions are taken to make investments

where they will generate risk-adjusted full-

cycle returns, with a focus on near term

cash generation and long-term growth.

We use our expertise:

To allocate capital to those assets

which offer a combination of cash

flow, growth and sustainability

To focus on our cost base

wherever we are

To assess and develop high

grade growth opportunities

To provide cash returns to

shareholders

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.

As at year end 2023, we are

proud to have returned $537.6m

to shareholders, through a

combination of dividends, share

buybacks and capital growth.

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

1. Capital discipline in our DNA

We have a culture of prudent financial management, capital allocation

and capital return.

OUR INVESTMENT CASE – continued

Operations Review on page 29

Egypt is an economy with growing energy

needs provided by its domestic oil and

gas sector, which operates within a well-

established regulatory framework.

Following Pharos’ farm-down transaction

and transfer of operatorship over our

Egyptian assets to IPR in 2022, we

delivered good operational performance

in Egypt in 2023, having exploration

successes in both the El Fayum

Concession and North Beni Suef (NBS)

Concession. On El Fayum, the first

exploration commitment well encountered

oil-bearing reservoirs in the Abu Roash

G and Upper Bahariya formations in

1H 2023. On NBS, the first exploration

commitment well (NBS-SW1X) was

declared a commercial discovery after

encountering multiple pay zones in the

Abu Roash G formation and put on

production in December 2023, having

been granted a 20-year development

lease by EGPC in December 2023.

Our strong operational performance in

2023 provides the Group with significant

operational momentum going into 2024.

Nevertheless, the continuing volatility

of the macroeconomic environment in

Egypt means that the Group maintains

our modest and measured approach to

capital allocation and drilling in Egypt with

an eye on the receivables balance. Further

devaluation of EGP against USD during

the year, along with the lack of ability

to convert EGP into USD, means that it

remains preferable to continue holding

USD denominated receivables, other than

where they can be used to fund ongoing

expenditures upon expiry of the carry from

IPR.

Upcoming catalysts

in 2024

• Continuation of a modest and

measured approach to capital

allocation and drilling in El Fayum and

NBS, with an eye on the receivables

balance

• Focus for this year’s work programme

in El Fayum is low cost recompletions

and waterflood

• Development drilling in the NBS SW

field is planned to start in 2H 2024

• Processing and interpretation of

c.130km

of 3D seismic data on NBS

is underway and expected to be

completed in 2H 2024

Annual Report and Accounts 2023

Pharos Energy

2. Unique and complementary assets

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

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

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

producing assets to basin-opening world-class potential offshore

exploration.

OUR INVESTMENT CASE – continued

EGYPT

Onshore, low cost, in-fill

drilling path to grow

production with proven

exploration upside

1,381bopd

NET 2023 PRODUCTION

(2022: 1,748 bopd)

14.4mmboe

2P RESERVES AS AT

YEAR END 2023

(2022: 15 mmboe)

DEVELOPMENT LEASES AT

THE EL FAYUM AND NBS

CONCESSIONS

45%

PHAROS WORKING

INTEREST

(2022: 100% working

interest until 21 March 2022

and then 45% for the remainder

of the year)

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

OUR INVESTMENT CASE – continued

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.

On 9 January 2024, the Company

received approval on its TGT Revised Field

Development Plan (“RFDP”), and planning

is underway for a two-well TGT drilling

programme expected to commence in 2H

2024.

We have further potential for growth from

two deep-water basin-opening exploration

positions in Blocks 125 & 126 in the Phu

Khanh basin off the eastern coast of

Vietnam. In July 2023, Pharos published

an independent report prepared by

ERCE on Blocks 125 & 126 in Vietnam

which makes estimates of prospective

oil resources with an aggregated gross

unrisked Mean of 13,328 MMstb, covering

those Prospects and Leads already

identified. The report supports Pharos’

internal assessments and paves the way

for further work to develop new Leads and

mature Leads to Prospects. All work done

to date highlights the scale of the potential

in these blocks. Together with the approval

from the Vietnamese Government in June

2023 for the two-year extension of the

Exploration Period of the Blocks 125 &

126 Production Sharing Contract now

extended to November 2025, Pharos is

well placed to bring in a farm-in partner

and complete all necessary work to drill

the first exploration well on this basin

opening play where we see material world-

class frontier exploration potential.

Upcoming catalysts

in 2024

• Planning underway for a two-well

TGT drilling programme, expected to

commence in 2H 2024

• Continued engagement with partners

and in-country regulators to finalise

licence extensions for TGT & CNV

• On Block 125, ongoing discussions

with another operator to secure a well

drilling slot in connection with their

proposed multi-well drilling programme

in the region

• Parallel discussions with several

potential farm-in partners for Block

125 are in progress

VIETNAM

High net back

producing assets with

further significant

exploration potential

5,127boepd

NET 2023 PRODUCTION

(2022: 5,418 boepd)

9.1mmboe

2P RESERVES AS AT

YEAR END 2023

(2022: 12.2 mmboe)

BLOCKS IN VIETNAM

25+

YEARS ACTIVE IN

VIETNAM

Corporate Responsibility Report on page 62

Long operational history

in Asia-MENA

Our history with Vietnam since 1996

has been a success story both for the

company and the country. As at 2023,

Pharos has invested over $1.3 billion in the

exploration, appraisal and development

of oil and gas projects located offshore

Vietnam since inception, making Pharos

one of the largest British investors in the

country. In Egypt, IPR has a long-standing

in-country presence and relationships with

the Egyptian government and regulatory

authorities, which position them well to

support the expansion of operational

activity needed to develop the resource

base.

Our long operational history provides

a strong foundation for our future work

programmes to manage both the cash

generation and the growth potential of our

assets, and to deliver on our strategy.

Excellent safety record

in Vietnam

The health & safety of the Group’s

workforce is the highest priority for Pharos.

We are proud to report an exceptional

safety record of zero lost time injuries and

zero fatal incidents in our Egyptian assets

in 2023, and in our Vietnam assets since

our operational inception in 1996. This is

thanks to the JOCs’ consistent effort to

provide and champion workers’ health,

safety and well-being.

Annual Report and Accounts 2023

Pharos Energy

3. Operational capability

Amidst ongoing global uncertainty, Pharos continues to deliver

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

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

the macroeconomic challenges without compromising our operational

capability.

OUR INVESTMENT CASE – continued

Corporate Responsibility Report on page 62

Diversity in all dimensions

We operate in a global industry, and it is vitally important to ensure

that we benefit from the diverse perspectives that people can

bring. For this reason, equality, diversity and inclusion sit at the

heart of our recruitment, development and promotion processes.

Across all of our assets, we acknowledge diversity in all its

dimensions and welcome people with differing backgrounds,

skills, nationalities, gender and experiences to help us deliver

our business strategy of long-term sustainable growth. As at

year end 2023, the Board has four female directors out of six,

with both executive positions held by women. We recruit talents

from diverse backgrounds across our entire organisation. Most

notably our UK-based staff comprises 17 people from 10 different

nationalities, of which women accounted for c. 65%.

Our Code of Business Conduct and Ethics, associated policies

and the Pharos Guiding Principles commit us to providing a

workplace free of discrimination where all employees can fulfil

their potential based on merit and ability, and we will continue to

align our Company with this ethos.

Regional knowledge and experience

We apply our expertise locally with operational teams in each

region, working closely with partners and JOCs. We encourage

dialogue and co-operation between the different business assets

to ensure the sharing of knowledge and new ideas. We are

committed to providing meaningful opportunities for training and

capacity building in host countries. We have maintained a gender-

neutral recruitment process and, wherever possible, we first look

to fill any vacancy internally with a local candidate in London,

Vietnam or Egypt.

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

4. Diverse & inclusive workforce

Greater diversity and inclusivity brings greater understanding of people.

Led by the 5 Pharos Guiding Principles of ‘Safety and Care’, ‘Energy and

Challenge’ ‘Openness and Integrity’, ‘Empowerment and Capability’,

and ‘Pragmatism and Focus’, we have demonstrated our commitment

to maintaining and building a culture of diversity and inclusion.

OUR INVESTMENT CASE – continued

Throughout the portfolio, the

team’s focus on operational

delivery was evidenced by good

drilling performance in both

Vietnam, with the CNV well

coming in strongly, and in Egypt,

with discoveries on both the El

Fayum and NBS exploration wells.

We have continued to build on

a culture of capital discipline to

deliver material improvement to

the Group’s balance sheet despite

ongoing payment lags in Egypt.

This performance has allowed the

Board to continue our commitment

to sustainable shareholder returns

in 2023, a core component of

the Company’s strategy since its

listing in 1997.

These achievements are a

testament to the hard work,

dedication, and commitment of the

entire Pharos team. I would like to

congratulate all of my colleagues

on a year of good performance

which has positioned Pharos

for a positive and sustainable

future, with strong operational

momentum, a robust capital

structure, and exciting growth

opportunities.

Board changes

Over the past year, I have greatly

appreciated the support of my fellow

Board members and the diverse skillsets

that they bring to the table. Since joining

Pharos in 2019, I have overseen the

reshaping of the Board to ensure we

meet stakeholders’ expectations of an

independent Board that provides high

standards of governance and oversight

to support our long-term strategic

framework. As such, I am delighted that

Bill Higgs has joined the Pharos Board as

an Independent Non-Executive Director.

Bill is a very high-calibre appointment,

bringing a wealth of technical and

commercial experience. His initial focus

will be to maximise value from our exciting

exploration prospects in Vietnam, Blocks

125 & 126.

It is with great sadness that I note the

death of Ed Story in December 2023.

Ed founded the Company in 1991 and

had been pivotal to the Company and

its business from inception, specifically

its listing in London in 1997 and its

subsequent foray into a dozen different

countries. Since retiring as CEO in March

2022, Ed had remained active as part

of the Company’s team in Vietnam. His

responsibilities will now pass to Vincent

Duignan, the Group Exploration Manager

& General Manager South East Asia.

Jann Brown has informed the Board of

her intention to retire and step down from

the Board effective 30 April 2024, in a

separate announcement today. The search

for a replacement CEO will commence

shortly and Jann has agreed to stay in

her position as CEO to effect a managed

and smooth transition. I would like to take

this opportunity to thank Jann for her

significant contribution to Pharos over the

years. Jann will be leaving the Company

in a strong position, both financially and

operationally. We wish Jann well in her

retirement.

A diverse and inclusive

culture

Pharos is proud of our small yet diverse

workforce, whose broad range of

backgrounds, ethnicities, skills and

experience help strengthen the Company

for the future. As at year end, I am

pleased to report that the Company has

four female Directors, representing two

thirds of the Board. Most notably, our

UK-based staff comprises 17 people

from 10 different nationalities, of which

women accounted for c.65%. We operate

in a global industry, and it is important to

ensure that we benefit from the diverse

perspectives that our people bring.

The Board and Management team are

dedicated to creating a safe workplace

for all, in which people are confident to

engage and contribute. The opening up

of the world post COVID-19 has allowed

the Board to meet in person and engage

meaningfully with our colleagues across

the world. In June 2023, the Company

Annual Report and Accounts 2023

Pharos Energy

2023 has been a year characterised

by good operational and financial

performance across the Group.

A year of good

performance

CHAIR’S STATEMENT

JOHN MARTIN

Non-Executive Chair

organised an off-site day where colleagues

from Egypt, Vietnam and the UK met

in London to exchange business ideas,

provide feedback and promote team-

building. This is important not only for the

effective functioning of the Board, but also

to develop and empower all employees,

underpinning our commitment to

maintaining high standards of governance.

We recognise that 2023 has seen

significant geopolitical instability,

something that has had far-reaching

impacts on communities and families, the

global economy, and trade. Our thoughts

remain with those who have been affected

by the active conflicts in Ukraine and the

Middle East. We continue to support our

colleagues and contractors during this

difficult time, as well as ensuring that

our business can continue to function

unaffected.

Ongoing dialogues with

stakeholders

Pharos’ operational success and

long-standing partnerships, spanning

over 25 years, are built on a culture

of transparency and integrity. Since

joining the Board, Jann and I have

maintained regular dialogues with local

governments, joint-operating partners,

local communities, and shareholders to

ensure the Board is well-informed as the

Company develops its plans for growth.

In November 2023, the Board held a

Strategy Day to focus on where and how

we can offer value to our stakeholders,

with inputs from a number of key parties,

experts and shareholders. The results

of our Strategy Day reinforced our

commitment to pursue a combination of

cash returns per share and reinvestment

to enhance our asset base - a strategy

regularly communicated back to our

stakeholders. In November, Jann and I

also met with the Vietnamese Minister

of Industry and Trade to discuss the

proposed licence extensions on our assets

in country, highlighting the important

benefits that these bring, not just to

Pharos but also to Vietnam.

The Board and its management team

will continue to engage in a personal

and meaningful way with our various

stakeholders in 2024 and beyond. We

are grateful to our shareholders whose

support during times of uncertainty

have been crucial to our growth and

transformation throughout the years.

Making a positive difference

Recent events in 2023 have shown

a need for better and more balanced

energy systems worldwide, delivering

energy that is not only lower carbon,

but also reliable and affordable for

developed and emerging nations alike.

The outcomes of COP28 in December

2023 highlighted the importance of

energy and climate security, and I firmly

believe that responsible production and

development of oil and gas resources,

especially in economies transitioning from

heavy reliance on coal such as Egypt

and Vietnam, can be a major driver for

economic development and alleviating

energy poverty. Our host governments

understand and appreciate Pharos’ in-

country impact that goes beyond national

revenues from oil and gas production.

In light of our strong relationships, local

governments have encouraged Pharos

to look into opportunities across other

branches of the energy sector in their

countries. We recognise a diverse mix of

energy resources is crucial for long-term

energy security, and we appreciate our

host nations’ trust in us and the long-term

role that we play in their countries’ energy

transition.

While it is clear that there are emerging

opportunities across the energy

sector, our first priority is improving our

emissions footprint by enhancing our own

operational efficiency. I am proud of the

progress that we have made on our Net

Zero journey. In December 2023, Pharos

published a detailed Net Zero Roadmap

to achieve net zero GHG emissions by

2050. The Net Zero Roadmap, which

was researched and developed by the

Company in close consultation with

specialist advisors and consultants,

models emission reduction pathways

to achieve net zero Scope 1 (direct)

and Scope 2 (indirect) GHG emissions

from all existing and proposed future

assets by 2050 or before. We look to

reduce our emissions over the years and

remain committed to transparency in our

sustainability journey.

Social stewardship is at the heart of

our sustainability journey. In 2023, we

supported a record 22 community

investment projects across Egypt,

Vietnam, and the UK, investing a total

of $247,373 in education, training,

healthcare and infrastructure in our local

communities. Pharos remains committed

to deploying our expertise and capital to

partner with host governments to develop

local capacity, enhance energy security

and unlock value from our host nations'

natural resources in an environmentally

sustainable and socially responsible

manner.

Outlook

Jann and her team continued to

deliver on the Company’s strategy in

2023 and built on our track record

of sustainable shareholder returns.

Focusing on a clear growth strategy

and disciplined capital management

approach, we will continue to deliver

regular returns to shareholders

whilst growing the value of our

company.

As Chair, I would like to thank the

Pharos team for their commitment

and delivery through the year. I am

also grateful to our host nations

and communities for their continued

trust, our shareholders for their

confidence, and our partners,

suppliers and advisors for their

support. We have created a portfolio

of assets and set of capabilities

which are unique within our sector,

and the Board looks to the future

with great confidence in our ability

to deliver growth and value in 2024

and beyond.

JOHN MARTIN

Non-Executive Chair

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

CHAIR’S STATEMENT - continued

Economics and geopolitics

In 2023 energy security remained as a

major global theme. Ongoing geopolitical

instability across sub-Saharan Africa,

conflict in Gaza, and emerging disruption

to trade transiting through the Red

Sea all had substantial impacts on the

global energy market. The global energy

crisis triggered by Russia’s invasion of

Ukraine, prompted many governments

to prioritise domestic energy supply. The

reorganisation of global relationships

and structures that occurred after the

Russia-Ukraine conflict and the COVID-19

continued to persist into 2023. Strained

international relations have contributed to

uncertainty and unpredictability, disrupting

global trade and eroding confidence in the

global market.

Energy and climate change remain to be

politically polarizing issues, with stagnant

progress made on the energy transition

in many regions. The Intergovernmental

Panel on Climate Change of the United

Nations warned in April 2023 that the

effects of climate change will soon

become irreversible.

Geopolitical risk continues to impact

global economic growth. Although inflation

has come down, interest rates remain

high. With the anticipation of economic

downturns in the US and Europe, and

China experiencing its slowest growth in

years, serious risks to the world economy

persist.

US-China tensions flared in 2023 following

the sighting of a Chinese surveillance

balloon over the U.S., prompting President

Joe Biden to postpone his visit to Beijing,

and subsequent trade restrictions being

imposed. Global attention continues to

focus on military build-up around Taiwan

and the response from the U.S. to any

provocation. The fraught relationship

between the world’s two most powerful

countries remains a key geopolitical risk

going into 2024.

As we look to 2024, we are entering

a super-election year, with elections in

countries including but not limited to, the

US, UK, the EU, Indonesia, India, and a

number of African countries. Elections

can cause volatility in the market as

businesses and investors react to electoral

changes.

Oil price

Oil markets in 2023 witnessed a more

stable pricing environment compared to

the volatility experienced in 2022. The

average Brent crude price for the year

was US$82, an 18.63% decrease from

the average price in 2022. As central

banks ending rate hike campaigns and

OPEC+ applied supply cuts in July and

August, prices rallied and peaked at

US$96.55 in September 2023. However,

oil prices declined towards the end of

the year despite the escalating conflict in

the Middle East, as non-OPEC+ supply

strengthened, coinciding with slowing

global oil demand growth.

Although demand for oil modestly

increased by 2.3mmbbls/d compared

to the previous year according to the

International Energy Agency (IEA) data,

this figure conceals the impact of a further

weakening macroeconomic climate. Over

the course of 2023, the pace of demand

growth outside of China significantly

slowed, averaging around 300 kb/d during

the second half of the year.

120

100

$bbl

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

106

104

102

100

mmbpd

2014A 2015A 2016A 2017A 2018A 2019A 2020A 2021A 2022A 2023A 2024E

Source: BloombergQ

Source: EIA

Brent crude 2012-2023 ($bbl)

Annual Report and Accounts 2023

Pharos Energy

Market overview

MARKET OVERVIEW

Global Crude Oil Consumption 2013-2024E

The average realised crude oil price for

Vietnam was $87.42/bbl (2022: $106.44/

bbl), representing a premium to Brent

of just under $7/bbl on average (2022:

just over $4/bbl). For Egypt, the average

realised crude oil price was $78.18/ bbl

(2022:$96.03/bbl), representing a discount

of over $4/bbl to Brent for the year (2022:

over $5/bbl).

The Board’s strategy to mitigate the

principal risk of commodity price instability

is set out on pages 54 to 59. Our

approach to hedging is partly dictated by

the minimum requirements of our RBL

facility and to protect our Reasonable

Worst Case (RWC), but is otherwise

regularly reviewed to evaluate whether

the 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 breakeven 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 risk of global oil supply disruptions

from the Middle East conflict remains

heightened at the start of 2024,

particularly for oil flows via the Red Sea

and the Suez Canal. In the absence of

significant disruptions to oil flows, the

market looks reasonably well supplied in

2024, with global supply growth set to rise

by 1.5 million barrels a day to a new high

of 103.5 million barrels, fuelled by record-

setting output from non-OPEC+ countries

notably US, Brazil, Guyana and Canada.

Looking forward, with geopolitical tensions

and economic uncertainties, the IEA

predicts that the Brent crude oil price will

increase to an estimated US$82.49 per

barrel in 2024.

For more information on the impact of

climate change on the long-term oil prices

and demand, please see page 60 of the

Viability Statement.

Egypt

Egypt continues to experience economic

challenges, facing continuing global

economic and political shocks, along with

domestic bottlenecks seeing economic

growth declining to 4.4% in 2023

(down from 6.6% in the previous year).

Egypt’s challenges are compounded by

geopolitical events, including the conflict

in Ukraine and Gaza, domestic foreign

exchange shortages and historic inflation.

However, international organisations

recognise Egypt’s strategic position in the

region.

In December 2023, President Abdul Fattah

al-Sisi won a third six-year term. With the

expectation that infrastructure investment

will continue across the country, the

administration will need to manage

growing public debt and inflationary costs.

Inflation continues to have significant

impacts, with double digit rates continuing

from 2022 and accelerating to 37.4% in

August 2023. Food inflation stands at

71.7%. Across the country, price rises on

subsidised goods have pushed the cost of

living beyond the reach of many citizens.

Egypt is still one of the world’s largest

importers of wheat, and continued to

source supply from Russia. In 2023 Egypt

started shifting towards direct purchases

instead of tenders, after the war in Ukraine

disrupted their purchasing.

Foreign exchange reserves have started

to recover following significant outflows

in 2022, the last reported figures in

August 2023 noting US$ 42.9bn. The

Egyptian pound has been struggling

against the US dollar (USD), with one

USD selling for c.30.95 Egyptian pounds,

compared to 15.7 Egyptian pounds in

2022. Restrictions placed on outgoing

USD transfers by the Central Bank of

Egypt, along with increasing shortages of

USD, continued to present challenges or

international business operating in Egypt,

with hard currency needed to pay for

foreign goods and a subsequent shortfall

in imports.

It is expected that improvements will

be seen over the medium term with

stabilisation and structural reforms. The

International Monetary Fund projected

real GDP for 2024 to increase by 3.6%.

Egypt’s consumption of wheat is expected

to rise by a further 50,000 tonnes in

2023-2024; to meet this demand imports

are projected to increase by 7%, further

pressurising foreign currency.

Vietnam

Vietnam's GDP growth rate slowed to

5.05% this year from an expansion of

8.02% last year, influenced by weak

global demand. However, amidst a

global economic slowdown, Vietnam’s

economic performance in 2023 was

positive considering the challenging global

environment. The country demonstrated

a notable recovery from the COVID-19

pandemic with quarter-by-quarter

economic growth in 2023, credited

to a range of policies and measures

implemented by the government to

alleviate market bottlenecks. Foreign

Direct Investment (FDI) increased by 2.7%,

reaching US$23 billion in disbursement,

reaffirming Vietnam's status as a sought-

after destination for foreign capital.

Looking ahead to 2024, Vietnam’s GDP

growth is estimated to hover around

the 6% mark next year, and the growth

prospect for Vietnam in 2024 is still more

favourable compared to other Southeast

Asian countries. The economy expanded

6.72% in the final quarter of 2023, which

is a good sign for 2024, however, this

projection will largely depend on events

unfolding in other parts of the world.

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

MARKET OVERVIEW - continued

E&P Merger & Acquisition activities

Global upstream M&A activity rose significantly in 2023 compared to 2022, reaching a total of c.$182 billion. This increase was in part

driven by activity in the US, following major mergers involving ExxonMobil, Chevron and Occidental Petroleum. M&A activity was not

constrained to North America and the latter part of the year saw ENI and Var Energi purchase Neptune Energy for $4.9 billion, and

Harbour Energy purchase Wintershall Dea for $11.2 billion.

40.0

80.0

120.0

160.0

Billions USD

2013 2014 2015 2016 2017 2018 2019

2020

20232021 2022

180.0

Net Zero

The 2023 United Nations Climate Change

Conference (the Conference of Parties

or COP28) held in Dubai saw intense

scrutiny on the role of fossil fuels in the

future energy mix, the presentation of

the first Global Stocktake measuring

progress against the Paris Agreement

and a number of companies signing an

Oil & Gas Decarbonisation Charter. The

closing agreement, known as the ‘Dubai

Consensus’ was the first agreement with

wording agreed to phase out fossil fuels

alongside increasing renewable energy

and requirements for countries to report

their decarbonisation progress.

The United Nationals Environment

Programme (UNEP) Carbon Emissions

Gap report published in 2023 found

that there has been progress since

the Paris Agreement was signed in

2015. Greenhouse gas emissions in

2030, based on policies in place, were

projected to increase by 16% at the time

of the agreement’s adoption. Today,

the projected increase is 3%. However,

predicted 2030 greenhouse gas emissions

(GHG) still must fall by 28% for the Paris

Agreement 2°C pathway and 42% for the

1.5°C pathway.

The International Energy Agency’s Energy

Outlook also published in 2023 continued

to note that energy security presents

opportunities for the energy transition

whilst Russia’s invasion of Ukraine,

instability in the Middle East could lead to

further disruption to energy markets and

prices. It is likely there will continue to be

an acceleration of countries and industries

committing to further decarbonisation in

the run up to 2030. Pharos continues to

monitor the global energy market to inform

future value and business decisions.

In December 2023, the Company took

the next step in its net zero journey by

publishing a detailed net zero roadmap,

following its commitment in September

2022, to achieve net zero GHG emissions

by 2050. This roadmap has been

researched and developed by specialist

consultants and models emission

reduction pathways to achieve net zero

Scope 1 (direct) and Scope 2 (indirect

emissions). The roadmap reinforces the

Company’s key value of sustainability

within its business strategy. Further details

on our Corporate Responsibility Report

can be found on page 62.

Pharos acknowledges the growing body

of regulation around climate change in

jurisdictions around the world, this stems

from scientific insight, raising standards

and increased disclosure requirements. In

2023 we continued to report and disclose

our emissions in accordance with UK

industry requirements and standards. The

Company notes the increasingly globalised

and integrated approach to voluntary

regulation through disclosure, with

companies going ahead of regulation. We

are committed to meeting requirements

including the Taskforce on Climate Related

Financial Disclosures (TCFD). Further

information on this can be found on page

83.

Source: S&P Capital IQ

Global E&P M&A Total Transaction Value, ($USDmm)

Annual Report and Accounts 2023

Pharos Energy

MARKET OVERVIEW - continued

Our investment programme in 2023

We have managed the challenges of

payment delays in Egypt, thanks in part

to our carry, but also by strict cost control

and capital discipline. We ended the year

in a strong financial position with net debt

down 77% to $6.6m and cash balances

of $32.6m, from revenues of $168.1m.

A stronger balance sheet provides the

foundation to continue our track record

to deliver shareholder returns, adding

$8.4m this year through a combination of

share buyback programmes and dividend

payments. As at year end 2023, we are

proud to have returned a total of $537.6m

to shareholders.

Our assets are the foundation of our

returns and during the year, we made

progress on a number of opportunities

within the portfolio. In Vietnam, we

continued to deliver a high netback

and stable production during the year.

Production in 2023 from the TGT and

CNV fields averaged 5,127 boepd, in

line with guidance, with delivery from the

first CNV lateral well coming in above

expectations in the first half. The approval

of the TGT RFDP from MOIT in January

2024 was the final step towards the

commencement of a two-well TGT drilling

programme, which is expected to start

in the second half of this year. On the

exploration side, the publication of the

independent report prepared by ERCE

on Blocks 125 & 126 further highlights

the world-class scale and potential in

these basin-opening exploration blocks,

confirming 13,328 MMstb of mean gross

unrisked prospective oil resources. With

the exploration period of the PSC now

extended to November 2025, Pharos

is well placed to source a rig, bring in a

farm-in partner and complete all necessary

work to drill the first exploration well on

this exciting opportunity.

In Egypt, discretionary investment has

been modest, and focused on delivering

a steady performance from El Fayum,

averaging 1,381 bopd, in line with

guidance. We also ensured that our

commitments to host governments were

fulfilled. Most notably, the Group had

drilling successes on both the El Fayum

and North Beni Suef Concessions. The

NBS-SW1X exploration commitment well

was declared a commercial discovery and

put on production only nine months after

drilling, following the grant of a 20-year

development lease in September 2023.

This was a crucial first step towards

proving up this new reserve base and

adding further barrels to overall Group

reserves and subsequently production.

The reforms recently announced by

the Egyptian government, plus the

international funding packages totalling

together $57 billion, set out the path

for Egypt’s economic recovery and the

restoration of sustainable, inclusive

growth. In the early stages of these

reforms, the JV will maintain a measured

approach to capital allocation and drilling

in Egypt in 2024. However, we recognise

that it is important to be fully prepared

to increase our investment levels once

payments for oil production reach a more

regular pattern.

The health and safety of our workforce

remains our highest priority. We are

committed to operating safely and

responsibly at all times. Pharos continued

to have an excellent safety record during

2023, and I am pleased to highlight that

the Company reported zero LTIs across

the Group. In particular, in Vietnam, this is

an achievement that we have maintained

since 1997 thanks to the JOCs’ consistent

efforts to provide and champion workers’

health, safety, and well-being. We are

careful to maintain this achievement going

into 2024.

Our stable operational performance

in 2023 has laid a solid foundation for

the 2024 work programme to further

develop growth potential in our assets.

Underpinned by a strong balance

sheet and steady production base

across the portfolio, Pharos is in a

good position to execute our strategy

of delivering sustainable value through

a focus on organic and inorganic

growth opportunities, coupled with our

commitment to regular shareholder

returns.

We put the funding of our established dividend programme at the heart of our business model, and it is

through this lens that we assess our capital allocation goals. We are determined to balance regular returns

to shareholders with investment in our assets to generate sustainable growth, and value per share whilst

preserving balance sheet resilience.

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

Pharos delivered on several fronts in 2023. Throughout the

year, the Board and senior management team maintained a

clear focus on capital discipline to strengthen our financial

position and enhance existing opportunities within our

portfolio.

Commitment to adding value

CHIEF EXECUTIVE OFFICER’S STATEMENT

JANN BROWN

Chief Executive Officer

A clear focus on our strategic priorities

1. Regular shareholder returns

At Pharos, we have a firm commitment to

add sustainable shareholder value, and

both the means and discipline to do it.

We established a sustainable shareholder

return framework via share buybacks and

dividends, as part of the return mix that

we can control. Dividends have been a

key part of the Company’s equity story

since its listing and, following approval

at the 2023 AGM, we returned $5.6m

to shareholders via a single dividend for

the 2022 financial year of 1 pence per

share. In December 2023, an interim

dividend of 0.33 pence per share, or

$1.7m equivalent, was paid in January

2024. Our dividend policy is set in a clear

formula, returning no less than 10% of

operating cash flow (OCF) and takes into

account volatility in the market such as

movements in commodity prices, tax, and

working capital movements. Today, the

Board have recommended a final dividend

for the 2023 financial year of 0.77 pence

per share which, subject to shareholders’

approval at the Company’s 2024 AGM,

would take the 2023 full year dividend

to 1.10 pence per share, an increase

of 10% on the prior year. In addition,

we announced in December 2023 the

continuation of our share buyback

programme, with a further $3m committed

for 2024. This is another way for Pharos

to return value to shareholders and to

enhance NAV, earnings and dividends per

share to shareholders over time.

2. Cash flow protections

Prudent financial management is a core

part of our corporate DNA. Our focus

on capital discipline through careful cost

management and control has resulted

in material net debt reduction in recent

years. We maintain a balance of hedged

and free-floating Group production,

with less than 30% of the Group’s 2024

production hedged at 31 December 2023,

thus providing material exposure to the

oil price. Pharos also operates in two

very different jurisdictions which provides

diversification and resilience in a volatile

world. In particular, we are proud of our

consistent payment record in Vietnam,

with TGT & CNV crude commanding an

impressive premium to Brent of just under

$7/bbl in 2023, a significant improvement

from the prior year’s $4/bbl. This has

been driven by improvements in oil prices

and our three-year sales contract for all

TGT crude oil cargoes with BSR, which

provides benefits in delivering into the local

economy and reducing logistical spend as

well as output tax savings. Additionally, to

mitigate the impact of payment issues in

Egypt, we have a working capital facility

with the National Bank of Egypt (UK) to

smooth out payment cycles there. Our

receivables balance has built up in part

due to the benefit of the carry we have

had over all JV expenditure in Egypt,

leaving us with in-country corporate costs

only, and partly due to our position of

not drawing down the balance in local

currency. With the carry expiring in 1Q

2024, we intend to use this receivables

balance to fund the majority of the

JV expenditure going forward. As our

dividend policy is based on the resilience

of our operating cash flow, we maintain a

strict capital control framework to protect

our cash flows.

3. Diverse opportunity sets

We have a portfolio of organic growth

opportunities in both Vietnam and Egypt,

with options continuously being explored

and development work progressed

to maximise the potential of these

complementary assets. In Vietnam, a

variety of interesting leads and prospects

have been identified on Block 125, a

unique deep-water frontier exploration

opportunity. We are in active parallel

discussions with several parties interested

in farming-in to support the funding of

a commitment well on this Block and

engaging with another operator to secure

a well drilling slot during their multi-

well drilling programme in the region.

In Egypt, the exploration successes in

both the North Beni Suef and El Fayum

Concessions, complemented by the 20-

year development lease on NBS-SW1X,

added significant value to our low-cost

Egyptian asset base and bode well for

future growth.

We keep our assets under review to

ensure that they are delivering the

expected value and will look to monetise

if we can accelerate this. As we maintain

a firm handle on our existing portfolio,

we are also considering inorganic

opportunities. We actively look for

opportunities to generate additional value

and cash flow for our shareholders. We

have a highly competent and dedicated

team with strong industry relations

to assess these in a disciplined and

systematic manner.

Annual Report and Accounts 2023

Pharos Energy

CHIEF EXECUTIVE OFFICER’S STATEMENT - continued

Net Zero and our role in the

energy transition

As Pharos explores these opportunities,

we remain focused on the role we play

in the socio-economic development of

our host countries. We believe that oil

and gas companies like Pharos, with

our commitment to producing safely

and responsibly, a wealth of industry

expertise, and a strong balance sheet, will

continue to play an important part in the

energy transition, especially in emerging

economies. In dialogues with our host

governments, we note their recognition

of the importance of our operations

and investments to energy security and

prosperity. We are encouraged to keep

investing in their countries to ensure that

they benefit from their natural resources as

have many other nations, particularly in the

developed world. This is exactly what we

have done in 2023, having committed to

the domestic sale of 100% of oil and gas

produced from our producing assets in

both Egypt and Vietnam during the year.

The critical role of upstream producers

in the energy supply chain also opens

opportunities to add value through the

integration of other alternative energy

resources, both to improve upstream

efficiency and for standalone cash

generation.

Pharos strengthened our commitment

to net zero in 2023. We took another

step in maturing our net zero strategy

by publishing our Net Zero Roadmap in

December, which provided further clarity

in our pathway towards our 2050 climate

commitment. The Net Zero Roadmap,

which was researched and developed

by the Company in close consultation

with specialist advisors, established

decarbonisation levers and interim targets

to reduce our 2030 emissions by 15%

against baseline 2021 emission. Additional

information about our decarbonisation

strategy, Emission Management Fund,

and climate governance structure are

included in our Net Zero Roadmap, which

is available to download on our website.

We recognise that the path to net zero

will not be straightforward, as it will take

time to implement certain decarbonisation

technologies and require pragmatism

from our local partners, governments,

and other stakeholders. Nevertheless, we

are committed to our climate goals and

will navigate our net zero journey in an

honest and transparent manner, true to

our corporate values of the ‘The Pharos

Way’: Safety & Care, Energy & Challenge,

Openness & Integrity, Empowerment &

Accountability, and Pragmatism & Focus.

Our relationships with

stakeholders

‘The Pharos Way’ drives not only our

attitude towards sustainability and

net zero, but also the way we build

and maintain our relationship with

stakeholders. We were greatly encouraged

by the open and receptive dialogues we

had with key stakeholders during the year.

In January 2023, the Company held a

lunch to engage with analysts, both those

providing research on the Company and

those that do not, to foster relationships

with key figures in the industry. During

the year, we have met key individuals

representing regulators and government

in both Egypt and in Vietnam. We also

engage regularly and meaningfully with the

investment community and debt providers

through multiple roadshows, meetings,

live presentations, and Q&A sessions.

We remain actively engaged with our joint

venture partners and regularly participate

in budget reviews, work programme

discussions, and Management Committee

meetings throughout the year. The Board

and management team work hard to

ensure we meaningfully engage with the

whole workforce at various points during

the year, as previously discussed in the

Chair’s Statement.

The supportive relationship that exists

between Pharos and its different groups

of stakeholders is a key building block to

the successful delivery of our strategy,

and we will continue to build on these

collaborative relationships in 2024 and

beyond.

Outlook

Although 2023 brought continued

uncertainties, Pharos rose to

these challenges and delivered

a stabilised asset base set for

growth, a more resilient balance

sheet, well-protected cash

flows, and an exciting mix of

opportunities to pursue in 2024.

Finally, the significant change in the

outlook for the Egyptian economy

means that the most turbulent

years look to be behind us. I have

therefore decided that this is the

right time for me to step down and

hand over the baton to someone

who will lead that next phase.

With capital discipline in our DNA,

a clear set of strategic objectives,

a portfolio of complementary

assets, a strong financial

position, a dedicated and diverse

workforce, a committed Board

and bench strength across the

management team, the company

has started 2024 well-positioned

to deliver long-term sustainable

value for all, and my successor will

be chosen to take that to the next

level.

I would like to take this opportunity

to thank all our stakeholders for

their ongoing support and our

employees for their hard work,

commitment and tenacity. I am

confident in our ability to execute

our strategy and look forward to

seeing Pharos on a path towards

a new phase of growth and

shareholder returns.

JANN BROWN

Chief Executive Officer

CHIEF EXECUTIVE OFFICER’S STATEMENT - continued

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

VALUE INPUTS VALUE INPUTS VALUE INPUTS

Our people

• Extensive industry experience

• Technical expertise & commercial

acumen

• Relationship-driven

• Diverse & inclusive workforce

Our assets

• Mix of complementary assets

• Low-cost onshore drilling in Egypt

• Mature, short payback in Vietnam

• Basin-opening frontier offshore

exploration in Vietnam and proven

exploration upside in Egypt

Our capital

• Rigorous approach to cost

• Low breakeven oil price in Vietnam

• Modest gearing

• Disciplined capital allocation

process

Assess Invest

Develop

& Produce

We assess opportunities which offer near

term cash generation and longer term

growth. We generate opportunities from

within our existing asset base and balance

the value of investing in the business with

the value of cash returns to shareholders.

Our investment programme will continue

to be allocated over our asset base in a

disciplined manner to deliver sustainable

returns for our stakeholders. We maintain

a culture of prudent financial management,

capital allocation, and capital returns.

Our production increases through the

development of existing discovered

resources. We seek to maximise margins

through optimising production at low

operating costs. We are committed to

responsible and safe operations at all

times.

VALUE OUTPUTS VALUE OUTPUTS VALUE OUTPUTS

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

• World class exploration prospects

and leads in 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 training,

local employment & trusted

partnerships

• In-country economic contribution

and social investment

Annual Report and Accounts 2023

Pharos Energy

How our business model creates

sustainable value

BUSINESS MODEL

We are building a business focused on generating sustainable returns.

We look to grow Pharos through the responsible management of our

current portfolio and careful selection of opportunities, particularly

those with near-term low-cost development and exploration assets

with transformative potential within Asia and MENA.

Read More*

Non-IFRS measures on page 190

2023 Financial Measures

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

Reporting on our

performance

KEY METRICS

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

performance and deliver on our responsible business plans. They

are kept under review and regularly tested for relevance against our

strategy and policies.

LOW CASH OPERATING COST

$/BOE *

15.70

2021

2022

16.36

16.05

2023

15.70

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 $15.70/boe in 2023, a

decrease over 2022, largely due to lower FPSO cost on TGT and,

in Egypt, the continuing devaluation of EGP against USD during the

year.

Outlook

We continue to target improvements in 2024 and beyond through

managing costs and increasing production.

Links to strategy

• Deliver value through

growth

Associated risks

• Partner alignment risk

• Political and regional risk

Links to Remuneration Report (See page 126)

CAPITAL EXPENDITURE CASH

$M (includes abandonment funding)

26.7

021

022

31.9

41.8

2023

26.7

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 2023 cash capital expenditure was lower than 2022 due to

reduced drilling campaigns. No new development wells were drilled

on TGT, and the new lateral well 2PST1 on CNV, which commenced

in 2022, was completed in February 2023. In Egypt, there were three

new wells on El Fayum and, on NBS, the first exploration well, NBS-

SW1X, started producing in December 2023.

Outlook

The cash capex forecast for 2024 is expected to be c.$32.2m

(c.$27.3m after Egyptian carry by IPR).

Links to strategy

• Deliver value through

growth

• Investment growth

Associated risks

• Commodity price risk

• Partner alignment risk

Annual Report and Accounts 2023

Pharos Energy

KEY METRICS - continued

CASH AND CASH EQUIVALENTS

32.6

2021

2022

27.1

45.3

2023

32.6

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 $32.6m, a decrease of 28% on prior

year, mainly driven by lower commodity prices and production

volumes. In addition, cash reserves have been utilised in the

repayment of borrowings, predominantly the RBL, which has

significantly lowered our debt level to $39.2m (2022: $74.2m).

Pharos’ net debt position as of 31 December 2023 was $6.6m

(2022: $28.9m).

Outlook

Capital discipline and 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

• Insufficient funds to meet

commitments

RETURNS TO SHAREHOLDERS

PENCE PER ORDINARY SHARES

1.10

022

021

023

1.10

1.00

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

The Board have recommended a final dividend in respect of the

year ended 31 December 2023 of 0.77 pence per share subject to

approval of the shareholders at the Company’s 2024 AGM. Subject

to this approval, the final dividend will be paid in full on 19 July 2024

in Pounds Sterling to ordinary shareholders on the register at the

close of business on 14 June 2024, with an ex-dividend date of 13

June 2024. This would take the 2023 full year dividend to 1.10 pence

per share, an increase of 10% on the prior year.

Outlook

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

shareholders via both regular cash returns yield and organic growth.

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

discipline and investment thesis.

Links to strategy

• Deliver value through

growth

• Return to shareholders

Associated risks

• Commodity price risk

• Climate change risk

• Sub-optimal capital

allocation risks

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

KEY METRICS - continued

LOST TIME INJURY FREQUENCY (“LTIF”)

PER MILLION MAN-HOURS WORKED

2021

2022

0.4

2023

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 2023, we are pleased to report that there were zero lost time

injuries and zero fatal incidents across the Group.

Outlook

Continue to work closely with the Joint Operating Companies to

maintain high safety standards and training with the aim of driving

continuous improvement year-on-year.

Links to strategy

• Focus on stakeholders

Associated risks

• HSES risk

• Partner alignment risk

Links to Remuneration Report (See page 126)

GROUP NET PRODUCTION

BOEPD

6,508

021

022

7,166

8,878

2023

6,508

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 2023 working interest production was 5,127 boepd net

(2022: 5,418 boepd net) and Egypt 2023 working interest production

was 1,381 bopd net (2022: 1,748 bopd net).

Outlook

Group working interest 2024 production guidance is 5,200 – 6,500

boepd net. Vietnam 2024 production guidance is 3,900 – 5,000

boepd net, and Egypt 2024 production guidance is 1,300 – 1,500

bopd net.

Links to strategy

• Deliver value through

growth

Associated risks

• Reserve risk

• Sub-optimal capital

allocation risks

• Commodity price risk

Operational measures

Annual Report and Accounts 2023

Pharos Energy

KEY METRICS - continued

SOCIAL AND ECONOMIC INVESTMENT

747,373

2021

2022

698,600

765,000

2023

747,373

Description

In Vietnam, a training levy of $150,000 for each joint operating

company goes into a fund which is ring-fenced to support the

development of future talent in the industry. In Egypt, under the El

Fayum and North Beni Suef Concession Agreements, the Company

contributes a total of $200,000 per year split equally between the

two Concessions to support training and development within the

industry.

Objective

To continue supporting local capability building and social

investments in Vietnam and Egypt.

Performance

In 2023, in addition to the aforementioned training levy funds (which

totals to $500,000), a further $247,373 was invested in a total of

22 healthcare, education, infrastructure and community projects. To

enhance our social investment efforts, we have established a Charity

and Community Projects committee responsible for selecting and

allocating funds to worthy causes and projects. More details can be

found in our Corporate Responsibility Report on page 73.

Outlook

Build on previous work, and continuously assess and review where

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

the local level and more widely, can be made.

Links to strategy

• Focus on stakeholders

Associated risks

• Commodity price risk

• Insufficient funds to meet

commitment

• Business conduct and

bribery

EMPLOYEES UNDERTAKEN ANTI-BRIBERY

AND CORRUPTION TRAINING %

100

022

021

023

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 2023.

Outlook

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

Comply with new legislations and industry best practices and ensure

the training programmes are up-to-date.

Links to strategy

• Deliver value through

growth

• Investment growth

Associated risks

• Partner alignment risk

• Business conduct and

bribery

El Fayum (D,P,E)

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 (D,P,E)

The North Beni Suef (NBS) Concession is

also located in the Western Desert, to the

south of the El Fayum Concession. After

declaring commercial discovery in NBS

SW 1X well and fulfilling the exploration

commitment in NBS Concession,

the company was granted a 20-year

development lease for NBS Concession

from September 2023 with extra five years

extension with bonus payment.

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

Egypt

OPERATIONAL REVIEW

The Group has a 45% non-operating interest

in two concessions in Egypt - El Fayum and

North Beni Suef.

EGYPT

CAIRO

El Fayum Concession

Area E

CAIRO

EGYPT

North Beni Suef Block

1,381 bopd

2023 Egypt production (net)

Development leases in

El Fayum and North Beni Suef

D: Development P: Production E: Exploration

Annual Report and Accounts 2023

Pharos Energy

OPERATIONAL REVIEW - continued

Egypt Production in 2023

Production for 2023 from the El Fayum

Concession averaged 3,069 bopd gross

and 1,381 bopd net to the Group (2022:

3,128 bopd gross and 1,748 bopd net).

This is in line with the 2023 production

guidance announced in January 2023 of

1,350 – 1,800 bopd net.

Egypt Development and

Operations in 2023

El Fayum

Three new wells in El Fayum (2 producers

and 1 injector) were put on production

and injection in 2023, in line with pre-drill

expectations.

North Beni Suef

On NBS, the first exploration commitment

well (NBS-SW1X) was declared a

commercial discovery and put on

production in December 2023. A new

20-year development lease for NBS-SW1X

was awarded by EGPC in September

2023, opening up a new area for

production and development.

Two workover rigs remain on field to

contribute to production through low-

cost well repairs, recompletions, and

deployment of water injection.

Egypt Exploration in 2023

El Fayum exploration

On El Fayum, there was exploration

success with the first commitment well

in the Abu Roash G and Upper Bahariya

formations in July 2023. The well is set up

for re-entry and testing in 2024.

North Beni Suef (NBS) exploration

On NBS, all technical commitments of

the initial exploration period have been

fulfilled with 3D seismic survey acquired on

time and on budget in 2H 2023, and the

completion of two exploration commitment

wells. As noted above, in September

2023, NBS-SW1X was declared a

commercial discovery. Production from

the well commenced in December 2023,

following the grant of the first development

lease on the Concession. The second and

final exploration commitment well for the

first phase of the NBS exploration period

(NBS-5X) was drilled in the Abu Roash G

formation at a deeper depth and failed to

encounter oil-bearing sands. The result of

this well does not hinder other mapped

prospects in the Concession.

Egypt production guidance for 2024 is 1,300 – 1,500 bopd net.

Continuation of modest and measured approach to capital allocation and

drilling in El Fayum and NBS, with potential to ramp up activity this year

and beyond in response to the improving economic environment.

Focus for this year’s work programme in El Fayum is low-cost

recompletions and waterflood.

Development drilling in the NBS SW field is planned to start in 2H 2024.

Processing and interpretation of c.130km

of 3D seismic data on NBS is

underway and expected to be completed in 2H 2024.

2024

Work Programme

El Fayum &

North Beni Suef

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

Vietnam

OPERATIONAL REVIEW - continued

Pharos has two producing assets, Te Giac

Trang (TGT) and Ca Ngu Vang (CNV), and

two exploration blocks (Blocks 125 & 126)

in Vietnam.

5,127 boepd

2023 Vietnam production (net)

Blocks in Vietnam

VIETNAM

CAMBODIA

NHA TRANG

VIETNAM

CAMBODIA

Block 125

Block 16-1 TGT Field

Block 9-2 CNV Field

Block 126

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.

D: Development P: Production E: Exploration

Annual Report and Accounts 2023

Pharos Energy

Vietnam Production in 2023

Production in 2023 from the TGT and CNV

fields net to the Group’s working interest

averaged 5,127 boepd (2022: 5,418

boepd). This is in line with the production

guidance for Vietnam announced in

January 2023 of 4,700 – 5,700 boepd net.

TGT production averaged 12,341 boepd

gross and 3,661 boepd net to the Group

(2022: 13,784 boepd gross and 4,089

boepd net). CNV production averaged

5,861 boepd gross and 1,466 boepd net

to the Group (2022: 5,317 boepd gross

and 1,329 boepd net).

Vietnam Development and

Operations in 2023

TGT & CNV Fields

On Block 16-1 – TGT Field, operational

activities were focused on adding low-cost

production through well intervention and

production optimisation opportunities

(surface and subsurface) in absence of

new wells drilling. The TGT RFDP was

approved by MOIT on 9 January 2024.

On Block 9-2 – CNV Field, the field saw

strong performance from its first new

lateral well, which was delivered on time,

under budget, and put on production in

1Q 2023. The CNV RFDP for additional

drilling was submitted to partners for

approval in 2023, and discussions are

ongoing.

The Company has continued to receive

positive feedback from Petrovietnam and

MOIT on the applications for five-year

extensions to the petroleum contracts for

the TGT and CNV fields.

Vietnam Exploration

in 2023

Blocks 125 & 126

On Blocks 125 & 126, a two-year PSC

extension was granted by MOIT on 13

June 2023, extending the first exploration

period of the PSC to 8 November 2025.

This approval shows the encouraging

level of support from the Vietnamese

Government and discussions with a

number of interested parties to secure a

farm-in partner are progressing.

An independent CPR for Block 125 was

published on 20 July 2023, confirming a

range of gross unrisked prospective oil

resources of between 1,178 MMstb (1U)

and 29,785 MMstb (3U) with a Mean value

of 13,328 MMstb. The report supports the

Group’s internal assessments and paves

the way for further work to develop new

leads and mature leads to prospects.

The ongoing interpretation of 3D seismic

data has highlighted greater prospectivity

in the deeper water section of Block 125.

In order to drill one of these deeper water

prospects as the commitment exploration

well under the current exploration phase

of the PSC, a Drillship or Dynamically-

Positioned (DP) Semi-Submersible Rig is

needed.

OPERATIONAL REVIEW - continued

Vietnam production guidance for 2024 is 3,900 – 5,000 boepd net.

Planning is well-advanced for a two-well TGT drilling programme in

2H 2024.

Continued engagement with partners and regulators to finalise the

five-year licence extensions for TGT and CNV.

Ongoing discussions with another operator to secure a well drilling slot

during their multi-well drilling programme in the region.

Progressing parallel discussions with several potential farm-in partners for

Blocks 125 & 126. Securing a rig slot will positively impact the farm-out

discussions.

2024

Work Programme

TGT & CNV Fields

Blocks 125 & 126

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

Group Reserves and

Contingent Resources

OPERATIONAL REVIEW - continued

The Group Reserves Statistics table below summarises our reserves and contingent resources based on the Group’s unitised net

working interest in each field. Gross reserves and contingent resources have been independently audited by RISC Advisory Pty Ltd

(RISC) for Vietnam and McDaniel & Associates Consultants Ltd. (McDaniel) for Egypt.

Group Reserves Statistics

Net working interest, mmboe TGT CNV Vietnam

El Fayum NBS Egypt

Group

Oil and Gas 2P Commercial Reserves

1,2

As at 1 January 2023 8.8 3.4 12.2 15.0 - 15.0 27.2

Production (1.3) (0.5) (1.8) (0.5) - (0.5) (2.3)

Revision (1.2) (0.1) (1.3) (0.9) - (0.9) (2.2)

Discoveries - - - - 0.8 0.8 0.8

2P Commercial Reserves as at

31 December 2023

6.3 2.8 9.1 13.6 0.8 14.4 23.5

Oil and Gas 2C Contingent Resources

1,2

As at 1 January 2023 7.4 3.4 10.8 8.9 - 8.9 19.7

Revision (1.1) 2.2 1.1 0.7 - 0.7 1.8

2C Contingent Resources as at

31 December 2023

6.3 5.6 11.9 9.6 - 9.6 21.5

Total of 2P Reserves and 2C Contingent

Resources as at 31 December 2023

12.6 8.4 21.0 23.2 0.8 24.0 45.0

1) Reserves and Contingent Resources are categorised in line with 2018 SPE/WPC/AAPG/SPEE /SWLA Petroleum Resource Management System.

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

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

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

Vietnam Reserves and Contingent Resources

In accordance with the requirements of its RBL, the company commissioned RISC to provide an independent audit of gross (100% field)

reserves and contingent resources for TGT and CNV as of 31 December 2023.

Vietnam Reserves Statistics

Net working interest, mmboe TGT CNV Total Vietnam

Oil and Gas 2P Commercial Reserves

1,2,3

As at 1 January 2023 8.8 3.4 12.2

Production (1.3) (0.5) (1.8)

Revision (1.2) (0.1) (1.3)

2P Commercial Reserves as at 31 December 2023 6.3 2.8 9.1

Oil and Gas 2C Contingent Resources

1,2,3

As at 1 January 2023 7.4 3.4 10.8

Revision (1.1) 2.2 1.1

2C Contingent Resources as at 31 December 2023 6.3 5.6 11.9

Total of 2P Reserves and 2C Contingent Resources as at 31 December 2023 12.6 8.4 21.0

1) Reserves and Contingent Resources are categorised in line with 2018 SPE/WPC/AAPG/SPEE /SWLA Petroleum Resource Management System.

2) Assumes oil equivalent conversion factor of 6,000 scf/boe.

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

Annual Report and Accounts 2023

Pharos Energy

OPERATIONAL REVIEW - continued

On TGT, 2P reserves were revised downwards due to a 9-month delay in drilling of the two infill wells, lower expected benefit from well

activities as the field becomes more mature and a slow production ramp-up following the annual maintenance shutdown in the last

quarter of the year. 2C contingent resources were revised accordingly.

On CNV, the 2P reserves were largely in line with the previous year. 2C contingent resources were revised upwards due to the inclusion

of one additional lateral side-track well.

In Vietnam, the Group has applied for an extension to the petroleum contracts for the TGT and CNV fields. We expect changes to the

discovered resources upon receiving approval from the government.

Egypt Reserves and Contingent Resources

Egypt Reserves Statistics

Net working interest, mmboe El Fayum NBS Egypt

Oil and Gas 2P Commercial Reserves

1,2

As at 1 January 2023 15.0 - 15.0

Production (0.5) - (0.5)

Revision (0.9) - (0.9)

Discoveries - 0.8 0.8

2P Commercial Reserves as at 31 December 2023 13.6 0.8 14.4

Oil and Gas 2C Contingent Resources

1,2

As at 1 January 2023 8.9 - 8.9

Revision 0.7 - 0.7

2C Contingent Resources as at 31 December 2023 9.6 - 9.6

Total of 2P Reserves and 2C Contingent Resources as at 31 December 2023 23.2 0.8 24.0

1) Reserves and Contingent Resources are categorised in line with 2018 SPE/WPC/AAPG/SPEE /SWLA Petroleum Resource Management System.

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

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

some volumes into the contingent resources category.

North Beni Suef is included in the reserves assessment for the first time, following a successful exploration well and granting of the

Development Lease. Initial reserves are granted based on a limited development of two producer wells offset to the discovery well. The

full development programme will be incorporated following the interpretation of the new 3D seismic acquired during 2023.

Group’s Net Working Interest Reserves and Contingent Resources

TGT Field at 31 December 2023 (mmboe) (net to Group’s working interest)

Reserves

1P 2P 3P

Oil 4.8 5.9 7.1

Gas

0.2 0.4 0.6

Total 5.0 6.3 7.7

Contingent Resources

1C 2C 3C

Oil 3.3 6.1 9.0

Gas

0.1 0.2 0.4

Total 3.4 6.3 9.4

Sum of Reserves and Contingent Resources

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

Oil 8.1 12.0 16.1

Gas

0.3 0.6 1.0

Total 8.4 12.6 17.1

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

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

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

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

OPERATIONAL REVIEW - continued

CNV Field at 31 December 2023 (mmboe) (net to Group’s working interest)

Reserves

1P 2P 3P

Oil 1.3 1.7 2.1

Gas

0.8 1.1 1.3

Total 2.1 2.8 3.4

Contingent Resources

1C 2C 3C

Oil 1.8 3.5 5.2

Gas

1.1 2.1 3.2

Total 2.9 5.6 8.4

Sum of Reserves and Contingent Resources

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

Oil 3.1 5.2 7.3

Gas

1.9 3.2 4.5

Total 5.0 8.4 11.8

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

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

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

El Fayum Concession at 31 December 2023 (mmboe) (net to Group’s working interest)

Reserves

1P 2P 3P

Oil 6.8 13.6 17.9

Contingent Resources

1C 2C 3C

Oil 3.6 9.6 19.2

Sum of Reserves and Contingent Resources

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

Total 10.4 23.2 37.1

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

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

North Beni Suef Concession at 31 December 2023 (mmboe) (net to Group’s working interest)

Reserves

1P 2P 3P

Oil 0.2 0.8 0.9

Contingent Resources

1C 2C 3C

Oil - - -

Sum of Reserves and Contingent Resources

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

Total 0.2 0.8 0.9

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

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

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 its members

as a whole in relation to all stakeholders

who may be affected by or engaging with

the Company’s activities.

Board meetings and

discussions

The Board has always taken into account

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

line with current reporting requirements.

Their key decisions have been 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 November 2023, the Board held a

Strategy Day to assess and evaluate our

strategy to deliver long-term, sustainable

value for all our stakeholders, and its

implications on our decision-making

process. This involved, amongst other

things, presentations and other inputs

from a number of key external parties,

including shareholders, ESG experts

and corporate advisers. At all regularly

scheduled meetings and discussions of

the Board and committees of the Board

(‘Board Committees’), several papers

are presented to promote discussion and

provide options for the Board to hold an

informed and balanced debate.

For more information on how

the Board consider decisions

with regards to the long-term

consequences for the business,

in light of the principal risks to the

Company and its business, see

page 48 of the Risk Management

Report. For more information on

the Strategy Day, see page 17 of

the Chair’s Statement.

b) The interests of the employees

The interests of the Company’s employees

is a key element of the statutory duty

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

we have continued to run a dedicated

Monday weekly meeting to ensure all

colleagues are regularly informed about

important business developments in the

Company and the Group. There are also

regular team, departmental and asset

meetings in smaller groups, allowing

all staff a greater opportunity to share

knowledge and debate issues. These

forums also act as channels through

which employees can ask questions and

contribute to the strategy and function

of the business. We have continued to

make extensive use of video conferencing

facilities during calls and remote meetings

to maintain visibility and connection. We

have also seen an increase in face-to-

face meetings, which many of the team

appreciate as a collaborative environment

for the exchange of ideas, knowledge

and advice. As noted in last year’s

report, the 2022 reorganisation of the

Group instituted a flatter organisational

structure, and this has resulted in shorter

lines of management and more direct,

accessible channels of communication

with leadership.

Annual Report and Accounts 2023

Pharos Energy

S.172(1) Companies Act 2006

SECTION 172(1) STATEMENT

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.

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

SECTION 172(1) - continued

The Executive Directors receive regular

updates on colleague engagement to

understand any complaints or troubles

from the hybrid work environment. At

the beginning and end of each calendar

year, every employee is encouraged to

set their own personal and professional

development objectives and appraisal for

the upcoming year. Each employee has at

least two meetings with their line manager

during the year, to discuss and agree

the objectives and to review progress

mid-year. Line managers also provide

additional support where needed and

assist the employee in overcoming any

difficulties they might be facing.

Following feedback received in previous

years, in which events such as off-

site away days and in-person monthly

meetings were proposed to avoid staff

isolation and promote team culture, the

Company organised a Group-wide off-site

event in June 2023, where colleagues

from Egypt, Vietnam and UK all met

in London to exchange ideas, provide

feedback and engage in structured

team-building activities. The event

proved very successful, with the sharing

of knowledge and practical experience

having an immediate impact. The off-site

event also resulted in a number of new

staff-led initiatives, including a Group-

wide quarterly video conference and a

commitment to an annual Group-wide off-

site event. The Board believes that these

Group-wide events are important not only

for the effective and efficient functioning of

the Company and the business, but also

for the development, advancement and

wellbeing of the Group’s global workforce.

Throughout the year, during all employee

events, John Martin, as Chair of the Board

and designated Non-Executive Director

responsible for workforce engagement,

made himself available to all employees

and encouraged all staff members to share

their concerns, feedback and views about

the Company. Any feedback was then

taken into account and communicated

to the Board and Executive Directors as

suggestions for improvements.

For more information on the

Board’s engagement with

employees, see page 62 of the UK

Corporate Governance Code.

c) The requirements to foster

business relationships with

suppliers, customers, and others

The Group’s business relationships

with suppliers, service providers and

vendors are subject to regular review

and consideration through vendor

due diligence and active contracts

management. Vendor due diligence is

actively undertaken before a service

provider of any size is engaged. Significant

contracts, concessions and commitments

are considered by the Executive Directors

and the Board, or relevant Board

Committee, supported by papers outlining

impact and consequences of potential

decisions. All significant contracts and the

legal terms of other commitments are also

thoroughly reviewed by the Group General

Counsel and, if necessary, referred to

specialist external counsel.

Our relationships with joint venture

partners, host governments, regulatory

authorities, shareholders and analysts are

the foundation to support the success

of our business. In January 2023, the

Company held an analyst lunch to engage

with media journalists and analysts

to foster open and communicative

relationships with key figures in the

industry. In May 2023, the Executive

Directors met the CEO of EGPC, the

industry regulator and state oil company

in Egypt, and met with both JOC partners

and with MOIT, the regulator in Vietnam,

to discuss the Revised Field Development

Plans and licence extensions for TGT and

CNV. Additionally, during the Strategy

Day held in London in November 2023,

the Board had presentations and inputs

from a number of key parties, including

shareholders, ESG experts and corporate

advisers. In June 2023 and December

2023, the Executives participated in ad-

hoc roadshows with our corporate brokers

in order to engage with a wide group of

existing shareholders and prospective

investors.

We plan to continue to engage in a

personal and meaningful way with our

stakeholders, such as host governments,

suppliers, joint venture partners,

shareholders, and others in the future.

For more information on how the

Company foster relationships with

stakeholders, see page 21 of our

CEO’s Statement and page 106

of our UK Corporate Governance

Code.

d) The impact on the community

and environment of the Group’s

operations

The organisation has provided robust

evidence of its commitment to ESG in the

sector through its Corporate Responsibility

Report, TCFD Report and ESG Committee

Report. Pharos reports transparently on

various Corporate Responsibility metrics

such as lost time injuries, GHG emissions,

energy consumption, waste produced

and recycled, and freshwater usage in

our Annual Reports. Over the past five

years, the Company have participated

in the CDP (Climate Disclosure Project)

Climate Change Questionnaire and have

maintained our score (C), which is also

the industry average. The Company’s

water usage disclosure in the CDP Water

Security Questionnaire also received a

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

to work to bring our disclosures in line

with the requirements of the TCFD. In

September 2022, the Company made a

formal commitment to achieve Net Zero

on all Scope 1 and 2 GHG emissions

across all assets by no later than 2050. In

December 2023 the Company published

a Net Zero roadmap, researched and

developed in close consultation with

specialist advisors and consultants and

including interim targets and asset-level

decarbonisation levers towards 2050.

In addition to this, the Company

remains committed to creating value in

a sustainable manner for host countries

and local communities as well as for staff.

During the year we sought to align our

social investment programme with the

United Nations Sustainable Development

Goals (UN SDGs). We worked closely with

our local partners and joint ventures to

ensure that our social initiatives continue

to have a positive impact on the regions

receiving the support and are relevant

to the community. In 2023, a total of

$247,373 was invested in 22 long-term

community projects across all of our

assets, and a further $500,000 was

invested in ring-fenced funds for training

to develop future talents in the industry in

Egypt and Vietnam.

Annual Report and Accounts 2023

Pharos Energy

SECTION 172(1) - continued

In addition, the Company announced

the establishment of an Emissions

Management Fund in September 2022,

reflecting that, as non-operator, the

Company has no direct control over the

facilities associated with the Group’s

producing assets. From every barrel

net to the Company sold at an oil price

above US$75, this Fund is provided

with US$0.25. In line with the Net Zero

roadmap, this Fund is intended to

provide financial support for emissions

management projects that are otherwise

not economically feasible. As at 31

December 2023 the value of the fund was

c.US$400,000.

The Board regularly monitors the Group’s

business activities, financial positions,

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,

together with an assessment of other

factors that could affect the Group’s future

performance and position. These factors

include the impact on the community and

environment of the Group’s operations

and any prospective project or investment

decision.

For more information on the

Board’s commitment to ESG and

considerations on the community

and the environment, see pages

114 to 116 for the ESG Committee

Report, pages 16 to 17 for the

Chair’s Statement, and pages

62 to 81 for the Corporate

Responsibility Report.

For more information on Board

oversight on business activities,

financial position and the

environment of the Group’s

operations, see page 48 of the

Risk Management Report.

e) The desirability of the Company

maintaining a reputation for high

standards of business conduct

The Group’s Code of Business Conduct

and Ethics and associated policies are

reviewed and re-approved by the Board

annually, and all policies and procedures

have been followed rigorously in 2023. The

Code of Business Conduct and Ethics is

placed at forefront of our engagement with

suppliers, vendors, partners, and public

officials. It is a requirement for all Group

employees and the Board to complete

and successfully pass their Anti-Bribery

and Corruption and Criminal Finance

E-Learning modules every year to ensure

that the expected standards of business

conduct and the Company’s values are

communicated and recognised across the

organisation. Our Whistleblowing Policy

ensures that employees are protected

from possible reprisals when raising

concerns in good faith. In addition to

internal reporting channels, we have a

confidential ethics hotline supported by

EthicsPoint with numbers displayed in our

local offices available 24 hours a day all

year round.

The Board recognises that 2023 has

seen significant geopolitical instability,

something that has impacted far reaching

communities and families, the global

economy, communities and trade. The

Group continues to support colleagues

and contractors during this difficult time,

as well as ensuring that our business can

continue to function unaffected. At an

operational level, the Group continues

to work with the JOCs on contingency

planning and mitigation in the event

that these conflicts, and any associated

sanctions, have a direct impact on the

Group’s business.

The Board has an obligation and duty

to ensure that the Company behaves

responsibly. The Board delegates

to the management team, including

the Executive Directors, the day-to-

day execution of the business in a

responsible way. The Executive Directors

communicate regularly and openly with

the Board and the other members of the

management team.

In connection with Board deliberation and

decisions, each Board member brings

individual judgement and considerable

experience to decision-making and

carefully assesses the course of action

most likely to promote the success of the

Company. In this context, reference is also

made to the discussion in point a) above

of the Board’s consideration of the likely

long-term consequences of any decision.

For more information on the

Company’s commitment to

maintaining high standards of

business conduct, see pages 48

to 53 for the Risk Management

Report and page 66 of the

Corporate Responsibility Report.

f) The need to act fairly as between

members of the company.

We believe a workforce with a diversity

of experience, nationalities, cultural

backgrounds and gender supports our

business strategy of long-term sustainable

growth. It is crucial to the success of

our business that we retain and develop

the diversity of our workforce and have

diversity and inclusion at the heart of our

recruitment, development and promotion

processes.

Our Code of Business Conduct and

Ethics, associated policies and the Pharos

Guiding Principles commit us to providing

a workplace free of discrimination

where all employees can fulfil their

potential based on merit and ability. We

remain respectful and accepting in our

relationships with employees without

discrimination or prejudice on grounds

of age, disability, gender, marital status,

sexual orientation, colour, race, religion

or any other characteristic protected by

applicable laws. They also commit us

to providing a fully inclusive workplace,

while providing the right development

opportunities to ensure existing staff have

rewarding careers.

During the year, recognising the

importance of diversity, equity and

inclusion in the workplace, and drawing

on the feedback from our Group-wide

offsite, the Company undertook an all-staff

survey to encourage open and honest

conversations around this topic within the

organisation. Understandings gained from

this survey provide the basis for future

dialogues and workshops going forward.

For more information on our

commitment to act fairly as

between members of the

company, see page 10 of

the Investment Case, pages

62 to 81 of the Corporate

Responsibility Report,

or visit our website at

www.pharos.energy/

responsibility/policy-statements/

for our Code of Business

Conducts and Ethics, Social

Responsibility policy, and Human

Rights statement.

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

Conclusion

The Company is committed to good governance and will

continue to review the balance and effectiveness of the Board

with a view to maintaining the right skills, experience and

diversity to align with the Group’s strategic goals.

We will act and make decisions responsibly in the interests

of the Company, our shareholders and other stakeholders,

delivering our plan and working closely to consider the best

opportunities for the Company. Detailed Board and Board

Committee papers are carefully prepared and constructively

debated to ensure all scenarios and options are fully

considered in a timely and consistent fashion in meetings.

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

consult with, and take account of, the views of our investors,

employees, partners, governments, suppliers and other

stakeholders throughout the year.

Other stakeholder engagement initiatives during the year not

mentioned above included but were not limited to:

• Agile and responsible response to continue the

implementation of a 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, X (formerly known

as Twitter) and LinkedIn, email communications, and

online meetings with Q&A to allow the wider public a

free platform to put questions directly to the Executive

Directors

• Regular liaison with proxy advisory and corporate

governance services on responsible investment, ESG and

the terms of shareholder resolutions

• A section of the agenda for each regularly scheduled

meeting of the Board being dedicated to investor relations

and stakeholder considerations

• Reports from corporate brokers and a financial PR firm on

feedback from investors and research analysts

SECTION 172(1) - continued

We have returned a 7% yield, or

$8.4m, to shareholders in the form

of dividends and share buybacks

and invested $26.7m in our asset

base, all while paying down $35m

of debt. This is despite a backdrop

of reduced commodity prices and

delays in payment for our Egyptian

sales. In Egypt, we generated

$2.5m of free cash during the year

from a combination of receipts from

our sales, receipt of the contingent

consideration and the carry from

our prior year farm out to IPR.

Our finance strategy continues

to support our commitment to

building shareholder value through

organic growth and sustainable

returns to shareholders.

We are in a net cash position as

of today and, as we move out of

the carry period on our Egyptian

concessions, we look forward to

drawing down on our receivables

balance with EGPC to support our

ongoing operations and capital

investment in El Fayum and our

new 20-year development lease at

North Beni Suef.

Today, I am delighted to confirm

the receipt of $10m in USD of our

outstanding receivables, which

equates to 26.7% of the year end

balance.

Operating performance

Revenues

Group revenues of $168.1m, prior to

realised hedging loss of $0.2m (2022:

$221.6m prior to realised hedging loss

of $22.5m) were negatively impacted by

a 17% decrease in realised commodity

prices.

Revenues for Vietnam of $149.2m (2022:

$184.8m) decreased year on year as

a result of lower realised prices and a

reduction in sales volumes due to timing

of cargoes. The average realised crude

oil price was $87.42/bbl (2022: $106.44/

bbl), an 18% decrease year on year, and

the premium to Brent was just under

$7/bbl on average (2022: over $4/bbl).

Production was lower at 5,127 boepd

(2022: 5,418 boepd). In October 2023,

the Company and its partners signed a

three year sales contract for all TGT crude

oil cargoes with BSR to cover the period

1 January 2024 to 7 December 2026.

This agreement supports energy security

in-country and eliminates export duty

being paid on cargoes, plus enables the

JOC to recover input VAT. The premium to

Brent will continue to be agreed every six

months, which provides the Group with

significant downside price protection for

production from our largest Vietnam field.

The revenue for Egypt of $18.9m (2022:

$36.8m, which includes 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) decreased largely

due to lower average realised crude oil

price, down 19% to $78.18/bbl (2022:

$96.03/bbl). On an equivalent basis,

45% working interest for the full year and

after excluding additional revenues from

the Third Amendment, 2022 revenues

were $24.0m. Production fell to 1,381

bopd (2022: 1,748 bopd, following the

farm-down of 55% interest and transfer

of operatorship of the Group’s Egyptian

assets to IPR completed on 21 March

2022). There are two discounts applied to

the El Fayum crude production – a general

Western Desert discount and one related

specifically to El Fayum. Both are set by

EGPC and combined stayed consistent

at over $4/bbl for the year (2022: over $5/

bbl).

Annual Report and Accounts 2023

Pharos Energy

I am pleased to report strong

financial performance from our

operations and a strengthening

of our liquidity position, with

net debt down 77% to $6.6m

at the end of the year.

Financially strong

CHIEF FINANCIAL OFFICER’S STATEMENT

SUE RIVETT

Chief Financial Officer

Hedging

For 2023, Pharos entered into zero cost collar hedges to protect the Brent component of forecast oil sales and to ensure future

compliance with its obligations under the RBL over the producing assets in Vietnam and to provide downside protection to cash flows in

the event of commodity price falling. The commodity hedges run until June 2025 and are settled monthly. Our hedging positions for the

year resulted in a small $0.2m realised loss (2022: loss of $22.5m).

During 2023, 36% of the Group’s total oil entitlement production was hedged, securing average floor and ceiling prices for the hedged

volumes at $64.5/bbl and $100.8/bbl, respectively. The Group’s RBL requires the Company to hedge at least 35% of Vietnam RBL

production volumes and the current hedging programme meets this requirement through to December 2024, leaving 72% of Group

production unhedged as at 31 December 2023.

Please see below a summary of hedges outstanding as at 31 December 2023, which are all zero cost collar.

1Q24 2Q24 3Q24 4Q24 1Q25 2Q25

Production hedge per quarter – 000/bbls 120 120 150 120 60 60

Min. Average value of hedge - $/bbl 63.00 63.00 64.40 63.00 64.00 64.00

Max. Average value of hedge - $/bbl 91.50 87.88 88.66 89.00 90.00 90.00

Operating costs

Group cash operating costs, defined

in the Non-IFRS measures section on

page 190, were $37.3m (2022: $42.8m).

Vietnam decreased by 9% from $31.7m to

$28.8m in 2023, the equivalent of $15.39/

bbl (2022: $16.03/bbl). The decrease is

due to lower costs relating to the FPSO

as a result of higher 3rd party production

throughput from the TLJOC, which

decreased the HLJOC’s share of the costs

(TLJOC had 23.2% cost share in 2023

compared to 14.5% in 2022). In addition,

for 1H 2022, there was $3.2m of export

duty paid on TGT oil cargoes, which in

2023, we were not required to pay due to

the oil being sold into the local economy.

Cash operating costs in Egypt were $8.5m

in 2023 (2022: $11.1m), which equates

to $16.86/bbl (2022: $17.40/bbl). The

3% decrease in cash operating costs per

barrel was mainly related to decreases

in transportation and fuel costs per bbl

together with decreases in the fixed costs

due to the devaluation of EGP against the

USD during the year. Cash operating costs

from 1 January 2022 up to 20 March 2022

were 100% share and from 21 March

2022 included only the Group’s remaining

45% share. On a 100% equivalent basis,

the cash operating costs for 2023 were

$19.2m (2022: $19.3m).

DD&A

Group DD&A associated with the

producing assets increased marginally

to $55.4m (2022: $55.1m) driven by a

higher depreciating cost base following

December 2022 impairment reversals

taken on both Vietnam and Egypt, partially

offset by the 9% decrease in production

year on year and lower DD&A rates

per barrel from July following the net

impairment charges taken on Vietnam and

Egypt assets in June 2023.

DD&A per bbl is currently $27.25/boe for

Vietnam (2022: $25.79/boe). DD&A per

bbl for Egypt is $8.73/boe for the full year

production entitlement (2022: $6.43/boe).

Administrative expenses

Administrative expenses in 2023 of $9.0m

(2022: $10.0m) were lower than prior year.

After adjusting for the non-cash items

under IFRS2 Share Based Payments

of $0.9m (2022: $1.3m) and project

costs associated with new commercial

opportunities of $0.4m (2022: $nil), the

underlying administrative expense is

$7.7m (2022: $8.7m).

Operating (loss)/profit

Operating profit from continuing

operations for the year was $47.3m (2022:

$72.3m) excluding the net impairment

charge of $65.4m (2022: $27.9m net

impairment reversal), reflecting the

combined impact of a lower commodity

price environment throughout the year and

a decrease in production volumes.

Other/restructuring expenses,

loss on disposal and (loss)/

gain on fair value movement of

financial asset

Other/restructuring expenses for the

year of $0.6m (2022: $0.8m) were due

to changes in the best estimate of the

adjustment relating to the interim period

between the economic date of 1 July 2020

and the completion date of the disposal

of 55% interest in the Egypt concessions.

2022 included restructuring costs for both

the head office in London and the Egypt

office in Cairo ($0.1m). In addition, for

2022, there was a $0.7m charge relating

to the premium on the transfer of the lease

on the London office.

Loss on disposal in 2022 of $6.6m is

related to the farm-down transaction,

where 55% of the Group’s operated

interest in each of our Egyptian

Concessions, El Fayum and North Beni

Suef, acquired by IPR on 21 March 2022.

Pharos is entitled to contingent

consideration depending on the average

Brent price each year from 2022 to the

end of 2025 (with 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

20 and Note 37 for further details). From

2023, the variance of the contingent

consideration is booked under (loss)/gain

on fair value movement of financial asset.

The loss on fair value movement of

financial assets for the year of $0.3m

(2022: $0.3m gain) is due to $0.4m

revision of the contingent consideration,

partially offset by $0.1m reduction in

contingent liability (assignment fee).

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

CHIEF FINANCIAL OFFICER’S STATEMENT - continued

Finance costs

Finance costs decreased to $10.2m (2022: $12.7m), mainly related to a charge of $2.7m following a change in estimated future cash

flows following the December 2023 RBL redetermination and amortisation of capitalised borrowing costs of $(1.4)m (2022: charge

of $2.6m and amortisation of capitalised borrowing costs of $1.5m). There was interest expense payable and similar fees of $6.4m

charged on the RBL and NBE (2022: $6.1m), unwinding of discount on Vietnam decommissioning provisions of $2.0m (2022: $1.3m)

and foreign exchange losses of $0.5m (2022: $1.2m) primarily driven by devaluation of EGP against USD.

Cash operating cost per barrel*

2023 $m 2022 $m

Cost of sales

111.2

116.8

Less

Depreciation, depletion and amortisation

(55.4)

(55.1)

Production based taxes

(10.5)

(14.7)

Export duty

(3.2)

Inventories

(4.0)

1.8

Trade Receivable risk factor provision

(2.2)

(1.5)

Other cost of sales

(1.8)

(1.3)

Cash operating costs

37.3

42.8

Production (BOEPD)

6,508

7,166

Cash operating cost per BOE ($)

15.70

16.36

DD&A per barrel*

2023 $m 2022 $m

Depreciation, depletion and amortisation

55.4

55.1

Production (BOEPD)

6,508

7,166

DD&A per BOE ($)

23.32

21.07

* Cash operating cost per barrel and DD&A per barrel are alternative performance measures. See page 190.

Cash operating cost per barrel by Segment

Vietnam $m Egypt Total $m Total $m

Cost of sales 95.6 15.6

111.2

Less

Depreciation, depletion and amortisation (51.0) (4.4)

(55.4)

Production based taxes (10.4) (0.1)

(10.5)

Inventories (3.9) (0.1)

(4.0)

Trade Receivable risk factor provision - (2.2)

(2.2)

Other cost of sales (1.5) (0.3)

(1.8)

Cash operating costs 28.8 8.5

37.3

Production (BOEPD) 5,127 1,381

6,508

Cash operating cost per BOE ($) 15.39 16.86

15.70

Annual Report and Accounts 2023

Pharos Energy

CHIEF FINANCIAL OFFICER’S STATEMENT - continued

DD&A per barrel by Segment

Vietnam $m Egypt $m Total $m

Depreciation, depletion and amortisation 51.0 4.4

55.4

Production (BOEPD) 5,127 1,381

6,508

DD&A per BOE ($) 27.25 8.73

23.32

Movements in the Property, Plant and Equipment

2023 $m 2022 $m

As at 1 January

381.8

399.8

Capital spend

12.1

23.2

Transfer from intangible assets

2.9

Revision in decommissioning assets

(2.5)

(13.9)

Recognition of right-of-use assets

0.8

DD&A – Oil and gas properties

(55.4)

(55.1)

DD&A – Other assets

(0.2)

(0.1)

Impairment (charge)/reversal – PP&E

(58.9)

27.1

As at 31 December

279.8

381.8

Property, Plant and Equipment

279.3

381.0

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

0.5

0.8

As at 31 December

279.8

381.8

Taxation

The overall net tax charge of $19.8m (2022: $56.2m) relates to tax charges in Vietnam of $36.0m less the deferred tax credit on net

impairment charges of $16.2m (2022: Vietnam tax charges of $47.9m plus the deferred tax charge on impairment reversal of $8.3m).

The Group’s effective tax rate approximates to the statutory tax rate in Vietnam of 50%, after adjusting for non-deductible expenditure

and tax losses not recognised.

The Egypt concessions are subject to corporate income tax at the standard rate of 40.55%, however responsibility for payment of

corporate income taxes falls upon EGPC on behalf of PEF. The Group records a tax charge, with a corresponding increase in revenue,

for the tax paid by EGPC on its behalf. However, this is only valid if PEF is in a tax paying position and no such tax has been recorded

this year.

One of the Group’s companies entered into commodity zero cost collars designated as cash flow hedges. In accordance with IAS 12,

a deferred tax asset has not been recognised in relation to the hedging losses of $0.2m (2022: $22.5m) recorded in the year as it is

unlikely that the UK tax group will generate sufficient taxable profit in the future, against which the deductible temporary differences can

be utilised.

(Loss)/profit post-tax

The post-tax loss for the year of $48.8m (2022: $24.4m post-tax profit) included $53.8m of disposals, re-measurements and

impairments (2022: $14.9m). Business performance post-tax profit for the year was $5.0m (2022: $39.3m).

Disposals, re-measurements and impairments are comprised of the following:

Financial Statements Impact:

2023 $m 2022 $m

Revenue

(0.2)

(22.5) Realised hedging losses

Cost of sales

(2.2)

(1.5) Trade receivable risk factor provision

Impairment (charge)/reversal – Intangible assets

(6.5)

0.8

Impairment (charge)/reversal – Property, plant

and equipment

(58.9)

27.1

Other/restructuring expenses

(0.6)

(0.1)

Revision of carry with IPR. In 2022, Egypt restructuring and

release of end of service provision

Loss on disposal

(6.6) Egypt farm-out

(Loss)/gain on fair value movement of financial asset

(0.3)

0.3 Revision of contingent consideration in relation to Egypt farm-out

Finance costs

(1.3)

(4.1) Adjustment and amortisation of capitalised borrowing costs

Income tax credit/(charge)

16.2

(8.3) Deferred tax on impairment charge/(reversal)

Total (53.8)

(14.9)

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

CHIEF FINANCIAL OFFICER’S STATEMENT - continued

Cash flow

Operating cash flow (before movements

in working capital) was $103.8m (2022:

$128.8m). After tax charges of $44.3m

(2022: $54.7m), restructuring and

exceptional expenses $nil (2022: $2.7m),

working capital adjustments of $15.0m

(2022: $18.1m) and interest received of

$0.4m (2022: $0.1m), the cash generated

from operations was $44.9m (2022:

$53.4m).

Cash generated from operations, after

tax charges, exceptional expenses and

working capital movements, is the basis of

our dividend framework.

Operating cash flow (before movements

in working capital) adjusted for the impact

of the hedging positions of $0.2m loss

(2022: $22.5m loss) gives an underlying

operational performance $104.0m (2022:

$151.3m), which is consistent with the

reduction in commodity prices and the

production decrease year on year.

The increase in receivables was $19.1m

(2022: increase in receivables of $7.7m).

The movement in 2023 is primarily driven

by $11.4m increase from Egypt, due

to EGPC receivables. Since 2Q 2022,

the Group has opted not to accept the

payment of PEF’s receivables balance in

EGP unless required for operations, such

as funding of ongoing expenditures upon

expiry of the carry with IPR. PEF is entitled

under contract to be paid for hydrocarbon

sales in US dollars. The progressive

devaluation of EGP against USD means

that it is preferable to continue to hold

USD denominated receivables.

In the space of two weeks, the Egyptian

Government has: (i) announced a

landmark agreement with ADQ (an Abu

Dhabi sovereign wealth fund), whereby

the latter will invest $35 billion for the

development of the new coastal city of

Ras El Hekma (the first $10 billion of which

were immediately paid to Egypt); (ii) on 6

March 2024, raised all main interest rates

by 600 basis points; signed a significantly

expanded new loan from the IMF ($8

billion, including the original $3 billion

secured in December 2022, which should

facilitate additional $12 billion from other

institutional lenders including the World

Bank and the European Union); and let the

Egyptian pound (EGP) fully float.

It is also widely expected that the flotation

of the EGP will trigger an acceleration in

the Egyptian Government’s privatisation

plan.

The Group is optimistic that its receivables

position with EGPC will improve during

2024, through a combination of payments

in USD and some EGP revenues or

settlements, as needed, to fund our share

of operational expenditure.

There was also an increase in Vietnam

trade receivables of $7.4m (2022:

decrease in receivables of $6.9m) due to

three cargoes being lifted in December

2023. Payments for these cargoes were

received in January 2024.

Capital expenditure on continuing

operations for the year was lower at

$26.7m (2022: $31.9m). On Block 16-1

– TGT Field, no new development wells

were drilled in the year. During 2022, two

development wells were drilled. On Block

9-2 – CNV Field, one development well,

CNV-2PST1, completed in February 2023

and performed strongly, producing in

excess of pre-drill estimates. In El Fayum,

three wells were put on production and

injection in 2023 and, on NBS, the first

exploration commitment well, NBS-SW1X,

was declared a commercial discovery and

put on production in December 2023.

Net cash outflows from financing activities

of $50.1m (2022: $19.8m outflow)

included outflows in relation to the RBL

of $22.4m in June 2023 and $12.6m in

December 2023 (2022: $0.2m in June

2022 and $12.9m in December 2022)

following the half year and year end

redetermination processes. The amount

drawn stood at $30.0m at year end.

The RBL facility, which is secured only

over the Group’s interest in the Vietnam

producing assets, matures in July 2025.

The facility amount is amortised by

$14.2m, every redetermination, from

1 July 2022. The facility amount

decreased to $43.0m from 1 January

2024 and will decrease further to $28.8m

from 1 July 2024. The Group is able

to dividend up from the Vietnam RBL

zone to the Company twice a year in

January and July following approval of

the redetermination. The Debt Service

Reserve Account (DSRA) was put in funds

of $12.5m on the first business day of

2024 to service the principal repayment

due in July 2024 plus interest.

There was no net outflow from NBE

revolving credit facility (2022: $2.7m). This

facility allows PEF to draw down 60% of

the value of each El Fayum invoice in USD.

The amount drawn under the NBE facility

as at 31 December 2023 was $9.2m

(2022: $9.2m).

Financing activities also included $2.8m

outflow (2022: $2.9m) in relation to the

$3m extension of the share buyback

programme initiated in January 2023

and there was $5.6m outflow (2022: $nil)

following payment of the final dividend

for the 2022 financial year approved by

shareholders at the AGM in May 2023.

Tax strategy and total tax

contribution

Tax is managed proactively and

responsibly with the goal of ensuring that

the Group is compliant in all countries in

which it holds interests. Any tax planning

undertaken is commercially driven and

within the spirit as well as the letter of the

law.

This approach forms an integral part of the

Group’s sustainable business model.

The Group’s Code of Business Conduct

and Ethics seeks to build open,

cooperative and constructive relationships

with tax authorities and governmental

bodies in all territories in which it operates.

The Group supports greater transparency

in tax reporting to build and maintain

stakeholder trust. We have a number of

overseas subsidiaries which were set up

some time ago and the Group is now

proactively planning to bring these into the

UK tax net to ensure greater transparency

and comparability. No additional taxes

are expected to be due as a result of this

exercise.

During 2023, the total payments to

governments for the Group amounted

to $188.0m (2022: $245.3m), of which

$166.5m or 89% (2022: $211.5m or 86%)

was related to the Vietnam producing

licence areas, of which $110.8m (2022:

$140.7m) was for indirect taxes based

on production entitlement. In Egypt,

payments to government totalled $19.3m

(2022: $31.3m), of which $18.4m (2022:

$28.8m) related to indirect taxes based on

production entitlement.

Annual Report and Accounts 2023

Pharos Energy

CHIEF FINANCIAL OFFICER’S STATEMENT - continued

Balance sheet

Intangible assets increased during the period to $18.2m (2022: $16.5m). Additions for the year related to Blocks 125 & 126 in Vietnam

$3.1m (2022: $3.1m), Egypt $8.0m (2022: $1.0m) and $nil (2022: $0.2m) for the Israeli bid round licence fee. The first exploration well

on NBS (NBS-SW1X) was declared a commercial discovery in December 2023 and exploration costs of $2.9m (2022: $nil) relating

to the development lease were transferred to property, plant and equipment. There were total Exploration and evaluation expenditure

impairment charges of $6.5m in the year (2022: $0.2m).

The movements in the Property, Plant and Equipment asset class are shown above.

Impairment (charges)/reversals

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

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

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

been determined using the value in use method. The recoverable amount is calculated using a discounted cash flow valuation of the 2P

production profile.

Summary of Impairments - Oil and Gas properties

TGT $m CNV $m El Fayum $m NBS $m Total $m

2023

Pre-tax impairment (charge)/credit (46.3) 0.3 (11.0) (1.9) (58.9)

Deferred tax credit/(charge) 16.5 (0.3) – – 16.2

Post-tax impairment charge (29.8) – (11.0) (1.9) (42.7)

Reconciliation of carrying amount:

As at 1 January 2023 242.4 76.4 62.5 – 381.3

Additions 1.3 3.0 7.6 – 11.9

Transfer from intangible assets – – – 2.9 2.9

Changes in decommissioning asset

– (2.5) – – (2.5)

DD&A (38.8) (12.2) (4.4) – (55.4)

Impairment (charge)/reversal (46.3) 0.3 (11.0) (1.9) (58.9)

As at 31 December 2023 158.6 65.0 54.7 1.0 279.3

TGT $m CNV $m El Fayum $m NBS $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 January 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 December 2022 242.4 76.4 62.5 – 381.3

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

discount rate (2022: change in discount rate and the field abandonment plan for TGT; change in discount rate only for CNV)

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

CHIEF FINANCIAL OFFICER’S STATEMENT - continued

Cash is set aside into abandonment

funds for both TGT and CNV. These

abandonment funds are controlled by

PetroVietnam and, as the Group retains

the legal rights to the funds pending

commencement of abandonment

operations, they are treated as other non-

current assets in the Financial Statements.

Oil inventory was $3.3m at 31 December

2023 (2022: $7.2m), of which $3.1m

related to Vietnam and $0.2m to Egypt.

Trade and other receivables increased

to $62.3m (2022: $60.9m) of which

$19.0m (2022: $11.4m) relates to

Vietnam and $42.7m (2022: $49.0m)

relates to Egypt. For Egypt, the closing

balance includes $4.9m of carry (2022:

$20.9m), which reflects the remaining

disproportionate funding contribution

from IPR to compensate for net cash

flows since the economic date of the

farm down transaction, 1 July 2020, and

the completion date of 21 March 2022.

The carry decreases every month by the

cash calls received from IPR. In addition,

Egypt trade receivables include $33.4m

from EGPC, after expected credit loss

provision of $4.0m recognised under IFRS

9, where collection has been delayed

by the devaluation of EGP and ongoing

restrictions on outgoing USD transfers

by the Central Bank of Egypt previously

highlighted (2022: trade receivable from

Egypt $22.4m after risk factor provision of

$1.8m).

Cash and cash equivalents at the end of

the year were $32.6m (2022: $45.3m) and

the decrease was mainly driven by $35.0m

net repayment of borrowings (2022:

$10.4m) and cash flows from operating

activities of $45.3m (2022: $53.4m) as a

result of reduced commodity prices during

the year and lower production.

Trade and other payables were marginally

higher at $14.2m (2022: $14.0m), of

which $7.9m (2022: $6.6m) relates to

Egypt net JV payables in relation to

operations and Stratton royalty obligation.

$2.2m (2022: $4.8m) relates to Vietnam

payables, $nil (2022: $0.5m) net hedging

liability and $4.1m (2022: $1.9m) Head

Office payables, inclusive of $1.7m

interim dividend paid in January 2024.

Tax payables increased to $5.8m (2022:

$5.2m) which is linked to the timing of

cargoes from TGT.

Borrowings were $40.5m (2022: $74.2m),

a decrease of $33.7m with $35.0m

related to repayments following the RBL

redeterminations in June and December,

partially offset by $1.3m amortisation of

capitalised borrowing costs and one-off

charges in relation to the redeterminations.

The movement on the NBE revolving

credit facility was $nil for the year, so the

balance on the facility as at 31 December

2023 remained consistent at $9.2m (2022:

$9.2m).

Long-term provisions comprise the

Group’s decommissioning obligations for

the Vietnam fields. The decommissioning

provision decreased from $54.3m at 2022

year end to $53.8m at 31 December 2023

mainly due to a lower CNV obligation

following finalisation of the revised

abandonment plan in April 2023 and an

increase in discount rate from 3.83%

to 3.87% as a result of an increase in

prevailing risk-free market rates. The

amounts set aside into the abandonment

funds total $53.7m (2022: $50.2m). No

decommissioning obligation exists under

the El Fayum Concession.

Own shares

The Pharos Employee Benefit Trust holds

ordinary shares of the Company for the

purposes of satisfying long-term incentive

awards for senior management. At the end

of 2023, the trust held 2,126,857 (2022:

2,126,857), representing 0.49% (2022:

0.48%) of the issued share capital.

In addition, as at 31 December 2023,

the Company held 9,122,268 (2022:

9,122,268) treasury shares, representing

2.11% (2022: 2.06%) of the issued share

capital. All shares purchased under the

on-market buyback programme originally

announced in July 2022 and extended

in January 2023 and December 2023

have been or will be cancelled rather than

retained in treasury.

Share buyback and dividend

framework

Following a period of improved commodity

prices and a strengthening of the Group’s

liquidity position, the Company committed

to shareholder returns in the form of

share buybacks and dividends. The

Company announced the continuation of

a further $3m share buyback programme

in January 2023 (the First Programme

Extension), of which $2.8m had been

incurred by the end of December 2023.

On 6 December 2023, the Company

announced that it intended to continue

the share buyback programme in 2024

through its commitment of a further $3m

(excluding stamp duty and expenses).

This further extension of the programme

commenced following completion of the

First Programme Extension in early 2024.

In September 2022, we announced

a clear sustainable policy for the

recommencement of regular dividend

payments. This policy is to return no

less than 10% of OCF each year in two

tranches

• An interim dividend of 33% of the

previous year’s total dividend, payable

in January of the following year; and

• A final dividend payable in July of the

following year.

A final dividend of 1.00 pence per share,

$5.6m equivalent, was recommended by

the Board in respect of the year ended

31 December 2022. This was approved

by shareholders at the Company’s 2023

AGM in May and paid in full on 12 July

2023 to shareholders on the register at

the close of business on 16 June 2023.

No interim dividend was paid in respect

of the year ended 31 December 2022. On

6 December 2023, an interim dividend of

0.33 pence per share, $1.7m equivalent,

was declared by the Board in respect of

the year ended 31 December 2023 and

paid on 24 January 2024 to shareholders

on the register at the close of business on

22 December 2023.

The Board have recommended a final

dividend in respect of the year ended 31

December 2023 of 0.77 pence per share

subject to approval of the shareholders at

the Company’s 2024 AGM. Subject to this

approval, the final dividend will be paid in

full on 19 July 2024 in Pounds Sterling to

ordinary shareholders on the register at

the close of business on 14 June 2024,

with an ex-dividend date of 13 June 2024.

This would take the 2023 full year dividend

to 1.10 pence per share, an increase of

10% on the prior year.

Annual Report and Accounts 2023

Pharos Energy

CHIEF FINANCIAL OFFICER’S STATEMENT - continued

Going concern

Pharos continuously monitors its business

activities, financial position, cash flows

and liquidity through detailed forecasts.

Scenarios and sensitivities are also

regularly presented to the Board, including

changes in commodity prices and in

production levels from the existing assets,

plus other factors that could affect the

Group’s future performance and position.

A base case forecast has been considered

that utilises oil prices of $81.5/bbl in 2024

and $79/bbl in 2025. The key assumptions

and related sensitivities include a

“Reasonable Worst Case” (RWC) scenario,

where the Board has taken into account

the risk of an oil price crash broadly similar

to what occurred in 2020. It assumes the

Brent oil price down by a third to $54.3/

bbl in April 2024 and gradually recovers to

base price in next 12 months, concurrent

with 5% reductions in Vietnam and Egypt

production compared to our base case

from April 2024. Both the base case and

RWC take into account effect of hedging

that has already been put in place at 31

December 2023 and subsequent hedges

placed in 2024, now covering 28% for

the full year 2024 and 12% of 1H 2025.

We have therefore secured an average

floor price and ceiling price of c. $63.5/

bbl and c. $89/bbl, respectively, for the

entire hedged volumes. Under the RWC

scenario, we have identified appropriate

mitigating actions, which could look

to defer uncommitted expenditure as

required.

In addition, we have conducted a reverse

stress test sensitivity analysis that

indicates the magnitude of oil price decline

required to breach our financial headroom,

assuming all other variables remain

unchanged.

Our business in Vietnam remains robust,

with a low breakeven oil price. In TGT we

have 2 wells planned to be drilled in 2H

2024. The majority of our debt ($30m as

of 31 December 2023) is secured against

the Vietnam producing assets under the

RBL, which will be repaid by July 2025.

In Egypt, we have limited capital

expenditure, low cost recompletions and

waterflood in El-Fayum and development

drilling in NBS in 2H 2024. As of 31

December 2023 $9.2m drawn on an

uncommitted revolving credit facility on the

Egypt revenue invoices.

On the basis of the forecasts provided

above, the Group is expected to have

sufficient financial headroom for the 12

months from the date of approval of the

2023 Financial Statements. Based on this

analysis, the Directors have a reasonable

expectation that the Group has adequate

resources to continue its operations in the

foreseeable future. Therefore, the Financial

Statements have been prepared using the

going concern basis of accounting.

Financial outlook

We have a great deal to look

forward to as we move forward in

2024 and beyond.

• A strong and stable balance

sheet, improved liquidity,

improved fiscal terms in

Egypt, stable production with

a solid USD cash flow from

our Vietnam portfolio and a

reduced cost base throughout

the Group

• Continued development drilling

across our portfolio

• Reducing debt and getting to

a net cash position early in the

year

• Significantly improving

economic situation in Egypt,

which could start to unlock our

receivables position there

Further returns to shareholders

are expected in 2024, with the

announcement in January of an

additional $3m committed to

an extension of the Company’s

ongoing share buyback

programme, and a 10% increase

in full year dividends subject to

approval of the final dividend at the

2024 AGM.

SUE RIVETT

Chief Financial Officer

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

CHIEF FINANCIAL OFFICER’S STATEMENT - continued

Risk Management Framework

at Pharos

Pharos carried out regular and robust risk assessments

to identify and manage its Principal and Emerging risks

during 2023 and continues to monitor closely the Egyptian

economic situation and the global macroeconomic

environment. The Group’s risk management activities during

the year focused on the Egyptian economy, commodity price

uncertainty, and volatility in production levels and reserves.

Our management undertook a number of deep-dive

exercises to gauge its risk appetite and recalibrate its risk

tolerance to ensure the appropriate mitigating actions were

implemented. The Board has closely considered the potential

impact and probability of these risks and related events on its

corporate strategy, objectives and stakeholders’ perspectives

of the Group.

Control environment

The Group’s control environment is based primarily on its

Code of Business Conduct and Ethics and associated

guidance for implementation. The Code and associated

guidance enshrines a number of fundamental values

to the Group and its business, including openness and

integrity, safety and care and respect for human rights.

The control environment is also supported by a series of

corporate policies, which form part of the Group’s Business

Management System (BMS).

These documents are distributed to all employees,

followed up with training as required and are available

on the Pharos’ internal intranet system. As part of the

compliance programme, all employees have to undertake

and successfully complete a training assessment at least

once a year covering anti-bribery and corruption laws and

procedures and other financial crimes.

Governance, authorities and

accountability

The Board of Directors, supported by its various Committees,

ensures that the internal control functions operate properly.

The Audit and Risk Committee oversees the implementation

by the senior management team of the internal control and

risk management procedures based on the risks identified to

support the Group’s objectives.

MANAGING OUR RISKS

Principal risks in 2023

Principal and Emerging risks in 2024

1. Inability to repatriate cash earned from Egypt

2. Further devaluation of the Egyptian pound

3. Legal risks – Sanctions related (prolonged war in Ukraine)

4. Climate Change

5. Commodity Price volatility

6. Volatility in Production levels

7. Reserves downgrades

8. Risk of rising inflation and stagflation

9. HSE & Social

10. Partner alignment

11. Sub-optimal capital allocation

12. Political and Regional

13. Cyber security

14. Insufficient funds to meet commitments

1. Inability to repatriate cash earned from Egypt

2. Further devaluation of the Egyptian pound

3. Legal risks – Sanctions related

4. Climate Change

5. Commodity Price volatility

6. Volatility in Production levels

7. Reserves downgrades

8. Risk of rising inflation and stagflation

9. HSE & Social

10. Partner alignment

11. Sub-optimal capital allocation

12. Political and Regional

13. Cyber security

14. Insufficient funds to meet commitments

Annual Report and Accounts 2023

Pharos Energy

Risk Management Report

Effective risk management is integral to Pharos achieving its corporate

strategy to deliver sustainable value for all stakeholders through the

responsible management of our current portfolio and the careful

selection of growth opportunities, while protecting our personnel,

assets, the communities in which we operate, and our corporate

reputation and values.

RISK MANAGEMENT

Reviews & 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

Risk Management Framework

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 Group’s Business Management

System evolves continually at Pharos but

at its core comprises a set of policies and

standards, including the Risk Management

Policy based on ISO 31000 Risk

Management Principles and Guidelines.

The BMS is supported by procedures

and processes for each function and

business unit to control day-to-day

business activities. The internal control

framework and risk management process

under the BMS seeks to ensure that risk

identification, assessment and mitigation

are all properly embedded throughout

the organisation. Whilst the Group’s

approach to risk management is designed

to provide a reasonable assurance that

material financial irregularities and control

weaknesses can be detected, the process

does not totally eliminate that a risk could

have a material adverse effect on our

operations, earnings, liquidity and financial

outlook.

Risk is often described as an event,

change of circumstances or a

consequence. The Group’s risk reporting

will focus on identifying risk as a “potential

event”. Each event will be assessed

on its potential impact to people, the

environment, the respective asset /

financial impact on operations, and the

Group’s reputation in terms of severity and

likelihood.

An unsettled world

challenging the future -

The war in Ukraine and

conflict in the Middle East

Repercussions of the Russian invasion of

Ukraine and ensuing sanctions continue to

reverberate globally and test the resilience

of the international financial system and

rules.

The recent escalation of conflict in the

Middle East, following the surprise attacks

on 7 October 2023 by Islamist militants

in southern Israel and the Israeli military

response to those attacks in Gaza and

elsewhere has increased uncertainty and

volatility on world commodity markets.

The escalation has already had a negative

impact on Egyptian tourism, and a

prolonged conflict or expansion of the

geographical and/or military scope of

conflict is likely to intensify that impact. It

could also result in a severe curtailment

of Suez Canal revenues and a reduction

in the import of Israeli gas. The potential

involvement in the conflict of actors

and groups based outside Israel and

Gaza adds complexity, the risk of wider

contagion and the likelihood of a more

profound effect on the regional economy.

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

RISK MANAGEMENT - continued

Serious impacts on the

Egyptian economy

Following a first slowdown in 2020 and

2021, driven by the Covid-19 pandemic,

growth of the Egyptian economy was

picking up significant pace in late 2021

/ early 2022, before being hit by the

repercussions of the Russian-Ukraine war.

Egypt has faced economic and financial

difficulties causing:

• An inability to receive cash revenues in

USD in order to repatriate to the UK

• An inability to convert EGP to USD

• A further devaluation of the Egyptian

pound

From mid-February to early March

2024, the Egyptian Government (i) has

announced a landmark agreement with

ADQ (an Abu Dhabi sovereign wealth

fund), whereby this latter will invest $35

billion for the development of the new

coastal city of Ras El Hekma (the first

$10 billion of which were immediately

paid to Egypt); (ii) signed funding with

different institutional lenders including (a)

a significantly expanded new loan with

the International Monetary Fund (IMF)

($8 billion, including the original $3 billion

secured in December 2022); (b) $8 billion

package of loans, grants and investments

from the European Union; and (c) $6 billion

from the World Bank, over the next three

years; and (iii) let the Egyptian pound

(EGP) with an immediate devaluation

from c.31 to c.49 EGP per USD (later

strengthened to c 46.5), which forthwith

eradicated the parallel foreign exchange

(FX) market.

Pharos considers it preferable to continue

holding USD-denominated receivables and

accept part-payments of its receivables

balance in EGP only when local currency

will be needed for the funding of the

Group’s working interest share of the cost

of operations at the end of the IPR carry

period, expected to occur in the first half

of 2024.

In the event of continued delays in the

payment of its invoices, the Company has

access to its Revolving Credit Facility with

the National Bank of Egypt (UK) (NBE),

which allows it to draw down 60% of the

value of each invoice in USD. The NBE

$18m facility has been extended on the

same terms to 30 May 2025.

The conflicts in Ukraine,

the Middle East and

international sanctions

The extensive sanctions and export

controls introduced by the US, EU and

UK on key Russian and Russia-connected

industries, entities and individuals following

the invasion of Ukraine on the 24 February

2022 remain an important consideration

for the Group and its approach to risk

management.

Throughout 2022 and 2023, and

continuing into 2024, the scope of

international sanctions and controls related

to the Russian invasion has continued

to expand. To date, neither the conflict

in Ukraine nor the sanctions themselves

have had a material impact on the

Group’s business. Despite this, the Group

continues to be prepared to act swiftly in

the event that an existing counterparty

were to become a sanctioned entity or

otherwise affected. The dedicated cross-

functional Pharos working group covering

sanctions and the impact of the conflict

in Ukraine established in March 2022

remains active. The working group reports

to the Audit and Risk Committee and also

contributes to regular risk management

reporting. The Group Sanctions Policy,

originally adopted in May 2022, was

updated and renewed in 2023. The Policy

is available on the Pharos website with

the Group’s other principal corporate

policies. At an operational level, the Group

continues to work with the JOCs on

contingency planning and mitigation.

As noted above, the escalation of conflict

in the Middle East since the attacks in

southern Israel on 7 October 2023 has

materially increased regional political and

economic instability. The Group considers

it is very unlikely that the US or UK will

introduce sanctions against Israel or Israeli

state actors for recent actions in Gaza,

but continues to monitor the situation and,

in particular, diplomatic efforts aimed at a

longer-term ceasefire. The Group is also

monitoring carefully the wider geopolitical

impact and perception of the conflict in

Egypt, in connection with its assets and

operations.

Climate Change risks

The 28th Conference of the Parties

(COP28) to the UN Framework Convention

on Climate Change in Dubai, United Arab

Emirates, ended on 13 December 2023.

The conference operationalised the Loss

and Damage Fund, which was established

by COP27 in 2022. It also concluded the

first global stocktake of climate action

under the Paris Agreement and adopted a

decision calling for accelerated short-term

action and an orderly transition away from

fossil fuels towards climate-neutral energy

systems – the first-ever COP decision to

address fossil fuels.

COP28 saw a landmark agreement

to support vulnerable nations facing

the worst of climate change’s impacts

under the Loss and Damage Fund.

These can include: “the development

of national response plans; addressing

insufficient climate information and

data, and promoting equitable, safe and

dignified human mobility in the form of

displacement, relocation, and migration,

in cases of temporary and permanent loss

and damage”. A geographically diverse

board will be established, and the fund will

be initially managed by the World Bank.

The first pledges from wealthy nations

were made in Dubai to support the fund

and currently total over $650 million.

The global stocktake is a two-year

process to review progress on mitigation,

adaptation and climate finance, and

outline the way forward. The parties

recognise that, by 2030, global

greenhouse gas (GHG) emissions must be

reduced by 43% below 1990 levels to limit

global warming to 1.5 °C, and commit to

accelerating action in this critical decade.

Parties are called upon to contribute to

tripling global renewable energy capacity

and doubling the global rate of energy

efficiency improvements by 2030. They

must accelerate efforts towards net zero

emission energy systems and towards the

phasedown of unabated coal power.

A historic result of COP28 was the

adoption of a fossil fuel phase-out

agreement, which commits the parties

to transition away from fossil fuels in

energy systems, in a just, orderly, and

equitable manner, so as to achieve net-

zero emissions by 2050. The COP28

decision also highlights the importance

of protecting and restoring nature and

ecosystems and enhancing efforts to halt

and reverse deforestation by 2030, and

invites parties to preserve and restore

oceans and coastal ecosystems.

Annual Report and Accounts 2023

Pharos Energy

RISK MANAGEMENT - continued

Climate Risk and Resilience

Climate change risks, both arising from

energy transition and the physical effects

of changes in climate, are identified and

assessed as part of the Group’s integrated

risk management approach and mitigated

within the remit of a diverging set of key

stakeholders’ aspirations and calibrated

within the Group’s risk appetite and

corporate strategy. Climate change and

the transition to a low carbon economy

were also considered in preparing the

Consolidated Financial Statements, more

details of which can be found on page 60

of our Viability Statement and Note 4 of

the Financial Statements.

Pharos continue to aim to align

our disclosure with the TCFD

recommendations on Governance,

Strategy, Risk Management and Metrics

and Targets.

A detailed analysis was commissioned

with the help of a TCFD specialist

consultancy which produced in-depth

assessments of the transition and

physical climate risks followed by a hi-

grading risk exercise based on the Group

internal risk matrix. These assessments

were then discussed with the Senior

Management team and submitted to the

ESG committee of the Board. Throughout

the year, climate risks, along with other

principal and emerging risks presented on

pages 54 to 59 of the Risk Management

Report, are discussed and reviewed

by the Audit and Risk Committee every

quarter to ensure they are up to date and

remain dynamic to the changing nature of

the macroeconomic environment and the

business.

For a full list of our transitional and

physical climate risks, please see pages

88 to 95.

The physical risk assessment focused

on screening our operational interests in

Vietnam and Egypt using the consultant’s

physical risks datasets to quantify changes

in key climate variables (e.g. drought,

rainfall, wave height) over a 5 and 10

year timeframe under the three emissions

scenarios – Shared Socio-economic

Pathways (SSPs). The transitional risk

analysis focused on the potential impacts

of different future scenarios on the key

transition risks facing the Group and the

oil and gas sector over the next 5 to 10

years. By undertaking these assessments,

Pharos is in a better position to formulate

strategies which will increase its resilience

to climate related risks – and better cope

with the uncertainty, speed and extent

of the energy transition. The transition

risk analysis conducted by the TCFD

specialist consultant was assessed under

the International Energy Agency (IEA)

Sustainable Development Scenario (SDS)

and Stated Policies Scenario (STEPS).

Additionally, Pharos has considered the

risk that climate change pressures could

reduce oil prices during the three-year

Viability Statement window under the

recommended IEA’s Net Zero Emissions

scenario. For more information, please see

pages 60 to 61 for the Viability Statement

and page 83 for our TCFD disclosures.

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

RISK MANAGEMENT - continued

Commodity Price risk

Oil markets in 2023 witnessed more stable

pricing environment compared to the

volatility experienced in 2022. However,

oil prices declined towards the end of

the year despite the escalating conflict in

the Middle East, as non-OPEC+ supply

strengthened, coinciding with slowing

global oil demand growth.

Carbon Tracker, a London-based not-for-

profit think tank researching the impact

of climate change on financial markets,

warned oil producers they should not let

high prices today lure investments into

pricey new projects that will lose money

when the fever breaks and the energy

transition cripples fossil fuel demand over

coming years.

Commodity price uncertainty persists and

is factored into all stages of the planning

process. Please refer to the Viability

Statement on page 60 for more details

of how the Group has stress tested its

assets and projected cash flows against

its principal risks.

Insurance costs

Energy insurance premiums for the 2023

renewal of the Group’s cover increased

broadly in line with inflation, as was the

case with the 2022 renewal. In some

areas, the cost of the Group’s insurance

premiums in 2023, particularly corporate

cover, actually reduced in real terms. As

noted in last year’s report, the energy

insurance markets are increasingly difficult

to access for oil and gas exploration and

production businesses. Climate change

risks and broader ESG objectives remain

at the forefront of insurers’ attitudes to oil

and gas assets, with prominent insurers

already taking steps to rebalance their

portfolios. However, there is still capacity

in the market, with evidence of new

entrants replacing those withdrawing

from oil and gas. In last year’s Risk

Management Report it was noted that

the major reinsurer Munich Re, previously

an underwriter of the Group’s oil and

gas package policy, had announced in

October 2022 a major reduction in its

cover for oil and gas assets and projects.

However, a number of the oil and gas

underwriting team migrated to another

Lloyd’s Syndicate member, Probitas 1492,

who took the place of Munich Re as lead

underwriter for the Group’s business

interruption insurance renewal in 2023.

Nonetheless, the Group believes that in

the longer term the trend of oil and gas

businesses suffering reduced access to

the insurance market will continue. This

can be expected to result in significant

premium increases ahead of inflation over

time. While the Group may be able to

mitigate the impact of premium increases

by agreeing to more restrictive terms of

cover or reduced financial cover limits, this

strategy will inevitably result in increased

exposure to risk elsewhere.

Operational Cost risk

Rising operational costs may become

a big risk because they are directly

impacted by the other factors, and

can impact our ability to meet capital

commitments. Generally speaking, the

larger a project, the greater the legal and

regulatory burden and associated costs. In

addition, higher oil prices result in services

companies increasing prices, creating

further inflationary pressure. With the

unpredictability of oil and other commodity

prices and owing to global manufacturing

beyond any one company’s control, there

are genuine cost concerns.

Additionally, many oil and gas firms

struggle to find and keep skilled

employees during boom periods. Thus

payroll can rapidly grow to add another

expense to the total picture. The cost

of training employees in the oil and

gas sector has increased, reducing

the number of firms in the industry and

specialised industry professionals, as

older generations reach retirement age.

As a result, oil and gas has become a

very capital-intensive business with fewer

participants each year.

Out-sourcing is becoming more common

in the industry, and while this offers

flexibility to operators, it also results in

greater exposure to increases in daily rates

for essential services, such as drilling and

well services, when the oil price rises.

With heightened scrutiny on

environmental, social, and governance

(ESG) transparency, there will be

continuous and more onerous regulatory

challenges which oil and gas companies

must handle to sustain their growth and

purpose.

Annual Report and Accounts 2023

Pharos Energy

RISK MANAGEMENT - continued

Emerging Risks

Areas of emerging risks will be around

regulatory changes, digital transformation,

risks of social disorder and the role of the

Board in crisis situations.

Similar to our principal risks, emerging

risks are identified using our bottom-

up approach with the regular risk

assessments with risk owners and

reporting to and discussing the emerging

trends at the quarterly management

risk meetings and the Audit and Risk

Committee meetings. Pharos is engaged

with the industry with organisations

such as BRINDEX and assesses news

alerts from such sources as Oil & Gas

UK, Financial Times, Refinitiv (Eikon and

Worldcheckone), Bloomberg Green and

the World Economic Forum. Pharos

also conducts internal benchmarking

analyses with its industry peers to better

understand emerging trends in the sector.

Opportunities

For the oil and gas sector the lack of

liquidity and increased scrutiny from

investors on fossil fuel producers to

decarbonise may create investment

opportunities for oil and gas independents

with a lower cost base than the oil majors

and which are more able to adapt to a

rapidly changing risk landscape. In the

short term, capital allocation and discipline

will be rigorously maintained while at the

same time exploring opportunities to

reduce our carbon footprint by adopting

different methods / processes to power

our operations, including the possibilities

of solar power, wind power and other

carbon reduction technologies in the

longer term. Our asset base is operated

by separate independent Joint Operating

Companies, leaving our role in both Egypt

and Vietnam one of joint, rather than

unilateral, control.

Board Responsibility

The Board fulfils its role in risk oversight

by developing policies and procedures

around risk that are consistent with the

organisation’s strategy and risk appetite,

taking steps to foster risk awareness

and encouraging a company culture of

risk adjusting awareness throughout the

Group. The Audit and Risk Committee

reports back to the Board regarding the

adequacy of risk management measures

so that the Board has confidence that

management can support them. The

Board regularly reviews the principal

and emerging risks facing the business,

including an annual review of the

effectiveness of the risk management

process in identifying, assessing and

mitigating any significant risks which may

affect the Group’s business objectives.

Risk management and the principal

financial risks and uncertainties facing

the Group are discussed in Note 3 and

Note 36 to the Financial Statements. The

Group’s Risk Management Framework,

policy and associated procedures are

further discussed in the UK Corporate

Governance Report on pages 106 to

113 and in the Audit and Risk Committee

Report on pages 120 to 125, where the

significant issues related to the 2023

Financial Statements are also reported.

The Group’s Business Management

System, which includes the Health, Safety,

Environmental and Social Responsibility

(HSES) Management System,

incorporating the Group’s internal control

mechanisms of policies, procedures and

guidelines through which it assesses,

manages and mitigates its HSES risks

and impacts, is described more fully in the

Corporate Responsibility Report on pages

62 to 81.

The Board has carried out a review

of the uncertainties surrounding the

Group’s principal and emerging risks

and recognised that a potential adverse

event can have a material impact on the

Group’s future earnings and cash flows.

The fluctuating prices of crude oil and gas

remain a significant variable to monitor

closely for the Group. Flash events

are happening more frequently from

international trade tensions, geopolitical

tensions, sudden outbreak of diseases,

speed of climate change transition and

physical risks which may require changes

to our corporate price assumptions and

productions outlook which, in turn may

trigger impairment of assets.

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

RISK MANAGEMENT - continued

Annual Report and Accounts 2023

Pharos Energy

Risk Management

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

during the year

Increase No Change Decrease New Risk

Principal risks

Change in

likelihood Causes Risk Mitigation

STRATEGIC

1. 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

• Thorough capital allocation process

2. 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

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

PRINCIPAL RISKS AND MITIGATIONS - continued

Principal risks

Change in

likelihood Causes Risk Mitigation

3. Health, Safety,

Environmental

and Social

Risk

• Reputational

• Operational outages

leading to lower

production

• Health and safety and

environmental risks of major

explosions, leaks or spills

• High risk operating conditions

and HSES risks

• Climate change impacts on

the sector, such as extreme

weather, sea level rise and water

availability affecting production

• Gas venting and flaring hazards

and risks - well blow outs, land /

water contamination

• Non-aligment of HSES practices

with Pharos Corporate standards

with JVs and JOCs

• 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 transitioning to a goal-based

approach focused on improving safety

• Promote a positive health and safety culture

where workers are given proper training and

incentives to work “safe” with a zero tolerance

for non-compliance

• Environmental and Social Impact Assessments

relating to, for example:

− climate impacts and need to adapt to changing

climate conditions over the life of the asset

− regulatory developments

• Enhance emergency preparedness and spill

prevention plan

− Controlled venting

− Control and management of pressurised oil

and gas from boreholes

− Use of low impact extraction chemicals where

alternatives exist

− Water management - securing of a sustainable

water supply, recycling and reuse wastewater

− Marine management plan - especially for

offshore drilling

− Carry out scenario exercises to improve

preparedness

− Active participation in dialogue with JOC to

influence them on best work practices

• Maintaining adequate energy insurance for our

assets and operations

Annual Report and Accounts 2023

Pharos Energy

PRINCIPAL RISKS AND MITIGATIONS - continued

Principal risks

Change in

likelihood Causes Risk Mitigation

4. Climate

Change –

transition and

physical risks

• Commodity price

volatility

• Restrictions of use

of carbon intensive

assets

• Lack of portfolio

diversification

• Accelerating

electrification

• Carbon pricing

• Reduced water

availability

• Increased

temperature and heat

stress

• Storm frequency

• Pressure on investors to divest

/ avoid fossil fuel companies /

projects

• Inability to find economically

viable CO

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

• Reduced access to insurance

market

• Net Zero commitment on all assets by 2050,

detailed roadmap published in December 2023

• Emission Management Fund, under which

we set aside $0.25 for each barrel sold at an

oil price above $75/bbl to support emissions

management projects

• Transparent reporting and participation in

Carbon Disclosure Project (CDP)

• Continue alignment with TCFD

recommendations

• Further integrate climate risk management

within Pharos Risk Management Framework

• Stress test our going concerns under a Net

Zero Emissions price scenario and carbon tax

scenario

• 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

• Annually review, update and renew Group

Climate Change Policy to keep it fit for purpose

and in line with evolving decarbonisation

developments

• Comprehensive insurance cover for

Physical Damage to oil and gas assets and

infrastructure

• Close monitoring of regional extreme weather

developments so that evacuation or shut-down

are activated in good time

• Regular and timely control of inventories to

ensure essential spares are sourced in advance

• Prepare business cases or studies to support

decarbonisation initiatives

FINANCIAL

5. Commodity

Price risk

• Uncertainty on

planning

• Inability to fund work

programme / dividend

• 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 and

earnings degradation

• Market speculation and trading

in oil futures

• Repercussions of the Russian

invasion of Ukraine and Middle

East conflict

• 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

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

PRINCIPAL RISKS AND MITIGATIONS - continued

Principal risks

Change in

likelihood Causes Risk Mitigation

6. 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

7. Egyptian

economy

• The impact of the war

in Ukraine 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 (UK) (NBE), which allows us to draw

down 60% of the value of each oil sales invoice

in USD ($18m facility until 30 May 2025, with

further renewals by agreement)

• Accepting payments in EGP, to be reinvested

in field operations as soon as the IPR carry

comes to an end

OPERATIONAL

8. Reserves Risk

• Future cash flows

and value depend

on producing our

reserves

• Inaccurate reserves estimate

• 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

Annual Report and Accounts 2023

Pharos Energy

PRINCIPAL RISKS AND MITIGATIONS - continued

Principal risks

Change in

likelihood Causes Risk Mitigation

9. Partner

Alignment

Risk

Vietnam

• Technical

misalignment at JV/

JOC level can delay

investment

• Adverse impact on

Production and Cash

flow

Egypt

• Technical

misalignment at JV/

JOC level can delay

investment

• Adverse impact on

Production and Cash

flow

• 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 Modelling 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

10. Cyber risk

• Major cyber security

breach may result

in loss of key

confidential data

• Unavailability of key

systems

• Sophistication and frequency of

cyber-attacks increasing

• Heavy reliance on and disruption

to critical business systems

• Infiltration of spam emails

corrupting our systems

• Critical reliance on remote

working in light of demand for

longer-term hybrid and flexible

working practices, originally

in response to the COVID-19

pandemic

• IT provider acquired during 2023

– changing provider / individuals

• Update Service level agreement with IT

providers, including regular meetings and

other interfaces to raise any issues and review

performance

• Offsite Installation of back-up system and

Business Recovery / Continuity Plan in place

• Enhance our Cloud back-up data and solutions

• Prevention and detection of cyber threats via a

programme of effective continuous monitoring

• Plan for upgrade of IT systems

11. Human

Resource

Risk

• Good skilled people

are essential to ensure

success

• Failure to recruit and retain high

calibre personnel to deliver on

and implement growth strategy

• Challenges in the recruitment

and integration of additional

technical expertise for any new

acquisition

• Negative view of the oil and

gas industry amongst younger

professionals, particularly in

light of climate change impacts,

resulting in fewer entrants to

the industry to replace retiring

professionals

• High costs of recruiting

experienced workforce

• Weakened corporate culture and

collegiate responsibility due to

remote working

• Restructuring workforce

• Board re-composition and

retirements

• Remuneration Committee retains independent

advisors to test the competitiveness of

compensation packages for key employees

• On-going succession planning

• Maintain a competitive remuneration mix re

bonus, long-term incentive and share option

plans

• Build and use people networks in each country

and advertise vacancies in these networks

• Maintain a programme for staff wellbeing

• Facilitate and encourage workforce

communication via Group-wide offsite events

and quarterly video conferences, employee

surveys and shared feedback

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

Principal risks

Change in

likelihood Causes Risk Mitigation

REPUTATION

12. Sub-optimal

capital

allocation

• Adverse reaction

from current /

future stakeholders

• Investment

decisions based

on realistic

/ achievable

economic

assumptions

• 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 prices

• Seeking to maximise influence to promote best

practice in non-operated ventures

• Seek the views of stakeholders through direct and

indirect engagement

• Maintain a balanced investment portfolio which

allows a degree of resilience in adjusting short-term

investment commitments

• Prepare business case or back pay study to support

decarbonisation initiatives

13. Political and

Regional

risk

• Energy sector

exposed to a wide

range of political

developments

which may impact

adversely on

operating costs,

compliance and

taxation

• Operations in challenging

regulatory and political

environments

• Changes to fiscal regimes

without robust stabilisation

protections

• Protracted approval processes

causing delays

• Government reform, political

instability and/or civil unrest

• Impact of financial sanctions,

export controls and other

trading restrictions on industry

counterparties and sectors (in

particular, sanctions on entities

or individuals arising from the

continuing conflict in Ukraine

and other international conflicts)

• Canvass support in risk management by using both

international and in-country professional advisors

• Engage directly with the relevant authorities on a

regular basis

• Assess country risk profiles, trend analyses and on-

the-ground reports by journalists / academics

• Thoroughly evaluate the risks of operating in specific

areas and assess commercial acceptability

• Maintain political risk insurance at appropriate levels

of cover

• Maintain USD as the main currency of our business

• Active working group monitoring sanctions arising

from conflict in Ukraine and assessing / managing

associated risk to Group

• Annual renewal of a standalone Group Sanctions

Policy, to supplement existing Group Code of

Business Conduct and Ethics

• Develop and maintain mitigation planning in relation

to certain counterparties with potential to come within

the future scope of sanctions

14. Business

Conduct

and Bribery

• Reputational

damage and

exposure to

criminal charges

• Present in countries with

below average score on the

Transparency International

Corruption Index

• Lack of transparent

procurement and investment

policies

• Non-compliance with Criminal

Crime Offences (CCO) and/or

UK Bribery Act

• Corruption and human rights

issues

• Ensure adequate due diligence prior to on-boarding

with a risk based approach, including independent

“Red flags” checks

• Annual training, testing and compliance certifications

by all associated persons

• Increase awareness of, and ensure regular training in,

the Group’s Code of Business Conduct and Ethics

and associated guidance and other corporate policies

for all employees and associated persons

• Mandatory Gifts and Hospitality declaration and

• 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

PRINCIPAL RISKS AND MITIGATIONS - continued

Annual Report and Accounts 2023

Pharos Energy

Viability Statement

PRINCIPAL RISKS AND MITIGATIONS - continued

In accordance with the UK Corporate

Governance code, the Board has

assessed the prospects of the company

over a period longer than the twelve

months required to support the Going

Concern Statement on page 166 of the

Financial Statements.

The Audit & Risk Committee reapproved

in December 2023 that the appropriate

length, which the Viability Statement (VS)

should cover, is three years. A significant

factor in the Group’s forward cash position

is the oil price assumption, and as most

of the source data relates to a three-

year period this is considered as the

appropriate lookout period for the VS.

In undertaking this assessment, the Board

has carried out a robust review of the

principal and emerging risks facing the

Group, including those that would threaten

its business model, future performance,

solvency or liquidity, with particular

attention given to the principal and

emerging risks.

Our strategy and associated principal and

emerging risks underpin both the Group’s

three-year base forecast and scenario

testing, as well as our longer term

prospects and position.

Group’s current position

• Production assets in Vietnam and

Egypt with low operating cost base

• Flexibility in the capital expenditure

programme

• Operating cash flows in line with oil

prices and supported by hedging

programme

• Focus on capital discipline

• Excellent HSES standards in Vietnam

• Repayment of current RBL loan in the

three-year period of the VS

Strategy & business model

• Business model drawing on

geoscience, engineering, financial and

commercial talent

• Responsible and Flexible stewards of

capital

• Focus on stakeholders

The principal and emerging risks, which

are considered in assessing the Group’s

prospects, are the same as those used to

stress test our viability over the three-year

period.

How we assess our viability

Our forecast is built on an asset by asset

basis using a bottom up model and is

stress tested by compounding downward

scenarios.

The three-year period selected for testing

covers the Group’s medium term capital

plans and projections, in particular oil

price projections, a fundamental driver of

the groups operating cash flows, where

market consensus data becomes less

reliable for periods further ahead than

three years.

Although individual assets are often

modelled for periods longer than three

years, to reflect the return on investments

being considered over the life of field, the

three-year period has been selected by

the Board as most appropriate for the

group as a whole. It provides management

and the Board with sufficient and realistic

visibility of the future industry environment

whilst capturing the Group’s future

expenditure commitments on its licences,

its near term drilling programmes and Full

Field Development Plans (FFDPs).

In assessing the Group’s viability over

the next three years, it is recognised that

all future assessments are subject to a

level of uncertainty which increases with

time and that future outcomes cannot be

guaranteed.

Key Assumptions

During the three-year period, the working

assumption is that the Group will be

dependent on its cash generating assets

TGT and CNV in Vietnam and El Fayum

and North Beni Suef Concessions in

Egypt.

The underlying oil and gas reserves in both

Vietnam and Egypt have been certified

by Reserves Auditors, RISC (for Vietnam)

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

have used management’s best estimate

of future commodity prices, resulting in

a base oil price prior to scenario testing

of $81.5/bbl in 2024, $79.0/bbl in 2025

and $79.2/bbl in 2026. The base model

also includes the Group’s latest life of

field production models and expenditure

forecasts.

The company has a Reserves Based

Lending (RBL) facility over its Vietnam

producing assets which matures in

July 2025 and has been subject to

amortisation since July 2022. As of

December 2023, the facility amount was

$57.3m, with $30m drawn. The current

borrowing level and the repayment

schedules in the model are based on the

RBL's economic and technical assumption

as of the December 2023 redetermination.

In the current VS period, the RBL loan is

expected to be repaid by 2025.

Pharos El Fayum have an uncommitted

revolving credit facility through to 30 May

2025 for up to $18m with the National

Bank of Egypt (UK). This facility was

implemented to help mitigate the risk of

late payment from debtors. Under this

arrangement, Pharos is able to access

cash from the facility for up to 60% of the

value of each El Fayum oil sales invoice.

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

PRINCIPAL RISKS AND MITIGATIONS - continued

Stress testing linked to Principal Risks

As well as the base model, the Group also evaluates other scenarios and has stress-tested the forecast for a combination of severe but

plausible events (linked to the majority of the Group’s principal risks) that could potentially impact its ability to fund planned activities

and/or comply with the covenants and undertakings within its reserves based lending facility agreement. These events include:

• A material reduction in the oil price putting pressure on the Group’s capital available for investment

• A material reduction in production

• An unfavourable event resulting in lost production and oil price shock

Base Forecast flexed for combinations of

the following scenarios

Link to Principal Risks

in 2023 on page 48 Level of Severity Tested Conclusion

Sustained and sharp drop in oil price

1,4,5

Sharp drop in the oil price, down

by a third to $54.3/bbl in April

2024, then rising gradually over a

year till in line with base price

Company remains viable

with mitigating actions

Reduction in production

1,2,6,7,8,10,11,12

5% drop in production from April

2024 over the period of testing

Company remains viable

with mitigating actions

Unfavourable event leading to lost

production and price shock

1,2,3,4,5,6,7,8,10,11,12 Combination of tests above

Company remains viable

with mitigating actions

Climate Change

We have also factored in the risk of

potential price reductions due to climate

change pressures during the three-year

Viability Statement window. We have

therefore considered the price curve as

an output of a Net Zero Emissions by

2050 (NZE) based on IEA’s World Outlook

2023 report, which is consistent with

achieving 1.5 °C stabilisation in global

average temperatures and a Net Zero

emission by 2050. The nominal

Brent prices used in this scenario are

comparable to our base case oil price

assumptions over the three-year VS

period. Nevertheless, we have concluded

that the stress testing outlined above

adequately accounts for the risk of any

downside adjustments to our revenue

base over the three-year VS period due to

climate change pressures.

To date, there is no official carbon tax

established in either of jurisdictions where

our operations are located i.e. Vietnam

and Egypt. Furthermore, the imposition

of carbon taxes would likely to uplift the

Brent prices as some of the burden will be

passed to the consumer.

As a sensitivity test, we have run the effect

of carbon tax from 2025 on base case

without assuming any increment in Brent

price and the Group remains viable over

the three-year VS period (please refer to

the TCFD Report on pages 83 to 98 for

more information).

It should be noted that the existing RBL

facility will be repaid within one-and-half

years, falling within the three-year Viability

Statement window. This provides us

certain level of protection against the risk

of capital availability being constrained by

concerns related to climate change.

In all combinations of scenarios that

were tested, the Group had implemented

mitigating actions including hedging and

deferring non-committed expenditure

beyond the three-year window of the

VS. Directors have reviewed the realistic

mitigating actions that could be taken

to reduce the impact of the underlying

risk. The forecast cash flows are regularly

monitored and reviewed to provide

early warnings of any issues and to give

sufficient time to undertake any necessary

mitigating actions.

The potential impact of the other principal

risks on the group’s viability during the

assessment period were also considered.

Such risks include the inability to attract

and retain appropriately skilled people,

Cyber risk and Business Conduct and

Bribery risk. The Board has considered

the risk mitigation strategy for each of

these risks and believes that the mitigation

strategies in place are sufficient to reduce

the impact of each risk, making it unlikely

to jeopardise the Group’s viability during

the three-year period.

Based on all of these assessments,

including the availability of actions which

could be taken in the event of plausible

negative scenarios occurring, the Directors

confirm that they hold a reasonable

expectation that the Group will continue

to operate and meet its liabilities as they

fall due for the three-year period to 31

December 2026.

Business

2023 Performance

Environment

Society

Ethics

People

Annual Report and Accounts 2023

Pharos Energy

Corporate Responsibility Report

CORPORATE RESPONSIBILITY REPORT

100%

EL FAYUM OIL

(2022: 100%)

$188.0m

Taxes and royalties to host governments,

includes host governments share of

production entitlements in 2023

(2022: $245.3m)

281

Tonnes CO

e per 1,000 tonnes of

hydrocarbon produced in 2023

(2022: 335)

0 LTIs

Zero Lost Time Injury events

across Group operations in 2023

(2022: 1 LTI)

$500,000

Combined total training levies in Vietnam

and Egypt for investment in industry capacity

building in 2023

(2022: $500,000)

$ 247,373

Community investments supporting

22 social projects in Egypt, Vietnam

and UK in 2023

(2022: $198,600)

Oil/chemical spills (quantities greater

than 100 litres) in Egypt in 2023

(2022: 1)

c.65%

Female employees at corporate

level in London in 2023

(2022: 65%)

100%

Percentage of staff receiving anti-

bribery and corruption training by

31 December 2023

(2022: 100%)

100%

TGT & CNV OIL

(2022: 100%)

Oil sold domestically in Egypt and Vietnam in 2023, contributing

to host country development goals and access to energy.

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.

The Group’s Corporate

Responsibility standards,

policies and HSES

Management System

1. Code of Business Conduct

and Ethics

2. Key CR/HSES policies

supporting the Code

Climate Change Policy

Code of Business Conduct

and Ethics Code

Human Rights Policy

Security Policy

HSE Policy

Social Responsibility Policy

Biodiversity Conservation Policy

Water Resource Management Policy

Prevention of Slavery and Human

Trafficking Policy

Sanctions Policy

Tax Strategy Statement

Non-Audit Services

3. Standards, procedures and

guidance support the policies

See www.pharos.energy/responsibility/

policy-statements/ for the full text of the

current versions of each of these policies.

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 2023. The

Board’s objective is to be recognised for

its high standard for governance, with a

considerate and pragmatic approach to its

business.

Corporate Responsibility objectives are

defined annually and reviewed quarterly in

relation to: our business, our ethics, our

people, environment and society.

In terms of corporate responsibility and

community engagement, the Board is

committed to treating all stakeholders in

every area of operations with honesty,

fairness, openness, engagement and

respect, and to conducting all business

ethically and safely. The Group will only

work with parties that share these values.

Our Code of Business Conduct and Ethics

(“our Code”) sets out our expectations

for how we do business, clarifying our

commitments to ethical, social and

environmental performance. Our Group

Corporate Responsibility (“CR”) and

Health, Safety, Environmental and Social

Responsibility (“HSES”) policies described

above support our Code.

Our corporate standards, procedures and

guidelines support the policies. Project-

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.

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

Governing Corporate Responsibility

CORPORATE RESPONSIBILITY REPORT - continued

Climate-related governance

& management

Pharos have a multi-layered governance

structure that aligns our operating model

with our net zero ambition.

The Board takes overall responsibility

for our Net Zero ambition, corporate

responsibility strategy and climate-

related risk and opportunities. Given the

wide-ranging remit of climate-related

matters, Pharos integrated management

responsibilities into various business and

functional areas within the Group, and

climate-related activities are managed

and held accountable by a combination of

different committees:

• The ESG Committee oversees the

Group’s management and compliance

with climate-related reporting and

disclosure requirements, as well as

assists the Board in defining and

implementing the Group’s corporate

responsibility strategy.

• The Audit & Risk Committee (ARC)

oversees all principal and emerging

risks in our risk management process,

in which climate risk is considered

a principal risk. It also oversees the

adequacy and effectiveness of our

policies, standards and management

system for HSES.

• The Remuneration Committee

oversees the level of management

incentives attached to improvements

in climate-related performance in order

to further encourage action on this

agenda.

For each Committee’s Terms of Reference

(ToR), please visit www.pharos.energy/

about-us/governance/committees/.

Progress against our Net Zero ambition,

ESG targets and updates on GHG

performance are reviewed at quarterly

Board and Committee meetings.

Our Chief Executive Officer and Chief

Financial Officer manage our climate

progress and are responsible for the

delivery of our Net Zero strategy. We set

up a Net Zero Working Group, which

has met monthly since May 2022, with

functional and operational representatives,

that drives progress on our strategy.

Stakeholder engagement &

materiality screening

We engage with our stakeholders on

a regular basis and receive feedback

through a range of formal and informal

processes, which we set out in more

detail in the UK Governance Code Report

on pages 106 to 113 of our Governance

Report. We listen to their concerns

and feedbacks when determining our

corporate responsibility framework and

use the information they provide us to

identify the issues that are most important

to the successful delivery of our corporate

objectives and most important to our

stakeholders.

The Board, the ARC and the ESG

Committee also regularly discuss at each

quarterly Board and Committee meetings

the new and existing themes and issues

that matter to our stakeholders. Our

management team then uses this insight

and other applicable disclosure laws and

regulations to choose what we measure

and publicly report in our Annual Report.

In 2023 Pharos has continued to

refer to the Sustainability Accounting

Standards Board (SASB) materiality

map for Oil & Gas - Exploration and

Production, to ensure that the material

issues of importance to its activities are

appropriately managed and reported.

Our approach on environmental and

social reporting in 2023 has taken into

account the Voluntary Sustainability

Reporting guidance issued by IPIECA, the

global not-for-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.

The Group consider ’materiality’ to be the

threshold at which ESG issues become

sufficiently important to our investors and

other stakeholders. We are also informed

by the London Stock Exchange listing and

disclosure rules in areas where we have

operations, and are held accountable by

our auditors and Company Secretary.

The Board will further reinforce the

integration of climate considerations

into its governance frameworks by

implementing the principles stated in our

Climate Change Policy and continuing

the Company’s alignment with TCFD

recommended disclosures.

We know that what is important to our

stakeholders evolves over time and we

plan to continue to assess our approach

to ensure we remain relevant in what we

measure and publicly report.

Annual Report and Accounts 2023

Pharos Energy

CORPORATE RESPONSIBILITY REPORT - continued

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 and net zero

commitment

• Health and safety

Employees and

contractors

• Promote adherence to local

government’s health and safety

guidelines

• Regular dialogue and grievance

mechanisms

• Annual feedback sessions with all

staff members

• Keep workforce safe during pandemic or

outbreaks

• Local capacity building

• Contractor management

• Staff wellbeing

Shareholders

Regular dialogue

• Climate risk/energy transition and other

ESG risks

• HSES Health and Safety

• HSES Management System

• Preventing corruption

International

community

Responding to inquiries and media

scanning

• Climate risk, energy transition and net zero

commitment

• GHG emissions

• Preventing corruption

• Human rights and Modern Slavery

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

CORPORATE RESPONSIBILITY REPORT - continued

Annual Report and Accounts 2023

Pharos Energy

Business

Focusing on supply chain impacts. Our objective

is to contribute to responsible and sustainable

development throughout our operations.

CORPORATE RESPONSIBILITY REPORT - continued

Climate risks and global energy transition

Climate change is considered a principal

risk to the Group and its business over

the medium and long term, and this

is discussed in more detail in the Risk

Management Report and in our TCFD

Report on pages 48 and 83.

Our overall risk management framework

integrates climate-related risks into

business decision by carrying out regular

and robust risk assessment, conducting

deep-dive exercises to gauge risk

appetite, monitoring macroeconomic

environment and regulatory landscape,

and using scenario analyses to stress-test

principal risks on key variables for the

Going Concern and Viability Testing. Our

Net Zero Roadmap, which was published

in December 2023 and sets out interim

targets towards our net zero by 2050

commitment and decarbonisation levers

to reduce our carbon emissions, is a key

part of our climate risk management and

business decision.

Pharos is cognisant of the potential

diminished role of fossil fuels in the

global energy mix as depicted in the IEA

Sustainable Recovery Plan. However, we

also recognise that that oil and gas will

continue to play an essential role in the

global energy mix for the next decade,

and that the importance of producing

this energy in a safe, environmentally

sustainable and socially responsible

way will continue to grow. We believe

that there are real opportunities in the

energy transition, especially for countries

such as Egypt and Vietnam, to benefit

from the responsible and sustainable

development of their natural resources.

Pharos stands ready to play our part in

this transition and will continue to support

our host governments as they seek to

use oil revenues to promote sustainable,

inclusive economic development, manage

the impact of climate change and achieve

their COP commitments.

We report transparently and have

participated in the CDP (formerly Climate

Disclosure Project) Climate Change

Questionnaire over the past five years.

In 2023, we maintained our score of (C),

originally awarded in 2019. The Company

also received a score (C) for our disclosure

to the CDP Water Security Questionnaire.

Our greenhouse gas emissions (“GHG”)

are reported in the Environment section

on page 75. Our commitment to align

our reporting to TCFD recommended

disclosures are set out on page 83.

Business partners and influence

Relationships with business partners, host governments and local communities where we operate are critical for our business. Our

Code sets out our commitment to doing business honestly and ethically and to complying with all applicable laws and regulations. It

sets out our expectations to take steps to only do business with others who share our values.

Our ability to influence our business partners and JOCs depends on our degree of ownership and operatorship. Where we are the

designated operator, we fully apply the Pharos HSES MS. Where we are a joint operating partner or part of a JOC, we seek to influence

and ensure alignment with our systems. Where we have a minority interest, we seek to make our views heard and ensure that minimum

standards are met in accordance with our commitment to the IFC Performance Standards.

Vietnam interests and operations

(1)

Degree of

influence Blocks Country

Pharos

ownership

Pharos

role

2023

field activity

Target HSES

outcome

High

Blocks 125

& 126

Vietnam 70% Operator

Approval received for the two-

year extension to the Exploration

Period on Blocks 125 & 126

PSC to 8 November 2025

Full application of

the Pharos HSES

Moderate

Block 16-1 Vietnam 30.5% *

Joint operating partner

(in Hoang Long Joint

Operating Company)

Approval received for the TGT

Revised Field Development Plan

(“RFDP”)

Influence to bring

alignment to the

Pharos HSES MS

Moderate

Block 9-2 Vietnam 25%

Joint operating partner (in

Hoan Vu Joint Operating

Company)

New CNV well (CNV-2PST1)

came in strongly, contributing to

Vietnam field production

Influence to bring

alignment to the

Pharos HSES MS

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

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

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

CORPORATE RESPONSIBILITY REPORT - continued

Egypt interests and operations

(1)

Degree of

influence Blocks Country

Pharos

ownership

Pharos

role

2023

field activity

Target HSES

outcome

Moderate

El Fayum

Concession

Egypt 45%

Joint operating

partner (in

Petrosilah)

First exploration commitment well in

El Fayum Concession encountered

oil-bearing reservoirs in the Abu

Roash G and Upper Bahariya

formation

Influence to bring

alignment to the

Pharos HSES MS

Moderate

North

Beni Suef

Concession

Egypt 45%

Joint operating

partner (in

Petrosilah)

First exploration commitment

well (NBS-SW1X) declared a

commercial discovery and put on

production in December 2023

Influence to bring

alignment to the

Pharos HSES MS

1) On 21 March 2022, Pharos completed the farm-down and sale of a 55% working interest and operatorship in each of the El Fayum and North Beni Suef

Concessions to IPR Lake Qarun Petroleum Co, a wholly owned subsidiary of IPR Energy AG.

HSES Management System

We undertake a range of activities to

continuously improve our HSES MS

to ensure that the Company’s policy

commitments are applied. We may work in

countries that have different standards and

we review any potential gaps to ensure

adherence to our policies in dialogue with

our business partners. Routine monitoring

is undertaken to assess and improve

performance and periodic audits are

conducted.

HSE trainings and exercises

In Vietnam, the HLHVJOCs continued

HSE induction to new staff, maintained its

HSE Training Matrix such as travel safely

by boat, firefighting and rescue, working

at height and also conducted training for

the offshore production team such as

Personal Protective Equipment training,

refresh safety induction for contractors,

behavioural safety and tank inspection

procedure.

In Egypt, HSES training focused on

increasing the staff’s capabilities and

competence on ISO 14001 and 45001

management systems, land transport,

safety at rig, firefighting, lifesaving rules,

permit to work, hot work hazards and

safety requirements in confined space

entry and working at heights.

Key Performance Indicators

KPI Target 2023 2022 2021

HSES regulatory

non-compliances

Zero 0 0 0

Supply chain management

Contractors are used throughout all aspects of our business. Our Contractor

Management Procedure sets out requirements through all stages from selection through

to management and service delivery.

In HSES critical activities, bridging documents are put in place to ensure Pharos and

contractor alignment with our requirements.

Hours worked in Vietnam and Egypt assets Percentage of total

Company staff: 724,063 20%

Contractors: 2,862,192 80%

Overall objective

To provide responsible and sustainable development

2023 Objectives 2023 Outcomes 2024 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.

Close any outstanding gaps between

HSES procedures with a focus on land

transport and environmental risks.

Pharos Energy worked closely with IPR

to achieve good alignment between

our respective HSES Management

Systems. Particular emphasis was placed

on contractor management and land

transportation.

Work closely with partner’s HSES

department to achieve good alignment

between our respective HSES

Management Systems.

Review implementation of updated

HSES Management System across

business functions.

HSES Management System policies and

procedures have been updated and will

be submitted for approval in 1Q 2024.

Review implementation of updated

HSES Management System across

business functions.

Further training on crisis management

and emergency response to be held

in 2023.

Crisis Management Response and

Exercise were held in October 2023 with

all relevant stakeholders. The learnings

are being included in the updated version

of the Group’s Crisis Management Plan.

Further training on crisis management

and emergency response.

Annual Report and Accounts 2023

Pharos Energy

CORPORATE RESPONSIBILITY REPORT - continued

Overall objective

To conduct our business in an honest and ethical manner.

2023 Objectives 2023 Outcomes 2024 Objectives

All personnel to complete the annual

ABC programme including training,

testing and self-declaration statement.

Completed.

All personnel to complete the annual

ABC programme including training,

testing and self-declaration statement.

Continue to review ABC programme

and update as required.

No updates required.

Continue to review ABC programme and

update as required.

Update and republish the Modern

Slavery annual statement and all other

corporate policy statements.

The annual statement on Modern

Slavery has been reviewed by the Board

and republished on the Pharos website.

Update and republish the Modern

Slavery annual statement and all other

corporate policy statements.

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

Ethics

Our objective is to conduct our business in an

honest and ethical manner.

CORPORATE RESPONSIBILITY REPORT - continued

Preventing corruption

Pharos currently operates in Vietnam,

which is allocated a low score on

Transparency International’s most recently

published Corruption Perception Index

(“CPI”), and is ranked number 83 (77 in

2022) out of 180 countries in the 2023

CPI. Egypt is ranked at 108 on the same

CPI (130 in 2022). We recognise that,

with both areas of operation having a

reputation for a lack of transparency and

relatively high risk of corruption, it is vital

that the Group’s policies, procedures

and working practices are fit for purpose.

Pharos maintains internal control systems

to guide and ensure that our ethical

business standards for relationships with

others are achieved. The Audit and Risk

Committee and the Board have carried

out a review of the effectiveness the

Group’s risk management and internal

control systems, see the Audit and Risk

Committee Report page 120. Bribery is

prohibited throughout the organisation,

both by our employees and by those

performing work on our behalf. The Code

of Business Conduct and Ethics supports

all businesses that are conducted in an

honest and ethical manner across the

organisation.

Our Anti-Bribery and Corruption (“ABC”)

programme is designed to prevent

corruption and ensure systems are in

place to detect, remediate and learn from

any potential violations. This includes due

diligence on new vendors, annual training

for all personnel, requisite compliance

declarations from all associated persons,

Gifts and Hospitality declaration and

comprehensive ‘whistleblowing’

arrangements.

Our Whistleblowing Policy and Procedure

ensures that employees are protected

from possible reprisals when raising

concerns in good faith. In addition to

internal reporting channels, we have a

confidential ethics hotlines supported by

EthicsPoint with numbers displayed in

local offices available 24 hours a day all

year round. Zero calls were made to the

EthicsPoint hotlines in 2023.

Payments to host

governments

Wealth generated by natural resources

plays an important part in the growth

and development of countries in which

we operate. Revenues to governments

become payable by the Group due

to oil production entitlements, taxes,

royalties, licence fees and infrastructure

improvements.

During 2023, the total payments to

governments for the Group amounted

to $188.0m (2022: $245.3m), of which

$166.5m or 89% (2022: $211.5m or 86%)

was related to the Vietnam producing

licence areas, of which $110.8m (2022:

$140.7m) was for indirect taxes based

on production entitlement. In Egypt,

payments to government totalled $19.3m

(2022: $31.3m), of which $18.4m (2022:

$28.8m) related to indirect taxes based on

production entitlement. More information

on payments to host governments can be

found on page 194.

100%

Employees and relevant contractors have

undertaken anti-bribery and corruption training

by 31 December 2023

Annual Report and Accounts 2023

Pharos Energy

On-going monitoring and

precautionary / preventive

measures under COVID-19

The Group adhered to the requisite

precautionary procedures and restrictions,

in line with the government directives in

Egypt, Vietnam and the UK.

Occupational health and safety

Safety is the highest priority in our

business and we are committed to

operating safely and responsibly at

all times and to providing a safe and

healthy working environment for staff and

contractors. Following from our Health,

Safety and Environment Policy and

Code of Business Conduct and Ethics,

our HSES MS provides the framework

for our approach and is implemented

at each stage of a project supported by

Occupational Health and Safety Guidance

and Standard Operating Procedures.

While Pharos had no field activity in

2023 in which we were the operator, we

continued to work with our partners in

Vietnam where the HLHVJOCs continued

to maintain a high level of safety. In

2023, the Company recorded zero LTIs

in Vietnam, an achievement which the

JOCs have maintained since Pharos’

operational inception, representing

more than 10 production years on TGT

and 13 production years on CNV. We

have worked to build and contribute to

improvements in the safety culture in

Vietnam and we are proud of that record

of achievement. HSES training, drills,

workshops and inspections are conducted

on an annual basis to ensure that the zero

lost time injury target is maintained.

We are able to share our practices and

lessons learned with others in the industry

and are contributing to further capacity

building.

In Egypt, no lost time injuries were

recorded in 2023. However, there were

two motor vehicle crashes recorded in

the first quarter, which fortunately did not

result in any injuries. We continuously

work with the operator IPR and the JOC

Petrosilah to address the underlying issues

identified behind the safety measurements

and precautions in our operations.

Safety of our workforce remains our

number one priority and Pharos has

reinforced the use of stop cards and

safety training across all of the Group’s

operations.

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.

CORPORATE RESPONSIBILITY REPORT - continued

Safety record

2023 2022 2021

KPI Target rates Pharos IOGP

Pharos IOGP

Fatal Accident Frequency Rate

Zero

0 0

1.28

0.75

Lost Time Injury (“LTI”) Frequency Rate

Zero

0 0.30

0.28

0.22

Total Recordable Injury Rate

<0.34

0 0.60

0.90

0.77

Million-man hours worked

3.59 3.35

2,535

3.17

2,679

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

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

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

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

Critical Incident Risk Management

Pharos has emergency response plans in place for all projects and assets. The plans are communicated to the workforce and response

personnel receive training to ensure they are competent to carry out their emergency roles. This is supplemented by periodic refresher

training. Drills and training exercises are carried out. We ensure asset integrity and control operations in order to effectively manage all

significant risks during all stages of the operations.

During 2023, there were no Process Safety Events classified Tier 1 or Tier 2 to be reported. All incidents were investigated and lessons

learned as appropriate and actions to prevent recurrence were implemented.

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

Diversity, Equity and Inclusion (D,E&I)

Greater diversity and inclusivity brings

greater understanding of people. Through

our five Guiding Principles of ‘Safety and

Care’, ‘Energy and Challenge’, ‘Openness

and Integrity’, ‘Empowerment and

Capability’ and ‘Pragmatism and Focus’,

we have demonstrated our commitment

to maintaining and building a culture of

diversity and inclusion in meaningful ways.

We believe in a workforce with a diversity

of experience, nationalities, cultural

backgrounds and gender, to support our

business strategy of long-term sustainable

growth. It is crucial to the success of

our business that we retain and develop

the diversity of our workforce and have

diversity and inclusion at the heart of our

recruitment, development and promotion

processes.

Our Code of Business Conduct and

Ethics, associated Policies and the Pharos

Guiding Principles commit us to providing

a workplace free of discrimination where

diversity is valued and all employees can

fulfil their potential based on merit and

ability. They also commit us to providing a

fully inclusive workplace, while providing

the right development opportunities to

ensure existing staff have rewarding

careers. During the year, the Company

undertook a Group-wide survey of

staff on questions and perceptions of

diversity, equity and inclusion within the

organisation. The results of this survey are

expected to form the basis for a workshop

for staff during 2024.

We work hard to ensure that we consult

and engage with all of our employees.

We value the contribution made by all

employees and strive to have training and

development opportunities for everyone.

Safety indicators

(for both Pharos employees

and contractors)

Indicator 2023

Lost Time Injury frequency

rate (“LTI”)

Fatal Accidents

Medical Treatment Cases

First Aid Cases

Number of Motor Vehicle Crashes

Roll-over

HSES Near Miss

HSES Inspections

820

HSES Audits

796

HSES Toolbox Talks

5,022

HSES Meetings

509

Safety indicators

Indicator 2023

Emergency Response Drills

114

Process Safety Events

(Tier 1 or Tier 2)

Other minor events

CORPORATE RESPONSIBILITY REPORT - continued

2023 statement of compliance with the Listing Rules on Diversity & Inclusion

The spirit of diversity, inclusion and trust

lies behind everything we do. We are

committed to inclusion and diversity in all

areas of the business.

Throughout the year, the Company

complied with 2 out of 3 targets set by LR

9.8.6R(9) of the FCA’s Listing Rules. As at

31 December 2023, the Company had:

• Four female Directors, representing

two thirds of the Board

• Both Executive Director positions

(Chief Executive Officer and Chief

Financial Officer) held by women

The LR 9.8.6R(9) target with which the

Company did not comply in 2023 related

to ethnic diversity. There is no member

of the Board from a minority ethnic

background. The Company continues

to seek and welcome candidates for the

Board from a minority ethnic background

for positions on the Board, and there

is considerable diversity within the

management team immediately beneath

the Executive Directors.

Diversity, equity and inclusion sit at the

heart of our recruitment, development and

promotion processes. Across all of our

assets, we acknowledge diversity in all

its dimensions and welcome people with

differing backgrounds, skills, nationalities,

gender and experiences to help us deliver

our business strategy. Most notably, as

at year-end 2023, our UK-based staff

comprises 17 people from 10 different

nationalities, of which women accounted

for c.65%, which ensures that we cultivate

a culture that recognises and promotes

diversity in all forms and where every voice

is heard. We are proud that we are able to

recruit talents from diverse backgrounds

and ethnicities. These principles were

taken into consideration during the

Nominations Committee’s evaluation

and recruitment process for a new

Independent Non-Executive Director with

technical experience, but the Board was in

agreement that Dr Bill Higgs was the best

choice for the role from a very high quality

shortlist. In reaching this decision, the

Board took into account that Dr Higgs is a

qualified geologist with extensive expertise

in all engineering and other technical

and commercial aspects of hydrocarbon

exploration, development and production

acquired over 30 years of global

exploration, development and operations

experience, including more than 10 years

in executive roles for listed independent

exploration and production companies. He

was appointed in January 2024.

Safety

& Care

Energy

& Challenge

Openness &

Integrity

Empowerment &

Accountability

Pragmatism &

Focus

Annual Report and Accounts 2023

Pharos Energy

CORPORATE RESPONSIBILITY REPORT - continued

2023 Gender diversity(*)

Non-Executive Directors

Executive Directors

Senior Management

Other Employees

Male

Female

15 14

* Figures correct as at 31 December 2023

and represent the Group’s global workforce

(Egypt, Vietnam, UK), not including

contractors. Gender diversity data is

collected from Pharos’ Human Resources

(“HR”) database, in which employees fill in

a questionnaire upon joining the Company.

Gender diversity data is assumed to

be consistent year-on-year, unless the

Company is notified otherwise by the

employee.

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, we contribute to local

capability building. A training levy of

$150,000 for each JOC goes into a

fund which is ring-fenced to support the

development of future talent in Vietnam in

the industry. The HLHVJOCs also invest in

staff development and training.

Overall objective

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

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

2023 Objectives 2023 Outcomes 2024 Objectives

Further develop, deliver and refine

Head office options of hybrid or home

working, following learnings from

COVID remote working practices.

Established new routine of meetings

in person at the cross-country office

locations. Hybrid working has supported

employee wellbeing and continues to lead

to greater levels of employee productivity.

Building on the strong foundations and

global team culture. Recognising the

value that DE&I brings to our team, we will

commence a global learning programme

tailored on our DE&I survey insights and

ensure DE&I initiatives extend beyond

training into the future.

Develop and deliver company-wide

global team engagement events, uniting

colleagues from Egypt, Vietnam, US and

UK for business review and updates.

Engage with the teams about workplace

wellbeing schemes.

Further embed and develop the

performance appraisal system globally.

Held inaugural all Company offsite

meeting for global team, which was a

huge success, and led to excellent pan-

country relationships and sharing of ideas.

This event was important in promoting

further social investment initiatives such

as the Charity and Community Projects

Committee, and prompting the quarterly

global business updates. It led to the

launch of first DE&I all company survey to

assess how best to continue conversations

in this space.

Successful performance appraisals now

part of the global business routine, where

good performance receives recognition.

Training database established and will be

maintained going forward.

Developing the company’s Employee Value

Proposition (EVP). Recognising the benefits

of the employee value proposition (EVP) to

employees and using this as a tool to aid

retention.

Ensure worker health and safety is

maintained to a high standard during

both desk-based and operational

activities.

Safety workshops are routinely held

to raise awareness. Where incidents

occurred, thorough investigations were

carried out and lessons learned were

captured and communicated.

Ensure worker health and safety is

maintained to a high standard during both

desk-based and operational activities.

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

Society

Our Social Responsibility and Human Rights

Policies set our requirements for social

responsibility, community engagement and

human rights.

CORPORATE RESPONSIBILITY REPORT - continued

Human Rights & Modern

Slavery

The Group Human Rights Policy commits

Pharos to conducting its business

in accordance with the fundamental

principles of human rights set out in the

Universal Declaration of Human Rights

and 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 the prevention of Modern Slavery

and Human Trafficking is available on

the Company’s website at www.pharos.

energy/responsibility/policy-statements/

Local capacity

We support local capacity building during

the exploration or development phases of

a project to ensure a positive imprint and

legacy. All our licence agreements include

a high degree of local content, which

commits us to hire locally where possible

and provide training to develop new

skills. Our policy commits us to provide

meaningful opportunities for technical co-

operation, training and capacity building

within any host country in which we

operate.

Community and social

investment

Pharos remains committed to creating

value for host countries and local

communities as well as for staff and

shareholders. We understand that our

success is reliant upon building strong

relationships and being welcomed as a

responsible partner in our host countries

and communities. In recent years, we

have structured our social investment

programme to align more with the United

Nations Sustainable Development Goals

(UN SDGs).

In Vietnam, commitment to local sourcing,

employment, training and industry

capacity building has continued in 2023

with a training levy of $300,000 per year in

a ring-fenced fund to support developing

future Vietnamese expertise in the

industry. In Egypt, under the El Fayum and

North Beni Suef Concession Agreements,

the Contractor parties contribute a total of

$200,000 per year split equally between

the two Concessions to support training

and development in industry.

Pharos works closely with our local

partners and joint ventures in order to

make sure that our social initiatives in the

region continue to bring more positive

impacts to the region. In addition to the

training levy mentioned above, a further

$247,373 was invested in a total of 22

healthcare, education, infrastructure and

other community projects across the

Group in 2023. This is thanks to the efforts

of the JOCs and in-country employees

who actively inquired and listened to

locals to find out which areas of the

country need the greatest assistance in

order to ensure that we were investing

in local projects that would bring the

most sustainable positive impact to the

community.

Social and community projects have been

part of Pharos since inception, and we

have always sought to invest sustainably

via the HLHVJOC Charitable Programme

so that the initiatives that we helped set

up stay in place and have lasting impacts

for many generations. To build on this

legacy, in 2H 2023, the Group established

a new Charity and Community Projects

Committee, an outcome accumulated

from positive and open discussion with

the global workforce at the Company’s

offsite day in June 2023, to bring together

employees from all three offices in the

UK, Egypt and Vietnam to extend Pharos’

social impacts beyond our host nations.

The Charity and Community Projects

Committee, which includes employees

from multiple business functions and

multiple countries, have met three times

since its formation in June 2023, and

have supported seven different social

projects across three different countries.

The Committee aim to continue its work in

supporting a diverse mix of social causes

in 2024.

Details of social investment projects

supported by the HLHVJOC Charitable

Programme and Pharos’ Charity and

Community Projects Committee can be

found below.

Annual Report and Accounts 2023

Pharos Energy

CORPORATE RESPONSIBILITY REPORT - continued

Overall objective

To consult with and contribute into our host communities

2023 Objectives 2023 Outcomes 2024 Objectives

Continuation of the social investment

programme in Vietnam

On target

Continuation of the social investment

programme in Vietnam

Social investment programmes in Egypt and

London implemented

On target

Continuation of the social investment

programme in Egypt and UK

UN SDG 1 – No poverty

End poverty in all its forms everywhere

• Living costs support for orphans in Vietnam whose

parents passed away due to the COVID-19 pandemic

• Vietnamese Lunar New Year gifts for 108 people from

low-income families in Dan Chu commune, Hung Ha

district, Thai Binh district, Vietnam

• Vietnamese Lunar New Year gifts for 200 people from

low-income families in Hoa Binh province, Vietnam

• Financial support for:

− House of Grace Orphanage in Thu Duc city, Vietnam

− Linh Quang House of Orphanage in Dong Nai province,

Vietnam

− Low-income families in Ben Nghe ward, Ho Chi Minh city,

Vietnam

UN SDG 2 – Zero hunger

End hunger, achieve food security and improved nutrition and promote sustainable agriculture

• Financial support towards providing school lunches with protein for children in remote highland areas

in Vietnam

UN SDG 3 – Good health and well-being

Ensure healthy lives and promote well-being for all at all ages

• Donation towards the London’s Air Ambulance Charity’s

Up Against Time Appeal to fundraise £15 million to

replace the current air ambulance helicopter fleet by 2024

• Eye surgery cost support for patients in need from low-

income backgrounds in Vietnam

• Financial support to Association of People with

Disabilities, Victims of Agent Orange/Dioxin (“VAVA”) and

Social Protection of Gio Linh District, Quang Trị Province,

Hung Ha district, and Thai Binh province

UN SDG 4 – Quality education

Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all

• University tuition fees and living costs support towards 7 orphans at Amalna City Association in Egypt

• One academic year tuition fees for kindergarten children from low-income backgrounds in Vietnam

• Educational support for students in Banh Trach school, Ba Be, Bac Can

• Financial support to:

− Purchase school supplies for 90 pupils from low-income

backgrounds at Long Buu Love Class in Vietnam

− An education fund for high-achieving students from low-

income backgrounds in Vietnam

− Purchase equipment for Hop Hung Secondary School in

Vietnam

− School facilities and maintenance for Ha Trung primary

school, Thanh Hoa province, Vietnam

− Secondary and high school students at Hanoi School for

the Hearing-impaired in Vietnam

− Renovate classrooms for primary school in Tien Cau village,

Hiep Cuong commune, Kim Dong district, Hung Yen

province, Vietnam

− Construction projects to build education and cultural

centres in Thanh Hoa province

Total $247,373

Community projects across the Group in 2023

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

CORPORATE RESPONSIBILITY REPORT - continued

Environment

We recognise the potential impacts of our

business on the environment. Our Health,

Safety and Environment Policy sets out our

commitment to conduct all business activities

in a responsible manner.

CORPORATE RESPONSIBILITY REPORT - continued

In setting the Group’s corporate responsibility priorities, our objective is to protect the

environment and conserve biodiversity.

Net Zero Roadmap & Emissions Management Fund

In December 2023, Pharos published its

Net Zero Roadmap following its formal

commitment in September 2022 to

achieve net zero greenhouse gas (GHG)

emissions by 2050.

The net zero roadmap, which was

researched and developed by the

Company in close consultation with

specialist advisors and consultants,

models emission reduction pathways to

achieve net zero Scope 1 (direct) and

Scope 2 (indirect) GHG emissions from

all existing and proposed future assets by

2050 or before. Based on this modelling,

the roadmap contains interim targets set

against the Company’s 2021 baseline

year, which have been approved by the

Board.

In order to realise our climate commitment

to achieve Net Zero GHG emissions from

all our future and existing assets by no

later than 2050, Pharos prioritise reducing

emissions by achieving operational

efficiencies, reducing flaring and venting,

replacing the power consumption of

our facilities with lower emission energy

sources and eventually procuring nature-

based carbon offset projects for hard-to-

abate, residual emissions.

More details of our climate strategy,

including interim targets and the

decarbonisation levers at asset-levels,

can be found in our Net Zero Roadmap

published in December 2023 on our

website (https://www.pharos.energy/

media/b55c4sqz/pharos-energy-net-zero-

roadmap-2023_official.pdf).

The Group has non-controlling equity

stakes in its producing assets and is

predominantly non-operating. As a

result, it has no direct control over the

majority of its emissions inventory but it

can exercise influence through the joint

operating companies (JOCs) in Vietnam

and Egypt in conjunction with the other

JOC partners. The Company will use the

net zero roadmap to continue to engage

with the JOCs, partners and governments

on reducing emissions where possible

through the options identified. To the

extent within its control, the Company

will continue reducing its own emissions

and remain committed to transparency

in reporting and to keeping stakeholders

updated on progress.

In addition, the Company established

an Emissions Management Fund in

September 2022. From every barrel net

to the Group sold at an oil price above

$75 per barrel, a contribution of $0.25

is made to the Fund. The current value

of the Emissions Management Fund

is now c.$400,000. In line with the net

zero roadmap, this Fund is available to

provide financial support for emissions

management projects undertaken directly

by the Group or through the JOCs.

Greenhouse gas emissions

(“GHG”)

GHGs emissions associated with energy

use and with natural gas flaring and

venting are a key issue for the Group.

In 2023, we continued to monitor

our emissions and disclose them in

accordance with industry requirements

and standards. Additionally, we also

participated in the Carbon Disclosure

Project (“CDP”), details of which can

be found in the Business section of this

report on page 66, and continue to align

our disclosure with TCFD recommended

disclosures, details of which can be found

in our TCFD Report on page 83.

GHG reported

Pharos reports carbon dioxide (CO

methane (CH

), and nitrous oxide (N2O)

combined into carbon dioxide equivalent

(CO

e) based on the gases’ 100-year

Global Warming Potential (GWP). These

three gases are produced through

combustion, although N2O quantities

produced via combustion is relatively

small.

In addition to emissions resulting from

combustion, Pharos is reporting its direct

methane emissions from routine venting

and has been doing so since 2021.

The other greenhouse gases, HFCs, PFCs

and 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.

Annual Report and Accounts 2023

Pharos Energy

Emissions scope

Reported Scope 1 direct emissions

comprise direct GHG emissions resulting

from equipment or other sources owned

(partly or wholly) and/or operated by

the Company (for example, gas flaring

operations and fuel gas/diesel use to

generate power or for vehicle use, as well

as venting). Reported Scope 2 indirect

emissions comprise those arising from

purchased energy already transformed

into electricity, heat or steam generation.

For Pharos activities, Scope 2 emissions

comprise electricity supplied by the

national grid in our Cairo office (Egypt) and

in Ho Chi Minh City (Vietnam). Pharos is

not an operator on any of our producing

assets, so we do not have direct control

over our oil and gas production. This is

in the hands of the JOCs, each of which

is staffed by experienced oil and gas

professionals with strong track records

of delivering responsible production.

Certain Pharos personnel are seconded

to senior positions in the JOCs in

Vietnam, providing a degree of influence in

operational planning and execution.

We recognise that Scope 3 value chain

emissions can help companies have

a better and more comprehensive

understanding of their overall emissions

footprints. Value chain emissions have also

seen an increasing amount of focus from

a wide variety of stakeholders. Therefore,

during Q4 2023, Pharos together with our

climate specialist carried out a high-level

materiality assessment across our portfolio

against all 15 categories listed in the GHG

Protocol to understand which categories

are relevant, material and reportable for

Pharos. The materiality assessment took

into account several factors including

the relevance to oil exploration and

production activities, stakeholders’ views,

data completeness and availability, peer

groups’ reporting journeys, and Pharos’

ability to influence the emissions.

In light of this high-level assessment, as

at year-end 2023, we have calculated

emissions from Category 4 – Upstream

Transportation, Category 6 – Business

Travel, and Category 11 – Use of Sold

Product, as defined in the GHG Protocol.

Category 4 and Category 11 are highly-

material categories for Pharos. Further

details can be found in our TCFD Report

under ‘4. Metrics and Targets’ on page 96.

Reporting boundary

Pharos has elected to report its emissions

of GHGs from Egypt and Vietnam

operations on the basis of equity share.

Under equity share reporting, Pharos

reports a pro-rata share of the Scope 1,

2 & 3 GHG emissions from partnerships

or assets over which the Group has

operational control (i.e., Vietnam Blocks

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

emissions from partnerships or assets

it does not control (i.e., Vietnam Blocks

9-2 and 16-1 and Egypt, all of which are

operated through JOCs) according to

its ownership interest. Since the middle

of July 2021, Pharos has rented flexible

six-desk office space in London. The

electricity consumption from this office

is not included in the figures discussed

thereafter.

Pharos Energy commits to making all

efforts to minimise all GHG emissions

during its ongoing exploration activities

in Blocks 125 & 126, where it has

operational control. Where we are a joint

operating partner, we seek to influence

and ensure alignment with our systems

to promote best practice. Where we have

a minority interest, we seek to make our

views heard and ensure that minimum

standards are met in accordance with

our commitment to the IFC Performance

Standards and TCFD recommendations.

Methodology

Pharos applies the expectations set by

the ISO 14064-1 standards in terms of

Relevance, Completeness, Consistency,

Transparency and Accuracy which are

endorsed by IPIECA, the Greenhouse

Gas Protocol Initiative and Part 7 of The

Companies Act 2006 (Strategic Report

and Directors’ Report) Regulations 2013.

Emission factors for GHG calculations

were taken from UK Government GHG

Conversion Factors for Company

Reporting (DESNZ, 2023), EEMS, 2008,

Atmospheric Emissions Calculations, IGES

List of Grid Emission Factors (Takahashi

& Louhisuo, 2022) and Ecometrica,

2011. For the calculation of associated

gas consumed and flared in Vietnam, the

emission factors were calculated based

on the carbon content of gas analysed by

the Vietnam Petroleum Institute in 2024

at the CNV field, and at the gas export

metering skid of TGT in November 2023

for the TGT field. For the calculation of gas

consumed, vented and flared in Egypt, the

emissions factors were calculated based

on the carbon content of gas analysed at

the North Silah Deep, North-East Tersa,

South Silah and Silah Base Separators

(EPRI Central Analytical Labs, 2018) as

well as at the Aboud 1-3 and NBS-SW-1X

well locations.

In 2023, we have again reported our GHG

emissions intensity in tonnes of GHG per

1,000 tonnes of hydrocarbon produced by

equity share to align with the International

Association of Oil and Gas Producers

(“IOGP”) benchmarks.

Key sources of our emissions are from

flaring and use of associated gas as

fuel to generate power on our offshore

production sites in Vietnam and likewise

CORPORATE RESPONSIBILITY REPORT - continued

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

CORPORATE RESPONSIBILITY REPORT - continuedCORPORATE RESPONSIBILITY REPORT - continued

for our onshore production in Egypt. In

2021, in addition to our emissions from

combustion which had been the focus

of Pharos reporting until then, we have

started to report our direct methane

emissions resulting from venting, and we

have continued to do so in 2023. In 2023,

gas fuel and gas flaring in TGT remain the

largest single contributor to Pharos total

emissions. Venting in Egypt represented

over 15 percent of our gross emissions.

The Group’s total CO

e emissions for

2023 are 86,134 tonnes of CO

equivalent

based on equity share (313,769 tonnes of

equivalent gross). This corresponds

to a decrease of 18 percent based

on equity share compared to 2022

(approximately 17 percent decrease

gross). This significant year-on-year

reduction in the Group’s GHG emissions

is the result of proactive maintenance and

management of the TGT facilities with

a focus on minimising event flaring and

reducing overall gas flaring volumes.

Activity data pertaining to GHG emissions

by the HLHVJOCs and Egypt is reported

to Pharos. Telos NRG assisted with data

collation and GHG emissions calculations.

Verification of the 2023 GHG Emissions

Report has been undertaken by RPS

Consulting UK & Ireland using the

principles in BS EN ISO 14064-3:2019

(the Standard) with the following limits:

• Activity data completeness, accuracy

and data collection and control

procedures have not been verified

due to the majority of GHG emissions

arising from activity in operations not

under Pharos’ direct operational (and

data collection) control.

• Activity data from Pharos’s Egypt

operations is considered to have a

higher risk of uncertainty.

• This is the first year that Pharos has

reported selected categories of scope

3 GHG emissions. As such, it is noted

that the data collection and calculation

process for these emissions sources

is by nature more variable than other,

more established, emissions sources.

• Scope 3, category 11 data from

Pharos’ Egypt operations is

considered to have a higher risk of

uncertainty compared to other scope

3 data.

• It should be noted that petroleum

companies’ scope 3 GHG inventory

are unique in that the use of the fuel

products produced can contribute to

emissions in other scope 3 categories.

As such, there is by nature a risk of

double counting between scope 3

categories.

• There is inherent variability and

uncertainty associated with the

available methods for calculation of

GHG emissions from activity data;

reported emissions and the verification

statement should be understood in

that context.

The RPS’ 2023 GHG verification report

is unqualified and covers all of our GHG

metrics, including Scope 3 emissions.

Approaches to reducing

emissions

In Vietnam, we continue to manage

gas flaring by carefully monitoring and

optimising the processing facilities in the

TGT FPSO. The focus for the next year

will be on deploying equipment to monitor

combustion efficiency of our flares and on

exploring opportunities and technologies

to reduce gas venting in Egypt, which can

potentially reduce our Scope 1 emissions

while also resulting in economic gains,

such as increased used of gas generators

at well sites and further deployment of

flare stacks, among other gas utilisation

opportunities. In terms of energy efficiency,

the usage of a WeWork office is an

initiative to reduce both our cost base and

our energy usage. This is a continuation

of our energy-saving initiative from the

previous year.

Annual Environmental Measurements - in

accordance with the requirements of the

Egyptian Environmental Law 4 for year

1994, the Company carried out annual

environmental measurements, and all

environmental measurements resulted in

less than the threshold limit in the law.

Environmental permit non-compliances

- the company achieved zero Legal

Environmental Violation during 2023

and did not obtain any violations from

the Environment Authority in Egypt

in 2023. The Company obtained 3

Environmental Approvals from the Ministry

of Environment during 2023.

Annual Report and Accounts 2023

Pharos Energy

CORPORATE RESPONSIBILITY REPORT - continued

GHG emissions and activity data

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.

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

377,752

376,626

313,769

2021 2022 2023

107,060

104,919

86,134

2021 2022 2023

600

500

400

300

200

100

289

307

244

458

553

541

308

335

281

Gas Flared - TGT

43,098 (19.3%)

Gas Fuel - TGT

147,347 (66.0%)

Marine Gasoil (MGO)

17,697 (7.9%)

Gas Flared (CNV)

12,392 (5.6%)

Diesel

2,525 (1.1%)

Venting

47,611 (52.5%)

Gas Fuel

19,614 (21.6%)

Diesel

15,537 (17.1%)

Gas Flared

7,463 (8.2%)

Petrol (0.2%)

Electricity from

the grid (0.2%)

Gas Flared - TGT

43,098 (19.3%)

Gas Fuel - TGT

147,347 (66.0%)

Marine Gasoil (MGO)

17,697 (7.9%)

Gas Flared (CNV)

12,392 (5.6%)

Diesel

2,525 (1.1%)

Venting

47,611 (52.5%)

Gas Fuel

19,614 (21.6%)

Diesel

15,537 (17.1%)

Gas Flared

7,463 (8.2%)

Petrol (0.2%)

Electricity from

the grid (0.2%)

Gross GHG emissions (CO

e (t))

Net to Pharos GHG emissions based on Equity Share (CO

e (t))

Greenhouse Gas Emissions Contributors (Total CO

e (t))

for 2023 – Vietnam (Based on total field emissions)

Greenhouse Gas Emissions Contributors (Total CO

(t)) for 2023 – Egypt (Based on total field emissions,

including venting)

Vietnam

Total CO

e (t)

Egypt

Total CO

e (t)

In 2023, 17 tonnes of gas were flared for every 1,000 tonnes of total hydrocarbon production from Group assets on a net equity share

basis. This is a significant reduction from 35 tonnes in 2022.

Vietnam

Egypt

Overall

Carbon intensity of production (tCO

e per 1,000 tonnes of oil equivalent produced)

GHG Data - tonnes of CO

equivalent for 2021 to 2023

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

CORPORATE RESPONSIBILITY REPORT - continuedCORPORATE RESPONSIBILITY REPORT - continued

Venting

Routine venting emissions have been included for the third year in GHG Report in 2023. Routine venting only occurs in Egypt. Although

there is no routine venting in Vietnam, accidental leaks can occur. In addition, some activities do occasionally require depressurisation of

differing process systems. In these instances, the system(s) will be isolated, and depressurised to as low as possible, and then drained

to a closed drain tank. A minor amount of gas commingled with liquid will evacuate out through cold vent line to a safe area. Associated

emissions are negligible (53 tCO

e) but for the sake of completeness have been included within the report for 2023.

In 2023, the amount of associated gas used as fuel in gas generators in Egypt was 209 mmscf, which resulted in 19,614 tCO

e (gross).

However, had this associated gas been vented it would have resulted in additional emissions in the order of 63,586 tCO

e, or 20% of

the Group’s total emissions on a gross basis.

The Group’s energy use from grid electricity was 330,552 kWh in 2023 for overseas offices in Egypt and Vietnam. In 2022, the Group’s

energy use was 323,492 kWh. Since the middle of July 2021, Pharos has rented a flexible six-desk office space in London, the

electricity consumption of which is not included in the report.

Effluents and waste

During 2023, Pharos maintained its record of no spills into the environment in Vietnam. In Egypt, there were two environmental spills as

follows:

Date Location Description Estimated Quantity (bbls)

February 2023

Egypt - El Fayum fields to Suez oil

processing company

A crude oil shipping vehicle encountered crude oil on

the desert road, which caused it to lose balance and

overturn, causing damage to the tank and a partial

spill of the oil cargo. No injuries were reported.

200

March 2023

Egypt - El Fayum fields to Suez oil

processing company

During transportation a crude oil shipping vehicle in

the convoy accidentally crashed into another one

from behind, causing a rupture in the valves which

resulted in the loss of the crude oil cargo. No injuries

were reported.

392

All spillage incidents during the year were investigated and lessons learned as appropriate and actions to prevent recurrence were

implemented.

Water is extracted along with hydrocarbon reservoir 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 2023 we generated 6.6 million

cubic metres of produced water. In Vietnam, the produced water is cleaned by separating the hydrocarbon phase before discharging to

the sea in line with national standards.

In Egypt, our produced water is all disposed of in disposal wells. The company has three Produced Water Treatment Facilities (PWTF),

two of them are in-service at the gathering stations (GS) in Silah and North Silah Deep (NSD) and the third is yet to be used at North

East Tersa. The produced water is being collected in both PWTF (Silah & NSD) and then disposed of by injecting it into the Abu Roash

“E” formation through disposal wells at each location (approximately 5,000 bbls/d of water disposed into SILAH-15 & and 6,500 bbls/d

of water into NSD-1-1).

In Vietnam, waste is generated from both our production operations as well as from our offshore drilling activities. Drilling waste includes

cuttings, used oil and other materials. We work to recycle as much non-hazardous waste as possible. We have a third-party contract for

the disposal of hazardous waste, with a reporting system into the 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 2023, freshwater consumption for both Vietnam and Egypt amounted to 66,588 cubic

metres. Our use of freshwater has decreased by 6 percent compared to 2022, due to a reduction in drilling activity carried out through

the year.

Annual Report and Accounts 2023

Pharos Energy

CORPORATE RESPONSIBILITY REPORT - continued

Biodiversity

The Group’s Biodiversity and

Conservation Policy commits us to meet

the objectives of the Convention on

Biological Diversity (1992). We identify

whether a project is located in modified,

natural or critical habitats, or a legally

protected or internationally recognised

area; and whether the project may

potentially impact on, or be dependent

on, ecosystems services over which

Pharos has direct management control

or significant influence. In Egypt, the El

Fayum Concession borders the multiple-

use management area and the natural

protectorate area of Lake Qarun which

includes important bird habitats. It is

adjacent to the Wadi El Rayan protected

area, which includes the Wadi Al-Hitan

World Heritage Site. In Vietnam, Blocks

125 & 126 are approximately 50km

offshore to the Nha Trang Bay Protected

Area and the Thuy Trieu Marine Protected

Area. Consistent with the Biodiversity and

Conservation Policy, Pharos does not

operate in any UNESCO designated World

Heritage Site and ensures that activities

in buffer zones around these sites do not

jeopardise the Outstanding Universal Value

(as defined by UNESCO) of these sites.

In Vietnam, safe practices were adhered

to ensure the surrounding environment is

protected at all times:

• The oil in water content of produced

water were continuously monitored

• Hazardous wastes have been strictly

managed, with hazardous wastes

manifests completed and submitted to

the relevant authorities

• All waste waters and sewage

generated on the drilling rigs, supply

vessels and FPSO have been treated

before discharge

• All solid wastes were collected,

segregated and transported to shore

and sent to the appointed contractors

who provided waste treatment system

In Egypt, similar safe practices were in

place:

• For normal waste, handling

and disposal was undertaken

in compliance with applicable

environmental law and regulatory

requirements, involving contracting

with local units.

• Handling, transportation and disposal

of hazardous waste was undertaken

as follows:

− solid hazardous waste to approved

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.

Tonnes (t) of CO

e equivalent for 2023 Operations

e (t)

e (t) per 1000 tonnes

of hydrocarbon 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 310 71 - -

El Fayum Concession

Production 87,616 20,029 541 541

Field development 2,685 614

Vietnam Cuu

Long Basin

(offshore)

Office Administration (electricity usage) 2 2 - -

Blocks 125 & 126 Seismic exploration 0 0 - -

Block 9-2 – Ca Ngu

Vang (CNV) field

Production 14,698 3,675 59

244

Field development 3,591 898

Block 16-1 – Te Giac

Trang (TGT) field

Production 204,867 60,845 302

Field development 0 0 –

Total

313,769 86,134 281

1) Figures include rounding to the nearest whole number.

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

3) GHG emission intensity is calculated, per field, and at country level, based on equity share, and gross/net boepd produced in 2023 in the CNV and TGT

fields as well as in El Fayum and North Beni Suef Concessions. Conversion from BOE to TOE is based on the following factor: 1 toe = 7.59 boe for El

Fayum, 1 toe = 8.68 boe for CNV and 1 toe = 7.32 boe for TGT.

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

CORPORATE RESPONSIBILITY REPORT - continuedCORPORATE RESPONSIBILITY REPORT - continued

Non-Financial KPIs (HSES)

KPI

Target - 2023 2023 2022 2021

Spills to the environment* 0

1 3

* Number of spills reported (quantities greater than 100 litres).

KPI

Target 2023 2022 2021

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

100

109 111

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

15 24

Solid hazardous waste (tonnes) Set per project

60 48

Percentage of hazardous waste reused or recycled Set per project

11 <1

Overall objective

To protect the environment and conserve biodiversity

2023 Objectives 2023 Outcomes 2024 Objectives

Obtain all necessary environmental

permits for all drilling programmes /

seismic studies.

All necessary permits for our 2023 field

development operations were obtained

successfully.

Obtain all necessary environmental permits

for all drilling programmes / seismic

studies.

Improve methane emissions

management and reporting.

In progress. Pharos has been reporting

methane emissions from venting following

established industry procedures. In 2023

we introduced mobile gas measurements

in certain areas of El Fayum to improve the

reliability of our reporting.

Improve methane emissions management

and reporting.

Carry out further feasibility studies /

cost benefit analysis on CO

reduction

technologies.

Several technologies for reduction the

GHG emissions intensity of our assets

have been identified. We are working with

all stakeholders on the best approach to

implement those deemed most suitable.

Carry out further feasibility studies on CO

reduction technologies and implement

those options deemed suitable for our

assets.

Produce Net Zero GHG emissions

roadmap.

Completed. Net-zero roadmap published

on 6 December 2023.

Continue alignment with TCFD disclosure

& reporting.

Annual review and update of Net Zero

roadmap.

Annual Report and Accounts 2023

Pharos Energy

Corporate Responsibility

Non-Financial Indicators

CORPORATE RESPONSIBILITY NON-FINANCIAL INDICATORS

2023 2022

2021

Hours worked (million) 3.59 3.35 3.17

Lost Time Injury Frequency Rate (number of lost time injuries per million man-hours) 0 0.3 0

Fatal Accident Frequency Rate (number of fatal accidents per hundred million man-hours) 0 0 0

Fatal Accidents 0 0 0

Total Recordable Injury Rate (number of recordable injuries per million hours worked) 0 0.6 0

Total Scope 1 & 2 GHG emissions (tCO

e) by equity

86,134 104,919 107,060

Scope 1 total GHG emissions (tCO

e) by equity 86,094 104,881 107,023

Scope 2 total GHG emissions (tCO

e) by equity 40 38 37

Total Scope 3 GHG emissions (tCO

e) by equity

747,978 - -

Scope 3 GHG emissions (tCO

e) by equity – Business Travel 271 - -

Scope 3 GHG emissions (tCO

e) by equity – Upstream Transportation 1278 - -

Scope 3 GHG emissions (tCO

e) by equity – Use of Sold Product 746,429 - -

GHG intensity by production (tonnes of CO

e per 1,000 tonnes of hydrocarbon produced

by equity share)

281

335 308

Total hydrocarbons flared (Tonnes of hydrocarbons flared for every 1,000 tonnes of production on a

gross basis)

35 32

Energy use (grid electricity kWh)

330,552

323,492 311,692

Total energy consumption (from fuel combustion, other operations and purchased electricity) in MWh

236,972

247,960 260,111

Non-hazardous waste produced (tonnes)

100

109 111

Hazardous waste produced (tonnes)

60 48

Percentage non-hazardous waste recycled

15 24

Percentage hazardous waste recycled

11 <1

Spills to the environment (>100 litres)

1 3

Oil in produced water content (Vietnam Blocks 16-1/9-2)

28 28

Freshwater use (cubic metres)

66,588

70,582 58,525

HSES regulatory non-compliance

0 0

Community investment spend ($)

247,373

198,600 265,000

1) In line with the UK government’s Streamlined Energy and Carbon Reporting (SECR) policy, energy consumption from fuel combustion

2) Under Section 385(2) of the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations, 2013 and in line with the requirements of the Climate

Change Act (2008), carbon reporting for UK-listed companies in Directors’ Report is mandatory for reports published after 30th September 2013. The

regulations cover the six Kyoto Protocol GHG cited in Section 92 of the Climate Change Act: carbon dioxide (CO

), methane (CH

), nitrous oxide (N2O),

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.

3) On 21 March 2022 Pharos revenue entitlement in Egypt decreased from 42.6 to 22.86 percent. According to section 5 of the GHG protocol on base year

recalculation following an acquisition, GHG emissions for the years 2022 and 2021 have been recalculated using this entitlement figure.

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

TCFD index table

TCFD REPORT

Recommended disclosures Status Disclosure location

Governance

a) Describe the board’s oversight

of climate-related risks and

opportunities

• Corporate Responsibility Report, page 63

• Chair’s Statement, pages 16-17

• ESG Committee Report, pages 114-116

• Audit and Risk Committee Report, pages 120-125

• Remuneration Committee Report, pages 126-142

• TCFD Report, under 1. Governance, page 85

b) Describe the management’s role

in assessing and managing climate-

related risks and opportunities

• Risk Management Report, pages 48-53

• Corporate Responsibility Report, page 63

• Section 172 (1), pages 36-39

• TCFD Report, under 1. Governance, page 85

Strategy

a) Describe the climate-related risks

and opportunities the organisation

has identified over the short,

medium and long term

• Viability Statement, pages 60-61

• Risk Management Report, pages 48-59

• TCFD Report, under 2. Strategy, pages 86-95

b) Describe the impact of climate-

related risks and opportunities

on the organisation's business,

strategy, and financial planning

• TCFD Report, under 2. Strategy, pages 86-95

• Viability Statement, pages 60-61

c) Describe the resilience of the

organisation's strategy, taking into

consideration different climate

related scenarios, including a 2°C or

lower scenario

• TCFD Report, under 2. Strategy, pages 86-95

• Viability Statement, pages 60-61

Risk

Management

a) Describe the organisation’s

processes for identifying and

assessing climate-related risks

• Risk Management Report, pages 48-59

• TCFD Report, under 3. Risk Management, page 96

b) Describe the organisation’s

processes for managing climate

related risks

• Risk Management Report, pages 48-59

• TCFD Report, under 3. Risk Management, page 96

c) Describe how processes

for identifying, assessing, and

managing climate-related risks

integrated into the organisation’s

overall risk management

• Viability Statement, pages 60-61

• Risk Management Report, pages 48-59

• TCFD Report, under 3. Risk Management, page 96

Metrics

& Targets

a) Disclose the metrics used by the

organisations to assess climate-

related risks and opportunities

in line with its strategy and risk

management process

• TCFD Report, under 4. Metrics & Targets, pages 95-96

b) Disclose Scope 1, Scope 2, and

if appropriate Scope 3 greenhouse

gas (GHG) emissions, and the

related risks

• Corporate Responsibility Non-Financial Indicators, page 82

• TCFD Report, under 4. Metrics & Targets, pages 95-96

c) Describe the targets used by the

organisation to manage climate

related risks and opportunities and

performance against targets

• TCFD Report, under 4. Metrics & Targets, pages 95-96

• Remuneration Committee Report, pages 126-142

Annual Report and Accounts 2023

Pharos Energy

Climate action at Pharos Energy

TCFD REPORT - continued

As an oil and gas company, we support

the need for more consistent and

comparable disclosure around climate-

related risks and opportunities. The

following pages align with 10 out of

11 recommendations issued by the

Task Force on Climate-related Financial

Disclosures (TCFD) and provide greater

insight into our approach to assessing and

managing the financial risks associated

with climate change. We have included

a TCFD index on page 83 as a quick

overview of our TCFD disclosure.

As at year end 2023, Pharos consider

ourselves not to be fully aligned with one

TCFD recommendation: Metrics & Targets

b) Disclose Scope 1, Scope 2 and, if

appropriate, Scope 3 greenhouse gas

emissions and the related risks. For 2023,

the Group discloses its Scope 1 and

Scope 2 greenhouse gas emissions and

three Scope 3 categories, two of which

have high materiality for Pharos. While the

Group conducted materiality assessment

against all 15 Scope 3 categories during

the year as recommended by the TCFD

guidelines, we are not able to report other

relevant categories of Scope 3 emissions

due to limitations of data collection and

methodology. As Pharos is in early stages

of our Scope 3 reporting journey, we

expect our reporting methodology as well

as the availability and reliability of required

data to improve over time, and we intend

to integrate applicable improved data

into our GHG reporting as it becomes

available. We expect to be fully compliant

with Metrics & Targets b) in the next three

years.

Stakeholder

engagement

Gap

analysis

Internal

alignment

Reporting &

disclosure

Approach:

• Adopt an integrated approach

• A cyclical process

Benefits:

• Demonstrates awareness of growing importance of

climate-related issues to key stakeholders

• Staying ahead of mandatory disclosure

requirements, focusing on efficiencies

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

TCFD REPORT - continued

1. GOVERNANCE

Pharos have a multi-layered governance

structure that aligns our operating

model with our climate and corporate

responsibility ambition.

The Board takes overall responsibility for

our Net Zero ambition, climate strategy

and climate-related risk and opportunities.

The Board ensures Pharos maintain a

robust climate risk management and

internal control systems, including

high-level responsibility for setting and

monitoring the company’s GHG emissions

reduction targets and climate ambitions.

The Board has oversight of climate-

related risks and opportunities and

ensures climate-related considerations

are embedded in our decision-making,

including the application of strict financial

discipline, such as our internal carbon

price curves used in going concern and

viability stress test scenarios, across all

business decisions. At the project level,

the assessment of climate-related risks

and opportunities is an integral part of

each exploration & development project.

For example, in developing the Group’s

Net Zero Roadmap in December 2023,

the Board has taken into consideration

how investment in the development of

future business assets may affect our

Net Zero by 2050 ambition and how

the Emission Management Fund can be

utilised in decarbonisation opportunities.

Through the Remuneration Committee,

the Board ensures climate performance,

including GHG emissions performance

against our net zero target of 5%

reduction by 2026 as part of our Net Zero

Roadmap, is embedded in the corporate

KPI.

Pharos has integrated management

responsibilities into various business

and functional areas, to which the Board

delegates the corporate responsibility

monitoring to the following Committees:

• The ESG Committee oversees the

Group’s management and compliance

with climate-related reporting and

disclosure requirements, as well as

assists the Board in defining and

implementing the Group’s corporate

responsibility strategy.

• The Audit & Risk Committee

(“ARC”) oversees all principal and

emerging risks in our risk management

process, in which climate risk is

considered a principal risk. The

ARC monitors the methodologies

used to test the going concern and

viability resilience of our business and

determine potential financial impacts

of the Group’s principal risks, including

climate risk. It also oversees the

adequacy and effectiveness of our

policies, standards and management

system for HSES.

• The Remuneration Committee

oversees the level of management

incentives attached to improvements

in climate-related performance in order

to further encourage action on this

agenda.

For each Committee’s Terms of Reference

(ToR), please visit www.pharos.energy/

about-us/governance/committees/.

Climate-related matters, as well

as progress against our corporate

responsibility performance and Net Zero

ambitions, are reviewed and discussed at

each committees meetings. Information

is then communicated back to the main

Board for consideration when they review

the Group’s strategy at each scheduled

Board meeting. In 2023, the ESG

Committee met four times, and the Audit

& Risk and Remuneration Committees met

three times each.

Below Board and Committee-level,

our Chief Executive Officer and Chief

Financial Officer manage our climate

progress and are responsible for the

delivery of our Net Zero strategy. To

support the Executives in their delivery, a

Net Zero Working Group was formed in

May 2022, with support from functional

and operational representatives such as

Reservoir Engineer, Investor Relations,

Risk Manager, and Exploration Manager

to drive progress on our strategy. The

Net Zero Working Group reports to the

Executives once every month, who in turn

reports to the relevant Committees and

the Board every quarter.

The Board takes an active approach to

ensure its members are aware of key

climate matters relevant to Pharos and

the broader energy sector. In 2023, the

Board invited an ESG and sustainability

advisor to its Strategy Day meeting in

November to educate Board members on

key issues regarding industry’s expectation

on Net Zero commitment, GHG Scope

1,2,3 disclosures across peers, emerging

climate regulatory trends, and risks and

opportunities for the energy industry in

general and Pharos in particular. The

session was a key avenue for informing

the Executive and Non-Executive

Directors’ consideration of climate-related

matters and Pharos’ Net Zero ambition in

strategic planning and risk management

activities

BOARD OF DIRECTORS

EXECUTIVE DIRECTORS

ESG Committee

Net Zero Working Group

Audit and Risk Committee

Country Managers

Remuneration Committee

Functional &

Operational teams

Annual Report and Accounts 2023

Pharos Energy

TCFD REPORT - continued

2. STRATEGY

Our climate strategy

In order to realise our climate commitment

to achieve Net Zero GHG emissions from

all our future and existing assets by no

later than 2050, Pharos prioritise reducing

emissions by achieving operational

efficiencies, reducing flaring and venting,

replacing the power consumption of our

facilities with less impactful energy sources

and eventually procuring nature-based

carbon offset projects for hard-to-abate,

residual emissions.

More details of our climate strategy,

including interim targets and the

decarbonisation levers at asset levels,

can be found in our Net Zero Roadmap

published in December 2023 on our

website (https://www.pharos.energy/

media/b55c4sqz/pharos-energy-net-

zero-roadmap-2023_official.pdf). This

Roadmap was researched and developed

by the Company in close consultation

with climate specialist advisors and ESG

consultants.

We are committed to transparency

in our climate-related disclosure and

reporting. We strive to achieve a balance

of delivering value to all stakeholders via

cash returns and organic growth while

minimising climate-related impacts on our

long-term business model. Our purpose

is to provide energy security for host

countries in which we operate and help

local government achieve their economic

development goals and prosperity using

oil revenues from our operations.

Identifying climate-related risks and opportunities

Our business strategy is focused on

generating sustainable value from our

producing and development assets,

including an infrastructure-led exploration

approach to identify new resources near

existing infrastructure. The Board holds an

annual review of our corporate strategy,

which incorporates an assessment of our

current portfolio to inform forward-looking

plans to ensure the business maintains

its resilience and is positioned for growth.

Furthermore, in Q4 2023, Pharos with the

support of a TCFD consultant undertook

a scenario analysis exercise to assess the

impact of these physical and transitional

risks and opportunities on our portfolio.

Based on these scenario analyses,

Pharos then had internal discussions with

our finance and commercial team, risk

manager and reservoir engineer to assess

the materiality of these climate-related

risks based on timeframe, severity and

likelihood rating, details of which can be

found in this report. For example, risks

that have a low likelihood rating are still

deemed to be material if their severity are

considered to be moderate or above in

the short or medium term, and vice versa.

The scenarios helped the Company to

better understand and assess the impact

of possible shifts in the macroeconomic

outlook, technology developments, policy

and legal implications, and the projected

future demand for our products.

Internally, our approach to identifying risk

is consistent with all other principal and

emerging risk, which is through a well-

established Risk Management Framework

and is informed by a wide range of

information sources and regularly reviewed

by relevant risk owners. More information

on the Risk Management Framework

can be found in our Risk Management

Report on pages 48 to 59. In addition to

the above framework, for climate-related

risks, the Company also use scenario

analyses to help us identify and assess the

size, scope and significance of climate-

related risks and opportunities relative to

other risks in the matrix. Our approach

to identifying climate-related risks and

opportunities will continue to evolve as

the depth of understanding grows across

our organisation. We continue to embed

consideration of transition and physical

risk exposure in our business planning and

decision making.

The risk rating for each scenario is based

on Likelihood (L) multiplied by Severity

(S), aggregated across all three time

periods with the following weightings: for

likelihood, short-term (0-3 years) 40%;

medium-term (3-5 years) 30%; long-

term (5-10 years) 20%. The weightings

reflect the diminishing level of confidence

associated with longer term projections.

The results of these risk rating and

weighting assessments helped Pharos

identify the impact of these risks and

which area of operations may be affected,

details of which can be found in this

report.

We have aligned our climate-related risks

and opportunities with our cross-industry

metrics and targets in 4. Metrics and

Targets on page 96. For example, the

Emissions Management Fund reflects

the capital available to be invested in

emission reduction projects to mitigate the

impact of transition risks, such as carbon

pricing, and to utilise low-carbon transition

enabling technology opportunities. Risk

of restrictions on use of carbon intensive

assets is considered when we calculate

the anticipated financial impact to the

business. Additionally, our CO

emissions

performance metrics are directly linked

to the targets in our Net Zero Roadmap.

Emissions reduction incentives are part of

all employees’ and directors’ remuneration

and annual bonus schemes, further

incentivising our emission reduction

efforts.

Our net zero fundamentals

Scope

1&2

Our target covers our

Scope 1 and

2 emissions

All

assets

All our current

assets are included

in the target

All

GHGs

All greenhouse

gases are included

in the target

Future

assets

All future assets

are also covered

by the target

Carbon

removal

For 20-40% that is

hard-to-abate we

remove carbon

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

TCFD REPORT - continued

Assessing the impact of transition and physical risks on our business

1) Transition risks & opportunities

The most material transition risks and

opportunities facing Pharos have been

identified through literature review and

discussions with our TCFD consultant

as well as other commercial, risk and

operational Pharos colleagues. The

potential impacts of these transition risks

and opportunities are assessed under

two different emissions scenarios, in the

short-, medium- and long-term (0-3 years,

3-5 years and 5-10 years respectively)

and based on timeframe, severity and

likelihood rating. We consider medium

terms to be 3-5 years, as our most cash-

generative asset in Vietnam, if not granted

the licence extension, would expire in

2026 and 2027. We consider long-term

to be 10 years, as our producing licences

in Vietnam are currently due to expire

within the next 10 years. This assessment,

conducted in Q4 2023, has enhanced

the Group’s overall strategic decision-

making process and tests the resilience

of its business strategy against different

possible futures.

The two scenarios considered in this

assessment were:

• Net-Zero Pathway: based on the

IEA’s Net Zero Emissions by 2050

Scenario (NZE), assumes that there

is rapid implementation of policies

that reduce global carbon emissions.

We have chosen this scenario for

this assessment as it aligns with

the objectives of the Paris Climate

Agreement and limits warming to

1.5°C.

• Stated Policies Scenario (STEPS):

we have chosen this scenario as it

provides a more conservative view of

the future compared to NZE, in which

only current and planned policies are

enacted, and fossil fuels play a greater

role in the energy system, and society

more widely, for longer. According to

the IEA, under STEPS, warming is

projected to reach almost 2.5°C by the

end of the century.

For the purposes of these assessments,

the Net-Zero transition pathway (NZE)

assumes a surge in clean energy policies

and investment and that all current net

zero pledges are achieved, following

significant efforts to realise near-term

reductions. At the same time, carbon

prices are introduced in all regions, albeit

at varying levels for different countries

and sectors. As part of governmental

efforts to decarbonise the energy

sector, government policy and industry

initiatives are focusing on CO

emissions

from production as well as incentivising

alternative low-carbon solutions. By 2030

NZE assumes the share of fossil fuels in

primary energy demand declines from

80% over the last two decades to 62%.

Under NZE, oil and gas prices decline

rapidly to the costs of the marginal project

required to meet falling demand: c.40

USD/barrel for IEA crude oil in 2030,

before declining further to c.20 USD/

barrel in 2050. For STEPS, this scenario

assumes that Electric Vehicles (EVs)

account for around 40% of car sales by

2030 (compared with 15% in 2023) and

that deployment of solar PV doubles by

2030. In the same timeframe, STEPS

assumes the share of fossil fuels in

primary energy demand declines from

80% over the last two decades to 73%.

Related to this, there is a slight but steady

decline in oil demand from the late 2020s,

with falling supply from existing fields

keeping pricing relatively steady – by 2030

IEA crude reaches 85 USD/barrel under

STEPS.

We consider our business resilient when it

can endure stress-testing under the IEA’s

Net Zero Emissions by 2050 scenario

while continuing its operations. Key

drivers of the Group’s resilience include

operational stability and the ability to

meet production guidance, as well as

mitigations against the transition and

physical risks outlined below. Of the

scenarios considered in our Transition Risk

Assessment, only the Net Zero Emissions

(NZE) scenario matched the objectives of

the Paris Climate Agreement of limiting

warming to “well below 2°C”. Therefore,

we continue to stress test the going

concern and viability resilience of our

business using the NZE. These sensitivity

analyses are conducted bi-annually and

form a crucial part of our financial planning

process. We believe that the NZE price

curve has already incorporated carbon

tax considerations into its price deck.

Although there are currently no carbon

tax policies in Egypt and Vietnam, our

sensitivity test assumed a carbon tax to

be effective from 2025 at $20/ tonne CO

gradually increasing to $40/tonne CO

at 2030. More information on our Going

Concern and Viability Statement can be

found on pages 60 to 61, and 166 to 167.

We aim to regularly review and enhance

our processes and standards to help

them reflect the potential impacts of

climate change. We continue to maintain a

watching brief as both compliance-based

and voluntary carbon pricing mechanisms

evolve.

2000 2010 2020 2030 2040 2050 2060 2070 2080 2090

NZE SSP1-2.6 SSP2-4.5 SSP5-8.5

2100

STEPS

Source: IPCC, 2021 and IEA,2023

Global temperature (relative to 1850-1900) in

Annual Report and Accounts 2023

Pharos Energy

TCFD REPORT - continued

The risks and opportunities are assessed using a system that assigns a rating of the perceived severity and likelihood of occurrence

under the Net-Zero Emissions Pathway and STEPS, with input from Pharos’s internal risk register and risk management framework.

Analysis of the current political context in key regions and key global trends is also used in the assessment. With respect to the energy

transition, and the risk assessment undertaken by Pharos, four global trends have been identified that are pertinent to our areas of

operation, Egypt and Vietnam, helping to inform the analysis and the risk and opportunity ratings in this report:

• Affordability and security will determine approaches to energy transition

• Carbon capture, utilisation and storage (CCUS) and carbon markets increasingly moving to the forefront

• Greater grid investment is required to serve effective renewables power markets

• Developing countries collectively demand greater financial assistance to achieve climate goals

Severity Likelihood Timeframe

Severe - E

Major - D

Moderate - C

Minor - B

Low - A

Very unlikely (<15%) -1

Unlikely (15-40%) - 2

Medium likelihood (40-60%) - 3

Likely (60-85%) - 4

Very likely (>85%) - 5

Short-term (0-3 years)

Medium-term (3-5 years)

Long-term (5-10 years)

Transition risks

Risk & description

1. Commodity prices: Oil and gas price volatility

Impact

• Increased costs due to shifts in supply and demand for resources.

• Potential impact on both assets, Egypt and Vietnam.

Potential financial

impact

Short term: 0 Medium term: 0 Long-term: $39.1m

(1)

Timeframe, Severity

& Likelihood

Short term: D3 Medium term: D4 Long term: D5

Business area

impacted

Operations, Supply Chain, Manufacturing

Methodology

• Analyse historical trends in oil and gas prices.

• Evaluate geopolitical factors impacting supply.

• Assess supply chain vulnerabilities in sourcing raw materials.

• Conduct stress testing on cost structures under various price scenarios.

Mitigations

• Oil commodity hedging

• Close monitoring of business activities, financial position cash flows

• Control over procurement costs / effective management of supply chains

• Stress test scenarios and sensitivities via principal compound risk analysis, results of which can be found

in Note 4 on page 166

• Capital discipline with focus on controlling and managing costs

• Discretionary spend actively managed

• Maintain and cultivate good relationships with lenders

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

TCFD REPORT - continued

Risk & description

2. Restriction of use of carbon intensive assets:

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

energy / carbon intensive products (e.g. through EU’s Carbon Border

Adjustment Mechanism)

Impact

• Depreciation of carbon-intensive assets and stranded investments.

• Potential impact on both assets, Egypt and Vietnam.

Potential financial

impact

Short term: 0 Medium term: $3.4m Long term: $10.7m

(2)

Timeframe, Severity

& Likelihood

Short term: C3 Medium term: D4 Long term: D5

Business area

impacted

Upstream Operations, Asset Management, Finance

Methodology

• Conduct a thorough risk assessment on regulatory changes affecting carbon-intensive assets.

• Estimate asset depreciation under different regulatory scenarios.

• Evaluate potential stranded assets through scenario analysis.

• Stress test asset valuations based on evolving environmental regulations.

Mitigations

• Egypt and Vietnam both have plans to increase the proportion of gas, and decrease the proportion of oil,

in the energy mix. Therefore, this risk will have an impact on all of Pharos’ assets.

• However, Pharos believes this risk remains moderately unlikely in the 5 to 10-year timeframe, as it would

take time for Vietnam and Egypt to completely phase out oil and gas. According to S&P, although Vietnam

is one of East Asia’s rare crude suppliers capable of producing more than 300,000 bopd, the country with

a population of close to 100 million has a total refining capacity of around 350,000 bopd, which is only

enough to cover just about half the country’s oil products and chemicals demand.

• Additionally, 100% of our products are sold and consumed locally, which reduces the impact & likelihood

of this risk in the short and medium term.

• Our mitigating actions include managing our carbon footprints through flaring and venting reduction;

exploring decarbonisation technologies to achieve our emission reduction interim targets as detailed in our

Net Zero Roadmap; utilising the Emissions Management Fund; and engaging in regular conversations with

lenders to understand their ESG concerns and requirements.

Risk & description

3. Lack of portfolio diversification:

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

Impact

• Increased vulnerability due to concentrated investments.

• Potential impact on both assets, Egypt and Vietnam.

Potential financial

impact

Short term: 0 Medium term: 0 Long term: $39.1m

(1)

Timeframe, Severity

& Likelihood

Short term: C3 Medium term: C4 Long term: D4

Business area

impacted

Finance, Investment Strategy

Methodology

• Conduct stress testing on portfolio performance under different market conditions.

• Consider calculating the cost of diversification under opportunities.

Mitigations

• While this risk may have a major impact on the viability of the business, the likelihood of completely

phasing out oil and gas usage in Vietnam and Egypt will have a longer time horizon than 5 to 10 years.

• Additionally, 100% of our products are sold and consumed locally, which reduces the impact & likelihood

of this risk in the short and medium term.

• To mitigate the impact of this risk in the medium to long term, Pharos is exploring options towards

investment in low-carbon technology, as part of our Net Zero Roadmap.

Annual Report and Accounts 2023

Pharos Energy

TCFD REPORT - continued

Risk & description

4. Accelerating electrification:

of the transport and heating sectors, and advancements in plastic

recycling could result in lower demand for hydrocarbons in the long term

Impact

• Increased demand for electrification solutions and grid upgrades.

• Potential impact on both assets, Egypt and Vietnam.

Potential financial

impact

Short term: 0 Medium term: 0 Long-term: $39.1m

(1)

Timeframe, Severity

& Likelihood

Short term: C3 Medium term: C4 Long term: D4

Business area

impacted

Technology, Energy, Infrastructure

Methodology

• Analyse market trends in renewable energy and electrification.

• Model the costs associated with potential infrastructure upgrades (rig electrification).

• Conduct scenario analysis on electrification adoption rates and technology advancements.

Mitigations

• Similar to our analysis above, Pharos believes this risk remains moderately unlikely in the 5 to 10-year

timeframe.

• Our mitigating actions include managing our carbon footprints through flaring and venting reduction,

exploring decarbonisation technologies to achieve our emission reduction interim targets as detailed in our

Net Zero Roadmap, utilising the Emissions Management Fund, and engaging in regular conversations with

lenders to understand their ESG concerns and requirements.

Risk & description

5. Carbon pricing:

Increased price of carbon through national and international schemes

Impact

• Financial impact due to costs associated with carbon emissions pricing.

• Potential impact on both assets, Egypt and Vietnam.

Potential financial

impact

Short term: 0 Medium term: $3.4m Long term: $10.7m

(2)

Timeframe, Severity

& Likelihood

Short term: C1 Medium term: D3 Long term: D4

Business area

impacted

Operations, Regulatory Compliance, Finance

Methodology

• Assess current and potential future carbon pricing mechanisms in relevant jurisdictions.

• Utilise commercial models to access potential cost burden of operational emissions, using carbon prices

from different scenarios and timeframes.

• Undertake stress testing on financial resilience using different carbon price points.

• Assess potential financial benefits of emission reduction initiatives and participation in carbon credit markets.

Mitigations

• 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 in

Egypt and Vietnam will not be subjected to a carbon price within five years.

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

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

curve has already incorporated carbon tax considerations into their price deck. Results of this can be found

in Note 4 and Note 16 on pages 166 and 173.

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

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

gradually incrementing to $40/tonne at 2030.

• To mitigate the impact of this risk in the medium to long term, Pharos is exploring options towards

investment in low-carbon technology, as part of our Net Zero Roadmap.

(1) The long-term impact of this risk has been considered as part of our cash flow consideration and is incorporated into our disclosure in the Financial

Statements.

(2) The long-term impact of this risk is calculated based on Pharos production profile and associated increase in carbon tax in the 10-year time frame.

Note:

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

TCFD REPORT - continued

2) Physical risks & opportunities

This assessment adopts a data-driven

approach to identify and analyse the

most material physical climate risks

facing Pharos Energy’s activities in Egypt

and Vietnam and how those risks may

manifest differently under three emissions

scenarios. It assesses current climate

extreme, such as flooding, heat stress and

storms, as well as how long-term shifts

in climate will affect these events. For

physical climate risk, this scenario analysis

helps Pharos understand how climate

impacts may vary by geography, severity

and timing under different emissions

scenarios, and assess the subsequent

implications for its operations, assets and

supply chains. The Company is able to

identify weaknesses, vulnerabilities and

opportunities to help prioritise capital and

resource allocation.

This assessment considers the impacts

of climate change under three Shared

Socio-economic Pathways (SSPs). We

have chosen the below SSPs as they

provide a broad range of temperature

projections, thus allowing us to fully

assess the impact of extreme physical

risks such as heat stress on our business.

• SSP1-2.6 = Sustainable future.

A scenario with low greenhouse

gas emissions and less than 2°C

temperature rise by 2100. This

scenario represents the lower end of

the future concentration pathways.

Under this scenario CO

emissions

begin to decline after 2020 and reach

net zero by 2100.

• SSP2-4.5 = Middle of the road. A

scenario with intermediate greenhouse

gas emissions with a best estimate

temperature rise of 2.7°C by 2100.

This scenario represents the middle

of the range of future concentration

pathways. Under this scenario, CO

emissions start to decline around 2045

but do not reach net zero by 2100.

• SSP5-8.5 = Fossil fueled development.

A scenario with very high greenhouse

gas emissions and a best estimate

temperature rise of 4.7°C by 2100.

This scenario represents the high end

of the future concentration pathways.

Under this scenario, emissions

continue to increase towards the end

of the century, peaking around 2080.

Of the scenarios considered in our

Physical Risk Assessment, the SSP1-2.6

scenario matched the objectives the Paris

Climate Agreement of limiting warming to

“well below 2°C”, but does not limit it to

1.5°C.

2000 2010 2020 2030 2040 2050 2060 2070 2080 2090

SSP1-2.6 SSP2-4.5 SSP5-8.5

2100

Global temperature (relative to 1850-1900) in

Annual Report and Accounts 2023

Pharos Energy

TCFD REPORT - continued

For Pharos’ Physical Risk assessment, the Company used its TCFD consultant’s climate risk indices as guidance to evaluate and

identify the most material physical climate risks facing our operations in Egypt (El Fayum Concession and North Beni Suef Concession)

and offshore Vietnam (Offshore Vietnam Blocks 125 & 126 and 9-2 CNV & 16-1 TGT Fields). For the purposes of these assessments,

assumptions are made based on the degree to which each country is exposed to a range of chronic and acute climate hazards by

2050, forming a climate hazard index. It is constructed at a resolution of 50km

and is comprised of two pillars: Acute Climate Hazards

and Chronic Climate Hazards. The Acute Climate Hazards index is comprised of Extreme High Temperatures, Extreme Precipitation

and Heatwave Hazard. The Chronic Climate Hazards Index is comprised of Chronic Change in Temperature, Chronic Change in

Precipitation, Chronic Change in Wind Speed, Temperature Variability and Precipitation Variability.

The assessment can help Pharos on when and where to invest in new ventures, how to allocate resources for resilience building, or to

risk-adjust strategic decision making. The results of assessments helped Pharos identify the significance and impact of each physical

risks and which area of operations might be impacted, which are detailed in the table below.

Physical risks

Risk & description

6. Reduced water availability:

may affect operations where water is crucial for drilling and extraction

Impact

• Financial impact due to interruptions or slowdown in oil and gas operations.

• Higher expenses for securing water from alternative sources.

• Potential impact on Egypt assets.

Potential financial

impact

Negligible

Pathways, Severity

& Likelihood

Short-term: B3 Medium-term: B3 Long-term: B3

Business area

impacted

Operations

Methodology

• Use historical data on operational disruptions during water scarcity events.

• Estimate production losses and increased downtime based on projections and their financial

consequences.

• Assess the financial impact of delayed or halted operations.

• Assess the cost of securing water from alternative sources.

• Estimate transportation costs for bringing water from distant sources.

• Compare these costs with baseline water procurement costs.

Mitigations

• Water availability is unlikely to have a significant impact on Pharos’ operations as the majority of our

production comes from offshore operations in Vietnam, where water availability is not a concern. In Egypt,

Pharos uses high-salinity water for our operations, which is recycled and reused. We do not consider this

a material risk for Pharos.

• Current mitigating actions include monitoring water usage in our operations.

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

TCFD REPORT - continued

Risk & description

7. Increased temperatures and heat stress:

affecting both equipment and personnel, potentially affecting safety

and operational efficiency

Impact

• Costs associated with implementing measures to mitigate the impact of heat stress on personnel and

equipment.

• Financial losses due to potential slowdown or interruptions in operations.

• Potential impact on both assets, Egypt and Vietnam.

Potential financial

impact

Negligible

Pathways, Severity

& Likelihood

Short-term: A4 Medium-term: B5 Long-term: B5

Business area

impacted

Operations, Health and Safety, Finance

Methodology

• Use risk exposure assessments and health and safety records.

• Identify and assess potential adaptation measures (e.g. cooling systems, personal protective equipment)

based on physical risk data and projections.

• Estimate the costs of implementing these measures, including installation, maintenance, and training.

• Leverage existing data on operational disruptions during periods of increased temperatures.

• Estimate production losses and increased downtime based on historical patterns and their financial

consequences.

• Assess the long-term effects on overall operational efficiency and competitiveness based on historical

data and projections.

Mitigations

• While this risk has the potential to impact both of our operations, its impact is considered to be minimal

thanks to our operational adaptations, which are already in place.

• Other mitigating actions include health and safety training for the operational team in cases of heat stress.

Annual Report and Accounts 2023

Pharos Energy

TCFD REPORT - continued

Risk & description

8. Storm frequency:

operations may be impacted from high winds (and waves if offshore)

Impact

• Financial losses due to repair and restoration expenses for damaged infrastructure.

• Increased costs from production losses and downtime, impacting overall operational efficiency.

• Potential impact on Vietnam asset.

Potential financial

impact

Short term: $2.48m Medium term: $2.48m Long term: $2.48m

Pathways, Severity

& Likelihood

Short-term: B3 Medium-term: B4 Long-term: B4

Business area

impacted

Infrastructure, Operations

Methodology

• Estimate the cost of repairs for different types of infrastructure based on historical data or engineering

assessments.

• Assess vulnerability and exposure of infrastructure to high winds.

• Analyse historical data on operational disruptions during storm events, including downtime and production

losses and shut-down and start-up costs.

• Estimate the financial impact of delayed or halted operations.

• Consider the long-term effects on overall operational efficiency and competitiveness.

Mitigations

• This risk is likely to impact our operations in Vietnam, particularly during monsoon season. This risk is

unlikely to impact our Egypt operations as our operations are onshore and not near any shores where

large waves or storms may have an impact.

• To mitigate this risk and reduce downtime, our operational teams plan drilling programmes ahead of time

and are mindful of monsoon seasons. Operational adaptations are in place to provide flexibility in number

of wells drilled and time of drilling to accommodate storm frequencies.

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

TCFD REPORT - continued

Climate-related opportunities

Opportunity

Technology:

Reduce carbon intensity of products through production efficiencies

Impact

• Improve the environmental performance of products by enhancing production processes to reduce carbon

intensity.

• Reduce the potential impact of carbon tax due to reductions in carbon emissions via production

efficiencies

• Potential impact on both assets, Egypt and Vietnam.

Potential financial

impact

Short term: 0 Medium term: $0.5m Long term: $1.7m

Business area

impacted

Research and development, operations

Methodology

• Conduct a comprehensive analysis of the current production processes.

• Identify areas for efficiency improvements and emissions reduction.

• Implement breakthrough technologies and innovative practices to enhance production efficiency.

• Monitor and assess the impact on carbon intensity through continuous performance measurement.

• Engage in life-cycle assessments to quantify improvements.

Adaptions

• As part of our Net Zero Roadmap, Pharos is exploring several decarbonisation levers to achieve our Net

Zero target by 2050. This includes: reducing and eliminating gas venting, reducing gas flaring via flare

stacks installation, process optimisation, gas utilisation, and carbon capture and removal.

Opportunity

Technology:

Low-carbon transition enabling technology.

Impact

• Strategically invest in fuels and technologies with lower carbon intensity to align with broader company

corporate responsibility goals.

• Potential impact on both assets, Egypt and Vietnam.

Potential financial

impact

Short term: $0.4m Medium term: $2.1m Long term: $4.4m

Business area

impacted

Strategy

Methodology

• Assess the current portfolio of fuels and technologies.

• Identify investment opportunities in less carbon-intensive fuels and technologies.

• Develop a comprehensive investment strategy aligned with corporate responsibility goals.

• Implement investments and monitor their impact on the overall carbon intensity.

• Conduct scenario analysis to evaluate the resilience and potential returns on the investments.

Adaptions

• While many climate-related opportunities and decarbonisation levers are being explored by the Group as

part of our pathways towards Net Zero, as mentioned above, one emission-reduction opportunity already

identified 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 generate electricity to be used for field operations in Egypt.

Annual Report and Accounts 2023

Pharos Energy

TCFD REPORT - continued

3. RISK MANAGEMENT

Climate risk is a principal risk for Pharos,

and it is assessed and managed in line

with Pharos’ overall risk management

framework. The framework comprises:

• A risk management process through

which we carry out regular and

robust risk assessment to identify

and manage principal and emerging

risks. The process considers relevant

interconnections within the assets

and across all business functions and

entities.

• Continued monitoring of

macroeconomic environment,

commodity price uncertainties and

production volatilities.

• Management deep-dive exercises

to gauge its risk appetite on the risk

matrix and recalibrate its risk tolerance

to ensure the appropriate mitigating

actions were implemented. Staff

from all functions, entities and asset

locations are invited to participate in

these exercises to contribute to the

risk matrix.

• An effective internal control system,

including Code of Business Conduct

and Ethics and corporate policies

which form part of the Group’s

Business Management System, to

enable risks to be managed in line with

our defined risk appetite.

• The Board of Directors supported by

the Audit and Risk Committee (ARC)

to ensure that the internal control

functions in place are appropriate,

effective and on target. As the Board

believes the Group’s risk matrix is a

living dynamic document, it is agreed

that additional risk-assessment

meetings, aside from the quarterly

scheduled ARC meetings, can be

called if a new emerging risk is

deemed significant. Quarterly risk

reports, conducted by the Group’s

Risk Manager, are submitted to the

Board ahead of every Board meeting.

For more information, please see our Risk

Management Report on pages 48 to 59.

In addition to the above framework, for

climate-related risks, the Company also

uses scenario analyses, conducted by our

TCFD consultant and outlined above, to

help us identify and assess the size, scope

and significance of climate-related risks

and opportunities relative to other risks

in the matrix. The Group also considers

regulatory requirements and emerging

trends related to climate change of each

host government, such as assessing

Vietnam and Egypt’s national energy plans

as well as STEPS and SDS. Our Climate

Change policy is available on our website

and reviewed annually by the Board,

together with other corporate policies.

We carefully consider the environmental

performance of assets and opportunities

as part of our decision-making process,

underpinned by our Net Zero commitment.

Our approach to climate risk management

is continually developing. How we identify,

manage, assess, mitigate and determine

the impacts of each climate-related risk

and opportunities will vary by type, as

detailed in the transition and physical risks

tables above. We will continue to review

our risk management framework when

determining the materiality of its exposure

to climate-related risks.

4. METRICS & TARGETS

281

Scope 1 & 2 GHG intensity by

production (Tonnes CO

e per

1,000 tonnes of hydrocarbon

produced in 2023)

$20-$40

Carbon price range per tonne

e from 2025 to 2030 used

in Going Concern and Viability

stress testing, in alignment

with NZE pathway

Zero

Proportion of GHG emissions

subject to carbon pricing

regulations

747,978

Scope 3 total GHG emissions

(tCO

e) by equity

$39.1m

Maximum anticipated financial

impact to the business due to a

transition risk

$4.4m

Maximum anticipated financial

benefit to the business due to

adoption of a climate opportunity

$0.25

Of revenue set aside into the

Emission Management Fund for

every barrel net to Pharos sold at an

oil price above $75

27%

Total remuneration weighting linked

to corporate Safety & environment

/ Sustainability target, including

‘Carbon footprints improvement /

GHG emissions lower than baseline

2020’ in 2023 KPI

$2.48m

Maximum anticipated financial

impact to the business due to

a physical risk

c.$0.4m

Total capital accumulated in the Emissions Management Fund as at year end 2023 to

provide support for emissions management projects

86,134

Total Scope 1 & 2 GHG

emissions (tCO

e) by equity

Annual Report and Accounts 2023

Pharos Energy

Strategic Report Additional InformationGovernance Report Financial Statements

TCFD REPORT - continued

Our GHG emissions in 2023 are recorded

in Scope 1 & 2 CO

e absolute and

intensity, and we report on jointly operated

companies in Egypt and Vietnam. We also

measure total hydrocarbon flared as part

of our Corporate Responsibility Non-

Financial Indicators. Both of these metrics

are directly related to our commitment

to achieve Net Zero emissions across all

assets by 2050.

In addition to GHG emissions, we also

measure other industry metrics such as

energy consumption, process emissions,

combustion, venting, waste usage and

recycled, freshwater use, and oil spills,

which we track as part of our HSE

performance and can be found in the

Corporate Responsibility Report on pages

75 to 82.

In December 2023, Pharos published its

Net Zero Roadmap, which was researched

and developed by the Company in close

consultation with specialist advisors

and consultants and models emission

reduction pathways to achieve net zero

Scope 1 (direct) and Scope 2 (indirect)

GHG emissions from all existing and

proposed future assets by 2050 or before.

Based on this modelling, the roadmap

contains interim targets set against the

Company’s 2021 baseline year, which

have been approved by the Board and

sets out a 5% reduction goal in the short-

term and 15% in the medium-term. We

use GHG percentage reduction against

the 2021 baseline as the main metrics

to identify projects and opportunities

with the most potential to reduce our

environmental impact.

We also monitor the reduction of our

year-on-year emission to make sure we

are on track to achieve Net Zero by 2050

ambition and meet the Remuneration

Committee’s corporate responsibility

targets as part of our annual corporate

KPI.

The Company also uses a number of

other corporate responsibility metrics

for our KPI and LTIP (applicable for all

staff and Board members) such as Lost

Time Injury, environmental spills, diversity

and inclusion, which can be found in

the Directors’ Remuneration Committee

Report on pages 126 to 142.

Scope

1 and 2

emissions

2026 target

5% reduction

2030 target

15% reduction

Target reduction pathway

2026 2030 2040 2050

We recognise that Scope 3 value chain emissions can help companies have a better and more comprehensive understanding of their

overall emissions footprints. Therefore, during Q4 2023, Pharos, together with our climate specialist, conducted a high-level materiality

assessment across our portfolio against 15 categories listed in the GHG Protocol to understand which categories are relevant, material

and reportable for Pharos.

A review of peer companies was conducted by our climate specialist to observe and understand trends in reporting of the 15 Scope

3 categories. The group of peer companies were selected with due consideration to their diverse industry representation, comparable

Scope 3 emissions reporting, industry similarity, data availability, and relevance to Pharos Energy’s operational context. Following this,

an evaluation of Pharos’ sustainability reports and our upstream and downstream value chain activities was conducted to identify

all indirect emissions associated with the company’s operations. The 15 Scope 3 emission categories were then reviewed with

consideration given to factors such as relevance to Pharos’ operations, materiality thresholds, and the availability of data within our HSE

reports. The overarching objective of this review was to identify the key categories that hold material significance for Pharos, thereby

ensuring alignment with the IPIECA/API and Greenhouse Gas Protocol (Greenhouse Gas Protocol, 2013; IPIECA, 2016).

Our emissions reduction pathway with short and medium term interim targets until 2050

Annual Report and Accounts 2023

Pharos Energy

TCFD REPORT - continued

Following this review, the 15 Scope 3

categories were organised by materiality

into four groups:

1. High materiality

2. Moderate materiality

3. Potentially moderate materiality

4. Not material to Pharos

In light of this materiality assessment, as

at year-end 2023, we have calculated

emissions from Category 6 – Business

travel, which has moderate materiality

to Pharos and is relatively reliable to

measure, and Category 4 – Upstream

transportation and distribution and

Category 11 – Use of Sold Product,

two categories with high materiality for

Pharos. More information on our Scope 3

emissions can be found in the Corporate

Responsibility Report on page 78 and in

the Corporate Responsibility Non-Financial

Indicators table on page 82.

Activity data pertaining to GHG emissions

in Vietnam and Egypt is reported to

Pharos. Telos NRG assisted with data

collation and GHG emissions calculations.

Verification of the 2023 GHG Emissions

Report has been undertaken by RPS

Consulting UK & Ireland using the

principles in BS EN ISO 14064-3:2019

(the Standard). The RPS’ 2023 GHG

verification report is unqualified and covers

all of our GHG metrics, including Scope 3

emissions.

Like other oil and gas companies, our

emissions targets are not approved by

the Science Based Targets Initiative (SBTi)

due to ongoing development of validation

tools by the organisation for the oil and

gas sector. Nevertheless, we respect

the science and base our decisions on

guidance from widely-used frameworks

such as the Taskforce for Climate-related

Financial Disclosures (TCFD). We consider

our targets to be robust, having been

underpinned by independent analysis

and technical evaluation of our emissions

profile, which we used to identify

decarbonisation initiatives on our operated

assets. We will not engage in any

memberships that run counter to our net

zero commitments. We will be transparent

about our memberships in the sector

and beyond. We plan to address our

residual, hard to abate emissions (which

is estimated to be around 20-40% of our

total emissions) through carbon capture

and removal.

Approval of the Strategic Report

This report was approved by the Board of Directors on 27 March 2024 and

is signed on its behalf by

JANN BROWN

Chief Executive Officer

Chair’s introduction to Governance 100

Leadership & Governance 102

Board of Directors 104

UK Corporate Governance Code 106

Environmental, Social and Governance (‘ESG’) Committee Report 114

Nominations Committee Report 117

Audit and Risk Committee Report 120

Directors’ Remuneration Report 126

− Annual Report on Remuneration (Audited section) 128

− Notes to the single figure table 129

− Unaudited Section 135

Directors’ Report 143

Annual Report and Accounts 2023

Pharos Energy

Governance Report

Financial Statements

Strategic Report

Additional Information

Governance

Report

The role of the Board

The Board is responsible for the

determination of the Group’s strategy and

objectives, the approval of overall financial

budgets and financing agreements,

the monitoring of performance against

these, the oversight of key corporate

relationships with operators and other

joint venture partners, and for corporate

governance more generally.

The Board provides leadership to the

Group by monitoring culture across the

organisation, ensuring its alignment with

Group strategy, objectives and values,

and overseeing its implementation by

management. The Directors are expected

to always act with integrity and honesty,

to lead by example and to promote

the Pharos principles of Safety & Care,

Energy & Challenge, Openness & Integrity,

Empowerment & Accountability, and

Pragmatism & Focus. The Board also

ensures there are appropriate processes

in place to assess and manage risk,

including the overall appetite for risk

across the Group, and monitors the Group

financial and operational performance

against corporate objectives and KPIs.

The Board is committed to ensuring the

Group complies with applicable laws,

regulations, rules and requirements in

all host countries and other relevant

jurisdictions.

The authority for implementing Group

strategy, including the taking of decisions

and the making of financial and other

commitments, is delegated by the Board

to the Executive Directors and the senior

management team subject to defined

authority limits. This delegation by the

Board includes the authority to approve

expenditure in relation to any budgeted

item. However, certain matters are not

delegated and require approval by the

Board itself, and these are set out in

the Group Delegation of Authority, a key

corporate policy document issued and

maintained by the Board that sets out

in detail the financial and non-financial

authorities held by individuals within the

Group.

Overview of 2023

Throughout 2023 we have continued to

build upon our culture of capital discipline

to deliver material improvement to the

Group’s balance sheet, reducing net debt

and achieving strong operational and

financial performance across the Group.

Across the portfolio, the team’s focus

on operational delivery was evidenced

by strong drilling performance in both

Vietnam, with the CNV well coming in

on time, under budget and substantially

contributing to CNV field production,

and Egypt, with discoveries from both

El Fayum’s and NBS’ exploration wells.

The first NBS exploration commitment

well was put on production just nine

months after its commercial discovery,

opening up a new area for production

and development. This has allowed the

Board to continue our commitment to

sustainable shareholder returns, a core

component of Pharos’ strategy since its

inception in 1997.

External factors have posed a series

of challenges for our global operations

during the year and will continue to do so,

with Russia’s invasion of Ukraine and the

extensive international sanctions packages

introduced in response. Combined with

the latest instability in the Levant, and the

interdiction in the Red Sea by the Houthi’s

with the concomitant impact on shipping

through the Suez Canal, these pose a

wider challenge to the Egyptian economy

which has suffered from high 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,

continues to be an important area of focus

for the Board and the executive team.

Throughout the year, the Board devoted

considerable time to supporting and

constructively challenging the executive

team. The Board together with its

Committees received regular detailed

updates from the Executive Directors

and other key members of management

and staff during the year. In pursuit of

the best interests of stakeholders, the

Non-Executive Directors (NEDs) brought

constructive challenge to the executives’

proposals and strategy, offering direction

and support as and where appropriate.

Key areas of focus for the NEDs’

discussions in 2023 included effective

implementation of Group strategy,

portfolio management, capital allocation

and oversight of operational, financial

performance and KPIs, the share buyback

programme, corporate responsibility

Annual Report and Accounts 2023

Pharos Energy

100

Dear Shareholders,

On behalf of the Board, I am pleased to present

the Pharos Corporate Governance Report for

the financial year ended 31 December 2023.

The Company was in full compliance with the

UK Corporate Governance Code throughout

the year.

A strong culture

of governance

CHAIR’S INTRODUCTION TO GOVERNANCE

JOHN MARTIN

Non-Executive Chair

matters, and publication of the Company’s

Net Zero roadmap. The NEDs also

regularly meet without the executive

Directors present.

Board Committees

The Board is assisted in its role by four

permanent committees of the Board:

the Audit and Risk Committee, the ESG

Committee, the Nominations Committee

and the Remuneration Committee.

Reports from these committees follow this

introduction, but I will briefly summarise

some of their key activities in 2023.

The health and safety of the Group’s

workforce remains our number one

priority, and the ESG Committee (see

the report on page 114) is committed to

ensuring that the Group operates safely

and responsibly at all times. In 2023, the

JOCs in Vietnam continued to deliver an

exceptional record of safety, reporting

zero LTIs since operational inception,

representing eleven production years on

TGT and fourteen production years on

CNV. In Egypt, no LTIs were recorded

in 2023. However, the ESG Committee

received reports on two motor vehicle

roll-overs which resulted in the target

for motor vehicle crash and roll-overs

to be exceeded. These roll-overs led to

environmental spills for which the target

maximum was exceeded as a result.

Further details of these incidents are

set out in our Corporate Responsibility

report on pages 70 and 79. With the

oversight of the ESG Committee, Group

personnel are working with the operator

IPR and the JOC Petrosilah to address

the underlying issues 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 December 2023, following discussions

at previous ESG Committee meetings,

the Company announced its Net Zero

Roadmap which details the Group’s

emissions profile, interim reduction

targets, and decarbonisation levers to

achieve our 2050 Net Zero commitment.

I am also particularly proud, in my

capacity as Chair of the ESG Committee,

of the establishment of our Charity and

Community Projects Committee which

reports into the ESG Committee with

regard to social investment initiatives

across the countries where we operate.

During 2023, the Nominations Committee

(see the report on page 117) focused on

reviewing Board composition, succession

planning for key roles throughout the

Company, an annual Board evaluation,

annual Director re-appointments, and

the search and recruitment process for

a Non-Executive Director with technical

expertise. The Board was in agreement

that Dr Bill Higgs was an outstanding

candidate and bring a wealth of technical

and commercial experience to the Board.

The appointment of Dr Bill Higgs as a new

independent Non-Executive Director was

announced on 16 January 2024. The size

of the Board has thus increased from six

(two Executives and four NEDs), to seven

(two Executives and five NEDs) which we

consider commensurate with the size and

profile of the Group.

The Remuneration Committee’s activities

in 2023 centred on the updated

remuneration structure. The Remuneration

Committee approved a 6% increase in

salaries of Executive Directors and the

Board. Apart from this 6% increase in

NEDs’ fees (commencing in 2024) there

were no other increase approved in 2023.

The salaries for non-Director UK staff have

also been increased by 6% to counteract

the continued inflationary factors and cost

of living challenges. Further details are

set out in the Directors’ Remuneration

Committee Report from pages 126 to 142.

Board Priorities

for 2024

We will build further upon a track

record of consistently meeting

expectations and delivering on our

strategy. Key priorities for 2024

are the continuation of the share

buyback programme, the dividend

policy, seeking to grow value for

our shareholders, improving our

payment situation in Egypt, striving

for zero safety and environmental

incidents and continuing to find the

right farm in partner to fund our

commitment well on Block 125.

Clear organic growth and disciplined

capital management will support us

in our aim to maintain regular returns

to shareholders whilst growing the

value of our Company.

In closing, I would like to thank all

of our employees, shareholders,

partners, JOCs and other

stakeholders for their continued

support. The Board looks forward

to building on the progress made

last year, supported by the firm

foundations of robust governance.

JOHN MARTIN

Non-Executive Chair

Annual Report and Accounts 2023

Pharos Energy

101

Governance Report

Financial Statements

Strategic Report

Additional Information

CHAIR’S INTRODUCTION TO GOVERNANCE - continued

Director

Board meeting

(scheduled

quarterly) x4

Board meeting

(additional) x3

Audit and Risk

Committee

meeting x3

Remuneration

Committee

meeting x3

Nominations

Committee

meeting x5

Environmental, Social

and Governance

Committee meeting x4

John Martin (Chair)^

Jann Brown (CEO)

(1) (2) (3)

Sue Rivett (CFO)

Geoffrey Green^

Lisa Mitchell^

Marianne Daryabegui^

In addition to the four scheduled quarterly meetings, the Board met in 2023 on an additional three occasions to deal with specific business

matters which required Board approval. Furthermore the Board attended a corporate strategy meeting in November 2023.

Notes:

1) Jann Brown was not in attendance at the December Board meeting due to extenuating and unforeseen personal circumstances.

2) Jann Brown was unable to attend one Nomination Committee meeting due to the meeting being necessarily arranged at short notice at a time when she was not

available.

3) Jann Brown was unable to attend one ESG Committee meeting due to the meeting being necessarily arranged at short notice at a time when she was not

available due to a meeting with an international business partner previously arranged.

4) Where a Director or Independent Director is unable to attend a particular meeting, full documentation for the meeting is issued to them, their views are sought in

advance and briefings are provided subsequent to the meeting as appropriate.

5) Directors do not attend meetings (or parts of meetings) of the Remuneration Committee when the Committee is deciding matters in relation to such Directors’

Remuneration.

Attended as member

Independent Directors

KEY

Attended as invitee Not attended

Annual Report and Accounts 2023

Pharos Energy

102

Leadership & Governance

LEADERSHIP & GOVERNANCE

John Martin*

Non-Executive Chair and Chair

of Nominations Committee

and ESG Committee

Jann Brown

Chief Executive Officer, ESG

Committee member and

Nominations Committee

member)

Sue Rivett

Chief Financial Officer and

ESG Committee member

Geoffrey Green*

Non-Executive Director and

Senior Independent Director,

Chair of Remuneration

Committee, Nominations

Committee member, Audit and

Risk Committee member and

ESG Committee member

Lisa Mitchell *

Non-Executive Director, Chair

of Audit and Risk Committee,

Remuneration Committee

member, 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

Dr Bill Higgs*

Non-Executive Director and

ESG Committee member

(Appointed on 16 January 2024)

* Independent Non-Executive Directors.

Diversity of Skills, Backgrounds and Experience

The Board places importance on the diversity of gender, experience, knowledge, skills, and professional, educational and cultural

backgrounds. This diversity has brought an international outlook which has been particularly beneficial to the Board’s discussions about

the strategic positioning of its current and new business ventures. As at 31 December 2023, the Board comprised six Directors. As at

27 March 2024, the Board comprised seven Directors.

Meeting attendance

During each Director’s respective term of office in 2023

Board Members

Management

Board of Directors

Executive leadership teamManagement Committees

Audit and Risk Committee Remuneration Committee Nominations Committee

Environmental, Social

and Governance (ESG)

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)

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

L Mitchell

Responsible for the

design, development and

implementation of the

Company’s remuneration

policy.

J Martin (Chair)

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)

M Daryabegui

L Mitchell

G Green

B Higgs *

J Brown

S Rivett

Responsible for defining

the Group’s corporate

responsibility strategy,

review of the Group’s

corporate responsibility

policies, programmes

and initiatives and, more

generally, oversight of the

Group’s management of

corporate responsibility

matters and Net Zero

ambition.

* Dr Bill Higgs was appointed to the

Board and the ESG Committee on

16 January 2024.

Annual Report and Accounts 2023

Pharos Energy

103

Governance Report

Financial Statements

Strategic Report

Additional Information

LEADERSHIP & GOVERNANCE - continued

Annual Report and Accounts 2023

Pharos Energy

104

Experienced leaders

guiding our future

BOARD OF DIRECTORS

JOHN MARTIN

Non-Executive Chair

Appointed: June 2018 (Non-Executive Director from June 2018 – March 2020; Non-

Executive Chair from March 2020)

John has more than 30 years’ experience in international banking in the oil and gas

industry and was a Senior Managing Director in the Oil and Gas team at Standard

Chartered Bank. Prior to joining Standard Chartered in 2007, John worked for

ABN Amro for 26 years, specialising in the energy sector. John has served as the

Senior Vice President of the World Petroleum Council, and as an Independent Non-

Executive Director of Rockhopper Exploration plc. He was previously Chairman of

Falkland Oil and Gas Limited, an Independent Non-Executive Director on the board

of Bowleven plc and, an Independent Non-Executive Director and Chair of the Audit

Committee of Total E&P UK Limited.

JANN BROWN

Chief Executive Officer

Appointed: November 2017 (Managing Director and Chief Financial Officer from

November 2017 – July 2021; Managing Director from July 2021 – March 2022)

Jann was appointed to the role of Chief Executive Officer with effect from 21 March 2022

following a period as CFO from 2017 to 2021. Jann currently serves as an Independent

Non-Executive Director of RHI Magnesita N.V. and previously served as an Independent

Non-Executive Director and Chair of the Audit Committee of Troy Income & Growth Trust

plc and of John Wood Group P.L.C. She was Chief Financial Officer and Executive Director

of Cairn Energy plc from 2006 to 2014. Jann is also a Past President of the Institute of

Chartered Accountants of Scotland.

SUE RIVETT

Chief Financial Officer

Appointed: July 2021

Sue, previously Group Head of Finance and UK General Manager, has been with the

Company for over eight years . Prior to joining Pharos, Sue held senior finance roles with

Conoco, ARCO British (subsidiary of Atlantic Richfield Company), JKX Oil & Gas plc and

Seven Energy. Sue’s various roles have included heading up full FTSE finance functions

including finance, taxation, treasury, IT, corporate planning and Company Secretary. She

was Head of ARCO British trading arm’s back office and mid office and has considerable

joint venture experience and numerous years’ merger and acquisition experience. Sue is a

Fellow of the Chartered Institute of Management Accountants (“FCMA”) with international

experience and nearly 40 years in the energy business.

Annual Report and Accounts 2023

Pharos Energy

105

Governance Report

Financial Statements

Strategic Report

Additional Information

BOARD OF DIRECTORS - continued

GEOFFREY GREEN

Non-Executive Director and Senior Independent Director

Appointed: May 2020

Geoffrey has many years of legal and commercial experience in advising major UK listed

companies on corporate and governance issues, mergers and acquisitions and corporate finance.

Geoffrey retired as a partner of Ashurst LLP in 2013, a leading international law firm, after 30 years

as a partner and 10 years of service as the senior partner and chair of its management board.

He served as head of Ashurst’s Asia practice from 2009 to 2013, based in Hong Kong, and was

responsible for leading the firm’s strategy and business development for the region. He served

on the Board of Vedanta Resources Limited, (formerly Vedanta Resources plc, a London Stock

Exchange listed company) from 2012 to 2021 and was Chair of the Remuneration Committee.

Geoffrey was the Non-Executive Chair of the Financial Reporting Review Panel, one of the main

subsidiary bodies of the Financial Reporting Council, from 2015 to 2022, and is also a non-

executive director of a Hong Kong based investment fund. He has a degree in law from Cambridge

University and qualified as a solicitor at Ashurst LLP.

LISA MITCHELL

Non-Executive Director

Appointed: April 2020

Lisa is currently the Chief Financial Officer of Orca Energy Group Inc. a TSX-V listed company. Lisa

is an experienced CFO with over 25 years’ international experience, across the oil and gas, mining

and the pharmaceutical industries. She was most recently CFO and Executive Director of San

Leon Energy plc and was previously CFO and Executive Director of Lekoil Limited, the African-

focused oil and gas exploration and production company with interests in Nigeria. Prior to this,

Lisa was CFO and Executive Director at Ophir Energy plc, formerly a FTSE 250 company where

she was responsible for contributing to the overall business strategy of Ophir; leading the finance

function including all financial, taxation, treasury and funding requirements and investor relations.

Lisa’s previous roles include CSL Limited, and Mobil Oil Australia. Lisa is a Certified Practicing

Accountant (FCPA Australia) and holds a Bachelor of Economics (major in Accounting) from La

Trobe University, Melbourne and a Graduate Diploma in Applied Corporate Governance from the

Governance Institute of Australia.

MARIANNE DARYABEGUI

Non-Executive Director

Appointed: March 2019

Marianne is currently the Chief Financial Officer of Lithium de France, an energy transition company

focused on geothermal energy and lithium extraction. She was Head of Natural Resources at BNP

Paribas and then Managing Director at Natixis in the Energy and Natural Resources sector. She

has extensive experience in corporate transactions and capital markets and has advised majors,

independent E&Ps and national oil companies. Prior to leading the Oil and Gas Corporate Finance

Team in 2006 at BNP Paribas, Marianne headed the Commodity Structure Finance team for the

Middle East and Africa. Before joining the banking sector Marianne spent eight years at TOTAL.

Marianne has a Master’s degree in Finance and Capital Markets from Sciences Po University, Paris

and a Masters in Tax and Corporate Law.

DR BILL HIGGS

Non-Executive Director

Appointed: January 2024

Bill has over 30 years of global exploration, development and operations experience, including

more than 10 years in executive roles for listed independent exploration and production

companies. He is a qualified geologist with extensive expertise in all engineering and other

technical and commercial aspects of hydrocarbon exploration, development and production. Most

recently, Bill was Chief Executive Officer of Genel Energy between 2019 and 2022, having served

as Chief Operating Officer from 2017. Preceding his roles at Genel, Bill was Chief Operating Officer

for Ophir Energy plc, responsible for managing the global asset portfolio. Before that he served

as Chief Executive Officer of Mediterranean Oil and Gas, overseeing the successful sale of the

company in 2014. Bill began his industry career at Chevron, spending 23 years across a number

of global roles. Bill is currently serving as Chairman of Chappal Energies Mauritius Limited, a West

Africa-focussed energy company that has recently embarked on building a portfolio of upstream

assets.

Annual Report and Accounts 2023

Pharos Energy

106

2018 UK Corporate

Governance Code (the ‘2018 Code’)

UK CORPORATE GOVERNANCE 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 remains important to the Board to

preserve and enhance the strong and

resilient culture of our workforce. The

Board monitors adherence to these

principles through a number of different

engagements, both formal and informal,

ensuring that they are evidenced in

behaviours and not simply as words on a

page.

Stakeholder engagement

Colleague engagement

The Board understand that the strategy

and long-term success of the Group is

dependent on a strong culture and set of

values that is clear and guide everything

we do. Our approach is driven by the

strength, skills and imagination of our

people, and our shared purpose to make

a positive impact. The way we work and

do business is based on five guiding

principles (the Pharos Guiding Principles):

Safety & Care, Energy & Challenge,

Openness & Integrity, Empowerment

& Accountability, and Pragmatism &

Focus. The Pharos Guiding Principles are

reinforced by our Code of Conduct and

Business Ethics and other corporate-level

policies, procedures and guidance. The

Board has responsibility for assessing

and monitoring the culture of the Group

and ensuring that the Group’s policies

and practices are aligned with this. There

are a number of ways in which the Board

monitor and assess the culture through

engagement with colleagues in various

forms, as detailed below.

The Board places great importance on

the level of engagement with senior

management and other colleagues.

The Board remains passionate about

workforce engagement and fostering a

genuine dialogue between the Company

and staff. All staff are kept informed about

important business developments in the

Company and have channels through

which they can ask questions and provide

input. The now well practised route of

using video calls facilitates more frequent

engagement across our offices worldwide

and the reorganisation of the Group has

instituted a flatter organisational structure,

resulting in shorter lines of management

and more direct, accessible channels of

communication with leadership.

The Executive Directors receive regular

updates on colleague engagement to

understand any complaints or troubles

from the hybrid work environment. At

the beginning and end of each calendar

year, every employee is encouraged to

set their own personal and professional

development objectives and appraisal for

the upcoming year. Each employee has at

least two meetings with their line manager

during the year, to discuss and agree

the objectives and to review progress

mid-year. Line managers also provide

additional support where needed and

assist the employee in overcoming any

difficulties they might be facing.

Following feedback received in previous

years, in which events such as off-

site away days and in-person monthly

meetings were proposed to avoid staff

isolation and promote team culture, the

Company organised a Group-wide off-site

event in June 2023, where colleagues

from Egypt, Vietnam and UK all met

in London to exchange ideas, provide

feedback and engage in structured

team-building activities. The event

proved very successful, with the sharing

of knowledge and practical experience

having an immediate impact. The off-site

event also resulted in a number of new

staff-led initiatives, including a Group-

wide quarterly video conference and a

commitment to an annual Group-wide off-

site event. The Board believes that these

Group-wide events are important not only

for the effective and efficient functioning

of the Company and the business, but to

also promote the company culture and the

development, advancement and wellbeing

of the Group’s global workforce.

2023 statement of

compliance with the

2018 Code

We are committed to the highest

standards of corporate governance

and to compliance with the UK

Corporate Governance Code

2018, which sets out the principles

that emphasise the value of good

corporate governance to long-term

sustainable success. The Company

was in full compliance with the

provisions of the 2018 Code

throughout the year.

The Company also notes the

provisions of the 2024 UK

Corporate Governance Code (the

‘2024 Code’) announced by the

Financial Reporting Council in

January 2024. We have no material

concerns over compliance with the

provisions of the 2024 Code, under

which the majority of provisions will

apply from the Company’s financial

year commencing 1 January 2025.

The remainder of this section of

the Governance Report sets out in

more detail the Company’s practical

application of the Principles of the

2018 Code as set out in the five

sections of the 2018 Code:

• Board Leadership and Company

Purpose;

• Division of Responsibilities;

• Composition, Succession and

Evaluation;

• Remuneration; and

• Audit, Risk and Internal Control

Annual Report and Accounts 2023

Pharos Energy

107

Governance Report

Financial Statements

Strategic Report

Additional Information

UK CORPORATE GOVERNANCE CODE - continued

During the year, John Martin, as Chair of

the Board and designated Non-Executive

Director responsible for workforce

engagement, made himself available to

all employees throughout the year and

encouraged all staff members to share

their concerns, feedback and views about

the Company. Any feedback was then

taken into account and communicated

to the Board and Executive Directors as

suggestions for improvements.

Additionally, there have been other

forms of engagement with the Group’s

global workforce, including extending

participation in the Company’s share

incentive schemes and the corporate

bonus scheme, and providing other

feedback channels, including through

the Group’s Whistleblowing Policy and

access to the dedicated, anonymous and

confidential EthicsPoint hotline.

Shareholder engagement

The Board as a whole has responsibility

for maintaining a satisfactory dialogue with

shareholders. The Executive Directors

are responsible for ensuring on a day-to-

day basis that effective communication

is maintained with key stakeholders

and partners, including an appropriate

level of contact with major shareholders

and ensuring that their views are

communicated to the Board. The Chief

Financial Officer has primary responsibility

at management level for investor relations,

but senior management, the Chief

Executive Officer and other members of

the Board are also regularly involved in

conversations with shareholders.

To maintain a clear understanding of the

views of shareholders, all Directors receive

a quarterly investor relations report, which

includes market updates, brokerage and

communications reports, share register

and share performance analysis and

comments and notes from research

analysts and proxy agencies. Additionally,

a section of the agenda for each regularly

scheduled meeting of the Board is

dedicated to investor and stakeholder

considerations. Investor relations is

also a standing agenda item for weekly

management meetings.

Pharos engaged in open and active

dialogue with its institutional, private and

retail shareholders in several formats

throughout the year. The Company

uses its online presence to post and

disseminate key information promptly to

a wide audience, as a complement to

the use of the normal regulatory news

service. The “Contact” section of the

Company’s website is regularly used by

shareholders and stakeholders for email

communication with the management

team. The official X (formerly known

as Twitter) and LinkedIn accounts of

Pharos continue to be used actively. The

Company uses a communications agency

to provide assistance in the presentation

and dissemination of information to

shareholders and the general public and

also to solicit active feedback as to the

effectiveness of such efforts. Additionally,

the Company also provide a platform for

everyone to access an analyst research

feed via its corporate website at www.

pharos.energy/investors/analyst-research/.

This allowed for a wider audience of

private and retail shareholder to freely

access analyst research notes about

the Company. On top of existing analyst

coverage with Peel Hunt and Auctus

Advisors, the Company also partnered

with Progressive Research and Shore

Capital in 2023, both of which produce

regular research notes on the Company

to ensure a wider mix of equity research

and investment opinion are available

to all shareholders. The Company has

continued its policy of regular liaison with a

proxy advisory and corporate governance

services on responsible investment, ESG

and the terms of shareholder resolutions.

Also in 2023, the Company continued its

engagement with online platform Investor

Meet Company to host online meetings

with a Q&A session in March and October,

allowing shareholders and the wider public

a free platform to put questions directly to

the Executive Directors. At the Strategy

Day held in London in November 2023,

the Board received presentations and

inputs from several key external parties,

including corporate brokers, institutional

shareholders and ESG advisers. During

the year, the Executive Directors, senior

management, and investor relations

colleagues also met with over 20 different

institutional investors, family offices,

media journalists and analysts in various

engagements and events, including ad-

hoc investor roadshows, an analyst lunch,

and video conference meetings.

The NEDs are each responsible for taking

sufficient steps to understand shareholder

views, including any issues or concerns

relating to the management of the

Company. This includes being available

to major institutional shareholders and

responding to requests for additional

communication with the Chair, the Senior

Independent Director or other NEDs.

For instance, in 2023, the Chair and the

Company’s General Counsel engaged

with certain significant shareholders of

the Company to solicit their views on

the effectiveness and composition of

the Board. Those exchanges ultimately

led, following an externally-managed

search process, to the appointment of Dr

Bill Higgs as a new Independent Non-

Executive Director in January 2024. Unlike

the other members of the current Board,

Dr Higgs has a professional background

in geoscience, in addition to many years

of global exploration, development and

operations experience and more than

10 years in executive roles for listed

independent exploration and production

companies. Dr Higgs has been introduced

to a number of key shareholders in his

new role and intends to maintain open

lines of communication.

Additionally, both before and after the

formal proceedings of each AGM of

the Company, all Directors and senior

management, including the Chairs

of the principal Board committees,

make themselves available to answer

shareholder questions and respond to any

specific queries.

Annual Report and Accounts 2023

Pharos Energy

108

UK CORPORATE GOVERNANCE CODE - continued

Local communities, governments

and employees

Our goal is to have a responsible and

positive presence in the regions in

which we operate, creating value for

host countries, local communities,

employees, contractors, suppliers,

partners and shareholders. We engage

with all of those stakeholders on a regular

basis. Additionally, we carefully monitor

compliance with the Modern Slavery

Act 2015 in relation to the Group’s

international operations, including through

regular compliance checks and the

requirements our due diligence and on

boarding processes with suppliers, service

companies and other contractors.

In Vietnam, commitment to local sourcing,

employment, training and industry

capacity building has continued with a

training levy of $300,000 per year in a

ring-fenced fund to support developing

future Vietnamese expertise in the industry.

In Egypt, under the El Fayum and North

Beni Suef Concession Agreements, the

Contractor parties contribute a total of

$200,000 per year split equally between

the two Concessions to support training

and development in industry.

During the year we sought to align our

social investment programme with the

United Nations Sustainable Development

Goals (UN SDGs). In 2023, in addition

to the training levy mentioned above,

a further $247,373 was invested in 22

healthcare, education, infrastructure and

other community projects across all three

host countries . The JOCs approached

and consulted with local partners to

determine which areas of the country

would need the greatest assistance in

order to ensure that we were investing

in local projects that would bring the

most sustainable positive impact to

the community. For full details of all the

projects in which Pharos invested during

the year, please see our Corporate

Responsibility report on pages 73 to 74.

In addition, the Company announced

the establishment of an Emissions

Management Fund in September 2022,

reflecting that, as non-operator, the

Company has no direct control over the

facilities associated with the Group’s

producing assets. From every barrel

net to the Company sold at an oil price

above US$75, this Fund is provided

with US$0.25. In line with the Net Zero

roadmap, this Fund is intended to

provide financial support for emissions

management projects that are otherwise

not economically feasible. As at 31

December 2023 the value of the fund was

over US$400,000.

Whistleblowing, Ethics and

Business Conduct

Our Whistleblowing Policy and associated

procedures ensure that employees are

protected from possible reprisals when

raising concerns in good faith. In addition

to internal reporting channels, we have a

dedicated, anonymous and confidential

ethics hotline supported by EthicsPoint

with numbers displayed in our local offices

available 24 hours a day all year round.

Zero calls were made to the EthicsPoint

hotline in 2023.

Additionally, our Anti-Bribery and

Corruption (ABC) Policy, Code of Business

Conduct and Ethics and associated

guidance were followed rigorously in

2023. All employees are encouraged to

place these policies at the forefront of

our engagement with suppliers, vendors,

partners, and public officials. It is also a

requirement for all Group employees and

the Board to complete and successfully

pass their ABC and Criminal Finance

E-Learning training every year to ensure

that the expected standards of business

conduct are communicated and

recognised across the organisation.

Pharos is committed to creating a safe

workplace for all. We recognise that

2023 has seen significant geopolitical

instability, something that has impacted

far reaching communities and families,

the global economy, communities and

trade. Our thoughts remain with those

involved, directly or indirectly, in current

international conflicts. We continue to

support colleagues and contractors during

this difficult time, as well as ensuring that

our business can continue to function

unaffected.

Division of Roles &

Responsibilities

Responsibilities of the Board

The statutory duty of the Directors is to

act in what they consider to be in the

best interests of the Company and, as

a unitary Board, they are responsible for

the long-term success of the Company.

The Board determines and develops the

strategy for the business and provides

it with the necessary entrepreneurial

leadership. It ensures the Company is

adequately resourced to meet its strategic

objectives and can meet its obligations

to its stakeholders. The Board sets the

values, standards and controls necessary

for risk to be effectively assessed and

managed. Some of its responsibilities

have been delegated to committees of

the Board, including the Audit and Risk,

Remuneration, Nominations and ESG

Committees.

The roles of the Chair and Chief Executive

Officer (CEO) are separated and their

responsibilities are clearly established,

set out in writing and agreed by the

Board. Both are collectively responsible

for the leadership of the Company. The

Chair chairs the Board meetings, leads

the NEDs in the constructive challenge

of the Executive Directors’ strategy

and day-to-day management and is

accountable for the Board’s effectiveness.

This includes encouraging an open and

frank boardroom culture, setting the

Board’s agenda, facilitating the NEDs’

contribution, and ensuring sufficient time

and information to promote effective and

challenging discussions. The Chair has

been in his current role since March 2020.

The CEO is responsible for the everyday

management of the Company. The

CEO leads the Executive Directors and

management team in the implementation

of the Board’s strategy and management’s

performance in running the business.

The NEDs have a supervisory role that

contributes to the development of

the strategy through supportive and

challenging inquiry. They scrutinise the

Executive Directors’ performance in

meeting their agreed goals and objectives

and play a key role in their appointment or

removal.

The Company Secretary is appointed

by the Board. He facilitates the

communications and processes of the

Board, the induction programme for new

Directors and provides advice through the

Chair as may be required in the ongoing

discharge of the Directors’ duties. This

includes ensuring that the Company

provides the necessary resources for

access to independent advice and

any individual professional training and

development needs agreed with each

Director.

The Board operates within a framework

that distinguishes the types of decisions

to be taken by the Board, including

determination of strategy, setting the

principal operating policies and standards

of conduct, approval of overall financial

budgets and financing agreements,

approval for establishing key corporate

relationships and approval of any actions

or matters requiring the approval of

shareholders.

Annual Report and Accounts 2023

Pharos Energy

109

Governance Report

Financial Statements

Strategic Report

Additional Information

UK CORPORATE GOVERNANCE CODE - continued

Board composition

As at December 2023, the Board

comprised six Directors, being the Chair

(who was independent on appointment),

the two Executive Directors and three

independent Non-Executive Directors. As

noted above, Dr Bill Higgs was appointed

as an additional Non-Executive Director in

January 2024.

Tony Hunter was Company Secretary

throughout the year and his appointment

was approved by the Board as a whole.

Responsibilities and composition

of the Principal Board

Committees

There are four principal committees of the

Board:

• The Audit and Risk Committee -

responsible for the integrity of the

Financial Statements and narrative

reporting, including annual and half

year reports

• The Environmental, Social and

Governance (ESG) Committee -

responsible for defining the Group’s

strategy related to ESG matters

• The Nominations Committee -

responsible for ensuring the leadership

needs of the Company are sufficiently

appropriate to ensure continued

ability to compete effectively in the

marketplace

• The Remuneration Committee -

responsible for the design,

development and implementation of

the Directors’ Remuneration Policy

Each principal Board committee has

formal Terms of Reference (TORs), which

sets out the Committee’s delegated role

and authority and is approved by the

Board. The TORs for each Committee,

as well as the current Committee

members, are available on the Company’s

website www.pharos.energy/about-us/

governance/committees/.

Time commitment

The Board has four scheduled meetings a

year, with additional meetings scheduled

as required in connection with the efficient

and diligent operation of the business of

the Company.

In 2023, in addition to the four scheduled

quarterly meetings, the Board also met on

an additional three occasions to deal with

specific business matters which required

Board approval. One of the additional

meetings included the Board Strategy

Day in November 2023, attended by all

members of the Board, certain other

colleagues and a number of external

stakeholders and advisers.

Only Committee members are required to

attend their respective meetings. Other

Directors are invited to attend meetings

of committees of which they were not

members, where determined to be

appropriate or beneficial. In addition, the

chairs of the principal Board committees

provide an update at each full Board

meeting. The attendance table for the

Committee and Board meetings in 2023

can be found on page 102.

Composition, succession

and evaluation

Board composition and

succession

The Nominations Committee ensures the

leadership needs of the Company are met

and maintained appropriately to allow it

to compete effectively in the marketplace.

Board appointments are made through

a formal process led by the Nominations

Committee. In relation to the recruitment

and appointment of Non-Executive

Directors, the Committee recognises the

emphasis placed by the 2018 Code on

the engagement of an external search

consultancy or the open advertising of

vacancies. A well-established international

executive search firm was engaged during

the year in connection with the search

for a new independent Non-Executive

Director from a technical background.

This process ultimately resulted in the

appointment of Dr Bill Higgs as a Director

on 16 January 2024.

The Directors’ roles are established in

writing and approved by the Board.

Biographical details are provided on pages

104 & 105.

Diversity and Inclusion

We believe in a workforce with a diversity

of experience, nationalities, ethnicities,

cultural backgrounds and gender, to

support our business strategy of long-

term sustainable growth. We are proud

that we are able to recruit talents from

diverse backgrounds and ethnicities. As

at year-end 2023, our UK-based staff

comprises 17 people from 10 different

nationalities, of which women accounted

for c.65%, which ensures that we cultivate

a culture that recognises and promotes

diversity in all forms and where every

voice is heard. Our Code of Business

Conduct and Ethics, associated policies

and procedures, and the Pharos Guiding

Principles commit us to providing a

workplace free of discrimination where all

employees can fulfil their potential based

on merit and ability. They also commit us

to providing a fully inclusive workplace,

while providing the right development

opportunities to ensure existing staff have

rewarding careers.

During the year, the Company also

undertook a Group-wide survey of

staff on questions and perceptions of

diversity, equity and inclusion within the

organisation. The results of this survey

are expected to form the basis for a

workshop, seminar or similar event for

staff during 2024.

Throughout the year, the Company

complied with 2 out of 3 targets set by LR

9.8.6R(9) of the FCA’s Listing Rules. As at

31 December 2023, the Company had:

• Four female Directors, representing

two thirds of the Board

• Both Executive Director positions

(Chief Executive Officer and Chief

Financial Officer) held by women

The LR 9.8.6R(9) target with which the

Company did not comply in 2023 related

to ethnic diversity. There is no member

of the Board from a minority ethnic

background. The Company continues

to seek and welcome candidates for the

Board from a minority ethnic background

for positions on the Board, and there

is considerable diversity within the

management team immediately beneath

the Executive Directors.

Equality, diversity and inclusion sit at the

heart of our recruitment, development and

promotion processes. These principles

were taken into consideration during the

Nominations Committee’s evaluation

and recruitment process for a new

Independent Non-Executive Director

with technical experience, but the Board

was in agreement that Dr Bill Higgs was

an outstanding candidate and the best

choice for the role from a very high-quality

shortlist. In reaching this decision, the

Board took into account that Dr Higgs is a

qualified geologist with extensive expertise

in all engineering and other technical

and commercial aspects of hydrocarbon

exploration, development and production

acquired over 30 years of global

exploration, development and operations

experience, including more than 10 years

in executive roles for listed independent

exploration and production companies. He

was appointed in January 2024.

For more information on the gender

and ethnic diversity of our corporate

employees and senior management,

please see page 70 of the Corporate

Responsibility report.

Annual Report and Accounts 2023

Pharos Energy

110

UK CORPORATE GOVERNANCE CODE - continued

Annual re-election of Directors

All Directors annually retire and seek re-

election by shareholders at the Company’s

AGM. In the case of Dr Bill Higgs, he will

seek election by shareholders for the

first time at the 2024 AGM, having been

appointed by the Board since the 2023

AGM. The Nominations Committee makes

its recommendation to the Board on each

election or re-election resolution. Pending

the Chair confirming his satisfaction

that each Director continues to perform

effectively and with the appropriate

commitment to the role, the full Board

then determines its own recommendation

to shareholders in relation to those

resolutions.

The Committee formed its

recommendations regarding the re-

election resolutions at the 2023 AGM

following assessments of Board balance,

composition and independence.

Board effectiveness and

evaluation

The Nominations Committee assesses

the Board’s balance of skills, experience,

independence, diversity, tenure and

knowledge of the Company and

the industry on an annual basis.

The assessments in 2023 included

consideration of the Company’s leadership

needs within the context of growth,

portfolio diversification and long-term

strategy. Those assessments were

another key factor in the appointment

of Dr Bill Higgs as a new Independent

Non-Executive Director in January 2024,

the culmination of a process intended

to ensure that the current balance of the

Board is appropriate and sufficient to

effectively promote the long-term success

of the Company. As discussed above,

Dr Higgs brings to the Board extensive

upstream technical expertise and

experience to complement the skillset and

disciplines of the other Board members.

Remuneration

Remuneration principles

The Remuneration Committee is

responsible for the design, development

and implementation of the Directors’

Remuneration Policy.

In determining the remuneration packages

awarded to management, the Board

and the Remuneration Committee have

continued to aim at providing incentive

schemes that reflect the characteristics of

attractive rewards, fairness and restraint.

Appropriate advice on best practice is

taken from an independent advisor.

Directors’ Remuneration Policy

Our overarching aim is to operate a

Directors’ Remuneration Policy which

rewards senior management at an

appropriate level for delivering against

the Company’s annual and longer-term

strategic objectives. The policy is intended

to create strong alignment between

Executive Directors and shareholders.

In line with applicable law, we are required

to review and propose to shareholders the

Directors’ Remuneration Policy at least

once every three years. As the policy was

recently reviewed, updated and approved

at the 2023 AGM, the latest by which a

revised policy will be put to shareholders

for approval is the 2026 AGM. The terms

of the revised policy approved at the 2023

AGM are set out on pages 126 to 142 of

this report.

Pension and benefits

All eligible employees have the same

access to the same pension contribution

rate (15% of salary) and access to a

similar level of benefits.

Directors’ shareholdings and

share interests

The Board has a policy requiring Executive

Directors to build a minimum shareholding

of 200% of their annual salary. Additionally,

Long-Term Incentive Plan (LTIP) awards to

the Executive Directors have a two-year

holding period following vesting. This is

intended to emphasise a commitment to

the alignment of Executive Directors with

shareholders and a focus on long term

stewardship.

Audit, Risk and Internal

Control

Financial reporting and significant

accounting matters

During the first half of 2023, the Group’s

accounting policies, in accordance

with best practice, were reviewed by

management and the Audit and Risk

Committee to ensure that they remained

appropriate for the Group’s activities.

Following this review, the Group’s

accounting policies were judged to be fully

up-to-date and there were no significant

changes recommended to the Board by

the Committee.

Significant issues related to the

2023 Financial Statements

The Audit and Risk Committee identified

the significant issues (disclosed in more

detail in the Audit and Risk Report) that

should be taken into consideration in

relation to the Financial Statements for

the year ended 31 December 2023,

being key issues which may be subject to

heightened risk of material misstatement.

Fair, balanced and

understandable

The Audit and Risk Committee advised

the Board whether the annual report

and accounts taken as a whole are fair,

balanced and understandable and provide

the range of information necessary for

shareholders to assess the Group’s

performance, business model and

strategy. The Directors have confirmed this

in their Responsibility Statement set out on

page 147 of the Directors’ Report.

Going Concern

Management completed their Going

Concern assessment which was

challenged and reviewed by the Audit and

Risk Committee. The assessment included

a “Base Case” for the Group, including

cash flow estimates for both Egypt and

Vietnam, as well as a “Reasonable Worst

Case” scenario, giving particular regard

to the continuing impact of commodity

price volatility. A further assessment was

also undertaken on the impact of climate

change on commodity prices and a

sensitivity on carbon taxes.

Under these scenarios, management

has assessed, on a conservative basis,

the risks around commodity pricing,

operational risk and political and regional

risks, particularly in Egypt.

Annual Report and Accounts 2023

Pharos Energy

111

Governance Report

Financial Statements

Strategic Report

Additional Information

UK CORPORATE GOVERNANCE CODE - continued

Based on this detailed analysis,

management has concluded that the

Group will continue as a Going Concern

for 12 months from the date of signing of

the 2023 Financial Statements.

Following its review of management’s

Committee paper and in-depth walk

through of assumptions, the Audit and

Risk Committee are satisfied that it is

appropriate to prepare the 2023 Financial

Statements on a Going Concern basis.

For more information, please see the

Viability Statement in the Strategic Report

on pages 60 to 61.

Internal controls and risk

management systems

The Group’s internal control framework

and risk management processes are

designed to ensure that risk identification,

assessment and mitigation is properly

embedded throughout the organisation.

The risk management approach is

designed to provide the Audit and Risk

Committee and the Board with reasonable

assurance that financial irregularities and

control weaknesses will be identified to

mitigate risks that could potentially have

a material adverse impact on the Group’s

operations, earnings, liquidity and financial

prospects.

During 2023, the Group continued to

carry out comprehensive reviews of the

overall effectiveness of its internal controls

framework and continued to work on

improvements.

The Board is primarily responsible for

the effectiveness of the Group’s internal

control systems which are monitored and

improved on an ongoing basis.

The Audit and Risk Committee has been

delegated the responsibility to monitor

and assess the effectiveness of the control

systems operated by management. The

external auditor, Deloitte, also provides

feedback and recommendations on

controls which are brought to the attention

of the Committee.

Internal controls and risk management

issues are discussed in detail and

reviewed for effectiveness at each

Committee meeting, with a report being

provided to the Board for approval.

Internal controls focus for 2023

The Treasury Committee, an executive

committee chaired by the CFO, continued

to meet regularly to review the compliance

of RBL covenants and to also review the

Group’s liquidity, hedging requirements

and investment strategy.

The Audit and Risk Committee reviewed

and approved the related compliance

statements set out in the Risk

Management Report.

The Audit and Risk Committee has also

reviewed and approved the statements

regarding compliance with the 2018

Code, in the Corporate Governance

Report on page 106. The Committee

reviewed and discussed with management

and the external auditor the Company’s

relevant financial information prior to

recommendation for Board approval.

This included the Financial Statements

and other material information presented

in the annual and half year reports. The

Committee considered the significant

financial reporting issues, accounting

policies and judgements impacting the

Financial Statements, and the clarity of

disclosures. The Committee conducted a

review of its Terms of References (TORs)

for best practice, which were approved by

the Board in 2023. These will be reviewed

again during 2024.

The Audit and Risk Committee and

the Board have conducted a review of

the effectiveness of the Group’s risk

management and internal control systems.

Overall, the control environment was

considered to be operating effectively.

We recognise the oil and gas industry

faces many challenges ahead, including

the technical, financial, environmental

and political challenges of accessing

an increasingly scarce resource base

and at the same time coping with the

opposing dual challenges of production

growth but managing transition to a low

carbon future. On 6 December 2023,

the Company published the Net Zero

roadmap to achieve net zero greenhouse

gas (GHG) emissions by 2050.

Our Strategic Framework takes into

consideration the range of potential

risks and the nature of their impact on

the business. The strategic ambitions of

the Group, achieving our financial and

ESG objectives, maintaining operational

effectiveness, ensuring our reputation to

markets, partners, and stakeholders are

all assessed in the context of our appetite

for risk.

The Board is responsible for maintaining

a sound system of internal controls to

safeguard shareholders’ investment and

the assets of the Company. There is an

effective internal control function within

the Company which gives reasonable

assurance against any material

misstatement or loss. The Board and

management will continue to review the

effectiveness and the adequacy of the

Company’s internal control systems and

update such as may be necessary.

Risk assessment

The Audit and Risk Committee conducted

a detailed risk assessment in which it

reviewed existing risks and identified new

risks as appropriate. The likelihood and

significance of each risk was evaluated

along with proposed mitigating factors and

was reported to the Board. All new risks or

changes to existing risks were monitored

throughout the year and discussed at

each Committee meeting. The Committee

maintains a comprehensive bribery risk

assessment and mitigation procedure to

ensure that the Group has procedures

in place to mitigate bribery, and that all

employees, agents, contractors, and

other associated persons are made fully

aware of the Group’s robust policies and

procedures on a regular basis. It is also a

requirement for all Group employees and

the Board to complete and successfully

pass their ABC and Criminal Finance

E-Learning modules training every year.

External auditor

Deloitte LLP was originally appointed as

external auditor to the Company in 2002.

The Statutory Auditors and Third Country

Auditors Regulations 2016 (the “2016

Regulations”), amending the Companies

Act 2006, introduced a requirement for

all public interest entities, including listed

companies, to conduct a tender for

external audit services no less frequently

than every 10 years and rotate auditors no

less frequently than every 20 years.

For engagements starting in a financial

year beginning on a date between 17

June 1994 and 17 June 2003, as is the

case with the Company’s engagement of

Deloitte LLP, the last permitted year of the

engagement under the 2016 Regulations

is the last financial year to begin before

17 June 2023. Accordingly, the financial

year commencing 1 January 2023 is the

final year for which Deloitte LLP can act as

external auditor to the Company.

Following this process, the Company

announced in its Preliminary Results

statement on 22 March 2023 that it

had agreed in principle to appoint Ernst

& Young LLP to succeed Deloitte LLP

as external auditor with effect from the

financial year commencing 1 January

2024. During the second half of 2023 and

the early part of 2024, Ernst & Young LLP

“shadowed” Deloitte’s work as external

auditor, with a view to preserving know-

how and experience and encouraging

a seamless transition. Shareholders are

being asked to approve the appointment

of Ernst & Young LLP as external auditor

for the financial year commencing

1 January 2024 at the 2024 AGM.

Annual Report and Accounts 2023

Pharos Energy

112

UK CORPORATE GOVERNANCE CODE - continued

In each year, the Audit and Risk

Committee assesses the performance

of the external auditor based on their

experience, the quality of their written

and oral communication and input

from management, prior to making any

recommendations as to the appointment

or re-appointment of the external auditor

at the AGM. The Committee also assesses

the independence of the external auditor

once a year and the lead partner is

required to be rotated every five years.

The current Deloitte LLP lead partner is

Anthony Matthews, who is compliant

with the rotation requirements throughout

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 Audit and Risk Committee has

a policy which sets out those non-audit

services which the external auditor may

provide and those which are prohibited.

Within that policy, any non-audit service

must be approved by the Committee.

Before approving a non-audit service,

consideration is given to whether the

nature of the service, materiality of the

fees, or the level of reliance to be placed

on it by the Group would create, or appear

to create, a threat to independence.

If it is determined that such a threat

might arise, approval will not be granted

unless the Committee is 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.

Principal and emerging risks

On page 48, we set out our assessment of the principal and emerging risks facing the

business. The Group Risk Management framework requires that all business units within

the Group conduct on-going risk management and reporting to the Audit and Risk

Committee and the Board. The Group Risk Management Policy 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

3, 4, 7, 15, 16, 71, 86, 106

Colleague engagement

36, 37, 38, 72, 106, 119

Shareholder engagement

17, 36, 37, 39, 107

Local communities, government and employees

17, 23, 28, 37, 65, 69,

108, 119

Whistleblowing, Ethics and Business Conduct

15, 38, 48, 59, 69, 71,

108, 147

Division of Roles & Responsibilities

Responsibilities of the Board

100, 101, 103, 108

Board composition

102, 103, 109

Responsibilities & Composition of the Committees

103, 109

Time commitment

102, 109

Composition, succession and evaluation

Board composition and succession

102, 103, 109

Diversity and Inclusion

15, 38, 71, 72, 109, 118

Annual re-election of Directors

110, 119

Board effectiveness and evaluation

110, 117, 119, 125

Remuneration

Remuneration principles

110, 126, 127

Remuneration policy

110, 140, 141

Pension & Benefits

110, 128, 137, 140

Directors’ shareholdings and share interests

110, 134, 142

Audit, Risk and Internal Control

Significant reporting and accounting matters

110, 121

Fair, balanced and understandable

110, 121, 147

Viability Statement and Going Concern

47, 60, 61, 110, 121

Risk management and internal controls

48-59, 111, 122-125

Internal audit

111, 121, 122, 124

External auditor

111, 112, 125

Principal and emerging risks

48, 54-59, 112

Annual Report and Accounts 2023

Pharos Energy

113

Governance Report

Financial Statements

Strategic Report

Additional Information

UK CORPORATE GOVERNANCE CODE - continued

Accountability statement page references

Accountability

statements Report Page(s)

Strategic objectives

and Business model

Strategic Report 8, 24

Directors’

responsibility

statement

Directors’ Report 147

Auditor’s statement

Independent Auditor’s Report 149

Going concern

CFO Statement 47

Critical judgements

and accounting

estimates

Note 4 to the Financial

Statements

166

Viability Statement

Risk Management Report 60

Risk Management

and Internal Control

Risk Management Report 48

2018 UK Corporate

Governance Report

111, 112

Audit and Risk Committee

Report

122

Audit, Risk and

Internal Control

2018 UK Corporate

Governance Report

110-112

Audit and Risk Committee

Report

122-125

Nominations

Committee

2018 UK Corporate

Governance Report

109, 110

Nominations Committee Report 117

Changes during the year

The Board

Members

Execs

NEDs

Independent

NEDs

John Martin

(Chair, independent on

appointment)

Geoffrey Green

Lisa Mitchell

Marianne Daryabegui

Appointed

Retired

Audit and Risk Committee

Members

Appointed

Retired

Remuneration Committee

Members

Appointed

Retired

Nominations Committee

Members

Appointed

Retired

Environmental, Social and

Governance Committee

Members

Appointed

Retired

Annual Report and Accounts 2023

Pharos Energy

114

Key responsibilities

The Committee is constituted by the

Board to:

• Oversee the Group’s management

and compliance with climate-related

reporting and disclosure requirements,

including applicable rules and

principles of corporate governance,

and applicable industry standards;

• Assist the Board in defining and

implementing the Group’s corporate

responsibility strategy;

• Review the policies, programmes,

practices and initiatives of the Group

relating to corporate responsibility

matters, ensuring they remain effective

and up to date;

• Report on these matters to the

Board and, where appropriate, make

recommendations to the Board; and

• Report as required to shareholders

of the Company on the activities

and remit of the Committee, and in

achieving corporate responsibility and

Net Zero targets.

ESG Committee meetings

in 2023

The Committee met four times during

2023. These meetings were regularly

scheduled Committee meetings held in

March, May, September and December.

At each meeting, the Committee reviewed

and discussed:

• HSES quarterly performance reports,

which includes review of KPIs for both

safety and environmental matters,

and all HSES plans, policies and

procedures

• GHG emissions in Egypt and Vietnam

• Proposed carbon-reduction initiatives

in Egypt and Vietnam, as part of the

Group’s Net Zero Roadmap

• Emissions Management Fund

• Publication of the Net Zero Roadmap

• TCFD reporting, CDP disclosure and

annual Corporate Responsibility (“CR”)

Report

• Development of environmental

regulations and COP events

• Procedures in place to ensure safe

workplace and practices

• Appointment of a Charity and

Community Projects Committee as a

sub-committee of the ESG Committee

to oversee Group’s social investment

projects

Dear Shareholders,

During 2023, the Environmental, Social and Governance (‘ESG’) Committee was

comprised of myself as Chair, Jann Brown, Sue Rivett, Marianne Daryabegui, Lisa

Mitchell and Geoffrey Green.

As Chair of the Committee, I convene meetings on a regular basis and report to the

Board throughout the year.

The ESG Committee has a Term of Reference outlining its responsibilities, which

is reviewed and updated as appropriate by the Board on an annual basis. This is

available on our website at www.pharos.energy/about-us/governance/committees/.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE (‘ESG’) COMMITTEE REPORT

Meeting attendance

Committee member

2023

attendance

John Martin (Chair) ^

Jann Brown

Sue Rivett

Marianne Daryabegui ^

Lisa Mitchell ^

Geoffrey Green ^

Note: Jann Brown was unable to attend

one ESG Committee meeting due to

the meeting being necessarily arranged

at short notice at a time when she was

not available due to a meeting with an

international business partner previously

arranged.

JOHN MARTIN

ESG Committee Chair

Attended as member

^ Independent Directors

Not attended

Annual Report and Accounts 2023

Pharos Energy

115

Governance Report

Financial Statements

Strategic Report

Additional Information

ENVIRONMENTAL, SOCIAL AND GOVERNANCE (‘ESG’) COMMITTEE REPORT - continued

In addition to members of the Committee,

additional non-committee members, such

as the Group Risk Manager, Reservoir

Engineer, Group Head of Technical,

General Counsel and Investor Relations

Analyst were invited to attend Committee

meetings.

Internal Net Zero working group meetings

were also held separately from ESG

Committee meetings. There was noted

to be buy-in on corporate responsibility

matters across the Group.

During 2023, the following additional areas

were reviewed and discussed at each

meetings:

March

• 4Q 2022 HSES performance report

• KPIs for both safety and environmental

matters along with emissions levels

and the recent safety event, noting

one LTI and one environmental spill

from Egypt in 2022

• Draft ESG Committee report to be

included in the Annual Report 2022

• Annual Committee performance

evaluation, which was discussed at

the Nominations Committee meeting

held on the same day

May

• 1Q 2023 HSES performance report

• GHG emissions performance, noting

the flaring in Egypt was being kept in

check

• Development of Net Zero Roadmap,

noting assumptions, scenarios,

projected future emissions, challenges

and considerations going forward

• Scope 3 emissions reporting trend in

the wider oil & gas industry

• Corporate responsibility disclosure

considerations in the overall business

outlook and strategy

• Other lower-carbon energy

opportunities being explored

September

• 2Q 2023 HSES performance report

• KPIs for safety and environmental

matters, noting no environmental

incidents across the Group in 2Q

• Development of Net Zero Roadmap,

noting peer groups’ reporting journey,

recommended disclosure approach,

and review frequency once published

• Progress on Scope 3 high-level

assessment

• Proposal to appoint a sub-committee

of the ESG Committee to oversee the

Group’s social investment projects

December

• Establishment of the Charity and

Community Projects Committee,

overseeing the Group’s social

investment projects

• Update on social investment

projects selected by the Charity and

Community Projects Committee

• 3Q 2023 HSES performance

report, noting no LTI and no further

environmental incidents

• GHG emissions performance, noting

the Group remained on course to

meet its targets

• Development of Net Zero Roadmap,

noting feedbacks from the Board at

its Strategy Day meeting in November

2023 and input from the Group’s

technical consultants

• Resolution for the Net Zero Roadmap

to be published on 6 December 2023

• Progress on TCFD reporting & Scope

• Commentary on COP28 and its

outcomes

Notable matters discussed during

the year:

Net Zero Roadmap & Emissions

Management Fund

In December 2023, Pharos published its

Net Zero Roadmap following its formal

commitment in September 2022 to

achieve net zero greenhouse gas (GHG)

emissions by 2050.

The net zero roadmap, which was

researched and developed by the

Company in close consultation with

specialist advisors and consultants,

models emission reduction pathways to

achieve net zero Scope 1 (direct) and

Scope 2 (indirect) GHG emissions from

all existing and proposed future assets by

2050 or before. Based on this modelling,

the roadmap contains interim targets set

against the Company’s 2021 baseline

year, which have been approved by the

Board.

In order to realise our climate commitment

to achieve Net Zero GHG emissions from

all our future and existing assets by no

later than 2050, Pharos prioritise reducing

emissions by achieving operational

efficiencies, reducing flaring and venting,

replacing the power consumption of our

facilities with less impactful energy sources

and eventually procuring nature-based

carbon offset projects for hard-to-abate,

residual emissions.

More details of our climate strategy,

including interim targets and the

decarbonisation levers at asset-levels,

can be found in our Net Zero Roadmap

published in December 2023 on our

website (www.pharos.energy/media/

b55c4sqz/pharos-energy-net-zero-

roadmap-2023_official.pdf).

The Group has non-controlling equity

stakes in its producing assets and is

non-operating. As a result, it has no direct

control over the majority of its emissions

inventory but it can exercise influence

through the joint operating companies in

Vietnam and Egypt in conjunction with the

other JOC partners. The Company will

use the Net Zero Roadmap to continue

to engage with the JOCs, partners and

governments on reducing emissions

where possible through the options

identified. To the extent within its control,

the Company will continue reducing its

own emissions and remain committed to

transparency in reporting and to keeping

stakeholders updated on progress.

Annual Report and Accounts 2023

Pharos Energy

116

ENVIRONMENTAL, SOCIAL AND GOVERNANCE (‘ESG’) COMMITTEE REPORT - continued

In addition, the Company established

an Emissions Management Fund in

September 2022. From every barrel net

to the Group sold at an oil price above

$75 per barrel, a contribution of $0.25

is made to the Fund. The current value

of the Emissions Management Fund

is now c.$400,000. In line with the net

zero roadmap, this Fund is available to

provide financial support for emissions

management projects undertaken directly

by the Group or through the JOCs.

Health & Safety

In 2023, the JOCs in Vietnam continue

to deliver an exceptional record of safety,

reporting zero LTIs since operational

inception, representing more than

10 production years on TGT and 13

production years on CNV. In Egypt, no

lost time injuries were recorded in 2023.

However, there were two motor vehicle

crashes recorded in the first quarter, which

fortunately did not resulted in any injuries.

We continuously work with the operator

IPR and the JOC Petrosilah to address

any underlying issues identified in safety

measurements and precautions in our

operations.

In Vietnam, the JOCs conducted over 200

HSE training sessions and 100 emergency

response drills respectively during 2023

to ensure safety and preparedness remain

a top priority. In Egypt, we continually

reinforce and implement safe working

procedures such as inspection of all

instruments and equipment, obtaining

the requisite permit to work applications,

providing training and awareness sessions

and above all implementing checks to

ensure risks are reduced to acceptable

levels and encourage the immediate use of

stop-cards.

HSES performance of the Group was

reviewed and discussed at every ESG

Committee meeting in 2023. All incidents

during the year were investigated and

lessons learned as appropriate and

actions to prevent recurrence were

implemented.

KPIs

KPIs for both safety and environmental

matters were reviewed and discussed at

all four ESG Committee meetings in 2023.

Whilst the Group maintained its safety

record of 0 LTI across both Egypt and

Vietnam, the two environmental incidents

in Egypt have resulted in bonus outcomes

for this element to be zero. For more

details of 2023 safety and environmental

KPIs, please see page 129 of the Directors

Remuneration Report.

Task Force on Climate-related

Financial Disclosures

The Company continued to bring our

disclosures in line with the four pillars

of the TCFD in 2023 – Governance,

Strategy, Risk Management, and Metrics &

Targets. Full details of our TCFD disclosure

can be found in our TCFD report on pages

83 to 98. As at year end 2023, Pharos

is compliant with 10 out of 11 of TCFD

recommendations.

CDP

In 2023, the Company continued its

participation in the CDP Climate Change

and Water Security Questionnaire,

successfully maintaining our score of (C)

for both disclosures, which is also the

global average. Both questionnaires were

completed through collaborative efforts

across multiple disciplines and functions

within the Group, with oversight and

approval from the Chief Financial Officer

before submission.

Social impacts

In recent years, we have structured our

social investment programme to align

more with the United Nations Sustainable

Development Goals (UN SDGs).

Pharos works closely with our local

partners and joint ventures in order to

make sure that our social initiatives in the

region continue to bring more positive

impacts to the region. In 2023, a total of

$247,373 was invested in 22 social and

community projects in Egypt, Vietnam and

UK, and a further $500,000 was invested

in ring-fenced funds for training to develop

future talents in the industry in Egypt and

Vietnam.

Further details can be found in our

Corporate Responsibility report on pages

62 to 82.

JOHN MARTIN

ESG Committee Chair

Annual Report and Accounts 2023

Pharos Energy

117

Governance Report

Financial Statements

Strategic Report

Additional Information

Dear Shareholders,

The Committee has continued to ensure that Board independence was preserved

during 2023 and will continue into 2024, taking into account the Board composition

requirements of the 2018 UK Corporate Governance Code. The Committee has

also noted the provisions of the 2024 UK Corporate Governance Code (the ‘2024

Code’) announced by the Financial Reporting Council in January 2024, the majority

of which will come into force for financial years commencing on or after 1 January

2025. The Committee does not anticipate any significant change to its approach to

Board independence and composition when the 2024 Code comes into effect.

NOMINATIONS COMMITTEE REPORT

JOHN MARTIN

Nominations Committee Chair

Role of the Committee

The Nominations Committee (the ‘Committee’) has responsibility for:

• Ensuring the composition of the Company’s leadership remains effective and

competitive;

• Leading the process for Board and committee appointments and making

recommendations to the Board;

• Annually reviewing the Board balance, structure, composition, diversity and

succession planning; and

Establishing an ongoing process for evaluating the Board’s performance and

effectiveness.

Membership

During the year, the Committee comprised John Martin as Chair, the Chief Executive

Officer Jann Brown, and the three Independent Non-Executive Directors (‘NEDs’),

Marianne Daryabegui, Lisa Mitchell and Geoffrey Green. Dr Bill Higgs was appointed as

an additional Non-Executive Director in January 2024.

The qualifications of each of the Chair and members of the Committee are set out on

page 104.

Meetings

The Committee conducted its duties through five meetings held during 2023. During the

year the following areas were discussed at the Committee meetings:

2023 Matter

Review and approval of Nominations Committee report for inclusion in the

2022 Annual Report and Accounts

Annual review of Director’s conflicts of interest register

Annual Director reappointment

Annual Committee Performance Evaluation

Discussion on search and potential recruitment of a new Independent

NED from a technical background, including review of a proposed

specification for the role

Update on NED Recruitment

Succession planning

Update on NED Recruitment and recommendation to the Board

Draft Board Evaluation Questionnaire

As at 31 December 2023, the Board comprised two Executive Directors and four NEDs,

including the Chair. All of those NEDs (discounting the Chair, who was independent on

appointment) were considered independent for the purposes of the 2018 Code. John

Martin remains Chair of the ESG Committee and Chair of the Nominations Committee.

Meeting attendance

Committee member

2023

attendance

John Martin^ (Chair)

Jann Brown

Marianne Daryabegui^

Lisa Mitchell^

Geoffrey Green^

Note: Sue Rivett attended as a non-

committee member for the meetings in

Q1 and Q2 2023.

Jann Brown was unable to attend one

Nomination Committee meeting due to

the meeting being necessarily arranged at

short notice at a time when she was not

available.

Attended as member

^ Independent Directors

Not attended

Annual Report and Accounts 2023

Pharos Energy

118

NOMINATIONS COMMITTEE REPORT - continued

Board refreshment and

succession planning

Board refreshment and succession

planning continue as ongoing processes.

In 2023, the Committee’s priority was to

maintain the independent component of

the Board and to fully comply with the

2018 Code, whilst also consulting with

key shareholders and other stakeholders

on the skillset and balance of the Board.

In 2023, this consultation, in conjunction

with the annual Board evaluation, resulted

in a decision to commence recruitment

for an additional Independent NED with

technical, expertise, preferably with a

background in geoscience.

The NED recruitment process is

summarised in “Appointments Process”

below. On 16 January 2024 we

announced the appointment of Dr Bill

Higgs as an Independent NED with

immediate effect.

Appointments Process

Board appointments are made through

a formal process led by the Nominations

Committee. In relation to the recruitment

and appointment of NEDs, the Committee

recognises the emphasis placed by the

2018 Code on the engagement of an

external search consultancy of the open

advertising of vacancies.

More recently, the Committee oversaw

the search in 2023 for a further NED from

a technical background. In line with the

2018 Code, the Committee engaged

Korn Ferry, an international management

consulting and search firm, in connection

with the process. Other than having been

previously engaged by the Company

in a similar capacity, Korn Ferry has no

connection with the Company or any of

the individual Directors.

The search process was undertaken

in the customary manner, involving an

initial longlist compiled with the benefit

of Korn Ferry’s input and extensive

market knowledge. This longlist was then

narrowed down in phases following further

discussions and evaluation, eventually

being reduced to a shortlist of suitable

candidates that had the opportunity to

meet with all members of the Board and

senior management. Where possible,

these meetings were undertaken face-

to-face rather than by video conference.

The Committee were regularly consulted

throughout the process.

From a very high-quality shortlist, the

Committee recommended to the Board

the addition of Dr Bill Higgs as a new

independent NED and, following the

Board’s approval, Dr Higgs was appointed

on 16 January 2024. Dr Higgs is a

qualified geologist with extensive expertise

in engineering and other technical and

commercial aspects of hydrocarbon

exploration, development and production,

acquired over 30 years of global

exploration, development and operations

experience, including more than 10 years

in executive roles for listed independent

exploration and production companies.

The Committee believes Dr Higgs is

an outstanding appointment that will

contribute significant value to the Board

and the business as a whole.

Independence

As at the date of this report, the

Committee and the Board are satisfied

that all of the NEDs ( discounting

the Chair, who was independent on

appointment), are independent. In

reaching this assessment, the Committee

and the Board have taken into account

the considerations described in the 2018

Code.

The Committee notes in particular that

Marianne Daryabegui has served as a

Director for just over eight years in total

in two phases (October 2013 to October

2016 and March 2019 to present). The

Committee and the Board continue to

regard Marianne as independent under

the 2018 Code and believe that her

relevant period of service for the purpose

of assessing independence should be

treated as commencing in March 2019,

because of the 30-month gap between

her two periods of office. The Committee

intends to consult with proxy advisory

firms on this issue during 2024, well in

advance of the 2025 AGM.

Board balance

The Committee assesses the

Board’s balance of skills, experience,

independence, diversity, tenure and

knowledge of the Company and

the industry on an annual basis.

The assessment in 2023 included

consideration of the Company’s leadership

needs within the context of growth,

portfolio diversification and long-term

strategy. The discussions determined that

the balance is appropriate and sufficient

to effectively promote the long-term

success of the Company but would be

further enhanced through the process

already underway to increase the number

of Independent NEDs, which resulted in

the appointment of Dr Bill Higgs in January

2024.

The Board’s current balance and

composition in 2024 are shown on page

102.

Diversity

Our approach to diversity and

inclusiveness is embedded within the

Group’s Human Rights Policy available on

the Company’s website at www.pharos.

energy/responsibility/policy-statements/. A

key aim of the Policy is a workplace that is

inclusive and free from discrimination.

In applying the Human Rights Policy

to Board composition, the Committee

pursues diversity of approach, experience,

knowledge, skills, and professional,

educational and cultural backgrounds.

The international and global perspective

achieved has enhanced the Board’s

discussions on business development,

M&A and operational and financial

integration.

At present the Board composition scores

highly on gender diversity, with 67%

female representation throughout 2023.

With the appointment of Dr Bill Higgs,

this representation has decreased slightly

to 57% but remains a majority. The

average age of the Board is 65, which is

a little higher than the average for listed

companies, but not dramatically so. There

is no minority ethnic representation on the

Board although, as noted in this report

the Group’s staff as a whole, including the

management team immediately below

the Executive Directors, has significantly

more ethnic diversity. In theory this

organisational diversity should, in the

longer term, filter upwards to senior

management and potentially to executive

representative on the Board.

In its annual review of diversity, the

Committee noted diversity of gender,

age, demographics, skills, professional

backgrounds, experience and education

amongst the Board and senior

management.

Annual Report and Accounts 2023

Pharos Energy

119

Governance Report

Financial Statements

Strategic Report

Additional Information

NOMINATIONS COMMITTEE REPORT - continued

Board evaluation

At the end of 2023, in line with the UK

Corporate Governance Code, the Board

carried out its annual evaluation of its own

performance and effectiveness and that

of its principal Committees, the Chair and

the individual Directors. In doing so, the

outcomes of last year’s review were also

considered. The Committee Chair led

the process which was facilitated by the

Company Secretary and followed a similar

format to that of prior years. Directors

completed confidential questionnaires

covering the key areas as set out below.

The questions were structured to

encourage full, in-depth responses on

each area of focus:

• Strategy

• Risk

• Shareholder and stakeholder relations

• Succession planning

• The Chair’s effectiveness

• Board effectiveness and operation

• The operation of each of the principal

Board committees

• Board training and development needs

• Any other general matters Directors

wished to raise

The results were reported on an

unattributed basis and discussed by the

Committee, led by the Committee Chair,

then shared with the whole Board. The

results of the Chair’s performance review

were discussed with the other NEDs, led

by the Senior Independent Director, and

communicated to the Chair. Following the

evaluation process, a number of areas

were identified for ongoing focus in 2024

including:

• Continued focus on long-term strategy

and implementation of related actions

• Continued enhancement of risk review

processes

• Ongoing shareholder engagement

• Succession planning and talent

development

• ESG considerations

Re-election

All Directors annually retire and seek

re-election by shareholders at the

Company’s AGM. The Committee makes

its recommendation to the Board on

each re-election resolution. Pending the

Chair confirming his satisfaction that each

Director continues to perform effectively

and with the appropriate commitment to

the role, the full Board then determines its

own recommendation to shareholders in

relation to those resolutions, considering

the recommendations of the Committee.

The six Directors retired and offered

themselves for re-election at the 2023

AGM. All Directors were duly re-elected

at the 2023 AGM, each receiving more

than 84% of the proxy votes submitted in

advance of the meeting.

The Committee is satisfied that each

individual Director’s performance continues

to be effective and demonstrates

commitment to the role and, accordingly,

has recommended to the Board that

each such Director remains in office

subject to re-election by shareholders at

the AGM. In the case of Dr Bill Higgs, he

will seek election by shareholders for the

first time at the 2024 AGM, having been

appointed by the Board since the 2023

AGM. The Committee and the Board both

recommend that shareholders vote in

favour of the election of Dr Higgs.

The Committee formed its

recommendations regarding re-election

following assessments of Board balance,

composition and independence.

Workforce engagement

In his role as Independent Non-Executive

Director responsible for workforce

engagement the Committee Chair joined

global office staff for the first Group-

wide offsite event in June, at which staff

members were able to discuss matters

of interest. In addition to this event, the

Committee Chair has regularly attended

Company functions and meetings at

the London office and other venues and

remains approachable to all staff.

This engagement has proved an effective

communication route for the employees

and demonstrates the values of openness

and integrity to which we are committed.

Board development,

information and support

Throughout 2023, all Directors received

ongoing access to resources for the

update of their skills and knowledge; both

on an individual and a full Board basis.

Comments are solicited in the annual

Board evaluation and discussed with the

Chair.

Conflicts of interest

The Board has the power, subject to

certain conditions, to authorise, where

appropriate, a situation where a Director

has, or can have, a direct or indirect

interest that conflicts, or possibly may

conflict, with the Company’s interests.

Such authority is in accordance with

section 175 of the Companies Act 2006

and the Company’s articles of association.

Procedures are in place for ensuring that

the Board’s powers to authorise conflicts

are used effectively and appropriately.

Directors are required to notify the

Company of any conflicts of interest or

potential conflicts of interest that may

arise, before they arise, either in relation to

the Director concerned or their connected

persons. The decision to authorise each

situation is considered separately on its

particular facts.

Only Directors who have no interest in

the matter under discussion are able to

take the relevant decision to authorise

a conflict and must act in a way they

consider, in good faith, will be most likely

to promote the Company’s success.

The Directors will impose such limits or

conditions as they deem appropriate

when giving authorisation or when

an actual conflict arises. These may

include provisions relating to confidential

information, attendance at Board meetings

and availability of Board papers, along

with other measures as determined

appropriate.

Each Director has notified the Board of

either the potential for or the absence

of conflicts. The Board assesses every

notification of a conflict on its own

merits, including the implementation of

appropriate limits and conditions, prior to

giving authorisation for any specific conflict

or potential conflict to exist.

The Board assesses its conflict

authorisations on an ongoing basis

throughout the year and additionally

performs a scheduled review in December.

JOHN MARTIN

Nominations Committee Chair

Annual Report and Accounts 2023

Pharos Energy

120

Dear Shareholders,

I am pleased to present this Audit and Risk Committee

Report for the year ended 31 December 2023,

which sets out the role and work of the Committee

during the year. The Audit and Risk Committee have

focused their work on financial controls, prudent

financial management, including risk management and

mitigation, and other ESG matters.

AUDIT AND RISK COMMITTEE REPORT

LISA MITCHELL

Non-Executive Director

Membership and

responsibilities

During 2023, the Audit and Risk

Committee comprised me as Chair,

Marianne Daryabegui and Geoffrey Green.

As Chair of the Committee, I convene

meetings on a regular basis and report to

the Board throughout the year.

The Audit and Risk Committee has

a formal document outlining its

responsibilities, which is reviewed and

updated as appropriate by the Board on

an annual basis.

The Audit and Risk Committee Terms

of Reference are available on our

website, www.pharos.energy/about-us/

governance/committees/.

Key responsibilities

• Reviewing key financial, operational

and corporate responsibility risk

management processes;

• Reviewing the effectiveness of internal

control processes and systems,

including IT control platforms;

• Monitoring the integrity of the Financial

Statements of the Group and formal

announcements relating to the Group’s

financial performance;

• Reviewing any significant financial

reporting judgements;

• 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.

Meeting attendance

Committee member

2023

attendance

Lisa Mitchell (Chair) ^

Marianne Daryabegui ^

Geoffrey Green ^

Note: Sue Rivett and John Martin attended

all of the meetings as non-committee

members.

Attended as member

^ Independent Directors

Not attended

Annual Report and Accounts 2023

Pharos Energy

121

Governance Report

Financial Statements

Strategic Report

Additional Information

AUDIT AND RISK COMMITTEE REPORT - continued

Audit and Risk Committee

meetings in 2023

The Committee met three times during

2023. These meetings were the regularly

scheduled Committee meetings held in

March, September and December.

The Committee examines and discusses

at each meeting:

• Detailed review of internal controls and

implementation of upgrades

• Review of the risk register and risk

management reports, including

updates on Russian sanctions, a full

paper also goes to the Board

In addition to members of the Committee,

all members of the Board, the finance

management team, operational

management and the Group’s external

auditor, Deloitte, attended each of the

Audit and Risk Committee meetings.

During 2023, the following additional

areas were discussed at meetings of the

Committee:

March

• Review an update of the Modern

Slavery and Human Trafficking

Statement, Climate Change Policy,

HSE Policy, Social Responsibility

Policy, Security Policy, Biodiversity and

Conservation Policy, Human Rights

Policy, Code of Business Conduct and

Ethics, Risk Management Policy, Tax

Strategy Statement and Non-Audit

Services by External Auditors

• Finance update including the Internal

Controls Report, Reserves Update,

Impairment Analysis, review Egyptian

fam-out update paper, Going Concern

and Viability Statement, Treasury and

update on internal audit review on

treasury activities completed by KPMG

• Review and approval of the 2022

Financial Statements, including

reviews that they were fair, balanced

and understandable, reviews of

the Going Concern and Viability

Statements

• Review of 2022 external audit status,

including analyses of findings of the

external audit and key judgemental

areas

• Review and update of the Audit and

Risk Committee governance matters,

with attention to internal controls

processes and systems, and a

detailed review of Risk management

issues and mitigations

September

• Finance update including the Internal

Controls Report, Reserves Update,

Impairment Analysis, Going Concern

and Viability Statement and Treasury

review

• Review and approval of the 2023

Interim Accounts, including a

presentation by the external auditor,

Deloitte, and Audit and Risk

Committee comments

• Update and review of the Delegation

of Authority policy

December

• Finance update including an update

on the Internal Controls Report and

Treasury update

• Review of the Group Forecast

2023 and 2024 Budget and capital

allocation

• Annual Review and Approval of the

Terms of Reference of the Audit and

Risk Committee

• Review of 2023 year-end planning

• KPMG Internal Audit - reviewed

and discussed KPMG’s review of

the Group’s Corporate Cash Flow

Forecast and Valuation Model

During the year, the

Committee focused on the

following matters:

Financial reporting and significant

accounting issues

During the first half of 2023, the Group’s

accounting policies, in accordance

with best practice, were reviewed by

management and the Committee to

ensure that they remained appropriate

for the Group’s activities. Following this

review, the Group’s accounting policies

were judged to be fully up-to-date

and there were no significant changes

recommended to the Board by the

Committee.

Significant issues related to the

2023 Financial Statements

The Committee identified the significant

issues (disclosed in more detail below)

that should be taken into consideration

in relation to the Financial Statements

for the year ended 31 December 2023,

being key issues which may be subject to

heightened risk of material misstatement.

Fair, balanced and

understandable

The Committee advised the Board

whether the annual report and accounts

taken as a whole are fair, balanced and

understandable and provide the range of

information necessary for shareholders to

assess the Group’s performance, business

model and strategy. The Directors have

confirmed this in their Responsibility

Statement set out on page 147 of the

Directors’ Report.

Going Concern

Management completed their Going

Concern assessment which was

challenged and reviewed by the

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 expenditure, 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 2023 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 2023 Financial Statements on

a Going Concern basis.

Annual Report and Accounts 2023

Pharos Energy

122

AUDIT AND RISK COMMITTEE REPORT - continued

Oil and gas reserves

The Group’s estimates of oil and gas

reserves have a crucial impact on the

Financial Statements, especially in relation

to DD&A and impairment of PP&E assets.

Oil and gas reserves, as discussed in the

Risk Management Report on page 57

are calculated using best practice and

industry evaluation techniques which have

uncertainties in their application.

The Committee reviewed, in conjunction

with management and Deloitte, the results

of third-party assessments conducted by

ERCE for TGT and internal evaluation for

CNV, and subsequently audited by the

Group’s reserves auditor, RISC Advisory

Pty Ltd (“RISC”).

In addition, the Committee reviewed,

in conjunction with management and

Deloitte, the reserves assessment

conducted by McDaniel for the El Fayum

and NBS Concessions in Egypt.

The reserves are described in the review of

operations on pages 33 to 35.

The various reserves estimates have

been scrutinised by management, taking

into account the status of each field’s

development, to be satisfied that reserves

estimates are appropriate, that DD&A

calculations are correct and that rigorous

impairment testing has been carried out.

Management also reviewed its estimates

of future costs (including decommissioning

costs) associated with producing reserves.

Reserve estimates are inherently uncertain

and are revised over the producing lives

of oil and gas fields as new reserves

estimates become available and economic

conditions evolve.

Deloitte also engaged their in-house

Reserves Evaluation and Advisory team

in Canada to understand and challenge

management processes in determining

the year end reserves estimates. This

included performing procedures over

the future production forecasts to the

approved budgets and to the reserves

auditors’ CPRs, comparing historical prior

year forecasts and impairment models to

understand variances and reviewing of the

technical reserves revisions in the year.

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 2023, the Group continued to

carry out comprehensive reviews of the

overall effectiveness of its internal controls

framework and continued to work on

improvements.

The Board is primarily responsible for

the effectiveness of the Group’s internal

control systems which are monitored and

improved on an ongoing basis.

The Committee has been delegated

the responsibility to monitor and assess

the effectiveness of the control systems

operated by management. The external

auditor, Deloitte, also provides feedback

and recommendations on controls

which are brought to the attention of the

Committee.

Internal controls and risk management

issues are discussed in detail and

reviewed for effectiveness at each

Committee meeting, with a report being

provided to the Board for approval.

KPMG was appointed to carry out various

internal audits. The programme of work for

2022 included a review of Group Treasury.

For 2023 the Corporate Cash Flow

Forecast and Valuation Model and

Egyptian Joint Venture audit were

completed. KPMG’s reports on Group

Treasury and the Corporate Model were

submitted to the Committee.

Reserve Based Lending Facility

(RBL)

As at 31 December 2023 an amount of

$30.0m was drawn (2022: $65.0m) under

the RBL. The facility matures in July 2025.

Under the RBL facility agreement, the

Group is required to be compliant with

certain debt covenants for each half year

ending 30 June and 31 December, as set

out on page 190.

The Committee has reviewed

management’s assessments of debt

covenant calculations and is satisfied that

the Group is fully compliant.

Commodity hedging – treasury

management

The Group actively managed its exposure

to commodity price risk by entering into

an ongoing programme of hedging. The

objectives of the hedging programme are

mainly to comply with the requirements

under the RBL and to protect the Group’s

Reasonable Worst Case Scenario.

A Treasury Committee, comprising the

Chief Financial Officer as Chair and senior

members of the Group’s finance team,

convene on a regular basis to review the

Group’s strategy and the open hedge

positions to ensure that these are still

fit for purpose in light of current market

conditions. For the year end 31 December

2023 a loss of $0.2m was realised (2022:

loss of $22.5m). The Group’s RBL requires

the Company to hedge at least 35% of

Vietnam RBL production volumes and the

current hedging programme meets this

requirement through to June 2025.

In 2024, the Group seeks to extend this

coverage further to protect budgetary

cash flow and ensure compliance with the

RBL.

Annual Report and Accounts 2023

Pharos Energy

123

Governance Report

Financial Statements

Strategic Report

Additional Information

AUDIT AND RISK COMMITTEE REPORT - continued

KEY JUDGEMENTS AND ESTIMATES IN FINANCIAL REPORTING

Key judgements and estimates

in financial reporting Audit and Risk Committee review Outcomes

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

Reviewed the Group’s discount rates for

impairment testing

The Group’s discount rates were reviewed and

updated accordingly (increased for Egypt and

reduced for Vietnam)

Upstream impairment charges and reversals were

reviewed twice during the year

Impairment of assets

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

Vietnam:

Costs held in Vietnam pending future work

programme.

Egypt:

• Fayum Batran-1x well, as no further

substantive exploration or evaluation is

planned or budgeted, the asset value has

been fully impaired

• NBS exploration costs were reclassified as

PP&E after first exploration commitment well

(NBS-SW1X) was declared a commercial

discovery and put on production in

December 2023. We received approval from

EGPC in December 2023 for the grant of a

20-year development lease for NBS-SW1X

Reviewed at each Committee meeting the status

of all updated estimates

Updated third party estimates and independent

audit completed, with results disclosed in the

2023 Financial Statements

Exploration and evaluation

assets and impairment

review

The Committee reviewed the Group’s

intangible exploration and evaluation

assets individually in Egypt and Vietnam

for any indications of impairment,

including the various indicators specified

in paragraphs 18 to 20 as set out in IFRS

6 – “Exploration for and Evaluation of

Mineral Resources”. Please refer to Note

4 (c) to the Financial Statements for more

information on climate change and energy

transition.

At both the half year and year end 2023,

the Committee considered whether

various indicators of impairment existed,

and also whether there were issues arising

from the results of impairment reviews by

management. Such reviews are carried

out in relation to both exploration and

evaluation assets, with the role of the

Committee being focused on challenging

management’s underlying assumptions

and estimates and to judge whether they

are realistic and justified.

Following the impairment testing, the

Committee recommended to the Board

that following 3D seismic acquisition on

Block 125 in Vietnam and the forward

programme of work that no impairment

had been triggered.

In Egypt, as no further substantive

exploration or evaluation is planned or

budgeted for the Fayum Batran-1x well,

the asset value has been fully impaired.

On NBS, the exploration costs (after

writing back the exploration costs

impaired in 2020) were reclassified as

PP&E after first exploration commitment

well (NBS-SW1X) was declared a

commercial discovery and put on

production in December 2023.

Producing assets, property,

plant and equipment (PP&E)

and impairment review

The Committee reviewed individually the

Group’s oil and gas producing assets

classified as PP&E on the balance sheet

for impairment with reference to IAS 36

– “Impairment of Assets”. During 2023,

the Group’s PP&E oil and gas assets

comprised its two Vietnam producing

licences, TGT and CNV, as well as the El

Fayum and NBS Concessions in Egypt.

These are described in the operations

review on pages 29 to 35.

Annual Report and Accounts 2023

Pharos Energy

124

AUDIT AND RISK COMMITTEE REPORT - continued

This review focused on an updated

assessment of the recoverable amount

of each asset compared to their carrying

value in the accounts. If the recoverable

amount dropped below the carrying value,

there would be an impairment charge to

reduce the carrying value. The Committee

considered the various assumptions

underpinning the assessment of the

recoverable amount, including underlying

reserves, commodity prices, production

rates and discount rates. Based on the

Group’s approved economic assumptions,

the Committee recommended to the

Board that impairments were made on all

four fields.

On our CNV field in Vietnam, a pre-tax

impairment reversal of $0.3m has been

reflected in the Income Statement with an

associated deferred tax charge of $0.3m.

As at 31 December 2023, the carrying

amount of the CNV oil and gas producing

property is $65.0m.

On our TGT field in Vietnam, a pre-tax

impairment charge of $46.3m has been

reflected in the Income Statement with an

associated deferred tax credit of $16.5m.

As at 31 December 2023, the carrying

amount of the TGT oil and gas producing

property is $158.6m.

For our El Fayum concession in Egypt,

an impairment charge of $11.0m, no

tax applicable, is reflected in the Income

Statement. As at 31 December 2023,

the carrying amount of the El Fayum oil

producing property is $54.7m.

For our NBS concession in Egypt, an

impairment charge of $1.9m, no tax

applicable, is reflected in the Income

Statement. As at 31 December 2023, the

carrying amount of the NBS oil producing

property is $1.0m.

Disposal of 55% interest in

Egypt Concessions

On 21 March 2022 the farm-out

transaction of Egyptian assets was

completed. The firm consideration was

received in two tranches, $2.0m in

September 2021 and $3.0m on 30 March

2022.

The carry of $35.9m is disproportionate

funding contribution from IPR adjusted

for working capital and interim period

adjustments from the effective economic

date of 1 July 2020 and completion

date. The carry decreases every month

against the cash calls received from

IPR. The total amount utilised as at 31

December 2023 amounts to $31.0m

(2022: $15.4m), which has been disclosed

in “Consideration received on farm out of

Egyptian assets” in the cash flow as part

of investing activities. No cash outflow is

required until the whole carry amount is

utilised.

The Group is entitled to contingent

consideration depending on the average

Brent Price each year from 2022 to the

end of 2025 (with floor and cap at $62/

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

contingent consideration is calculated

yearly and is capped at a maximum total

payment of $20.0m. As at 31 December

2023, the contingent consideration

amounts to $8.5m, $3.6m current and

$4.9m non-current (2022: $13.9m - $5.0m

current and $8.9m non-current). Testing

of sensitivity for a $5/bbl reduction in long

term oil price used would result in $0.6m

decrease in contingent consideration to

$7.9m.

The final consideration is still being

finalised between IPR and Pharos. The

financial exposure from finalising the

consideration to Pharos, reflecting the

remaining amounts still under discussion,

is considered immaterial to the Financial

Statements.

Egypt Foreign Currency

Risk

In Egypt, the recent global

macroeconomic volatility has seen both

a significant devaluation of the Egyptian

Pound and continued restrictions on

outgoing US Dollar transfers by the

Central Bank of Egypt. The Company

has opted not to accept the payment

of trade receivables balance in Egyptian

Pounds unless required for operations.

The progressive devaluation of EGP

against USD means that it is preferable

to continue to hold USD denominated

receivables.

As a result, Pharos’ receivables have

increased to $37.4m at 31 December

2023 and stated prior to a risk factor

provision of $4.0m (2022: $24.2m

receivables and stated prior to a risk factor

provision of $1.8m).

From mid-February to early March

2024, the Egyptian Government (i) has

announced a landmark agreement with

ADQ (an Abu Dhabi sovereign wealth

fund), whereby this latter will invest $35

billion for the development of the new

coastal city of Ras El Hekma (the first

$10 billion of which were immediately

paid to Egypt); (ii) signed funding with

different institutional lenders including (a)

a significantly expanded new loan with

the International Monetary Fund (IMF)

($8 billion, including the original $3 billion

secured in December 2022); (b) $8 billion

package of loans, grants and investments

from the European Union and (c) $6 billion

from the World Bank, over the next three

years; and (iii) let the Egyptian pound

(EGP), with an immediate devaluation

from c.31 to c.49 EGP per USD (later

strengthened to c.46.5), which forthwith

eradicated the parallel foreign exchange

(FX) market.

Pharos considers it preferable to continue

holding USD-denominated receivables and

accept part-payments of its receivables

balance in EGP only when local currency

will be needed for the funding of

operations at the end of the IPR carry

period. During 2023, the total amount

collected from EGPC is $5.7m.

Internal controls focus for

2023

The Board approved the appointment of

KPMG to carry out various internal audits.

The work commenced in 2022. The

Committee discussed and approved an

internal audit plan which is complementary

but separate to the audit work undertaken

by the Group’s external auditor, Deloitte.

The programme of work for 2022 included

the review of Group Treasury and for

2023 the Corporate Cash Flow Forecast

and Valuation Model and Egyptian Joint

Venture audit.

The Treasury Committee continue to meet

regularly to review compliance of the RBL

covenants and also to review the Group’s

liquidity, hedging requirements and

investment strategy.

The Committee reviewed and approved

the related compliance statements set out

in the Risk Management Report.

The Committee has also reviewed and

approved the statements regarding

compliance with the 2018 Code, in

the Corporate Governance Report on

page 106. The Committee reviewed

and discussed with management and

the external auditor the Company’s

relevant financial information prior to

recommendation for Board approval.

This included the Financial Statements

and other material information presented

in the annual and half year reports. The

Committee considered the significant

financial reporting issues, accounting

policies and judgements impacting the

Financial Statements, and the clarity of

disclosures. The Committee conducted a

review of its Terms of Reference for best

practice, which were approved by the

Board in 2023. These will be reviewed

again during 2024.

The Audit and Risk Committee and

the Board have conducted a review of

the effectiveness of the Group’s risk

management and internal control systems.

Annual Report and Accounts 2023

Pharos Energy

125

Governance Report

Financial Statements

Strategic Report

Additional Information

AUDIT AND RISK COMMITTEE REPORT - continued

Overall, the control environment was

considered to be operating effectively.

We recognise the oil and gas industry

faces many challenges ahead, including

the technical, financial, environmental,

and political challenges of accessing

an increasingly scarce resource base

and at the same time coping with the

opposing dual challenges of production

growth but managing transition to a low

carbon future. On 6 December 2023,

the Company published the Net Zero

roadmap to achieve net zero greenhouse

gas (GHG) emissions by 2050.

Our Strategic Framework takes into

consideration the range of potential

risks and the nature of their impact on

the business. The strategic ambitions of

the Group, achieving our financial and

ESG objectives, maintaining operational

effectiveness, ensuring our reputation to

markets, partners, and stakeholders are

all assessed in the context of our appetite

for risk.

The Board is responsible for maintaining

a sound system of internal controls to

safeguard shareholders’ investment and

the assets of the Company. There is an

effective internal control function within

the Company which gives reasonable

assurance against any material

misstatement or loss. The Board and

management will continue to review the

effectiveness and the adequacy of the

Company’s internal control systems and

update such as may be necessary.

Risk assessment

The Committee conducted a detailed

risk assessment in which it reviewed

existing risks and identified new risks

as appropriate. The likelihood and

significance of each risk was evaluated

along with proposed mitigating factors and

was reported to the Board. All new risks or

changes to existing risks were monitored

throughout the year and discussed at

each Committee meeting. The Committee

maintains a comprehensive bribery risk

assessment and mitigation procedure to

ensure that the Group has procedures

in place to mitigate bribery, and that all

employees, agents, contractors, and

other associated persons are made fully

aware of the Group’s robust policies and

procedures on a regular basis.

The escalation of conflict in the Middle

East since the attacks in southern

Israel on 7 October 2023 has materially

increased regional political and economic

instability. The Group considers is very

unlikely that the US or UK will introduce

sanctions against Israel or Israeli state

actors for recent actions in Gaza, but

continues to monitor the situation and

diplomatic efforts aimed at a longer-term

ceasefire. The Group is also monitoring

carefully the wider geopolitical impact

and perception of the conflict in Egypt, in

connection with its assets and operations.

External auditor

Deloitte LLP has been our external

auditors for 20 years. The financial year

commencing 1 January 2023 was the final

year for which Deloitte LLP can act as

external auditor to the Company.

The Committee conducted a competitive

tender process for a new external auditor

during 2022.

Following this process, and consistent

with the FRC Audit Tender Guidance, the

Committee submitted the proposals to the

Board, with one of those proposals, from

Ernst & Young LLP, being the Committee’s

recommendation. In early 2023, the

Board agreed to adopt the Committee’s

recommendation.

The Company then announced in its

Preliminary Results Statement on 22

March 2023 that it had agreed in principle

to appoint Ernst & Young LLP to succeed

Deloitte LLP as external auditor with

effect from the financial year commencing

1 January 2024. During 2023, Ernst

& Young LLP “shadowed” Deloitte’s

work as external auditor, with a view to

preserving know-how and experience and

encouraging a seamless transition.

In each year, the Committee assesses

the performance of the external auditor

based on their experience, the quality

of their written and oral communication

and input from management, prior to

making any recommendations as to the

re-appointment of the external auditor at

the AGM. The Committee also assesses

the independence of the external auditor

once a year and the lead partner is

required to be rotated every five years.

The current Deloitte LLP lead partner is

Anthony Matthews, who is compliant with

the rotation requirements and continued

to be compliant during Deloitte’s final year

as external auditor. Other senior audit staff

are rotated every five to seven years.

External auditor – non-audit

services

The external auditor is appointed primarily

to carry out the statutory audit and their

continued independence and objectivity

is crucial. In view of their knowledge of

the business, there may be occasions

when the external auditor is best placed

to undertake other services on behalf of

the Group. The Committee has a policy

which sets out those non-audit services

which the external auditor may provide

and those which are prohibited. Within

that policy, any non-audit service must be

approved by the Committee.

Before approving a non-audit service,

consideration is given to whether the

nature of the service, materiality of the

fees, or the level of reliance to be placed

on it by the Group would create, or appear

to create, a threat to independence.

If it is determined that such a threat

might arise, approval will not be granted

unless the Committee is satisfied that

appropriate safeguards are applied to

ensure independence and that objectivity

is not impaired. The auditor is prohibited

from providing any services which might

result in certain circumstances that have

been deemed to present such a threat,

including auditing their own work, taking

management decisions for the Group or

creating either a mutuality or conflict of

interest. The Company has taken steps

to develop resources and relationships in

order to establish availability of alternate

advisers for financial and other matters.

External audit fees

Total audit and non-audit fees in 2023

were $0.6m and $0.2m respectively.

The Committee approved all non-audit

services provided by the external auditor in

2023. The principal non-audit fees during

2023 were $0.2m for the interim review.

The Committee reviews its non-audit

services policy on an annual basis and

current policy requires all non-audit

services to be pre-approved by the

Committee. It is noted that the Group’s

policy sets out the permitted services and

those that are prohibited.

Review of the effectiveness

of the Audit and Risk

Committee

During the year, the Committee has

undergone a comprehensive review of its

effectiveness and results were reported

to the Board. The Committee was

considered by the Board to be operating

effectively and in compliance with the

2018 Code and associated guidance.

LISA MITCHELL

Audit and Risk Committee Chair

Annual Report and Accounts 2023

Pharos Energy

126

Dear Shareholders,

On behalf of the Board, we are pleased to present

the Directors’ Remuneration Report for the financial

year ended 31 December 2023. This report has

been prepared in accordance with section 421 of

the Companies Act 2006 and Schedule 8 of the

Large and Medium-sized Companies and Groups

(Accounts and Reports) Regulations 2008 (as

amended).

DIRECTORS’ REMUNERATION COMMITTEE REPORT

GEOFFREY GREEN

Remuneration Committee Chair

Role of the Committee

The Remuneration Committee is

responsible for setting the remuneration

of the Chair and the Executive Directors,

has oversight of pay more generally, and is

responsible for appointing any consultants

it may engage in carrying out its duties.

Highlights of Committee

actions in 2023

The year has seen significant progress

with our strategy. Activities undertaken by

the Committee include:

• Board changes – Following the

annual review of Board composition,

the Committee sought to recruit an

independent NED with technical

experience. Dr Bill Higgs, a qualified

geologist, was recruited to the role

and this was announced in the

January 2024 trading statement

• The Directors’ Remuneration Policy

received approval at the 2023 AGM

with strong support

• Setting robust and stretching

performance targets for the annual

bonus and LTIP

• Monitoring developments in market

practice and reporting regulations

How performance was

reflected in the pay of our

Executive Directors

As reported throughout the Strategic

Report, 2023 was a year of good

operational and financial performance

across the Group.

We have continued to build on a culture

of capital discipline to deliver material

improvement to the Group’s balance

sheet, reducing net debt despite ongoing

payment lags in Egypt. We delivered

strong drilling performance in both

Vietnam, with the CNV well coming in

strongly, and in Egypt, with discoveries on

both the El Fayum and NBS exploration

wells. This has allowed the Board to

continue our commitment to sustainable

shareholder returns. In 2023, we

returned $8.4m to shareholders via both

share buyback and dividends. These

achievements are a testament to the hard

work, dedication and commitment of the

entire Pharos team.

As part of our commitment to help

employees deal with the rising cost of

living, the Company made early interim

payments of c.25% of the bonus

potential in September 2023, with the

balance paid in December as usual.

Employees also received support with

their travel expenses, a policy that

was introduced from January 2023.

Meeting attendance

Committee member

2023

attendance

Geoffrey Green (Chair) ^

Marianne Daryabegui ^

Lisa Mitchell ^

Note: Sue Rivett attended all of the

meetings as a non-committee member.

John Martin attended two of the meetings

and Jann Brown attended one of the

meetings as non-committee members.

Attended as member

^ Independent Directors

Not attended

Annual Report and Accounts 2023

Pharos Energy

127

Governance Report

Financial Statements

Strategic Report

Additional Information

DIRECTORS’ REMUNERATION COMMITTEE REPORT - continued

Strategic

Underpinned by a strengthened balance

sheet and steady production base across

the portfolio, Pharos continue to execute

our strategy of sustainable value creation

through a number of key priorities:

regular shareholder returns, capital

discipline, and focus on organic growth

opportunities. Dividend is a key part of

the Company’s equity story since its

inception, and in 2023, we returned $5.6m

to shareholders via a final dividend for the

2022 financial year of 1p per share. The

original $3m share buyback programme

was supplemented by a further $3m

programme in 2023 which continues as

part of the Company's broader strategy to

deliver value to our shareholders. A further

commitment has been made to continue

this during 2024 up to an additional $3m.

Pharos is in a materially improved financial

position, has stable production from

its asset base with 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 recommencement of regular

dividends, based on operating cash flow,

with the first payment paid in July 2023.

Operational

On an operational basis, the Company

performed well across a broad range of

metrics. Production levels in both Vietnam

and Egypt were in line with guidance.

Financial performance was strong,

with cost control, cash generation and

funding ahead of expectations. Whilst

safety results were excellent in Vietnam,

continuing with our zero LTIs since

operations began, there were two safety

and environmental incidents in Egypt

which have meant the bonus outcomes

for these elements were zero.

Following a robust assessment of the

performance criteria the Committee

determined the formulaic out-turn for

bonuses at 64.54% of the maximum

potential. The Committee considered

the wider stakeholder experience and

agreed that the formulaic outcome was

appropriate. Bonus outcomes for the

wider workforce also reflect corporate

KPIs achieved as well as their personal

performance. As noted last year, the 2020

LTIP awards, whose performance criteria

is based on TSR, lapsed in May 2023 due

to failure to meet the required relevant

performance target. There are no awards

due to vest in relation to performance

which has been mainly completed at

31 December 2023, with the next LTIP

awards due to vest in October 2024

reflecting a delay in granting the awards

originally due to being in a close period.

Approach for 2024

The Directors’ Remuneration Policy was

approved at the 2023 AGM with 84.59%

of votes cast in favour. The Committee

believes that the Policy remains 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.

Base salaries for the Executive Directors

and Non-Executive Directors were

increased by 6% following a salary freeze

in 2023, which followed voluntary pay

reductions during 2021 and into the first

quarter of 2022. Across the UK employee

population, the average increase for 2024

is 6% which follows an increase of 10%

in 2023. The Committee determined

that the salary increase for the Executive

Directors, which is lower than that for the

wider workforce over the last two years, is

appropriate to maintain competitiveness

and is reflective of performance in the role.

The current annual bonus and LTIP

maximum awards will remain unchanged.

The annual bonus will continue to be

subject to a scorecard of measures

including safety, operations, financial

and capital structure, sustainability 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 2023 are a fair

reflection of the context in which

decisions had to be made. We

believe that the continuation of the

current Policy, approved at the AGM

in 2023, in all material respects

maintains the link between strategy

and incentives, as well as being

closely aligned to the market.

We look forward to receiving your

support at the upcoming AGM.

GEOFFREY GREEN

Remuneration Committee Chair

Annual Report and Accounts 2023

Pharos Energy

128

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 2023.

2023

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

J Brown 420 35 271 136 63 925 483 442

S Rivett 280 88 181 90 42 681 322 359

Non-Executive Directors

J Martin 150 - - - - 150 150 -

M Daryabegui 60 - - - - 60 60 -

L Mitchell 75 - - - - 75 75 -

G Green 88 - - - - 88 88 -

Total 1,073 123 452 226 105 1,979 1,178 801

The benefits receivable by Executive Directors include private medical insurance, permanent health insurance, life assurance cover,

critical illness cover, travel, relocation and car benefits. The benefits column for Non-Executive Directors includes taxable travel and

accommodation expenses to attend Board functions in the year and other benefits, and the tax payable thereon, in accordance with

HMRC guidance. Fees and/or salaries paid to the Directors are in relation to their dates of service as a Director during the year.

1) The total Directors’ bonuses include the following: a) Cash bonus paid in December 2023 of £452k; b) Deferred bonus of £226k granted under the Deferred

Share Bonus Scheme.

Comparative figures for 2022 is provided in the table below:

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 40 - - - - 40 40 -

J Martin 143 - - - - 143 143 -

M Daryabegui 57 - - - - 57 57 -

L Mitchell 71 - - - - 71 71 -

G Green 79 2 - - - 81 79 2

Total 1,183 80 624 312 118 2,317 1,301 1,016

The benefits receivable by Executive Directors include private medical insurance, permanent health insurance, life assurance cover,

critical illness cover, travel and car benefits. E Story also received expatriate benefits including tax protection or equalisation for any

travel to the UK. The benefits column for Non-Executive Directors includes taxable travel and accommodation expenses to attend Board

functions in the year and other benefits, and the tax payable thereon, in accordance with HMRC guidance.

1) Executive Director fees and salary of Ed Story is set in US dollars and is reported in GB pounds at the average exchange rate for the period 1 January 2022

to 22 March 2022, reflecting the period he served on the Board.

2) Ed Story and Dr Mike Watts stepped down from the Board on 23 March 2022 following completion of the Egyptian farm-out transaction. At the same time,

Jann Brown was appointed to the role of Chief Executive Officer. Prior to that date, Ed Story, Dr Mike Watts and Jann Brown had been waiving 35% of their

salaries for the first quarter of 2021 and then further reduced this by another 15% (to a total reduction of 50% of their salary), and the reported numbers

include such waivers.

3) The total Directors’ bonuses include the following: a) Cash bonus paid in December 2022 of £624k; b) Deferred bonus of £312k granted under the Deferred

Share Bonus Scheme.

* Fees and/or salaries paid to the Directors are in relation to their dates of service as a Director during the year.

The aggregate emoluments of all Directors during the year was £2.0m (2022: £2.3m).

Annual Report and Accounts 2023

Pharos Energy

129

Governance Report

Financial Statements

Strategic Report

Additional Information

Notes to the single figure table

DIRECTORS’ REMUNERATION COMMITTEE REPORT - continued

Annual bonus

Setting measures

The Company seeks to set challenging, yet achievable, performance measures designed to link pay to performance against its core

strategic objectives.

The performance measures were chosen to ensure that Executive Directors are focused on the near-term objectives that build the long-

term delivery of value to shareholders, which results in a combination of measures being used covering strategic, operational, financial,

business development and sustainability goals. While we monitor the Group’s performance with a broader mix of financial and non-

financial KPIs, the measures impacting the annual bonus emphasise those deemed most relevant to management performance and

take into account the annual budget and the prevailing economic environment.

2023 annual bonus measures and out-turns

Metric Weight Bonus awarded

Safety and Environment 15.00% 12.00%

Zero LTIs 6.00% 6.00%

Link to strategy

• Safety of our people

• Sound oil field practices

Target

• Zero LTIs

Performance

• There were no LTIs

Outcome

• Achieved

TRIR Target of 0.8 3.00% 3.00%

Link to strategy

• Safety of our people

• Sound oil field practices

Target

• 0.8

Performance

• 2 TRIR recorded

Outcome

• Achieved

Zero environmental spills 3.00% 0.00%

Link to strategy

• Sound oil field practices

• Management of our carbon

footprint wherever we work

Target

• Zero environmental spills

Performance

• 2 environmental spills recorded in

Egypt

Outcome

• Not achieved.

Crisis Management Training 3.00% 3.00%

Link to strategy

• Safety of our people

• Sound oil field practices

Target

• Carry out a full training exercise

Performance

• Training was carried

out during H2

Outcome

• Achieved

Annual Report and Accounts 2023

Pharos Energy

130

Metric Weight Bonus awarded

Operational/Business Plan 38.00% 18.04%

Business Plan 12.50% 0.00%

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

• Not Achieved

Production and operational uptime 13.00% 10.95%

Link to strategy

• Prudent Management

Target

• Vietnam production volumes

5,000 – 6,000 boepd

• Egypt production volumes 1,368

– 2,250 bopd

Performance

• Vietnam production outturn was

5,127 boepd

• Egypt production outturn year

was 1,381 bopd

Outcome

• Achieved for

Vietnam, within

guidance

• Achieved for Egypt,

within guidance

• Safe performance • Uptime greater than 97% for

Vietnam and 96% for Egypt

• 98% in Vietnam and 96% in

Egypt

• Achieved

Secure licence extensions 7.50% 3.75%

Link to strategy

• Continued development of

Vietnam assets

Target

• Secure extension on TGT, CNV

and Blocks 125 & 126 in Vietnam

Performance

• Extension secured on 125 & 126

allowing additional time to plan

for the exploration well and seek

a farm in partner

• Submitted extensions on

TGT and CNV but still waiting

approvals

Outcome

• Achieved

• Not achieved

• Continued development of Egypt

assets

• Secure licence extension on NBS

in Egypt

• Small extension received on NBS

allowing the second commitment

well to be drilled later in the year

• Achieved

Egypt development plan 5.00% 3.34%

Link to strategy

• Effective portfolio management

Target

• Complete the study on the Deep

in El Fayum

• Optimise the development plan in

both El Fayum and NBS

Performance

• Study complete

• NBS approved development

concession

• El Fayum optimised budget plan

was slowed due to the poor

receipts from EGPC

Outcome

• Achieved

• Not achieved

DIRECTORS’ REMUNERATION COMMITTEE REPORT - continued

Annual Report and Accounts 2023

Pharos Energy

131

Governance Report

Financial Statements

Strategic Report

Additional Information

Metric Weight Bonus awarded

Financial and capital structure 30.00% 17.50%

Opex per bbl for each producing asset 12.50% 12.50%

Link to strategy

• Control expenditure

Target

• Underlying operating costs < 2022

• Underlying G&A costs < 2022

Performance

• Vietnam cash opex bbl $15.39

(2022: $16.03)

• Egypt cash opex bbl $16.86 (2022:

$17.40)

• Full year administrative expenses

lower by 9%, reflecting effective

cost control.

Outcome

• Achieved

Reduce debtor days in Egypt 12.50% 0.00%

Link to strategy

• Control expenditure

• Maintain strong balance sheet

Target

• Reduce Egypt debtor days to <90

Performance

• Debtor days increased to 534 at

year end (2022: 194 days) due to

collection delays in USD. Pharos

requested not to receive EGP due

to the devaluation of currency and

ongoing restrictions on outgoing

USD transfers by Central Bank

of Egypt. Therefore receivables

balance held in USD. Additionally,

we have been carried by our

partner throughout the full year and

therefore not required any local

currency for funding operations.

Outcome

• Not achieved

Net debt 5.00% 5.00%

Link to strategy

• Access affordable sources of

funding

• Return to shareholders

Target

• Net debt/EDITDAX of <2, Cash >

$10m

• All Bank Covenants met

Performance

• Net debt/EDITDAX of 0.06

• All bank covenants have been met

Outcome

• Achieved

DIRECTORS’ REMUNERATION COMMITTEE REPORT - continued

Annual Report and Accounts 2023

Pharos Energy

132

Metric Weight Bonus awarded

Sustainability & Governance 17.00% 17.00%

Review of Board structure 2.50% 2.50%

Link to strategy

• Develop talent throughout our

business

Target

• Training and development

Performance

• Group programme in place for

technical and soft skills

Outcome

• Achieved

Compliance review 2.50% 2.50%

Link to strategy

• Strong governance

Target

• Complete independent review of

key policy compliance across the

Group

Performance

• Two audits on Corporate Modelling

and Egypt

Outcome

• Achieved

Publication of roadmap, Project on emissions target

reduction and TCFD compliance

9.00% 9.00%

Link to strategy

• Sustainability

Target

• Issue roadmap to net zero

• Identify one project to utilise the

Emissions Fund

• Full compliance with TCFD

Performance

• Roadmap published in December

2023

• Vietnam project for monitoring

units to reduce emissions from

gas flaring included in 2024

budget

• Scope 1, 2 and 3 emissions

identified and disclosed

in accordance with TCFD

recommendations

Outcome

• Achieved

Social Investment 3.00% 3.00%

Link to strategy

• Strong governance and personal

codes of conduct

Target

• Social investment plan approved

and implemented

Performance

• Group wide committee formed

and operational with country

champions

Outcome

• Achieved

OVERALL 100% TOTAL ASSESSMENT 64.54%

DIRECTORS’ REMUNERATION COMMITTEE REPORT - continued

Annual Report and Accounts 2023

Pharos Energy

133

Governance Report

Financial Statements

Strategic Report

Additional Information

As noted in the Chair’s Statement, notwithstanding that the Executive Directors delivered a number of the KPIs in challenging

circumstances, the Committee felt that the overall performance and the experience of stakeholders in 2023 was sufficiently recognised

in the formulaic outcome and therefore no use of discretion was considered necessary.

Executive Directors receive a third of any bonus as awards under the Deferred Share Bonus Plan. This ensures their interests remain

closely aligned with shareholders. For 2023, the total Directors’ bonuses include the following: a) Cash bonus paid in December 2023 of

£452k and b) Deferred bonus of £226k to be granted under the Deferred Share Bonus Scheme.

Paid Bonus

£000s

Deferred Bonus

£000s

Total Bonus

£000s % of max

J Brown

271 136 407 64.54%

S Rivett

181 90 271 64.54%

LTIP vesting in respect of performance ended 31 December 2023

There were no awards due to vest for performance that had mainly ended by 31 December 2023. The next LTIP award is due to vest in

October 2024.

LTIP award grants made in 2023

The LTIP awards are usually made in March. For Jann Brown and Sue Rivett this represented 200% of contractual salary at the time the

award was made. It is anticipated that future grants, including the grants to be made in 2024, will be made following the announcement

of the preliminary results in March. These will be made on a similar basis to prior years, with awards to Executive Directors over shares

worth two times salary and subject to the same TSR measure (subject to confirmation of the precise list of comparators immediately

prior to grant).

Date of grant No. of shares Face value of award Award as % of salary

J Brown

23 March 2023 3,733,333 £840,000 200%

S Rivett

23 March 2023 2,488,888 £560,000 200%

Face value based on share price at the time of awards were determined on 22 March 2023 (being £0.225)

The performance measures for the 2023 and 2022 awards are set out below, with 25% vesting for Threshold rising on a straight-line

basis to full vesting at Maximum:

Metric 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 2023

The DSBP awards were granted in January 2023 in relation to the 2022 annual bonus outcome.

Date of grant No. of shares Face value of award

J Brown

13 January 2023 611,838 £146,841

S Rivett

13 January 2023 379,734 £91,136

Face value based on share price at the time of awards were determined on 12 January 2023 (being £0.245)

DIRECTORS’ REMUNERATION COMMITTEE REPORT - continued

Annual Report and Accounts 2023

Pharos Energy

134

Directors’ interests as at 31 December 2023

The Board has a policy requiring Executive Directors to build a minimum shareholding of 200% of their annual salary. Additionally, LTIP

awards require a two–year holding period following vesting. This is intended to emphasise a commitment to the alignment of Executive

Directors with shareholders and a focus on long term stewardship.

The table below sets out the Directors’ interests as at 31 December 2023 and any subsequent changes to their beneficially owned

shares are shown as at the date of this report:

Shareholding

requirement Beneficially

owned shares as

at 31 December

2023

Beneficially

owned shares as

at the date of this

report

Awards subject

to performance

conditions as

at 31 December

2023

1,2

Awards subject

to Option Price

120 pence as at

31 December

2023

Awards subject

to service

conditions as

at 31 December

2023

(% of

salary)

Achieved

(Yes/No)

Executive

J Brown

200% No 2,183,275 2,224,680 8,726,262 – 1,230,419

S Rivett

200% No 273,848 283,309 5,687,044 90,000 540,941

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.

4) Our share price at the close of business on 31st December 2023 was 21.3p and the range of the middle market price during the year was 20.9p to 26p.

While the Executive Directors, as potential beneficiaries, are technically deemed to have an interest in all ordinary shares held by the

Company’s EBT, the table above only includes those ordinary shares held by the EBT which are potentially transferable to the Directors

pursuant to Options granted to them under the Company’s incentive schemes. Details of the EBT and its holdings are set out in Note 28

to the Financial Statements.

There have been no changes to the Directors’ interests subsequent to 31 December 2023 other than as set out above and as

described in the notes to the table above.

Share awards outstanding at 31 December 2023

Type of

award

As at 1 Jan

2023

Granted/

awarded Adjusted

Lapsed

Vested

As at 31 Dec

2023

Date potentially

vested

4,5

Expiry

date

J Brown

4,5,6,7

LTIP 1,550,855 – – 1,550,855 – – – –

LTIP 1,550,855 – 73,153 – – 1,624,008 06.10.24 06.10.31

LTIP 3,049,001 – 143,820 – – 3,192,821 25.03.25 25.03.32

LTIP – 3,733,333 176,100 – – 3,909,433 23.03.26 23.03.33

DSBP 563,157 – 26,564 – – 589,721 25.03.24 25.03.32

DSBP – 611,838 28,860 – – 640,698 13.01.23 13.01.33

S Rivett

3,5,6,8

LTIP 267,779 – – – 267,779 – – –

LTIP 909,317 – 42,892 – – 952,209 06.10.24 06.10.31

LTIP 2,032,667 – 95,880 – – 2,128,547 25.03.25 25.03.32

LTIP – 2,488,888 117,400 – – 2,606,288 23.03.26 23.03.33

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 – 6,454 – – 143,296 25.03.24 25.03.32

DSBP – 379,734 17,911 – – 397,645 13.01.23 13.01.33

1) Outstanding awards under the Company’s share schemes were adjusted

for dividend equivalents in accordance with plan rules (see Note 31 to the

Financial Statements).

2) LTIP awards granted in 2021 vest subject to Pharos’s relative TSR performance

against a group of comparator companies and subject to a further holding

requirement. The performance measures for the 2022 and 2023 LTIP are set

out on page 133. DSBP awards vest subject to continued service over a two-

year vesting period.

3) S Rivett’s 2020 LTIP award was made prior to her appointment to the Board

was not subject to TSR performance, but instead based on continuous

employment and effective performance ratings for the vesting period. These

measures were deemed to have been achieved and the award vested in full.

4) J Brown’s 2020 LTIP award with a potential vest date of 12 May 2023 did not

achieve the performance threshold and lapsed.

5) DSBP Awards to J Brown and S Rivett were structured as nil-cost options.

6) LTIP Awards to J Brown and S Rivett were structured as nil-cost options.

7) LTIP awards vest at 25% when the threshold is met.

8) DSOP awards have an exercise price of 120 pence and do not have any

performance conditions.

Payments for loss of office and payments to former Directors

There have been no payments for loss of office during the year nor any payments to former Directors.

DIRECTORS’ REMUNERATION COMMITTEE REPORT - continued

Annual Report and Accounts 2023

Pharos Energy

135

Governance Report

Financial Statements

Strategic Report

Additional Information

Unaudited Section

Historical TSR performance and CEO outcomes

TSR performance

The chart below illustrates Pharos’ ten-year TSR performance against the FTSE All Share Oil & Gas Index, being a broad market index

which is sector specific. In addition, we have shown a comparison against the TSR comparator group used for the LTIP award.

TOTAL SHAREHOLDER RETURN (TSR)

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

150

2023

100

200

250

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:

2014 2015 2016 2017 2018 2019 2020 2021 2022

2023

CEO single figure of remuneration (£000s) 2,959 2,325 1,632 1,716 1,829 1,567 669 894 909

925

Annual bonus pay-out (% of maximum) 80% 75% 35% 65% 105% 50% 0% 58% 66%

65%

LTIP vesting (% of maximum) 100% 96% 46% 0% 0% 0% 0% 0% 0%

1) 2022 includes the total remuneration of Ed Story for 1 January 2022 to 22 March 2022, reflecting the period he served on the Board as CEO. Jann Brown’s

total remuneration is then presented for the period 23 March 2022 to 31 December 2022.

Pharos Energy FTSE All Share Oil & Gas TSR Comparator Group

DIRECTORS’ REMUNERATION COMMITTEE REPORT - continued

Annual Report and Accounts 2023

Pharos Energy

136

Percentage change in remuneration of the Directors

The table below illustrates the percentage change in salary, benefits and annual bonus for each Director and all other employees.

% change

in salary

(2023/

2022)

% change

in salary

(2022/

2021)

% change

in salary

(2021/

2020)

% change

in salary

(2020/

2019)

% change

in benefits

(2023/

2022)

% change

in benefits

(2022/

2021)

% change

in benefits

(2021/

2020)

% change

in benefits

(2020/

2019)

% change

in annual

bonus

(2023/

2022)

% change

in annual

bonus

(2022/

2021)

% change

in annual

bonus

(2021/

2020)

% change

inannual

bonus

(2020/

2019)

E Story

N/A N/A -32.1% -39.9% N/A N/A -67.8% 4.4% N/A N/A 100.0% -100.0%

M Watts

N/A N/A -32.1% -5.9% N/A N/A 26.4% 4.5% N/A N/A 100.0% -100.0%

J Brown

8.0% 35.1% -32.1% -5.9% -10.3% -0.8% 5.5% 3.3% -7.7% -5.4% 100.0% -100.0%

S Rivett

1.1% N/A N/A N/A 450% N/A N/A N/A -0.7% N/A N/A N/A

J Martin

4.9% 26.7% N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

M Daryabegui

5.3% 26.7% -10.0% 5.2% N/A N/A N/A N/A N/A N/A N/A N/A

R Gray

N/A N/A -11.2% -16.7% N/A N/A -100.0% -31.1% N/A N/A N/A N/A

L Mitchell

6.3% 26.7% N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

G Green

11.2% 40.6% N/A N/A -100.0% 100.0% N/A N/A N/A N/A N/A N/A

All other employees

9.9% 29.5% 7.0% -4.4% 8.1% 15.5% -25.8% 10.0% -9.3% 24.1% 100.0% -100.0%

1) Bonuses are normally awarded in respect of the calendar year. No bonuses were awarded in relation to 2020.

2) E Story and M Watts resigned from the Board on 23 March 2022.

3) The figures detailed above reflect the salary reductions that have been taken by the Directors. The Executive Directors took a reduction of 35% of their

salaries for the first quarter of 2021 and then further reduced this by another 15% (to a total reduction of 50%) from 1 April 2021 for the Executive Directors

in office at that date. These reductions stayed in place for the remainder of 2021 and through to 20 March 2022. The Chair, who had reduced his fee by 25%

on assuming the role in March 2020, also took an additional 25% reduction along with the other Non-Executive Directors from 1 May 2021 which continued

through the full year 2021 and up until 20 March 2022.

4) S Rivett was appointed to the Board on 1 July 2021.

Chief Executive Officer’s pay ratio

The Company currently has 17 UK employees and therefore has no statutory requirement to publish a CEO pay ratio. Given the

relatively few employees, the Committee is aware of pay levels and does not feel the need to produce a ratio. The Committee will

continue to review the appropriateness of publishing pay ratios in the future.

Relative importance of spend on pay

The chart below illustrates the year on year change in total remuneration as per Note 11 to the Financial Statements compared to the

change in shareholder returns, which would include capital returns, dividends and share buybacks.

2023

2022

Wages and Salaries ($m)

Shareholder Distributions ($m)

11.6

9.3

External appointments

With prior approval of the Board, Executive Directors are allowed to accept non-executive appointments on other boards and to retain

the associated directors’ fees. Under this Policy:

• Jann Brown serves on the board of RHI Magnesita, for which she retained associated fees for 2023 in the amount of £94,700

(2022: £83,456 RHI Magnesita and £1,538 Troy Income and Growth Trust)

2.9

8.4

DIRECTORS’ REMUNERATION COMMITTEE REPORT - continued

Annual Report and Accounts 2023

Pharos Energy

137

Governance Report

Financial Statements

Strategic Report

Additional Information

Implementation for 2024

Base salary

The following table shows the Executive Director base contractual salary levels.

2024 Base salary 000s 2023 Base salary 000s* Increase from 2023 %

J Brown

£455

£420 6%

S Rivett

£297

£280 6%

The salary increases for the Executive Directors for 2024 are aligned with the average inflationary impact salary increase of 6% across

the workforce. Jann voluntarily invests a third of her after tax salary into buying shares in the Company, subject to share dealing

restrictions. Furthermore, Sue Rivett voluntarily invests an after tax salary equivalent to £20,000 gross pay into buying shares, subject to

the same share dealing restrictions.

Benefits

For 2024, benefits available to Executive Directors will be consistent with those set out in the Directors’ Remuneration Policy approved

at the 2023 AGM.

Pension

For 2024, a pension benefit at 15% of salary will be provided to each Executive Director through contributions to the Company’s money

purchase plan up to plan limits or a cash supplement. Our Pension Policy for Executive Directors is already consistent with that for all

employees (as a percentage of salary).

Annual bonus

It is intended that annual bonus awards will be considered for Executive Directors in December 2024. The maximum total bonus

opportunity for an Executive Director in each year is 150% of salary, including cash and deferred components in accordance with the

approved Policy. The table below sets out the weighted performance measures which will be applied in determining annual bonus

awards for 2024, and identifies the link from each of these measures to our core strategy of:

2024 KPI’s

Metric Weight Performance criteria which will be considered

ESG

20%

Strategic objectives; to preserve the safety of all

our people, staff and contractors and preserve the

environment through sound oil field practices and

management of our own carbon footprint wherever

we work.

• Zero LTIs

• TRIR target

• Zero environment spills

• GHG emissions reduction *

• DE&I learnings into the Pharos Way guiding principles

Operational & Business Plan

50%

Strategic objectives: to replace produced reserves

and add to the reserve base in a way which is value

and/or cash flow accretive

• Production volumes for all producing assets

• Secure licence extensions

• Portfolio optimisation

• Secure funding partner for well to be drilled on Block 125

Financial

30%

Strategic objectives: to control expenditure and

access affordable sources of funding in order to

maintain a strong balance sheet with sufficient liquid

resource to fund planned activities.

• Operating Cash Flow

• Underlying Operating Costs

• Reduce debtor days in Egypt

• Renew NBE working capital facility

*Note: The 2024 KPI for GHG emissions reduction is linked to the GHG emissions reduction interim targets in our Net Zero Roadmap, which was

published on December 2023. The Group set a 5% reduction target on all Scope 1 & 2 emissions by 2026. More information can be found at on our

website at https://www.pharos.energy/media/b55c4sqz/pharos-energy-net-zero-roadmap-2023_official.pdf.

DIRECTORS’ REMUNERATION COMMITTEE REPORT - continued

Annual Report and Accounts 2023

Pharos Energy

138

Details of how the Committee assessed performance against these weighted measures will be set out in next year’s report. The

Committee retains discretion over the amount of bonus paid out to ensure that appropriate consideration is given to the relative

importance of the achievements in the year and the actual contribution of these towards furthering the Group’s strategy, as well as the

prevailing economic environment.

LTIP

When determining the grant level for 2024, the Committee will take into account the share price at the date of grant and all other

relevant circumstances into account. As a reminder the award levels in 2020 and 2021 were substantially reduced.

The performance conditions for the 2024 awards are expected to be a mixed weighting as follows: of TSR (35%) relative and (20%)

absolute and 15% weighting to each of cash flow from operations, return on capital employed, and emission reduction targets.

Metric 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.

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 2024 Fee from 1 January 2023

Chair of the Company

£159,000

£150,000

Non-Executive Director

£63,600

£60,000

Additional fee: Senior Independent Director

£13,250

£12,500

Additional fee: Chair of Audit and Risk Committee

£15,900

£15,000

Additional fee: Chair of Remuneration Committee

£15,900

£15,000

Additional fee: Workforce Engagement Nominated Director

£5,300

£5,000

1) Geoffrey Green was appointed to the role of Senior Independent Director on 19 May 2022 and the additional fees for this are shown in the table.

The Chair fees were reviewed and approved by the Remuneration Committee. The Non-Executive Director fees were reviewed and

approved by the Board, excluding the Non-Executive Directors.

For 2024, benefits available to Non-Executive Directors will be consistent with those set out in the Policy approved at the 2023 AGM.

Non-Executive Directors are not eligible for participation in the Company’s incentive or pension schemes.

DIRECTORS’ REMUNERATION COMMITTEE REPORT - continued

Annual Report and Accounts 2023

Pharos Energy

139

Governance Report

Financial Statements

Strategic Report

Additional Information

Service Contract (reference Table A: Directors Contract on page 144)

Consideration by Committee of matters relating to Executive Directors’ remuneration

The Directors who were members of the Remuneration Committee when matters relating to Directors’ remuneration for the year were

being considered were Marianne Daryabegui, Lisa Mitchell and Geoffrey Green as Remuneration Committee Chair.

The Committee received assistance from Jann Brown and Sue Rivett, except when matters relating to their own remuneration were

being discussed. The Committee additionally received assistance from other Non-Executives Directors when required.

The Committee has appointed FIT Remuneration Consultants LLP (“FIT”) as its remuneration advisers, and fees of £8,992 were paid in

2023 for their advisory services. FIT is a member of the Remuneration Consultants Group and complies with their professional code of

conduct. FIT do not provide any other services to the Group which, along with FIT’s credentials and proven performance, contributes to

the Committee’s view that the advice received has been appropriate, objective and independent.

The Committee reviews all aspects of remuneration on an annual basis and with respect to individual and corporate performance during

the year. The review is aided by comparison to published data on executive pay in the sector and in similar sized companies. More

detailed benchmarking may be conducted, such as upon an indication of a change in market ranges, with results being monitored for

indications of potential unwarranted upward ratcheting. The Committee receives regular updates on evolving regulatory and market

practice including market trends, key developments, and a broad range of published principles and guidelines. The Committee takes

into account pay conditions elsewhere in the Company, and considered matters related to Group remuneration.

Shareholder voting

The most recent binding resolution on the Directors’ Remuneration Policy was passed at 2023 AGM. The advisory vote on the

Directors’ Remuneration Report was approved at last years’ AGM. The table below shows votes from shareholders on the relevant

resolutions:

Directors’ Remuneration Report (2023 AGM)

Directors’ Remuneration Policy (2023 AGM)

Votes % Votes %

Votes in favour

200,237,478 84.58%

200,307,051 84.59%

Votes against

36,498,967 15.42%

36,478,777 15.41%

Total votes

236,736,445 100.00%

236,785,828 100.00%

Votes withheld

58,613 –

9,230 –

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.

DIRECTORS’ REMUNERATION COMMITTEE REPORT - continued

Annual Report and Accounts 2023

Pharos Energy

140

Policy Report (Unaudited)

This Directors’ Remuneration Policy became effective from the date of the 2023 AGM. This section provides a summary of the Policy

approved. The full Policy can be viewed in the 2022 Annual Report on our website at:

www.pharos.energy/investors/results-reports-and-presentations/.

Operation Maximum Performance criteria

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

DIRECTORS’ REMUNERATION COMMITTEE REPORT - continued

Annual Report and Accounts 2023

Pharos Energy

141

Governance Report

Financial Statements

Strategic Report

Additional Information

VARIABLE PAY

Annual bonus

• Purpose and link to strategy

• Incentives and rewards for the delivery of the strategic plan on an annual basis.

Operation Maximum Performance criteria

Payments are based on performance in the

relevant financial year.

At the beginning of the year, the Committee

sets objectives which it considers are critical to

the delivery of the business strategy.

Performance against these key strategic

objectives is assessed by the Committee at the

end of the year.

The Committee retains the discretion to amend

the bonus pay-out (negatively or positively) to

ensure it reflects the performance of either the

individual or the Company.

One-third of any bonus pay-out is subject to

deferral into Pharos shares under the Deferred

Share Bonus Plan.

150% of base salary per annum, including

cash and deferred components at the

discretion of the Committee.

The annual bonus is based on individual and

corporate performance during the year.

Corporate goals are set annually and

may include monitored measures for

particular projects; portfolio objectives;

corporate strategic goals; safety, social and

environmental measures; financial measures;

and other measures as may be deemed

appropriate and relevant to the period for

delivery of the business strategy.

If the Committee determines that a minimum

level of performance has not been achieved,

no bonus will be payable. Thereafter the

bonus will begin paying out, up to the

maximum of 150% of salary.

The Committee determines the appropriate

weighting of the metrics each year.

LTIP

Purpose and link to strategy

• Incentives 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.

DIRECTORS’ REMUNERATION COMMITTEE REPORT - continued

Annual Report and Accounts 2023

Pharos Energy

142

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

GEOFFREY GREEN

Remuneration Committee Chair

March 2024

DIRECTORS’ REMUNERATION COMMITTEE REPORT - continued

Annual Report and Accounts 2023

Pharos Energy

143

Governance Report

Financial Statements

Strategic Report

Additional Information

Directors’ Report

DIRECTORS’ REPORT

Annual Report of the Directors

The Directors present their Annual Report along with the audited

Financial Statements of the Group for the year ended 31

December 2023.

The following sections of this report are incorporated herein by

reference and form part of this Directors’ Report.

Page(s)

Strategic Report 3-98

Board of Directors 104

UK Corporate Governance Code 106-113

ESG Committee Report 114-116

Nominations Committee Report 117-119

Audit and Risk Committee Report 120-125

Directors’ Remuneration Committee Report 126-142

Financial Statements 149-189

Additional Information 190-198

Developments during the 2023 reporting

period

An indication of the likely future developments in the business of

the Group is included in the Strategic Report on pages 3 to 98.

The reporting period saw a continued focus on shareholder

returns, together with progress on the exciting opportunities

within our asset base.

In Vietnam, we delivered ongoing high netback and stable

production during the year. On CNV, there was strong

performance from the first new lateral well, which was delivered

on time, under budget and put on production in 1Q 2023. On

TGT, the Revised Field Development Plan (RFDP) was approved

by MOIT on 9 January 2024, providing the platform for the

two well TGT programme later in the year. The Group and the

HLHVJOC also received initial positive feedback from PVN and

MOIT on five-year extension proposals to the TGT (Block 16-1)

and CNV (Block 9-2) petroleum contracts, including significant

progress on draft documentation relating to the proposed

extensions. In June 2023, the Group also secured a two year

extension to the current phase of the exploration period under the

Block 125&126 PSC. The current phase now runs to November

2025, and discussions continue with a number of interested

parties to secure a farm-in partner before drilling the commitment

exploration well.

In Egypt, the Group had exploration drilling success during the

year on both the North Beni Suef and El Fayum Concessions.

The NBS-SW1X exploration commitment well was declared a

commercial discovery and put on production only nine months

after drilling, following the grant of a 20-year development lease

in September 2023. NBS-SW1X improved our reserve base

and is contributing new barrels to the overall Group production.

Considering the continued macroeconomic uncertainty in Egypt,

the Board intends to maintain a measured approach to capital

allocation and drilling in Egypt in 2024, with an eye on the

receivable balance.

Pharos continued to have an excellent safety record during 2023,

and the Company reported zero LTIs across all Group operations.

In Vietnam, the Group has maintained a record of zero LTIs since

1997.

In June 2023 the Company held a Group-wide off-site event in

London where colleagues from Egypt, Vietnam and UK all met

to exchange ideas, give business updates and promote team

building. This event was important not only for the effective

functioning of the Company, but to also develop the Group’s

global workforce and to underpin the Board’s commitment

to maintaining high standards of governance and promoting

corporate values throughout the organisation.

The Company ended the reporting period with a strong balance

sheet. Cash balances as at 31 December 2023 were $32.6m; net

debt $6.6m (2022: cash balances $45.3m; net debt $28.9m). The

Directors believe that, with the combination of a robust financial

position and a steady production base across the portfolio,

Pharos is in an excellent position to continue its principal strategy

of long-term sustainable value creation and shareholder returns.

Dividends

During 2023, the Company recommenced regular dividend

payments, the first of which was a final dividend for the financial

year to 31 December 2022 of 1 pence per share. This final

dividend totalled $5.6m, was approved by shareholders at the

2023 AGM and paid on 12 July 2023.

In its announcement of the interim financial results for the first

half of 2023 on 13 September 2023, the Company indicated

an additional distribution to shareholders would be considered

within the parameters of the sustainable regular dividend policy

announced in September 2022. Under the policy, Pharos intends

to return to shareholders by way of dividend no less than 10% of

operating cash flow each year in two tranches:

• An interim dividend of around 33% of the previous year’s final

dividend, payable in January of the following year; and

• Subject to shareholder approval, a final dividend payable in

July of the following year.

Consistent with the policy, on 6 December 2023 the Board

announced that it had resolved to declare and pay an interim

dividend in relation to the financial year ending 31 December

2023 of 0.33 pence per ordinary share, amounting to $1.7m.

This interim dividend was paid on 24 January 2024. The total cost

of the interim dividend takes into account that the trustee of the

Pharos Employee Benefit Trust (EBT) waived its right to receive

the dividend in relation to the ordinary shares held in the EBT.

At the forthcoming AGM, the Directors recommend that

shareholders vote in favour of the resolution to declare a

final dividend for the year ended 31 December 2023 of 0.77

pence per ordinary share payable, subject to the approval of

shareholders, on 19 July 2024, to those shareholders on the

Company’s register on 14 June 2024. This will take the total

dividend for 2023, including the interim dividend paid in January

2024, to 1.10 pence per ordinary share. As with the interim

dividend, it is assumed that the trustee of the Pharos EBT will

waive any right to receive the final dividend in relation to the

ordinary shares held in the EBT.

Annual Report and Accounts 2023

Pharos Energy

144

DIRECTORS’ REPORT - continued

Directors

The business of the Company is managed by the Directors who

may exercise all powers of the Company subject to the articles

of association of the Company (“Articles”) and applicable law.

The Directors who held office during the year, and up to the

date of signing this Annual Report, and the dates of their current

service contracts or letters of appointment, which are available

for inspection, are listed in Table A of this report. All Directors

held office throughout the year except as noted in the table. The

NEDs’ appointments are terminable by either party on notice at

any time. Executive Directors’ contracts are terminable by either

party on giving one year’s notice.

In accordance with the provisions of the UK Corporate

Governance Code, all Directors in office immediately before the

2024 AGM will retire at the meeting and, being eligible, offer

themselves for reappointment. Relevant details of the Directors,

which include their Committee memberships, are set out in the

section headed ‘Board of Directors’ on pages 104 and 105.

Pharos provides liability insurance for its Directors and Officers.

The annual cost of the cover is not material to the Group. The

Articles allow it to provide an indemnity for the benefit of its

Directors, which is a qualifying indemnity provision for the purpose

of section 233 of the Companies Act 2006 (“2006 Act”). The

Company has made such provisions for the benefit of its Directors

in relation to certain losses and liabilities that they may incur in the

course of acting as Directors of the Company, its subsidiaries or

associates, which remain in force at the date of this report.

No member of the Board had a material interest in any contract

of significance with the Company or any of its subsidiaries at

any time during the year, except for their interests in shares and

in share awards and under their service agreements and letters

of appointment disclosed in the Directors’ Remuneration Report

commencing on page 126.

Table A: Directors holding office during 2023 and up to the

date of signing of this report

Director Date of appointment

John Martin - Chair*

13 March 2020

Jann Brown - Chief Executive Officer 12 November 2017

Sue Rivett - Chief Financial Officer 1 July 2021

Marianne Daryabegui * 15 March 2019

Geoffrey Green* 20 May 2020

Lisa Mitchell* 1 April 2020

Dr Bill Higgs*+ 16 January 2024

* Denotes those determined by the Board to be Independent

Non-Executive Directors as described in the UK Corporate

Governance Code Report on pages 106 to 113. The Chair was

determined to be independent on appointment. Geoffrey Green is

the designated Senior Independent Director.

x Date used in table date of appointment as Chair. Originally

appointed as an Independent Non-Executive Director on 7 June

2018.

+ Appointed after the end of the 2023 financial year but included

in the table for information.

Contributions

The Group’s policies prohibit political donations.

AGM

An explanation of the resolutions to be proposed at the 2024

AGM, and the recommendation of Directors in relation to these, is

included in the circular to shareholders which is available on the

Company’s website (www.pharos.energy). Resolutions regarding

the authority to issue shares are commented upon in this report

under share capital.

A separate communication will be sent to shareholders and

published on the Company’s website regarding the AGM.

Share capital

Details of changes to share capital in the period are set out in

Note 27 to the Financial Statements. The Company currently has

one class of shares in issue, ordinary shares of £0.05 each, all

of which are fully paid. Each ordinary share in issue carries equal

rights including one vote per share on a poll at general meetings

of the Company, subject to the terms of the Articles and law.

Shares held in treasury carry no such rights for so long as they

are held in treasury. Votes may be exercised by shareholders

attending or otherwise duly represented at general meetings.

Deadlines for the exercise of voting rights by proxy on a poll at a

general meeting are detailed in the notice of meeting and proxy

cards issued in connection with the relevant meeting. Voting rights

relating to the ordinary shares held by the EBT are not exercised.

The Articles may only be amended by a special resolution of the

shareholders.

No shareholder, unless the Board decides otherwise, is entitled

to attend or to vote either personally or by proxy at a general

meeting or to exercise any other right conferred by being a

shareholder if he or she or any person with an interest in ordinary

shares has been sent a notice under section 793 of the 2006

Act (which confers upon public companies the power to require

information with respect to interests in their voting shares) and

he or she or any interested person failed to supply the Company

with the information requested within 14 days after delivery of that

notice.

The Board may also decide that no dividend is payable in respect

of those default shares and that no transfer of any default shares

shall be registered. These restrictions end seven days after receipt

by the Company of a notice of an approved transfer of the shares

or all the information required by the relevant section 793 notice,

whichever is earlier.

The Directors may refuse to register any transfer of any share

which is not a fully-paid share, although such discretion may

not be exercised in a way which the Financial Conduct Authority

regards as preventing dealings in shares of that class from taking

place on an open or proper basis. The Directors may likewise

refuse any transfer of a share in favour of more than four persons

jointly.

The Company is not aware of any other restrictions on the

transfer of ordinary shares in the Company other than certain

restrictions that may from time to time be imposed by laws and

regulations (for example, insider trading and market abuse laws);

and pursuant to the Listing Rules whereby certain employees

of the Company require approval of the Company to deal in the

Company’s shares.

Annual Report and Accounts 2023

Pharos Energy

145

Governance Report

Financial Statements

Strategic Report

Additional Information

DIRECTORS’ REPORT - continued

The Company is not aware of any agreements between

shareholders that may result in restrictions on the transfer of

securities or voting rights. Resolutions will be proposed at the

2024 AGM, as is customary, to authorise the Directors to exercise

all powers to allot shares and approve a limited disapplication

of pre-emption rights. This authority will be sought in line with

the Statement of Principles published by the Pre-Emption

Group in November 2022 (the “Pre-Emption Principles”), as it

was at the previous AGM held in 2023. The authority sought

for disapplication of pre-emption rights will be in two parts: (a)

10% of the issued ordinary share capital, which may be issued

on an unrestricted basis; and (b) an additional 10%, which may

be used in connection with an acquisition, or a specified capital

investment, in either case announced with the issue or which

has taken place in the preceding 12 months and is disclosed in

the announcement. In addition, both legs of the disapplication

resolution will seek up to a further 2% authority (4% in total)

to disapply pre-emption rights in making ‘follow-on’ offers to

retail investors and existing shareholders who are not allocated

shares as part of the placing. Further information regarding

these resolutions, which are based on the template resolutions

published by the Pre-Emption Group, is set out in the circular to

shareholders containing the notice of the AGM.

A resolution will also be proposed at the 2024 AGM, as is

customary, to renew the Directors’ existing authority to make

market purchases of the Company’s Ordinary Share capital, and

to limit such authority to purchases of up to approximately 10% of

the Company’s issued Ordinary Share capital. Shares purchased

under this authority may either be cancelled or held as treasury

shares. The Directors believe that it is advantageous for the

Company to have this flexibility to make market purchases of its

own shares. As announced on 6 December 2023, the Company

has committed a further up to US$3 million (net of expenses)

to its current on-market share repurchase programme and,

subject to the passing of this resolution, it intends to continue

this programme. As at the date of this report, the total amount

spent by the Company (net of expenses) on the acquisition of

ordinary shares since the original announcement of the initiation of

its share buyback programme in July 2022 is $6.2m. In that time

the Company has repurchased approximately 22 million ordinary

shares under the programme.

Auditor

Following a tender process in 2022 undertaken in accordance

with the Financial Reporting Council’s paper entitled “Audit

Tenders: Notes on Best Practice” published in February 2017,

the Company announced in its Preliminary Results Statement on

22 March 2023 that it had agreed in principle to appoint Ernst &

Young LLP to succeed Deloitte LLP as external Auditor with effect

from the financial year commencing 1 January 2024. Deloitte LLP

did not participate in the audit tender process, and has notified

the Company (as required under the 2006 Act), that they will not

be seeking reappointment as the Company’s Auditor at the 2024

AGM. During the second half of 2023 and the early part of 2024,

Ernst & Young LLP have “shadowed” Deloitte’s work as external

auditor for financial year commencing 1 January 2023, with a

view to preserving know-how and experience and encouraging

a seamless transition. A resolution to appoint Ernst & Young LLP

as the Company’s Auditor for the financial year commencing 1

January 2024 will be proposed at the 2024 AGM.

Deloitte have also provided non-audit services to the Group,

and details of the non-audit services provided in the year to

31 December 2023 are set out in Note 10 to the Financial

Statements. All non-audit services are approved by the Audit

and Risk Committee. The Directors are currently satisfied, and

will continue to ensure, that this range of services is delivered in

compliance with the relevant ethical guidance of the accountancy

profession and does not impair the judgement or independence

of the auditor. Further details of the Group policy on non-audit

services are set out in the Audit and Risk Committee Report on

pages 120 to 125.

The Directors at the date of approval of this report confirm

that, so far as they are each aware, there is no relevant

audit information, being information needed by the auditor in

connection with preparing its report, of which the auditor is

unaware. Each Director has taken all steps that they ought to

have taken as a Director, having made such enquiries of fellow

Directors and the auditor and taken such other steps as are

required under their duties as a Director, to make themselves

aware of any relevant audit information and to establish that the

auditor is aware of that information. This confirmation is given and

should be interpreted in accordance with the provisions of section

418 of the 2006 Act.

Greenhouse gas emissions reporting

Reporting on emission sources, as required under the Companies

Act 2006 (Strategic and Directors’ Reports) Regulations 2013 and

the Energy and Carbon Report Regulations 2018, is included in

the Corporate Responsibility Report on pages 75 to 82.

Tax governance

The Company is committed to high standards of tax governance

and strives to meet its tax obligations. Tax contributions benefit

the communities in which we operate by providing a framework

within which the Company can grow. Pharos’ Tax Strategy

Statement, which the Board approves annually, defines the key

tax objectives of the Group and is available on the Company’s

website (www.pharos.energy/responsibility/policy-statements/).

The Group has also adopted and communicated across the

organisation a corporate policy specifically dedicated to measures

against and awareness of tax evasion and the related offence of

facilitation of tax evasion. Staff members receive annual training

on tax evasion and related offences as part of the Group’s regular

business ethics programme.

Risk management

The Directors carried out a robust review of the principal

and emerging risks facing the Group that could threaten the

Company’s business model, future performance, solvency and

liquidity. The Risk Management Report on pages 48 to 61 details

how we manage and mitigate these risks.

Annual Report and Accounts 2023

Pharos Energy

146

DIRECTORS’ REPORT - continued

Substantial shareholdings

As at the date of this report, the Company had been notified, in accordance with Chapter 5 of the Disclosure and Transparency Rules,

of the voting rights as a shareholder of the Company shown in Table B of this report.

Table B: Substantial shareholdings in the Company

No of Ordinary Shares held

as % of voting rights

as % of Nature of holding

Bradley Radoff

68,080,000 16.161 Direct

Aberforth Partners LLP 37,960,838 9.011 Direct

Ettore Contini 32,613,577 7.742 Direct and indirect

Blue Albacore Business Ltd 31,260,296 7.421 Direct

Globe Deals Ltd 27,444,382 6.515 Direct

Chemsa Ltd 24,426,925 5.799 Direct

Ed Story 16,271,613 3.863 Direct and indirect

1) As at 25 March 2024, the total voting rights attached to the issued share capital of the Company comprised 421,253,197 Ordinary shares each of £0.05

nominal value, being 430,375,465 Ordinary shares in issue less 9,122,268 Ordinary shares currently held in treasury.

2) As at 31 December 2023: Bradley Radoff held 59,767,980 Shares representing 14.13% of the voting rights in the Company at that time.

During the period between 31 December 2023 and the date of this report, the Company did not receive any notifications under Chapter

5 of the Disclosure and Transparency Rules indicating a different whole percentage holding than as at 31 December 2023 other than as

shown in the footnotes to the table above. For further information on Directors’ interests, please see page 134.

Requirements of the UK Listing Rules

Table C of this report provides references to where the information required by LR 9.8.4R of the Listing Rules is disclosed within this

Annual Report. Where there is no specific reference in Table to a LR 9.8.4R information requirement, that requirement is not applicable

to the Company for the reporting year.

Table C: Listing Rules requirements

LR 9.8.4R requirement

Details of any long-term incentive schemes as required by Listing Rule 9.4.3 R.

Directors’ Remuneration Committee Report

pages 126 to 142

Details of any arrangements under which a director of the company has waived or agreed

to waive any emoluments from the company or any subsidiary undertaking. Where a

director has agreed to waive future emoluments, details of such waiver together with those

relating to emoluments which were waived during the period under review.

No such waivers

Details required in the case of any allotment for cash of equity securities made during

the period under review otherwise than to the holders of the company’s equity shares

in proportion to their holdings of such equity shares and which has not been specifically

authorised by the company’s shareholders.

No such share allotments

Details of any contract of significance subsisting during the period under review: (a) to which

the listed company, or one of its subsidiary undertakings, is a party and in which a director

of the listed company is or was materially interested; and (b) between the listed company, or

one of its subsidiary undertakings, and a controlling shareholder.

Note 35 page 187

Details of any arrangement under which a shareholder has waived or agreed to waive any

dividends, where a shareholder has agreed to waive future dividends, details of such waiver

together with those relating to dividends which are payable during the period under review.

Note 29 page 183

Annual Report and Accounts 2023

Pharos Energy

147

Governance Report

Financial Statements

Strategic Report

Additional Information

DIRECTORS’ REPORT - continued

Whistleblowing procedure

The Board has reviewed, and is satisfied with, the Group’s

Whistleblowing Policy and associated procedures, enabling

employees to raise issues in confidence concerning improprieties

which would be addressed with appropriate follow-up action.

The Group has in place an Ethics Hotline using a dedicated,

confidential and anonymous telephone service available to staff

to report a suspected breach of the Group’s Code of Business

Conduct and Ethics.

Business Relationships

In order to foster relationships with suppliers and customers,

Pharos ensures a robust engagement process before contracts

are awarded. Every vendor is required to complete due diligence

so that the Company may ensure all corporate and banking

details are recorded and checked before invoices are issued;

this allows for prompt and accurate payment. Where possible,

payment terms are 30 days from date of receipt of a validly

submitted invoice. A comprehensive contracts register is

maintained to ensure that post award contract management is

addressed to consider delivery of appropriate notices of renewal

of termination.

We strive to work constructively with all our suppliers, customers

and other business partners to build and maintain productive

relationships.

Going concern

It should be recognised that any consideration of the foreseeable

future involves making a judgement, at a particular point in time,

about future events which are inherently uncertain. Nevertheless,

at the time of preparation of these accounts and after making

enquiries, the Directors have a reasonable expectation that the

Group has adequate resources to continue operating for the

foreseeable future. For this reason, and taking into consideration

the additional factors in the Strategic Report on pages 3 to 98

including the Going Concern section of the CFO’s Statement

on page 47, they continue to adopt the going concern basis in

preparing the accounts.

Directors’ responsibilities for the Financial

Statements

The Directors are responsible for preparing the Annual Report

and the Financial Statements in accordance with international

accounting standards in conformity with the requirements of

the Companies Act 2006 and International Financial Reporting

Standards (IFRS) as adopted by the UK. The Financial

Statements have also been prepared in accordance with

International Financial Reporting Standards as issued by the

IASB. The Directors are required to prepare Financial Statements

for each financial year that give a true and fair view of the financial

position of the Company and of the Group and the financial

performance and cash flows of the Group for that period. In

preparing those accounts the Directors are required to select

suitable accounting policies and then apply them consistently;

present information and accounting policies in a manner that

provides relevant, reliable and comparable information; and state

that the Company and the Group have complied with applicable

accounting standards, subject to any material departures

disclosed and explained in the accounts.

The Directors are responsible for keeping proper accounting

records which disclose with reasonable accuracy at any time the

financial position of the Company and the Group and enable them

to ensure that the accounts comply with relevant legislation. They

are also responsible for safeguarding the assets of the Company

and the Group and hence for taking reasonable steps for the

prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity

of the corporate and financial information included on the

Company’s website. Information published on the internet is

accessible in many countries with different legal requirements.

Legislation in the United Kingdom governing the preparation and

dissemination of Financial Statements may differ from legislation

in other jurisdictions.

Directors’ responsibility statement

The Directors confirm that, to the best of each person’s

knowledge:

a) the Financial Statements set out on pages 158 to 189, which

have been prepared in accordance with international accounting

standards in conformity with the requirements of the Companies

Act 2006 and International Financial Reporting Standards as

adopted by the UK and in accordance with International Financial

Reporting Standards as issued by the IASB, give a true and fair

view of the assets, liabilities, financial position and loss of the

Company and the Group taken as a whole;

b) this Directors’ Report along with the Strategic Report, including

each of the management reports forming part of these reports,

includes a fair review of the development and performance of the

business and the position of the Company and the Group taken

as a whole, together with a description of the principal risks and

uncertainties that they face and how these are being managed

and mitigated as set out in the Risk Management Report on

pages 48 to 61; and

c) the Annual Report and the Financial Statements, taken as a

whole, are fair, balanced and understandable and provide the

information necessary for the shareholders to assess the Group’s

position, performance, business model and strategy.

Approved by the Board and signed on its behalf.

SUE RIVETT

Chief Financial Officer

27 March 2024

Independent auditor’s report to the members of Pharos Energy PLC 149

Consolidated Financial Statements 158

− Consolidated Income Statement 158

− Consolidated Statement of Comprehensive Income 158

− Balance Sheets 159

− Statements of Changes in Equity 160

− Cash Flow Statements 161

Notes to the Consolidated Financial Statements 162

Annual Report and Accounts 2023

Pharos Energy

148

Financial

Statements

1. Opinion

In our opinion:

• the financial statements of Pharos Energy plc (the

‘company’) and its subsidiaries (the ‘group’) give a

true and fair view of the state of the group’s and of the

company’s affairs as at 31 December 2023 and of the

group’s loss for the year then ended;

• the group financial statements have been properly

prepared in accordance with United Kingdom adopted

international accounting standards and International

Financial Reporting Standards (IFRSs) as issued by the

International Accounting Standards Board (IASB);

• the 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 group and company balance sheets;

• the group and company statements of changes in equity;

• the group and company cash flow statements; and

• the related notes 1 to 38.

The financial reporting framework that has been applied in the

preparation of the group financial statements is applicable law,

United Kingdom adopted international accounting standards and

IFRSs as issued by the IASB. The financial reporting framework

that has been applied in the preparation of the 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 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 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 company.

We believe that the audit evidence we have obtained is sufficient

and appropriate to provide a basis for our opinion.

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 and gas assets.

Materiality

The materiality that we used for the group

financial statements was $3.8m which was

determined on the basis of 4% of 3-year

average earnings from continuing activities

before interest, tax, depreciation, depletion

& amortisation “DD&A”, impairment charge/

reversal of property, plant & equipment

“PP&E “and intangibles, exploration

expenditure including pre-license costs and

other/restructuring expense “EBITDAX”.

Scoping

We focused primarily on the group’s key

business units, being Vietnam and Egypt.

These components were subject to full

scope audits and account for 100% of the

group’s total assets, 100% of the group’s

revenues and 100% of the group’s loss

before tax. A full scope audit, which was

performed by the group engagement

team, was additionally carried out on the

company financial information.

Significant

changes in

our approach

There are no significant changes to our

approach.

Annual Report and Accounts 2023

Pharos Energy

149

Financial Statements

Additional InformationGovernance Report

Strategic Report

Financial

Statements

Report on the audit of the

financial statements

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PHAROS ENERGY PLC

Annual Report and Accounts 2023

Pharos Energy

150

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PHAROS ENERGY PLC - continued

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

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;

• assessed the reasonableness of the assumptions

incorporated in the base case forecast that address the

uncertain economic environment;

• compared the oil prices in the aggregated downside scenario

with both the spot oil price and publicly available forward

curves as of the date of approval of the financial statements;

• assessed and recalculated the impact of the aggregated

downside scenario on the financial covenants included in the

reserve based lending (RBL) facility 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 company’s ability to continue as a going concern

for a period of at least twelve months from when the financial

statements are authorised for issue.

In relation to the reporting on how the group has applied the UK

Corporate Governance Code, we have nothing material to add

or draw attention to in relation to the Directors’ Statement in the

Financial Statements about whether the directors considered it

appropriate to adopt the going concern basis of accounting.

Our responsibilities and the responsibilities of the directors with

respect to going concern are described in the relevant sections of

this report.

5. Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial

statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)

that we identified. These matters included those which had the greatest effect on: the overall audit strategy; the allocation of resources

in the audit; and directing the efforts of the engagement team.

These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon,

and we do not provide a separate opinion on these matters.

Impairment and impairment reversal of producing oil and gas assets

Key audit matter

description

The value of property, plant and equipment relating to the group’s producing oil and gas assets as at 31

December 2023 was $279.3 million (2022: $381.3 million). Management assesses the group’s producing

oil and gas assets for impairment and/or impairment reversal indicators every reporting period. There

are a number of significant judgements and estimates involved in these assessments, and in quantifying

any impairment charge or reversal. We therefore consider this to be a key audit matter. In addition, we

considered that there was a risk of impairment due to the potential impact of climate change on long term

oil prices. Given the importance of producing oil and gas assets to the group and the judgemental nature

of the inputs used in determining the recoverable amounts, we also considered there to be a potential for

fraud in this area.

Management reviewed its two producing assets in Vietnam, being Te Giac Trang (‘TGT’) and Ca Ngu Vang

(‘CNV’), and its two producing assets in Egypt, being El Fayum and North Beni Suef (‘NBS’), for indicators

of impairment. There have been various developments in the period. These include a downwards

technical revision of El Fayum reserves compared to prior year, NBS reserves were recognised for the

first-time following commencement of production in December 2023, a downwards technical revision

of TGT reserves and an upward revision of CNV production profile as set out in note 16 of the financial

statements. Given the revisions, together with the changes to oil price assumptions and discount rates

resulting from the current economic uncertainty, management concluded that there were indicators of

impairment for TGT, El Fayum and NBS and an indicator of impairment reversal for CNV. Management

have estimated the recoverable amount of each producing asset, being its value-in-use “VIU”, and

compared this to its balance sheet carrying amount. Management recorded pre-tax impairment reversal

of $0.3 million on CNV (2022: $3.6 million), a pre-tax impairment charge of $46.3 million on TGT (2022

impairment reversal: $19.7 million), a pre-tax impairment charge of $11 million on El Fayum (2022

impairment reversal: $3.8 million) and a pre-tax impairment charge of $1.9m on NBS (2022: $nil).

Management’s recoverable amount estimates were based on key assumptions which included:

• oil price forecasts;

• reserves estimates and production profiles; and

• nominal discount rates

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, NBS and El Fayum

fields. Management have explained the scope of work of the third-party experts and their findings in the

operations review on page 33, as well as highlighting oil and gas reserves as a key source of estimation

uncertainty in note 4(b) to the 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 120 to 125. The disclosures in

note 16 include the sensitivity of the impairment and impairment reversals to changes in key assumptions,

including the impact to reach net zero emissions by 2050 (the “Net Zero price scenario”).

Annual Report and Accounts 2023

Pharos Energy

151

Financial Statements

Additional InformationGovernance Report

Strategic Report

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PHAROS ENERGY PLC - continued

How the scope

of our audit

responded to the

key audit matter

For the TGT, CNV, NBS and El Fayum impairment assessments, we obtained an understanding of

management’s relevant controls related to the valuation of each producing oil and gas asset. We evaluated

management’s assessment of whether or not impairment or impairment reversal indicators were present

in respect of each producing oil and gas asset, and thus the completeness of management’s impairment

tests. Where indicators were identified, we assessed the methods and models used for consistency

with the requirements of IAS 36 “Impairment of Assets”. We evaluated the key assumptions made by

management in the measurement of recoverable amounts by performing the following procedures:

Oil price forecasts:

Through working with our valuation specialists, we:

• Independently developed a reasonable range of forecasts based on a variety of reputable external

forecasts, peer information and market data, against which we compared the group’s future oil price

assumptions; and

• We assessed management’s current ‘best estimate’ of forecast oil prices including consideration of

third-party forecasts under scenarios that we interpreted to be consistent with this measurement

objective; and

• We have assessed the reasonableness of management’s oil price assumptions described as being

compliant with achieving the Paris agreement goal to limit temperature rises to well below 1.5°C

(“Paris Goal”)

Reserve estimates and production profiles:

Through working with our oil and gas reserve specialists, we:

• Gained an understanding of the process used by management to derive their reserves estimates and

associated production profiles and how they provide information to, and interact with, their external

third party reserve experts;

• Assessed the competence, capability and objectivity of the group’s external third party reserve experts

• Reviewed the external third party experts’ reports on group’s reserves estimates and evaluated

whether these estimates were used consistently in the financial statements;

• Communicated directly with the external third party reserves experts to discuss their scope of work

and assess their methodologies used and outputs;

• Compared the production forecasts used in the impairment tests with management’s approved

reserves and resources estimates;

• Compared the production forecasts with similar forecasts from the prior year and assessed significant

changes;

• Assessed the reasonableness of the production and cost forecasts relative to each other; and

• Where relevant, performed a retrospective review and assessed the group’s historical forecasting

accuracy and whether the estimates had been determined and applied on a consistent basis without

bias.

Nominal discount rates:

We assessed the group’s discount rates by working with our internal valuation specialists developing

independent range estimates for TGT, CNV, El Fayum and NBS and comparing those estimates to

management’s assumptions.

Other procedures:

• We assessed management’s other assumptions using our knowledge of the group and industry and

by comparing management’s budgeted and forecast performance.

• By working with our internal valuation specialists, we assessed whether the group’s impairment

methodology was acceptable under IFRS and tested the integrity and mechanical accuracy of the

impairment models.

• We assessed the appropriateness of management’s presentation and disclosures relating to

impairment and impairment reversal and associated estimation uncertainty.

Annual Report and Accounts 2023

Pharos Energy

152

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PHAROS ENERGY PLC - continued

Key observations

Oil price forecasts

For the purpose of group’s producing oil and gas assets impairment and/or impairment reversal tests,

management is required under IAS 36 “Impairment of assets” to apply its current “best estimate” of future

oil prices. We observed that the group’s future oil price assumptions are within our reasonable range.

Accordingly, we determined that the Group’s “best estimate” future oil price assumptions are reasonable.

We also observe that the forecast oil price assumptions aligned with the Paris goals to be lower than the

group’s oil price assumptions. The disclosures in note 16 to the financial statements includes the impact of

adopting an oil price described as being compliant with achieving the Paris Goal.

Reserves estimates and production profiles:

We found that the reserves estimates and production profiles used in the impairment tests to have been

appropriately prepared, and found the underlying assumptions we tested to be reasonable.

Nominal discount rates:

The group’s discount rates used for impairment testing, were both within our country-specific reasonable

ranges.

Other procedures:

We concluded that the impairment and impairment reversals recorded by management are appropriate.

We are also satisfied that appropriate disclosures relating to management’s impairment assessment and

sensitivities have been provided in note 16.

6. Our application of materiality

6.1. Materiality

We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions

of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work

and in evaluating the results of our work.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

Group financial statements Company financial statements

Materiality

$3.8m (2022: $3.4m) $3.4m (2022: $3m)

Basis for

determining

materiality

4% of the 3-year average of EBITDAX (2022: 4% of

the 3-year average of EBITDAX)

Company materiality equates to 1.5% of net assets,

which is capped at 90% of group materiality (2022:

1.5% of net assets capped at 90% of group materiality)

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 fourth full year of operations in Egypt. This

reflects the group’s performance, noting that

EBITDAX is also an input to one of the covenants

under the group’s reserve based lending facility.

Consistent with prior year, as the primary nature of this

holding company is to hold investments in subsidiaries,

we have concluded that net assets represents the most

appropriate benchmark.

EBITDAX (3 year average)

$103m

Group materiality

$3.8m

Component materiality range

$1.9m - $3.1m

Audit Committee reporting threshol

$0.19m

$3.8m

Annual Report and Accounts 2023

Pharos Energy

153

Financial Statements

Additional InformationGovernance Report

Strategic Report

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PHAROS ENERGY PLC - continued

6.2. Performance materiality

We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected

misstatements exceed the materiality for the financial statements as a whole.

Group financial statements Company financial statements

Performance

materiality

70% (2022: 70%) of group materiality 70% (2022: 70%) of company materiality

Basis and

rationale for

determining

performance

materiality

In determining performance materiality, we considered the following factors:

a) the controls environment within which the group operates, including that related to IT, is not considered to

be complex;

b) the responsibility for all key accounting judgements and critical sources of estimation uncertainty is

centralised and conducted in the head office in London;

c) the limited number of changes to the business during the year; and

d) the history of a low number of corrected and uncorrected misstatements identified in previous periods

6.3. Error reporting threshold

We agreed with the Audit & Risk Committee that we would report

to the Committee all audit differences in excess of $0.19m (2022:

$0.17m), as well as differences below that threshold that, in our

view, warranted reporting on qualitative grounds. We also report

to the Audit & Risk Committee on disclosure matters that we

identified when assessing the overall presentation of the financial

statements.

7. An overview of the scope of our audit

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 identified the key business

units, Vietnam and Egypt, which are accounted for partly in the

local country of operation and partly in London, as significant

components for our audit.

The Vietnamese component, the Egyptian component, which are

all subject to full scope audits, accounted for 100% (2021: 100%)

of the group’s total assets, 100% (2021: 100%) of the group’s

revenue and 100% (2021: 100%) of the group’s profit before tax.

The Vietnamese component materiality was $3.1 million (2022:

$2.1 million) and the Egyptian component materiality was $1.9

million (2022: $1.2 million). We also audited the consolidation

of the group’s business units. In both the current and the prior

year, the key audit matter that had the greatest effect on our

audit strategy, as described above, was audited directly by the

group audit team in London. At the group level, as well as the

key audit matter in relation to impairment of producing and oil

assets, we tested the consolidation process, going concern,

decommissioning, borrowings and intercompany. A full scope

audit, which was performed by the group engagement team,

was additionally carried out on the company financial information,

to the materiality set out in section 6. We also carried out

analytical procedures to support our conclusion that there were

no significant risks of material misstatement of the aggregated

financial information of the remaining components not subject to

audit.

7.2. Our consideration of the control environment

Reflecting the non-complex controls environment, we did not plan

to take a controls reliance approach over financial or IT controls

in the current year and we therefore adopted a fully substantive

audit approach. We gained an understanding of both the IT and

financial control environment, as well as over the relevant controls

over the key audit matter set out in section 5.1 above, revenue

and journal processing to assist and inform the fully substantive

audit approach adopted. The group’s consideration of controls

is set out in the section ‘Internal controls and risk management

systems’ on page 122 in the Audit & Risk Committee report of the

2023 Annual Report.

7.3. Our consideration of climate-related risks

Climate change is considered a principal risk to the group and

its business by management. Further details are disclosed in the

Strategic report of the 2023 Annual Report pages 3 to 98.

Through our audit procedures, we:

• Obtained an understanding of management’s process for

considering the impact of climate-related risks through enquiries

performed with the Audit & Risk Committee, enquiries and

inspection of relevant documentation with the ESG Committee as

well as regular meetings with management.

• To assess the consistency of climate related risks identified

by management with our understanding of the entity and

risk assessment, we obtained and reviewed management’s

assessment of climate related risks, read the minutes of meeting

of the ESG Committee and specifically inquired of management of

any climate-related litigations or claims involving the group.

• As disclosed in note 4(b) to the financial statements, Management

identified that the group’s producing oil & gas properties are

short-term in nature and are likely to be fully depreciated within 10

years, during which timeframe it is expected that global demand

for oil will remain robust. Therefore, due to the relatively short-

time frame, management concluded that the impact of climate

change on the group’s oil & gas properties depletion, economic

useful lives and decommissioning not to be material. Management

further identified that the impact of climate change on the

group’s exploration & evaluation assets is similar to the group’s

producing oil & gas properties, but the potential longevity of those

assets has not yet been determined for further consideration.

Accordingly, the related principal risk that we have identified for

our audit is the forecast oil assumptions used in the recoverable

amount assessment of the group’s producing oil & gas properties

may not appropriately reflect changes in supply and demand, or

policy changes such as carbon tax/pricing due to climate change

and the energy transition (see the key audit matter in section ‘5

Impairment of producing oil & gas assets’ above).

Annual Report and Accounts 2023

Pharos Energy

154

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PHAROS ENERGY PLC - continued

In order to address the risk identified, we performed the following

procedures:

• With the involvement of our climate change specialists, we

read the climate change related disclosures presented in

the Strategic Report to consider whether they are materially

consistent with the financial statements and our knowledge

obtained in the audit, including the disclosure of sensitivities

showing the impact on impairment of producing oil & gas

assets included in note 16 of the financial statements.

• We evaluated management’s Task Force on Climate-Related

Disclosures in line with the latest guidance, and;

• We evaluated management’s forecast oil price assumptions

to assess whether they are reasonable and present

management’s current ‘best estimate’ in accordance with

IAS 36 (see the key audit matter in section 5 ‘Impairment of

producing oil & gas assets’ above).

7.4. Working with other auditors

The group audit team assesses each year how best to be

appropriately involved in the audit work undertaken in Vietnam

and Egypt. In the current year, this was achieved by sending

detailed instructions to our component audit teams, setting the

scope of the component auditors and assessing the component

auditor’s independence, regular interaction and providing direction

on enquiries made by the component auditors through online

and telephone conversations, performing a remote review of the

underlying work and key audit areas of the component auditors in

Vietnam by a senior member of the group audit team and visiting

the Egypt component team in Cairo.

8. Other information

The other information comprises the information included in

the annual report, other than the financial statements and our

auditor’s report thereon. The directors are responsible for the

other information contained within the annual report.

Our opinion on the financial statements does not cover the other

information and, except to the extent otherwise explicitly stated in

our report, we do not express any form of assurance conclusion

thereon.

Our responsibility is to read the other information and, in doing so,

consider whether the other information is materially inconsistent

with the financial statements or our knowledge obtained in

the course of the audit, or otherwise appears to be materially

misstated.

If we identify such material inconsistencies or apparent material

misstatements, we are required to determine whether this

gives rise to a material misstatement in the financial statements

themselves. If, based on the work we have performed, we

conclude that there is a material misstatement of this other

information, we are required to report that fact.

We have nothing to report in this regard.

9. Responsibilities of directors

As explained more fully in the directors’ responsibilities statement,

the directors are responsible for the preparation of the financial

statements and for being satisfied that they give a true and fair

view, and for such internal control as the directors determine is

necessary to enable the preparation of financial statements that

are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible

for assessing the group’s and the company’s ability to continue

as a going concern, disclosing as applicable, matters related to

going concern and using the going concern basis of accounting

unless the directors either intend to liquidate the group or the

company or to cease operations, or have no realistic alternative

but to do so.

10. Auditor’s responsibilities for the audit of

the financial statements

Our objectives are to obtain reasonable assurance about whether

the financial statements as a whole are free from material

misstatement, whether due to fraud or error, and to issue an

auditor’s report that includes our opinion. Reasonable assurance

is a high level of assurance, but is not a guarantee that an audit

conducted in accordance with ISAs (UK) will always detect a

material misstatement when it exists. Misstatements can arise

from fraud or error and are considered material if, individually or

in the aggregate, they could reasonably be expected to influence

the economic decisions of users taken on the basis of these

financial statements.

A further description of our responsibilities for the audit of the

financial statements is located on the FRC’s website at:

www.frc.org.uk/auditorsresponsibilities. This description forms

part of our auditor’s report.

Annual Report and Accounts 2023

Pharos Energy

155

Financial Statements

Additional InformationGovernance Report

Strategic Report

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PHAROS ENERGY PLC - continued

11. Extent to which the audit was considered

capable of detecting irregularities,

including fraud

Irregularities, including fraud, are instances of non-compliance

with laws and regulations. We design procedures in line with our

responsibilities, outlined above, to detect material misstatements

in respect of irregularities, including fraud. The extent to which our

procedures are capable of detecting irregularities, including fraud

is detailed below.

11.1. Identifying and assessing potential risks

related to irregularities

In identifying and assessing risks of material misstatement in

respect of irregularities, including fraud and non-compliance with

laws and regulations, we considered the following:

• the nature of the industry and sector, control environment

and business performance including the design of the group’s

remuneration policies, key drivers for directors’ remuneration,

bonus levels and performance targets;

• results of our enquiries of management, the directors and

the audit committee about their own identification and

assessment of the risks of irregularities, including those that

are specific to the group’s sector;

• any matters we identified having obtained and reviewed

the group’s documentation of their policies and procedures

relating to:

− identifying, evaluating and complying with laws and regulations and

whether they were aware of any instances of non-compliance;

− detecting and responding to the risks of fraud and whether they have

knowledge of any actual, suspected or alleged fraud;

− the internal controls established to mitigate risks of fraud or non-

compliance with laws and regulations;

• the matters discussed among the audit engagement team

including significant component audit teams and relevant

internal specialists, including tax, valuations, climate change

and reserves specialists regarding how and where fraud might

occur in the financial statements and any potential indicators

of fraud.

As a result of these procedures, we considered the opportunities

and incentives that may exist within the organisation for fraud

and identified the greatest potential for fraud in management’s

assessment of the impairment and impairment reversal of

producing oil & gas assets. In common with all audits under ISAs

(UK), we are also required to perform specific procedures to

respond to the risk of management override.

We also obtained an understanding of the legal and regulatory

frameworks that the group operates in, focusing on provisions

of those laws and regulations that had a direct effect on the

determination of material amounts and disclosures in the financial

statements. The key laws and regulations we considered in this

context included the UK Companies Act, Listing Rules, pensions

legislation, tax legislation in the UK, Vietnam and Egypt.

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 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 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.

Annual Report and Accounts 2023

Pharos Energy

156

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PHAROS ENERGY PLC - continued

13. Corporate Governance Statement

The Listing Rules require us to review the directors’ statement

in relation to going concern, longer-term viability and that part

of the Corporate Governance Statement relating to the group’s

compliance with the provisions of the UK Corporate Governance

Code specified for our review.

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 set

out on page 110;

• the directors’ explanation as to its assessment of the

group’s prospects, the period this assessment covers

and why the period is appropriate set out on page 110;

• the directors’ statement on fair, balanced and

understandable set out on page 110;

• the board’s confirmation that it has carried out a robust

assessment of the emerging and principal risks set out

on page 111;

• the section of the annual report that describes the review

of effectiveness of risk management and internal control

systems set out on page 111; and

• the section describing the work of the audit committee

set out on page 120.

14. Matters on which we are required to

report by exception

14.1. Adequacy of explanations received and

accounting records

Under the Companies Act 2006 we are required to report to you

if, in our opinion:

• we have not received all the information and explanations we

require for our audit; or

• adequate accounting records have not been kept by the

company, or returns adequate for our audit have not been

received from branches not visited by us; or

• the company financial statements are not in agreement with

the accounting records and returns.

We have nothing to report in respect of these matters.

14.2. Directors’ remuneration

Under the Companies Act 2006 we are also required to report if

in our opinion certain disclosures of directors’ remuneration have

not been made or the part of the directors’ remuneration report to

be audited is not in agreement with the accounting records and

returns.

We have nothing to report in respect of these matters.

15. Other matters which we are required to

address

15.1. Auditor tenure

Following the recommendation of the audit committee, we were

appointed by the directors on 1 August 2002 to audit the financial

statements of the group for the year ending 31 December 2002

and subsequent financial periods.

The total uninterrupted period of engagement, including previous

renewals and reappointments of the firm is 22 years, covering the

years ending 31 December 2002 to 31 December 2023.

This is the last period of our appointment as auditor for the group,

owing to mandatory rotation requirements.

15.2. Consistency of the audit report with the

additional report to the audit committee

Our audit opinion is consistent with the additional report to the

audit committee we are required to provide in accordance with

ISAs (UK).

16. Use of our report

This report is made solely to the company’s members, as a body,

in accordance with Chapter 3 of Part 16 of the Companies Act

2006. Our audit work has been undertaken so that we might

state to the company’s members those matters we are required

to state to them in an auditor’s report and for no other purpose.

To the fullest extent permitted by law, we do not accept or

assume responsibility to anyone other than the company and the

company’s members as a body, for our audit work, for this report,

or for the opinions we have formed.

As required by the Financial Conduct Authority (FCA) Disclosure

Guidance and Transparency Rule (DTR) 4.1.15R – DTR 4.1.18R,

these financial statements will form part of the Electronic Format

Annual Financial Report filed on the National Storage Mechanism

of the FCA in accordance with DTR 4.1.15R – DTR 4.1.18R.

This auditor’s report provides no assurance over whether the

Electronic Format Annual Financial Report has been prepared in

compliance with DTR 4.1.15R – DTR 4.1.18R.

ANTHONY MATTHEWS, FCA

(Senior statutory auditor)

For and on behalf of Deloitte LLP

Statutory Auditor

London, United Kingdom

27 March 2024

Annual Report and Accounts 2023

Pharos Energy

157

Financial Statements

Additional InformationGovernance Report

Strategic Report

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PHAROS ENERGY PLC - continued

Annual Report and Accounts 2023

Pharos Energy

158

Consolidated Income Statement

Consolidated Statement of

Comprehensive Income

CONSOLIDATED FINANCIAL STATEMENTS

for the year to 31 December 2023

Notes

		2023	2022
		$ million	$ million
Continuing operations
Revenue	5, 6	167.9	199.1
Cost of sales	7	(111.2)	(116.8)
Gross profit		56.7	82.3
Administrative expenses		(9.0)	(10.0)
Pre-licence costs		(0.4)	–
Impairment (charge)/reversal – Intangible assets	6, 15	(6.5)	0.8
Impairment (charge)/reversal – Property, plant and equipment	6, 16	(58.9)	27.1
Operating (loss)/profit		(18.1)	100.2
Other/restructuring expense	8	(0.6)	(0.8)
Loss on disposal	37	–	(6.6)
(Loss)/gain on fair value movement of financial asset	6, 37	(0.3)	0.3
Investment revenue	5	0.2	0.2
Finance costs	9	(10.2)	(12.7)
(Loss)/profit before tax	6	(29.0)	80.6
Income tax charge	6, 12	(19.8)	(56.2)
(Loss)/profit for the year	30	(48.8)	24.4
(Loss)/profit per share (cents)	14
Basic		(11.4)	5.6
Diluted		(11.4)	5.4

Notes

		2023	2022
		$ million	$ million
(Loss)/profit for the year	30	(48.8)	24.4
Items that may be subsequently reclassified to profit or loss:
Fair value gain/(loss) arising on hedging instruments during the year	25	0.6	(18.9)
Less: Loss arising on hedging Instruments reclassified to profit or loss	25	0.2	22.5
Total comprehensive (loss)/income for the year		(48.0)	28.0

The above Consolidated Income Statement and Consolidated Statement of Comprehensive Income should be read in conjunction with

the accompanying notes.

		Group		Company
		2023	2022	2023	2022
	Notes	$ million	$ million	$ million	$ million
Non-current assets
Intangible assets	15	18.2	16.5	–	–
Property, plant and equipment	16	279.3	381.0	–	–
Right-of-use assets	16, 33	0.5	0.8	–	–
Investments	17	–	–	294.3	335.5
Loan to subsidiaries		–	–	16.8	23.0
Other assets	18	58.6	59.1	–	–
		356.6	457.4	311.1	358.5
Current assets
Inventories	19	3.3	7.2	–	–
Trade and other receivables	20	62.3	60.9	0.4	0.4
Tax receivables		2.2	2.1	0.2	0.1
Cash and cash equivalents	21	32.6	45.3	1.7	8.8
		100.4	115.5	2.3	9.3
Total assets		457.0	572.9	313.4	367.8
Current liabilities
Trade and other payables	22	(14.2)	(14.0)	(4.0)	(1.9)
Borrowings	24	(29.5)	(39.6)	–	–
Lease liabilities	33	(0.3)	(0.3)	–	–
Tax payable		(5.8)	(5.2)	(0.9)	(1.2)
		(49.8)	(59.1)	(4.9)	(3.1)
Non-current liabilities
Other payables	22	(0.5)	(0.9)	–	–
Deferred tax liabilities	23	(68.2)	(92.9)	–	–
Borrowings	24	(11.0)	(34.6)	–	–
Lease liabilities	33	(0.2)	(0.5)	-	--
Long term provisions	26	(53.8)	(54.3)	–	–
		(133.7)	(183.2)	–	–
Total liabilities		(183.5)	(242.3)	(4.9)	(3.1)
Net assets		273.5	330.6	308.5	364.7
Equity
Share capital	27	33.7	34.3	33.7	34.3
Share premium	27	58.0	58.0	58.0	58.0
Other reserves	28	255.4	253.6	200.6	199.7
Retained (deficit)/earnings	30	(73.6)	(15.3)	16.2	72.7
Total equity		273.5	330.6	308.5	364.7

The above Consolidated Balance Sheets should be read in conjunction with the accompanying notes.

The loss for the financial year in the accounts of the Company (Co number 3300821) was $(47.0)m inclusive of dividends from

subsidiary undertakings (2022: $60.7m profit). As provided by section 408 of the Companies Act 2006, no Income Statement or

Statement of Comprehensive Income is presented in respect of the Company.

The Financial Statements were approved by the Board of Directors on 27 March 2024 and signed on its behalf by:

Annual Report and Accounts 2023

Pharos Energy

159

Financial Statements

Additional InformationGovernance Report

Strategic Report

Balance Sheets

CONSOLIDATED FINANCIAL STATEMENTS - continued

as at 31 December 2023

JOHN MARTIN Chairman SUE RIVETT Director

Annual Report and Accounts 2023

Pharos Energy

160

Statements of Changes in Equity

for the year to 31 December 2023

CONSOLIDATED FINANCIAL STATEMENTS - continued

						Group
		Called up	Share	Other	Retained
		share capital	premium	reserves	earnings/(deficit)
		(see Note 27)	(see Note 27)	(see Note 28)	(see Note 30)	Total
	Notes	$ million	$ million	$ million	$ million	$ million
As at 1 January 2022		34.9	58.0	250.5	(39.0)	304.4
Profit for the year	30	–	–	–	24.4	24.4
Other comprehensive income	28	–	–	3.6	–	3.6
Share buy back	27, 28, 30	(0.6)	–	0.6	(2.9)	(2.9)
Treasury shares repurchased	28	–	–	(0.6)	–	(0.6)
Share-based payments	28	–	–	1.7	–	1.7
Transfer relating to share-based payments	28, 30	–	–	(2.2)	2.2	–
As at 1 January 2023		34.3	58.0	253.6	(15.3)	330.6
Loss for the year	30	–	–	–	(48.8)	(48.8)
Other comprehensive income	28	–	–	0.8	–	0.8
Share buy back	27, 28, 30	(0.6)	–	0.6	(2.8)	(2.8)
Share-based payments	28	–	–	1.0	–	1.0
Distributions to shareholders	29,30	–	–	–	(7.3)	(7.3)
Transfer relating to share-based payments	28, 30	–	–	(0.6)	0.6	–
As at 31 December 2023		33.7	58.0	255.4	(73.6)	273.5

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 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 ,30 (0.6) – 0.6 (2.9) (2.9)

Share-based payments 28 – – 1.7 – 1.7

Transfer relating to share-based payments 28, 30 – – (5.0) 2.3 (2.7)

As at 1 January 2023 34.3 58.0 199.7 72.7 364.7

Loss for the year

13, 30 – – – (47.0) (47.0)

Share buy back

27, 28 ,30 (0.6) – 0.6 (2.8) (2.8)

Share-based payments

28 – – 1.0 – 1.0

Distributions to shareholders

29 ,30 – – – (7.3) (7.3)

Transfer relating to share-based payments 28, 30 – – (0.7) 0.6 (0.1)

As at 31 December 2023 33.7 58.0 200.6 16.2 308.5

The above Consolidated Statements of Changes in Equity should be read in conjunction with the accompanying notes.

Annual Report and Accounts 2023

Pharos Energy

161

Financial Statements

Additional InformationGovernance Report

Strategic Report

Cash Flow Statements

CONSOLIDATED FINANCIAL STATEMENTS - continued

for the year to 31 December 2023

			Group		Company
		2023	2022	2023	2022
	Notes	$ million	$ million	$ million	$ million
Net cash from (used in) operating activities	32	44.9	53.4	(8.1)	(11.6)
Investing activities
Purchase of intangible assets		(9.7)	(4.4)	–	–
Purchase of property, plant and equipment		(13.5)	(25.4)	–	–
Payment to abandonment fund	18	(3.5)	(2.1)	–	–
Consideration in relation to farm out of Egyptian assets	20	15.6	18.4	–	–
Contingent consideration received in relation to farm out of Egyptian assets	20	5.0	–	–	–
Assignment fee in relation to farm out of Egyptian assets	22	(0.5)	(0.5)	–	–
Dividends received from subsidiary undertakings		–	–	11.4	19.0
Net cash (used in) from investing activities		(6.6)	(14.0)	11.4	19.0
Financing activities
Share based payments		–	(0.4)	–	–
Repayment of borrowings	24	(44.2)	(27.1)	–	–
Proceeds from borrowings	24	9.2	16.7	–	–
Interest paid on borrowings	24	(6.4)	(6.0)	–	–
Lease payments	33	(0.3)	(0.1)	–	–
Share buy back	30	(2.8)	(2.9)	(2.8)	(2.9)
Dividends paid to shareholders	29	(5.6)	–	(5.6)	–
Funding movements with subsidiaries		–	–	(2.1)	(1.0)
Net cash used in financing activities		(50.1)	(19.8)	(10.5)	(3.9)
Net (decrease)/increase in cash and cash equivalents		(11.8)	19.6	(7.2)	3.5
Cash and cash equivalents at beginning of year		45.3	27.1	8.8	5.3
Effect of foreign exchange rate changes		(0.9)	(1.4)	0.1	–
Cash and cash equivalents at end of year	21	32.6	45.3	1.7	8.8

1) During the year IPR, acting as operator and agent, was authorised to settle its operating liabilities of $3.5m (2022: $6.6m) and investing liabilities of $12.1m

(2022: $8.8m) against the consideration due from the associated carry debtor (Note 20) amounting to $15.6m (2022: $15.4m). The Company has disclosed

the underlying cash flows as operating, investing or financing according to their nature on the basis that, as a principal, the entity has the right to the cash

inflows and/or the obligation to settle the liability and ensure clarity of disclosure of the operating cash costs of the business.

The above Consolidated Cash Flow Statements should be read in conjunction with the accompanying notes.

Annual Report and Accounts 2023

Pharos Energy

162

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 Operations Review and

CFO’s Statement on pages 29 to 35 and pages 40 to 47,

respectively. Pharos Energy plc is the ultimate parent company

of the Group and except where otherwise indicated the following

accounting policies apply to both the Group and the Company.

2. Material accounting policies information

a) Basis of preparation

The Financial Statements have been prepared in accordance

with international accounting standards in conformity with the

requirements of the Companies Act 2006 and International

Financial Reporting Standards as issued by the International

Accounting Standard Board (IASB).

The Financial Statements have also been prepared on a going

concern basis of accounting for the reasons set out in Note 4.

The Financial Statements have been prepared under the historical

cost basis, except for the valuation of hydrocarbon inventories

(Note 19) and the revaluation of certain financial instruments (Note

35). The Financial Statements are presented in US dollars as it

is the functional currency of each of the Company’s subsidiary

undertakings and is generally accepted practice in the oil and gas

sector.

The principal accounting policies adopted are set out below.

b) New and amended standards adopted by the

Group

A number of new or amended standards became applicable for

the current reporting period.

Amendments to IAS 1 Presentation of Financial Statements and

IFRS Practice Statement 2 Making Materiality Judgements—

Disclosure of Accounting Policies:

The Group has adopted the amendments to IAS 1 for the first

time in the current year.

The amendments change the requirements in IAS 1 with regard

to disclosure of accounting policies. The amendments to IAS 1

and IFRS Practice Statement 2 Making Materiality Judgements

(‘four-step materiality process’) provide guidance and examples

to help entities apply materiality judgements to accounting policy

disclosures.

The amendments replace all instances of the term ‘significant

accounting policies’ with ‘material accounting policy information’.

Accounting policy information is material if, when considered

together with other information included in an entity’s financial

statements, it can reasonably be expected to influence decisions

that the primary users of general purpose financial statements

make on the basis of those financial statements. Accounting

policy information may be material because of the nature of

the related transactions, other events or conditions, even if the

amounts are immaterial. However, not all accounting policy

information relating to material transactions, other events or

conditions is itself material.

The amendments have had an impact on the Group’s disclosures

of accounting policies, but not on the measurement, recognition

or presentation of any items in the Group’s financial statements.

The group did not have to change its accounting policies or make

retrospective adjustments as a result of adopting these standards.

• Insurance Contracts – IFRS 17 (including the June 2020 and

December 2021 Amendments)

• Definition of Accounting Estimates – Amendments to IAS 8

• Deferred Tax related to Assets and Liabilities arising from a

Single Transaction – Amendments to IAS 12

• International Tax Reform – Pillar Two Model Rules –

Amendments to IAS 12

c) New standards and interpretations not yet

adopted

Certain new accounting standards and interpretations have been

published that are not mandatory for 31 December 2023 year end

and have not been early adopted by the Group. These standards

are not expected to have a material impact on the Group in the

current or future reporting periods nor on foreseeable future

transactions.

d) Basis of consolidation

The Group Financial Statements consolidate the accounts of

Pharos Energy plc and entities controlled by the Company (its

subsidiary undertakings) drawn up to the balance sheet date.

Control is achieved where the investor is exposed or has rights to

variable returns from its involvement with the investee and has the

ability to affect those returns through its power over the investee.

The Company reassesses whether or not it controls an investee

if facts and circumstances indicate that there are changes to one

or more of the elements of control. The results of subsidiaries

acquired or sold are consolidated for the periods from or to the

date on which control passed.

Where necessary, adjustments are made at the Group level to

align the accounting policies of the subsidiaries to the Group’s

accounting policies.

All intragroup assets and liabilities, equity, income, expenses and

cash flows relating to transactions between the members of the

Group are eliminated on consolidation.

Annual Report and Accounts 2023

Pharos Energy

163

Financial Statements

Additional InformationGovernance Report

Strategic Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued

e) 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.

f) 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.

g) Revenue

Revenue represents the fair value of the Group’s share of oil and

gas sold during the year on a liftings basis and is recognised

when the Group satisfies a performance obligation by transferring

oil and gas to a customer. In accordance with the Group’s sales

agreements for oil and gas, the title to oil and gas typically

transfers to a customer at the same time as the customer takes

physical possession of the oil or gas. Typically, at this point in

time, the performance obligations of the Group are fully satisfied.

Investment revenue is accrued on a time basis, by reference

to the principal outstanding and at the effective interest rate

applicable.

h) Other/restructuring items

Other/restructuring items represent income and expenses that

arise from events or transactions that are clearly distinct from the

ordinary activities of the Group and, therefore, are not expected to

recur frequently or regularly.

i) Intangible and tangible non-current assets

Oil and gas exploration, evaluation and

development expenditure

The Group adopts the successful efforts method of accounting for

exploration and evaluation costs. Pre-licence costs are expensed

in the period in which they are incurred. All licence acquisition,

exploration and evaluation costs and direct administration costs

are initially capitalised as intangible non-current assets in cost

centres by well (most typically), field or exploration area, as

appropriate. Interest payable is capitalised insofar as it relates to

specific development activities.

These costs are then written off as exploration costs in the

income statement unless commercial reserves have been

established or the determination process has not been completed

and there are no indicators of impairment.

All field development costs are capitalised as property, plant

and equipment. Property, plant and equipment related to

production activities is amortised in accordance with the Group’s

depreciation, depletion and amortisation accounting policy.

Depreciation, depletion and amortisation

Depletion is provided on oil and gas assets in production using

the unit of production method, based on proven and probable

reserves, applied to the sum of the total capitalised exploration,

evaluation and development costs, together with estimated future

development costs at current prices. Oil and gas assets which

have a similar economic life are aggregated for depreciation

purposes.

Impairment of value

Where there has been a change in economic conditions or in

the expected use of a tangible non-current asset that indicates

a possible impairment of an asset, management tests the

recoverability of the net book value of the asset by comparison

with the estimated discounted future net cash flows based on

management’s expectations of future oil prices and future costs.

Any identified impairment is charged/credited to the income

statement in the period in which it is identified.

Intangible non-current assets are considered for impairment

at least annually by reference to the indicators specified in

paragraphs 18 to 20 of IFRS 6. The impairment indicators in IFRS

6 for each exploration asset are:

• The period for which the entity has the right to explore in the

specific area has expired during the period or will expire in the

near future, and is not expected to be renewed;

• Substantive expenditure on further exploration for and

evaluation of mineral resources in the specific area is neither

budgeted nor planned;

• Exploration for and evaluation of mineral resources in the

specific area have not led to the discovery of commercially

viable quantities of mineral resources and the entity has

decided to discontinue such activities in the specific area; and

• Sufficient data exist to indicate that, although a development

in the specific area is likely to proceed, the carrying amount

of the exploration and evaluation asset is unlikely to be

recovered in full from successful development or by sale.

Other tangible non-current assets

Other tangible non-current assets are stated at historical cost

less accumulated depreciation. Depreciation is provided on a

straight-line basis at rates calculated to write off the cost of those

assets, less residual value, over their expected useful lives of three

to seven years.

Decommissioning

The decommissioning provision is calculated as the net present

value of the Group’s share of the expenditure which is expected

to be incurred at the end of the producing life of each field in the

removal and decommissioning of the production, storage and

transportation facilities currently in place. The cost of recognising

the decommissioning provision is included as part of the cost of

the relevant property, plant and equipment and is thus charged to

the income statement on a unit of production basis in accordance

with the Group’s policy for depletion and depreciation of tangible

non-current assets. Period charges for changes in the net present

value of the decommissioning provision arising from discounting

are included in finance costs.

Annual Report and Accounts 2023

Pharos Energy

164

j) Changes in estimates

The effects of changes in estimates on the unit of production

calculations are accounted for prospectively, from the date of

adoption of the revised estimates, over the estimated remaining

proven and probable reserves.

k) Inventories

Inventories, except for inventories of hydrocarbons, are valued at

the lower of cost and net realisable value. Cost is determined on

a weighted average cost basis and comprises direct purchase

costs. Net realisable value is determined by reference to prices

existing at the balance sheet date.

Physical inventories of hydrocarbons are valued at net realisable

value in line with well established industry practice. Underlifts and

overlifts are valued at market value and are included in accrued

income and prepayments, and accruals and deferred income,

respectively. Changes in hydrocarbon inventories, underlifts and

overlifts are adjusted through cost of sales.

l) 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.

m) Share-based payments

Equity-settled awards under share-based incentive plans

are measured at fair value at the date of grant. The fair value

determined at the grant date of the equity-settled share-based

payments is expensed on a straight- line basis over the vesting

period, based on the Group’s estimate of the number of equity

instruments that will eventually vest. At each reporting date, the

Group revises its estimate of the number of equity instruments

expected to vest as a result of the effect of non-market-based

vesting conditions. The impact of the revision of the original

estimates, if any, is recognised in profit or loss such that

the cumulative expense reflects the revised estimate, with a

corresponding adjustment to reserves.

For cash-settled share-based payments, a liability is recognised

measured initially at fair value. At each balance sheet date until

the liability is settled, and at the date of settlement, the fair

value of the liability is measured, with any changes in fair value

recognised in profit or loss for the year.

n) Taxation

The tax expense represents the sum of the tax currently payable

and deferred tax.

The tax currently payable is based on taxable profit for the year.

Taxable profit differs from net profit as reported in profit or loss

because it excludes items of income or expense that are taxable

or deductible in other years and it further excludes items that are

never taxable or deductible. The Group’s liability for current tax is

calculated using tax rates that have been enacted or substantively

enacted by the balance sheet date.

Deferred tax is the tax expected to be payable or recoverable on

differences between the carrying amounts of assets and liabilities

in the financial statements and the corresponding tax bases, and

is accounted for using the balance sheet liability method. Deferred

tax liabilities are generally recognised for all taxable temporary

differences and deferred tax assets are recognised to the extent

that it is probable that sufficient taxable profits will be available to

recover the asset. Deferred tax is not recognised where an asset

or liability is acquired in a transaction which is not a business

combination for an amount which differs from its tax value.

Deferred tax is calculated at the tax rates that are expected

to be applied in the period when the liability is settled or the

asset is realised based on tax rates that have been enacted or

substantively enacted by the balance sheet date. Deferred tax

is charged or credited in the income statement, except when it

relates to items charged or credited directly to equity, in which

case the deferred tax is also dealt with in equity.

o) Financial instruments

Financial assets and financial liabilities are recognised on the

Group’s balance sheet when the Group becomes a party to the

contractual provisions of the instrument.

There are no material financial assets and liabilities for which

differences between carrying amounts and fair values are required

to be disclosed. The classification of financial instruments as

required by IFRS 7 is disclosed in Notes 20, 21, 22, 24, 33 and

36.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued

Annual Report and Accounts 2023

Pharos Energy

165

Financial Statements

Additional InformationGovernance Report

Strategic Report

Financial asset at fair value through profit or loss

Where a financial instrument is classified as a financial asset

at fair value through profit or loss it is initially recognised at fair

value. At each balance sheet date the fair value is reviewed and

any gain or loss arising is recognised in the income statement.

Changes in the net present value of the financial asset arising

from discounting are included in other income and expense. As at

31 December 2023 and 2022 no financial assets were classified

at fair value through profit or loss.

Other financial assets

The amount booked as abandonment fund is the share of the

fair value of the fund net assets. Cash is contributed into the

abandonment funds for both our Vietnam producing fields

TGT and CNV. These abandonment funds are controlled by

PetroVietnam and, as Pharos retains the rights to the full amount

funded, pending commencement of abandonment operations,

they are treated as other non-current assets.

The abandonment fund is measured at the lower of the amount

of the decommissioning obligation recognised and the Pharos’

share of the fair value of the net assets of the fund available to

contributors.

Loans to subsidiaries

Loans to subsidiaries are recognised at amortised cost, less

expected credit losses provision, when required.

Impairment of financial assets

The Group recognises a loss allowance for expected credit losses

on trade receivables and loans to subsidiaries. The amount of

expected credit losses is updated at each reporting date to reflect

changes in credit risk since initial recognition of the respective

financial instrument.

The expected credit losses on these financial assets are

estimated using the Group’s historical credit loss experience,

adjusted for factors that are specific to the debtors, general

economic conditions and an assessment of both the current as

well as the forecast direction of conditions at the reporting date,

including time value of money where appropriate.

Derivative and hedging instruments

Derivatives are initially recognised at fair value on the date that

a derivative contract is entered into, and they are subsequently

remeasured to their fair value at the end of each reporting period.

The accounting for subsequent changes in fair value depends on

whether the derivative is designated as a hedging instrument and,

if so, the nature of the item being hedged.

At inception of the hedge relationship, the Group documents the

economic relationship between hedging instruments and hedged

items, including whether changes in the cash flows of the hedging

instruments are expected to offset changes in the cash flows

of hedged items. The Group documents its risk management

objective and strategy for undertaking its hedge transactions.

Pharos entered into different commodity (zero cost collar) hedges

to protect the Brent component of forecast oil sales and to ensure

future compliance with its obligations under the RBL. Pharos has

designated the zero cost collars as cash flow hedges. For cash

flow hedges, the portion of the gains and losses on the hedging

instrument that is determined to be an effective hedge is taken

to other comprehensive income and the ineffective portion is

recognised in the income statement. The gains and losses taken

to other comprehensive income are subsequently transferred

to the income statement during the period in which the hedged

transaction affects the income statement .

Borrowings

Interest-bearing bank loans are recorded at the proceeds

received, net of direct issue costs. Finance charges, including

any direct issue costs, are accounted for on an accrual basis in

the income statement using the effective interest method and are

added to the carrying amount of the instrument to the extent that

they are not settled in the year in which they arise.

The effective interest method is a method of calculating the

amortised cost of a financial liability and of allocating interest

expense over the relevant period. The effective interest rate is

the rate that exactly discounts estimated future cash payments

(including all fees and transaction costs) through the expected life

of the financial liability to the amortised cost of a financial liability.

The Group derecognises financial liabilities when, and only when,

the Group’s obligations are discharged, cancelled or have expired.

The difference between the carrying amount of the financial

liability derecognised and the consideration paid and payable is

recognised in profit or loss.

When the Group exchanges with the existing lender one debt

instrument into another one with substantially different terms,

such exchange is accounted for as an extinguishment of the

original financial liability and the recognition of a new financial

liability. Similarly, the Group accounts for substantial modification

of terms of an existing liability or part of it as an extinguishment of

the original financial liability and the recognition of a new liability.

It is assumed that the terms are substantially different if the

discounted present value of the cash flows under the new terms,

including any fees paid net of any fees received and discounted

using the original effective interest rate is at least 10 per cent

different from the discounted present value of the remaining cash

flows of the original financial liability. If the modification is not

substantial, the difference between: (1) the carrying amount of the

liability before the modification; and (2) the present value of the

cash flows after modification is recognised in profit or loss as the

modification gain or loss within other gains and losses.

Equity instruments

Equity instruments issued by the Company are recorded at the

proceeds received, net of direct issue costs. Equity instruments

repurchased are deducted from equity at cost.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued

Annual Report and Accounts 2023

Pharos Energy

166

p) Provisions

A contingent liability is disclosed unless the possibility of an

outflow of resources embodying economic benefits is remote

or the amount of the liability cannot be measured with sufficient

reliability.

Contingent liabilities may develop in a way not initially expected.

Therefore, they are assessed continually to determine whether

an outflow of resources embodying economic benefits has

become probable. If it becomes probable that an outflow of

future economic benefits will be required for an item previously

dealt with as a contingent liability, a provision is recognised in

the financial statements of the period in which the change in

probability occurs.

Provisions are recognised when the Group has a present

obligation (legal or constructive) as a result of a past event, it is

probable that the Group will be required to settle that obligation

and a reliable estimate can be made of the amount of the

obligation.

The amount recognised as a provision is the best estimate of

the consideration required to settle the present obligation at the

reporting date, taking into account the risks and uncertainties

surrounding the obligation. Where a provision is measured using

the cash flows estimated to settle the present obligation, its

carrying amount is the present value of those cash flows (when

the effect of the time value of money is material).

When some or all of the economic benefits required to settle

a provision are expected to be recovered from a third party, a

receivable is recognised as an asset if it is virtually certain that

reimbursement will be received and the amount of the receivable

can be measured reliably.

Decommissioning provisions:

Provisions for the costs to decommission oil & gas properties

are recognised when the Group has an obligation required by

the terms and conditions of the agreements and when a reliable

estimate can be made.

The abandonment security fund is measured at the lower of the

amount of the decommissioning obligation recognised and the

contributor’s share of the fair value of the net assets of the fund

available to contributors.

The provision for the costs of decommissioning oil & gas

properties at the end of their economic lives is estimated using

existing technology, at future prices, depending on the expected

timing of the activity, and discounted using the nominal discount

rate. Estimates are regularly reviewed and adjusted as appropriate

for new circumstances.

q) Foreign currencies

The individual financial statements of each Group company are

stated in the currency of the primary economic environment

in which it operates (its functional currency). Transactions in

currencies other than the entity’s functional currency (foreign

currency) are recorded at the rate of exchange at the date of the

transaction. Monetary assets and liabilities denominated in foreign

currencies at the balance sheet date are recorded at the rates of

exchange prevailing at that date, or if appropriate, at the forward

contract rate. Any resulting gains and losses are included in net

profit or loss for the period.

For the purpose of presenting consolidated financial statements

the results of entities denominated in currencies other than US

dollars are translated at the daily rate of exchange and their

balance sheets at the rates ruling at the balance sheet date.

Any resulting gains or losses are taken to other comprehensive

income.

r) Pension costs

The contributions payable in the year in respect of pension costs

for defined contribution schemes and other post-retirement

benefits are charged to the income statement. Differences

between contributions payable in the year and contributions

actually paid are shown either as accruals or prepayments in the

balance sheet.

3. Financial risk management

The Board reviews and agrees policies for managing financial

risks that may affect the Group. In certain cases the Board

delegates responsibility for such reviews and policy setting to the

Audit and Risk Committee. The principal financial risks affecting

the Group are discussed in the Risk Management Report on

pages 48 to 59 and in Note 36.

4. Critical judgements and accounting

estimates

a) Critical judgements in applying the Group’s

accounting policies

In the process of applying the Group’s accounting policies

described in Note 2, management has made judgements that

may have a significant effect on the amounts recognised in the

financial statements. These are discussed below:

Oil and gas assets

Note 2(i) describes the judgements necessary to implement the

Group’s policy with respect to the carrying value of intangible

exploration and evaluation assets.

Management considers these assets for impairment at least

annually with reference to indicators in IFRS 6. Note 15 discloses

the carrying value of intangible exploration and evaluation

assets along with details of impairment charges that arose

during the year. Further, Note 2(i) describes the Group’s policy

regarding reclassification of intangible assets to tangible assets.

Management considers the appropriateness of asset classification

at least annually.

Going concern

The Financial Statements have been prepared on the going

concern basis of accounting. A number of judgements were

taken in concluding that this basis of preparation was appropriate

and that there were no material uncertainties in this regard. These

included applying appropriate estimates of future production and

oil price together with ensuring that the forecasts included all

expenditure that was either committed or expected to be incurred

in relation to estimated production volumes. Consideration was

also given to the potential ongoing impact of the Ukraine war

with increased uncertainties and volatilities on world commodity

markets. This risk has been taken into consideration through

downside oil price sensitivities, including the application of a

reverse stress test. In addition, consideration has also been given

to the ongoing delayed payment of EGPC trade receivables in

Egypt and the macro-economic environment in-country, which

has caused progressive devaluation of EGP currency against

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued

Annual Report and Accounts 2023

Pharos Energy

167

Financial Statements

Additional InformationGovernance Report

Strategic Report

USD. Further details in this area are provided in the Directors’

Report on page 143.

Pharos continuously monitors its business activities, financial

position, cash flows and liquidity through detailed forecasts.

Scenarios and sensitivities are also regularly presented to the

Board, including changes in commodity prices and in production

levels from the existing assets, plus other factors that could affect

the Group’s future performance and position.

A base case forecast has been considered that utilises oil prices

of $81.5/bbl in 2024 and $79/bbl in 2025. The key assumptions

and related sensitivities include a “Reasonable Worst Case”

(RWC) scenario, where the Board has taken into account the risk

of an oil price crash broadly similar to what occurred in 2020. It

assumes the Brent oil price down by a third to $54.3/bbl in April

2024 and gradually recovers to base price in next 12 months,

concurrent with 5% reductions in Vietnam and Egypt production

compared to our base case from April 2024. Both the base case

and RWC take into account effect of hedging that has already

been put in place at 31 December 2023 and subsequent hedges

placed in 2024, now covering c.28% for the full year 2024 and

15% of 1H 2025. We have therefore secured an average floor

price and ceiling price of c. $63.5/bbl and c. $89/bbl, respectively,

for the entire hedged volumes. Under the RWC scenario, we have

identified appropriate mitigating actions, which could look to defer

uncommitted expenditure as required.

In addition, we have conducted a reverse stress test sensitivity

analysis that indicates the magnitude of oil price decline required

to breach our financial headroom, assuming all other variables

remain unchanged.

Our business in Vietnam remains robust, with breakeven price

of c.$34/bbl. In TGT we have 2 wells planned to be drilled in 2H

2024. The majority of our debt of $30m as at 31 December 2023

is secured against the Vietnam assets under the RBL which will

be repaid by July 2025.

In Egypt, we have limited capital expenditure, low cost

recompletions and waterflood in El-Fayum and development

drilling on NBS in 2H 2024. As at 31 December 2023, there is

$9.2m drawn on an Uncommitted Revolving Credit facility on the

Egypt revenue invoices.

On the basis of the forecasts provided above, the Group is

expected to have sufficient financial headroom for the 12 months

from the date of approval of the 2023 Accounts. Based on this

analysis, the Directors have a reasonable expectation that the

Group has adequate resources to continue its operations in the

foreseeable future. Therefore, the Financial Statements have been

prepared using the going concern basis of accounting.

A reverse stress test has been performed to test for a further

decline in oil price, prior to any mitigating actions, to determine

the level/threshold that would breach covenants or no liquidity

headroom left. The likelihood of Brent price dropping to this

level is consider to be remote and the company can implement

various mitigating actions and strategies to address any potential

challenges.

b) Key sources of estimation uncertainty

The key assumptions concerning the future, and other key

sources of estimation uncertainty at the balance sheet date, other

than those mentioned above, that may have a significant risk of

causing a material adjustment to the carrying amounts of assets

and liabilities within the next financial year are discussed below:

Oil and gas reserves and DD&A

Note 2(i) sets out the Group’s accounting policy on DD&A.

Proven and probable reserves are estimated using standard

recognised evaluation techniques and are disclosed on page 33.

The estimate is reviewed at least twice a year and is audited by

third party reservoir engineers at year end. Future development

costs are estimated taking into account the level of development

required to produce the reserves by reference to operators, where

applicable, and internal engineers. As discussed in the Operations

Review on page 33, the Vietnam fields, TGT and CNV proved

and probable reserves estimates have been revised based on

ongoing work of ERCE and audited by our Reserves Auditors,

RISC Advisory Pty Ltd. For the El Fayum and NBS fields in Egypt,

proved and probable reserves estimates have been revised based

on work of ERCE and audited by McDaniels. Reserves estimates

are inherently uncertain, especially in the early stages of a field’s

life, and are routinely revised over the producing lives of oil and

gas fields as new information becomes available, judgements

are taken over the life of the licence, and as economic conditions

evolve. Such revisions may impact the Group’s future financial

position and results, in particular, in relation to DD&A and

impairment testing of oil and gas property, plant and equipment.

Impairment of producing oil and gas assets

If impairment indicators are identified in relation to a producing

oil and gas field, management is required to carry out an

assessment in accordance with IAS 36 ‘Impairment of Assets’

by comparing the net carrying value of the assets and liabilities

which represent the field cash generating unit (CGU) with the

estimated recoverable amount of the field. Management generally

determines the recoverable amount of the field by estimating its

value in use, using a discounted cash flow method. Calculating

the net present value of the discounted cash flows involves

key assumptions which include commodity prices, 2P reserves

estimates and discount rates. Other assumptions include

production profiles, future operating and capital expenditures

and the relevant fiscal terms. Further information relating to the

specific assumptions and uncertainties relevant to impairment

tests performed in the year are discussed in Note 16.

c) Climate change and the energy transition

In preparing the consolidated financial statements, the Directors

have considered the impact of climate change and the transition

to a low carbon economy, particularly in the context of the

risks identified in the TCFD disclosure on pages 83 to 98. The

Directors have also considered the impact of climate change in

respect of going concern and viability of the Group over the next

three years. In particular, the energy transition is likely to impact

future oil and gas prices which in turn may affect the recoverable

amount of the group’s property, plant and equipment (PP&E).

Management’s best estimate of future oil prices was revised down

significantly in 2020 but was adjusted upwards in 2021, 2022

and 2023, partly due to expectations of the impact of the energy

transition. In developing these price assumptions, consideration

was given to a range of third party forecasts, including a number

that were described as being consistent with achieving the goal

to reach net zero by 2050 and aligning with COP26 (the “Net

Zero price scenario”). The Company’s 2023 oil price forecast is

higher due to the IEA (‘International Energy Agency’) raising its

net zero price from $35 to $42 per barrel by 2030, and from $24

to $25 per barrel by 2050. Further details of the key assumptions

in this area have been provided in Note 16, including sensitivity

analysis outlining the impact on the impairment charges of using

the average of the Paris compliant scenarios. In addition to

impairment, climate change pressures could curtail the expected

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued

Annual Report and Accounts 2023

Pharos Energy

168

useful lives of the group’s oil and gas PP&E, thereby accelerating

depreciation charges. However, the group’s producing fields

are likely to be fully depreciated within 11 years, during which

timeframe it is expected that global demand for oil will remain

robust. Accordingly, the impact of climate change on expected

useful lives is not considered to be a significant judgement or

estimate.

In addition to PP&E, climate change could: (1) adversely impact

the future development or viability of exploration and evaluation

(E&E) prospects. However, the impact of climate change will

be taken into consideration when the field is transferred from

exploration to development stage; (2) bring forward the date of

decommissioning of the group’s producing oil and gas assets

in Vietnam, thereby increasing the net present value of the

associated provision. However, decommissioning is currently

forecast to occur within the next 7-8 years and, due to the

relatively short timeframe, it is not considered that any reasonably

possible acceleration in the timing of decommissioning will have

a material impact on the provision, assuming the underlying cost

estimates remain unchanged.

The Directors are aware of the ever-changing risks attached

to climate change and will regularly assess these risks against

judgements and estimates made in preparation of the Group’s

Financial Statements.

5. Total revenue

An analysis of the Group’s revenue is as follows:

	2023	2022
	$ million	$ million
Oil and gas sales (see Note 6)	168.1	221.6
Realised losses on commodity hedges	(0.2)	(22.5)
(see Note 6 and Note 25)
Investment revenue	0.2	0.2
	168.1	199.3

6. Segment information

The Group has one principal business activity being oil and gas exploration and production. The Group’s continuing operations are

located in South East Asia and Egypt (the Group’s operating segments). There are no inter-segment sales. South East Asia and Egypt

form the basis on which the Group reports its segment information.

				2023
	SE Asia	Egypt	Unallocated	Group
	$ million	$ million	$ million	$ million
Oil and gas sales (see Note 5)	149.2	18.9	–	168.1
Realised loss on commodity hedges (see Note 5 and Note 25)	–	–	(0.2)	(0.2)
Total revenue	149.2	18.9	(0.2)	167.9
Depreciation, depletion and amortisation - Oil and gas (see Note 7 and Note 16)	(51.0)	(4.4)	–	(55.4)
Depreciation, depletion and amortisation - Other (see Note 16)	–	(0.2)	–	(0.2)
Pre-licence costs	–	(0.4)	–	(0.4)
Impairment charge – Intangible assets (see Note 15)	–	(6.5)	–	(6.5)
Impairment charge - PP&E (see Note 16)	(46.0)	(12.9)	–	(58.9)
Loss on fair value movement of financial asset (see Note 37)	–	(0.3)	–	(0.3)
Profit/(loss) before tax	5.6	(18.4)	(16.2)	(29.0)
Tax charge on operations (see Note 12)	(36.0)	–	–	(36.0)
Tax credit on impairment charge (see Note 12)	16.2	–	–	16.2

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued

Annual Report and Accounts 2023

Pharos Energy

169

Financial Statements

Additional InformationGovernance Report

Strategic Report

					2022
		SE Asia	Egypt	Unallocated	Group
		$ million	$ million	$ million	$ 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) - Intangible assets		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)		–	(6.6)	–	(6.6)
Gain on fair value movement of financial asset (see Note 37)		–	0.3	–	0.3
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)

1) Unallocated amounts included in profit/(loss) before tax comprise corporate costs not attributable to an operating segment, investment revenue, other gains

and losses and finance costs.

2) Includes $1.0m reversal of impairment of Block 125&126 tax receivable (other receivable – current), offset by $(0.2)m write-off of seismic costs relating to

Israel exploration Zones A and C (see Note 15).

The accounting policies of the reportable segments are the same

as the Group’s accounting policies as described in Note 2.

Included in revenues arising from South East Asia and Egypt

are revenues of $149.2m and $18.9m which arose from the

Group’s two largest customers, who contributed more than 10%

to the Group’s oil and gas revenue (2022: $182.5m and $36.8m

in South East Asia and Egypt from the Group’s three largest

customers).

Geographical information

The Group’s oil and gas revenue and non-current assets

(excluding other receivables) by geographical location are

separately detailed below where they exceed 10% of total

revenue or non-current assets, respectively:

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.

	2023	2022
	$ million	$ million
Vietnam	149.2	97.1
Egypt	18.9	36.8
China	–	87.7
	168.1	221.6

Non-current assets

	2023	2022
	$ million	$ million
Vietnam	240.4	332.5
Egypt	57.6	65.8
	298.0	398.3

Excludes other assets.

7. Cost of sales

	2023	2022
	$ million	$ million
Depreciation, depletion and amortisation (see Note 16)	55.4	55.1
Production based taxes	10.5	14.7
Export duty	–	3.2
Production operating costs	41.3	45.6
Inventories	4.0	(1.8)
	111.2	116.8

8. Other/restructuring expense

	2023	2022
	$ million	$ million
Redundancy costs	–	0.1
Other	0.6	–
Premium – lease transfer	–	0.7
	0.6	0.8

In 2023, other expenses of $0.6m were due to changes in the

best estimate of the adjustment relating to the interim period

between the economic date of 1 July 2020 and the completion

date of the disposal of 55% interest in the Egypt concessions.

In 2022, $0.7m relates to the transfer of the London office lease

to a third party, at which point the Company derecognised the

right of use asset and associated lease liability. In 2020, $1.2m

was transferred to an escrow account held by a third party

(recorded within prepayments). The amount was released to

the income statement over 21 months on the condition the

new tenant paid the rent to the landlord. In 2022, the remaining

balance of $0.7m was released from the escrow account and

paid to the new tenant.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued

Annual Report and Accounts 2023

Pharos Energy

170

9. Finance costs

	2023	2022
	$ million	$ million
Unwinding of discount on provisions	2.0	1.3
(see Note 26)
Interest expense payable and similar fees	6.4	6.0
(see Note 24)
RBL modification charge and amortisation	1.3	4.1
of capitalised borrowing costs (see Note 24)
Net foreign exchange losses	0.5	1.3
	10.2	12.7

In 2023, $2.0m relates to the unwinding of discount on the

provisions for decommissioning (2022: $1.3m). The provisions

are based on the net present value of the Group’s share of the

expenditure which may be incurred at the end of the producing

life of TGT and CNV (currently estimated to be 7-8 years) in the

removal and decommissioning of the facilities currently in place

(see Note 26).

Following the June and December 2023 redeterminations and the

$35.0m repayment of principal in relation to the Group’s reserve

based lending facility, there was a change in estimated future

cash flows. As a result, a charge of $2.7m (2022: $2.6m) was

recognised in profit and loss, offset by an amortisation adjustment

of $(1.4)m (2022: amortised cost of $1.5m).

10. Auditor’s remuneration

The analysis of the auditor’s remuneration is as follows:

	2023	2022
	$000s	$000s
Fees payable to the Company’s auditor
and their associates for the audit of the Company’s annual accounts	574	418
Fees payable to the Company’s auditor and their associates for other services to the Group:
Audit of the Company’s subsidiaries	11	100
Audit of the Company’s subsidiaries relating	–	36
to the prior year
Total audit fees	585	554
Audit related assurance services	141	127
– half year review
Other assurance services	37	40
Total non-audit fees	178	167

The non-audit fees during 2023 included the half year review and

other assurance services associated primarily with agreed upon

procedures relating to Vietnam (2022: half year review and other

assurance services associated primarily with the agreed upon

procedures relating to the Vietnam region).

All non-audit fees were fully approved by the Audit and Risk

Committee, having concluded such services were compatible

with auditor independence and were consistent with relevant

ethical guidance in place.

Details of the Company’s policy on the use of auditors for non-

audit services are set out in the Audit and Risk Committee Report

on pages 120 to 125.

Fees payable to Deloitte LLP for non-audit services to the

Company are not required to be disclosed separately because

the Consolidated Financial Statements disclose such fees on a

consolidated basis.

11. Staff costs

The average monthly number of employees of the Group including

Executive Directors was 38 (2022: 52), of which 34 (2022: 47)

were administrative personnel and 4 (2022: 5) were operations

personnel. Their aggregate remuneration comprised:

		Group
	2023	2022
	$ million	$ million
Wages and salaries	6.1	8.0
Social security costs	0.6	0.8
Share-based payment expense	1.3	1.7
(see Note 31)
Other pension costs under money	0.5	0.5
purchase schemes
Other benefits	0.7	0.6
	9.2	11.6

In accordance with the Group’s accounting policy $3.3m (2022:

$2.4m) of the Group’s staff costs above have been capitalised,

of which $2.5m (2022: $1.8m) relates to our Vietnam assets and

$0.8m (2022: $0.6m) relates to our Egypt assets.

In 2023, total staff costs were $9.2m (2022: $11.6m) and includes

the costs of head office and Pharos’ subsidiary employees.

Excluding the impact of IFRS 2 share-based payment expense

and bonuses paid to staff, the underlying costs have fallen 19%

year on year - $5.8m (2022: $7.2m).

In 2022, redundancy costs of $0.1m, for both the head office in

London and the Egypt office in Cairo, were disclosed in other/

restructuring expense in the Income Statement (see Note 8).

12. Tax

	2023	2022
	$ million	$ million
Current tax charge	44.5	54.5
Deferred tax credit on operations	(8.5)	(6.6)
(see Note 23)
Deferred tax (credit)/charge on impairment	(16.2)	8.3
(see Note 16 and 23)
Total tax charge	19.8	56.2

The Group’s corporation tax is calculated at 50% (2022: 50%)

of the estimated assessable profit for the year in Vietnam. In

Egypt, under the terms of the concession, any local taxes arising

are settled by EGPC. During 2023 and 2022, both current and

deferred taxation have arisen in overseas jurisdictions only.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued

Annual Report and Accounts 2023

Pharos Energy

171

Financial Statements

Additional InformationGovernance Report

Strategic Report

The charge for the year can be reconciled to the (loss)/profit per

the income statement as follows:

	2023	2022
	$ million	$ million
(Loss)/Profit before tax	(29.0)	80.6
(Loss)/Profit before tax at 50% (2022: 50%)	(14.5)	40.3
Effects of:
Non-taxable income	–	(3.3)
Non-deductible expenses	18.0	5.6
Tax losses not recognised	16.5	13.8
Adjustments to tax charge in respect of previous periods	(0.2)	(0.2)
Tax charge for the year	19.8	56.2

The prevailing tax rate in Vietnam, where the Group produces oil

and gas, is 50%. The tax charge in future periods may also be

affected by the factors in the reconciliation above.

In 2022, non-taxable income relates to Vietnam impairment

reversal of $(3.3)m. Non-deductible expenses primarily relate

to Vietnam impairment charges of $6.8m and Vietnam DD&A

charges for costs previously capitalised, which are non-deductible

for Vietnamese tax purposes of $10.4m (2022: $5.6m). A further

$0.8m (2022: $nil) relates to non-deductible corporate costs

including share scheme incentives.

The Egypt concessions are subject to corporate income tax at

the standard rate of 40.55%, however responsibility for payment

of corporate income taxes falls upon EGPC on behalf of our

local subsidiary Pharos El Fayum (PEF). The Group records a

tax charge, with a corresponding increase in revenues, for the

tax paid by EGPC on its behalf. However, this is only valid if PEF

is in a historic profit making position and no such tax has been

recorded this year.

The effect from tax losses not recognised relates to costs,

primarily of the Company, deductible for tax in the UK but not

expected to be utilised in the foreseeable future. For 2023, it

also includes losses arising in Egypt for which no future benefit

can be obtained under the terms of the concession agreement.

During 2022, Egypt concessions recorded a net profit before tax

of $16.9m (profit after tax impact of $8.5m) which has been offset

against tax losses not recognised, as Egypt is in a historic loss

making position. The group did not recognise deferred tax assets

in relation to historical tax losses available to offset future taxable

profits of $18m on the basis that there will be no future benefits

arising from these losses as any taxes in the future will be paid by

EGPC on behalf of the group.

13. (Loss)/profit attributable to Pharos

Energy Plc

The loss for the financial year in the accounts of the Company

was $(47.0)m inclusive of dividends from subsidiary undertakings

(2022: profit of $60.7m). As provided by section 408 of the

Companies Act 2006, no income statement or statement of

comprehensive income is presented in respect of the Company.

14. Earnings per share

The calculation of the basic and diluted earnings per share is

based on the following data:

		Group
	2023	2022
	$ million	$ million
(Loss)/Gain for the purposes of basic profit/	(48.8)	24.4
(loss) per share
Effect of dilutive potential ordinary shares –	–	(0.3)
Cash settled share awards and options
(Loss)/Gain for the purposes of diluted	(48.8)	24.1
profit/(loss) per share

		Number of shares
		(million)
	2023	2022
Weighted average number of ordinary	427.2	439.3
shares
Effect of dilutive potential ordinary shares –	–	0.9
Share awards and options
Weighted average number of ordinary
shares for the purpose of diluted profit/(loss)	427.2	440.2
per share

In accordance with IAS 33 “Earnings per Share”, the effects of

2.9m antidilutive potential shares have not been included when

calculating dilutive earnings per share for the year ended 31

December 2023, as the Group was loss making.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued

Annual Report and Accounts 2023

Pharos Energy

172

15. Intangible assets

		Group		Company
	2023	2022	2023	2022
	$ million	$ million	$ million	$ million
Exploration and evaluation expenditure
As at 1 January	16.5	12.4	–	–
Additions	11.1	4.3	–	–
Transfer to property, plant and equipment	(2.9)	–	–	–
Impairment – Intangibles	(6.5)	(0.2)	–	–
As at 31 December	18.2	16.5	–	–

1) 2022 excludes $1.0m impairment reversal of Block 125&126 tax receivable (other receivable – current) which was dependent on the E&E being developed.

Intangible assets at 2023 year-end comprise the Group’s exploration and evaluation projects which are pending determination. Included

in the additions is Blocks 125 & 126 in Vietnam $3.1m (2022: $3.1m) and Egypt $8.0m (2022: $1.0m), of which $6.7m (2022: $0.9m)

relates to North Beni Suef.

At June 2020 and December 2020 an impairment indicator of IFRS 6 was triggered following the Group’s decision to defer all non-

essential investment in Vietnam and Egypt at this point. No substantive expenditure for its exploration areas in Vietnam and Egypt was

either budgeted or planned in the near future. Exploration costs including costs associated with Blocks 125 & 126 in Vietnam of $17.9m

and costs associated with Egypt projects in the amount of $5.3m ($2.4m share post-farm out) were written off in the income statement

in accordance with the Group’s accounting policy on oil and gas exploration and evaluation expenditure.

During 2023, approval was received from the Vietnamese Government in June for the two-year extension to Phase One of the

Exploration Period under Blocks 125 & 126 PSC to 8 November 2025. On 20 July 2023, the Company published an independent

assessment by ERCE for Block 125, which confirmed a range of gross unrisked prospective oil resources of between 1,178 MMstb (1U)

and 29,785 MMstb (3U) with a Mean value of 13,328 MMstb for the Prospects in the North West area of Block 125 currently covered

fully or partially by 3D seismic. These resources do not include Leads already identified in Blocks 125 & 126 but not yet covered by 3D

seismic. Work is ongoing to progress well planning and discussions are ongoing to secure a partner ahead of drilling the commitment

well in 2025. Whilst ongoing costs for exploration are therefore forecast and funds available for future exploration, there is insufficient

certainty of full recovery to justify the reversal of the previous impairment charges in 2020. The accumulated impairment charges against

Vietnam exploration and evaluation expenditure at 31 December 2023 therefore remain at $17.9m (2022: $17.9m).

In Egypt, as part of the planned work programme for 2023, an exploration well was drilled on El Fayum in July 2023. It was the first

commitment well in the Abu Roash G and Upper Bahariya formations and the well is set-up for re-entry and testing in 2024. During

2023, as no further substantive exploration or evaluation is planned or budgeted for the El Fayum Batran-1X well drilled in 2021, the

asset of $1.6m has been impaired in full.

On NBS, the first exploration commitment well (NBS-SW1X) was declared a commercial discovery in September 2023 and put on

production in December 2023. As a result, exploration costs of $2.9m relating to the development lease were reclassified to property,

plant and equipment. A further dry-hole well of $0.8m (NBS-SW5X) was impaired in full, leaving $4.1m (post-2020 impairment charge of

$1.2m) in exploration and evaluation expenditure. No substantive expenditure is budgeted or planned in the future in relation to the NBS

exploration acreage and the remaining balance of $4.1m has been fully impaired.

The accumulated impairment charges against Egypt exploration and evaluation expenditure at 31 December 2023 stand at $8.9m

(2022: $2.4m).

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued

Annual Report and Accounts 2023

Pharos Energy

173

Financial Statements

Additional InformationGovernance Report

Strategic Report

16. Property, plant and equipment and right-of-use assets

				Group	Company
		Oil and gas
		properties	Other	Total	Other
		$ million	$ million	$ million	$ million
Cost
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 1 January 2023		1,101.8	1.1	1,102.9	–
Additions		11.9	0.2	12.1	–
Transfer from intangible assets		2.9	–	2.9
Revision in decommissioning asset (see Note 26)		(2.5)	–	(2.5)	–
As at 31 December 2023		1,114.1	1.3	1,115.4	–
Depreciation
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	1 January 2023	720.5	0.6	721.1	–
Charge for the year		55.4	0.2	55.6	–
Impairment charge		58.9	–	58.9	–
As at 31 December 2023		834.8	0.8	835.6	–
Carrying amount
As at 31 December 2023		279.3	0.5	279.8	–
As at 31 December 2022		381.3	0.5	381.8	–
Property, plant and equipment		278.8	0.5	279.3	–
Right-of-use assets (see Note 33)		0.5	–	0.5	–
As at 31 December 2023		279.3	0.5	279.8	–
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	–

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

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

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

been determined using the value in use method. The recoverable amount is calculated using a discounted cash flow valuation of the 2P

production profile.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued

Annual Report and Accounts 2023

Pharos Energy

174

Summary of Impairments - Oil and Gas properties

	TGT	CNV	El Fayum	NBS	Total
	$m	$m	$m	$m	$m
2023
Pre-tax impairment (charge)/credit	(46.3)	0.3	(11.0)	(1.9)	(58.9)
Deferred tax credit/(charge)	16.5	(0.3)	–	–	16.2
Post-tax impairment charge	(29.8)	–	(11.0)	(1.9)	(42.7)
Reconciliation of carrying amount:
As at 1 January 2023	242.4	76.4	62.5	–	381.3
Additions	1.3	3.0	7.6	–	11.9
Transfer from intangible assets	–	–	–	2.9	2.9
Changes in decommissioning asset	–	(2.5)	–	–	(2.5)
DD&A	(38.8)	(12.2)	(4.4)	–	(55.4)
Impairment (charge)/reversal	(46.3)	0.3	(11.0)	(1.9)	(58.9)
As at 31 December 2023	158.6	65.0	54.7	1.0	279.3
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 January 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 December 2022	242.4	76.4	62.5	–	381.3

1) Changes in decommissioning asset for CNV is due to revision of field abandonment plan and discount rate, whereas TGT reflects an immaterial change in

discount rate only (2022: Changes in decommissioning asset for TGT is due to changes in discount rate and the field abandonment plan, whereas CNV

reflects the change in discount rate only).

Vietnam

The key assumptions to which the recoverable amount is most sensitive are oil price, discount rate and 2P reserves (2022: oil price,

discount rate and 2P reserves). In 2023, for TGT, there was a downwards technical revision of 2P reserves and the production profile

compared to prior year. For CNV, there was upwards revision of the production profile following strong performance from the new

lateral well. As at 31 December 2023, the fair value of the assets are estimated based on a post-tax nominal discount rate of 12.6%

(2022: 13.3%) and a Brent oil price of $81.5/bbl in 2024, $79.0/bbl in 2025, $79.2/bbl in 2026, $76.3/bbl in 2027 plus inflation of

2.0% thereafter (2022: an oil price of $88.3/bbl in 2023, $84.8/bbl in 2024, $79.4/bbl in 2025, $74.5/bbl in 2026 plus inflation of 2.0%

thereafter).

Testing of sensitivity cases indicated that a $5/bbl reduction in long-term oil price used when determining the value in use method would

result in post-tax impairments charge (compared to new NBV) of $15.1m on TGT and $3.1m on CNV. A 1% increase in discount rate

would result in post-tax impairments of $2.4m on TGT and $0.8m on CNV.

We have also run sensitivities utilising the IEA (International Energy Agency) scenarios described as being consistent with achieving the

COP26 agreement goal to reach net zero by 2050 (the “Net Zero price scenario”). The nominal Brent prices used in this scenario were

as follows; $81.5/bbl in 2024, $79.0/bbl in 2025, $79.2/bbl in 2026, $72.2/bbl in 2027, $64.8/bbl in 2028, $57.2/bbl in 2029, $49.2/bbl

in 2030 and $49.2/bbl in 2031. Using these prices and a 12.6% discount rate would result in additional post-tax impairments of $10.3m

on TGT and $4.0m on CNV.

The impairment tests for TGT and CNV assume that production ceases in 2029 and 2030 respectively, assuming the licences are

extended by at least three years reflecting past practice and a commercial assessment (and consistent with the reserves estimates

independently audited by RISC Advisory Pty Ltd.) that it is highly probable given the economic circumstances and current discussions.

The current negotiations over terms are for a longer duration than that assumed and would be expected to improve the value in use

calculated.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued

Annual Report and Accounts 2023

Pharos Energy

175

Financial Statements

Additional InformationGovernance Report

Strategic Report

Egypt

The key assumptions to which the recoverable amount is most sensitive are oil price, discount rate, capital spend and 2P reserves

(2022: oil price, discount rate, capital spend and 2P reserves). In 2023, there was a downwards technical revision of El Fayum

2P reserves and production profile compared to prior year and NBS 2P reserves were recognised for the first time following

commencement of production in December 2023. As at 31 December 2023, the fair value of the assets are estimated based on a

post-tax nominal discount rate of 18.0% (2022: 15.9%) and a Brent oil price of $81.5/bbl in 2024, $79.0/bbl in 2025, $79.2/bbl in 2026,

$76.3/bbl in 2027 plus inflation of 2.0% thereafter (2022: an oil price of $88.3/bbl in 2023, $84.8/bbl in 2024, $79.4/bbl in 2025, $74.5/

bbl in 2026 plus inflation of 2.0% thereafter).

Testing of sensitivity cases indicated that a $5/bbl reduction in long term oil price used when determining the value in use method would

result in impairment charges (compared to new NBV) of $7.1m for El Fayum and $0.9m for NBS. A 1% increase in discount rate would

result in impairment charges of $2.1m on El Fayum and $0.1m on NBS. We have also run a sensitivity using 18.0% discount rate and

the Net Zero price scenario which would result in an additional impairment of $23.5m on El Fayum and $1.0m on NBS.

Other considerations

It is not considered possible to provide meaningful sensitivities in relation to 2P reserves for any of the Group’s oil and gas producing

properties, as the impact of any changes in 2P reserves on recoverable amount would depend on a variety of factors, including the

timing of changes in production 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 2023.

	Country	Country		Percentage		Registered
	of incorporation	of operation	Principal activity	holding	Footnotes	address
OPECO Vietnam Limited	Cook Islands	Vietnam	Oil and gas development and	100	2,4	e
			production
SOCO Vietnam Limited	Cayman Islands	Vietnam	Oil and gas development and	100	2,3	d
			production
Pharos Exploration Limited	Jersey	–	Investment holding	100	1	a
Pharos SEA Limited	Jersey	–	Investment holding	100	1	a
SOCO Exploration (Vietnam)	Cayman Islands	Vietnam	Oil and gas exploration	100	2,5	d
Limited
OPECO, Inc	USA	–	Investment holding	100	2,4	c
Pharos El Fayum	Cayman Islands	Egypt	Oil and gas exploration,	100	1,6	d
			development and production
SOCO Management Services, Inc.	USA	USA	Management services	100	2	c
Pharos Energy Israel Limited	UK	Israel	Extraction of crude petroleum	100	1	b

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued

Annual Report and Accounts 2023

Pharos Energy

176

Footnotes:

Group investments

1) Investments held directly by Pharos Energy Plc.

2) Investments held indirectly by Pharos Energy Plc.

Joint operations

3) SOCO Vietnam Ltd holds a 28.5% working interest in Block 16-1, TGT Field. The Field operational base is development/production and is operated by

Hoang Long Joint Operating Company which is registered in Vietnam. SOCO Vietnam Ltd holds a 25% working interest in Block 9-2, CNV Field. The

Field operational base is development/production and is operated by Hoan Vu Joint Operating Company which is registered in Vietnam.

4) OPECO Vietnam Limited holds a 2% working interest in Block 16-1, TGT Field. The Field operational base is development/production and is operated

by Hoang Long Joint Operating Company which is registered in Vietnam.

5) SOCO Exploration (Vietnam) Limited holds a 70% working interest in Blocks 125 & 126 and is the Operator. The operating office is registered in

Vietnam. The main activity is exploration.

6) Pharos El Fayum holds a 45% working interest in the El Fayum Concession and a 45% working interest in the North Beni Suef Concession. The Field

operational base for the El Fayum Concession is development/production. The remaining 55% working interest in the El Fayum Concession is held by

IPR Lake Qarun Petroleum Co (“IPR Lake Qarun”), a wholly owned subsidiary of IPR Energy AG. IPR Lake Qarun is nominally the operator of the El

Fayum Concession, but development and production operations on the Concession are undertaken through the joint operating company Petrosilah,

an Egyptian joint stock company owned jointly by IPR Lake Qarun, Pharos El Fayum and the Egyptian state oil and gas company Egyptian General

Petroleum Corporation (EGPC). The North Beni Suef Concession is in the development/production phase following first production in December

2023 and is operated by IPR Lake Qarun, which holds the remaining 55% working interest. Following a successful first exploration well on the North

Beni Suef Concession in 2023, the first development lease on the Concession was awarded in September 2023. Production from the Concession

started in December 2023. A new joint operating company, Petro Beni Suef, has been constituted in connection with the development and production

operations on the North Beni Suef Concession.

Registered addresses

a) 47 Esplanade, St Helier, Jersey, JE1 0BD, Channel Islands

b) Eastcastle House, 27/28 Eastcastle Street, London W1W 8DH, United Kingdom

c) Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801, USA

d) c/o The offices of Trident Trust Company (Cayman) Limited, One Capital Place, P.O. Box 847, Grand Cayman, KY1-1103, Cayman Islands

e) c/o Portcullis (Cook Islands) Ltd, Portcullis Chambers, Tutakimoa Road, Avarua, Rarotonga, Cook Islands

Divestments:

No subsidiary undertakings were dissolved during the year.

The Company’s investments in subsidiary undertakings include contributions to the Pharos Employee Benefit Trust (see Note 28) and

are otherwise held in the form of share capital.

		Investments
	2023	2022
	$ million	$ million
Subsidiary undertakings
As at 1 January	335.5	278.7
Additions to investments	7.9	0.6
Impairment (charge)/reversal	(49.1)	56.2
As at 31 December	294.3	335.5

The Directors believe that the carrying value of the investments is supported by their underlying net assets.

At each year end, the carrying value of investments in subsidiaries is compared against recoverable amount determined using the

net present value of future cash flows which are estimated based on utilising discounted cash flow analyses and other reasonable

supportable assumptions for the producing assets held by each subsidiary including working capital values held. During 2023, the

Company recorded a net impairment charge of $(49.1)m in investments in subsidiaries in relation to the underlying net asset values of

Vietnam and Egypt operations (2022: net impairment reversal of $56.2m in investments in subsidiaries in relation to the underlying net

asset values of Vietnam and Egypt operations).

Loans to subsidiary undertakings are unsecured and payable on demand. The carrying value of the loans is compared to liquid assets

held by the subsidiary and an assessment is made on the ability of the entity to settle the liability. For 2023, a loss allowance of $0.3m

was recognised in relation to loans to subsidiary undertakings during the year (2022: $2.3m loss).

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued

Annual Report and Accounts 2023

Pharos Energy

177

Financial Statements

Additional InformationGovernance Report

Strategic Report

Audit exemptions for subsidiary company

The Group has elected to take advantage of the exemption from audit available under section 479A of the Companies Act 2006

in respect of its wholly owned subsidiary, Pharos Energy Israel Limited (incorporated in England and Wales with company number

12645819), for the year ended 31 December 2023. The exemption is available for qualifying subsidiaries that fulfil a set of conditions.

As a result, statutory financial statements will not be audited for Pharos Energy Israel Limited. In accordance with section 479C of the

Companies Act 2006, the Company will guarantee the liabilities and commitments of Pharos Energy Israel Limited. As at 31 December

2023, there are no liabilities and commitments outstanding (2022: $0.1m).

18. Other non-current assets

		Group		Company
	2023	2022	2023	2022
	$ million	$ million	$ million	$ million
Amounts falling due after one year:
Abandonment security fund	53.7	50.2	–	–
Contingent consideration on Egypt farm-out (see Note 20)	4.9	8.9	–	–
	58.6	59.1	–	–

Other non-current assets mainly comprise the Group’s share of contributions made into two abandonment security funds which

were established to ensure that sufficient funds exist to meet future abandonment obligations on TGT and CNV fields. The funds

are controlled by PetroVietnam and the JOC partners retain the legal rights to the funds pending commencement of abandonment

operations. The Group doesn’t expect to receive cash or another financial asset from PetroVietnam. During 2023, the Group has

contributed $3.5m (2022: $2.1m). As at 31 December 2023, the Group’s total contribution to the funds was $53.7m (2022: $50.2m).

A further $4.9m (2022: $8.9m) relates to Egypt and non-current contingent consideration due from the farm-out with IPR. The Group is

entitled to contingent consideration depending on the average Brent Price each year from 2022 to the end of 2025 (with floor and cap

at $62/bbl and c.$90/bbl respectively). The contingent consideration is calculated yearly and is capped at a maximum total payment of

$20.0m (see Note 20).

19. Inventories

		Group		Company
	2023	2022	2023	2022
	$ million	$ million	$ million	$ million
Crude oil and condensate	3.3	7.2	–	–
	3.3	7.2	–	–

Crude oil and condensate are valued at net realisable value in line with well established industry practice with changes in hydrocarbon

inventories adjusted through cost of sales (see Note 7).

20. Trade and other receivables

		Group		Company
	2023	2022	2023	2022
	$ million	$ million	$ million	$ million
Amounts falling due within one year
Trade receivables	50.8	33.2	–	–
Other receivables	9.5	27.0	–	–
Prepayments and accrued income	1.9	0.7	0.4	0.4
Derivative financial instruments (see Note 25)	0.1	–	–	–
	62.3	60.9	0.4	0.4

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued

Annual Report and Accounts 2023

Pharos Energy

178

There is no material difference between the carrying amount of trade and other receivables and their fair value.

Included in trade and other receivables arising from South East Asia and Egypt at 31 December 2023 are trade receivables of $17.4m

and $33.4m (after risk factor provision of $4.0m) respectively, which arose from the Group’s two largest customers (2022: $10.3m and

$22.4m, after risk factor provision of $1.8m, from the Group’s two largest customers in South East Asia and Egypt respectively).

In Vietnam, there are no amounts overdue or allowances for doubtful debts in respect of trade or other receivables (2022: nil). In Egypt,

the average credit period on sales is 597 days (2022: 194 days). No interest is charged on outstanding trade receivables.

Trade and other receivables are financial assets and measured at amortised cost. The Group applies the IFRS 9 simplified approach

to measuring expected credit losses (‘ECL’) which uses a lifetime expected loss allowance for all trade receivables. As mentioned

above, 100% (2022: 99%) of our trade receivables are concentrated with two largest customers, one of them being a subsidiary of

a government regulated entity and the other being a major global oil & gas company. As of 31 December 2023, an ECL provision of

$4.0m (2022: $1.8m) has been recorded against trade receivables in Egypt due to collection delays caused by the devaluation of EGP

and ongoing restrictions on outgoing USD transfers by the Central Bank of Egypt.

Included in other receivables is $4.9m (2022: $20.9m) of carry, the remaining balance of disproportionate funding contribution from IPR

following completion of the farm-out transaction of Egyptian assets. The carry decreases every month against the cash calls received

from IPR. The total amount utilised as at 31 December 2023 amounts to $31.0m (2022: $15.4m). The movement during 2023 was

$15.6m, which has been disclosed in “Consideration in relation to farm out of Egyptian assets” in the cash flow as part of investing

activities. The final consideration is still being finalised between IPR and Pharos.

The financial exposure from finalising the consideration to Pharos, reflecting the remaining amounts still under discussion, is considered

immaterial to the financial statements.

A further $3.6m included in other receivables relates to current contingent consideration due from the farm-out with IPR. As at 31

December 2023, total contingent consideration receivable amounts to $8.5m, $3.6m in current trade and other receivables and $4.9m

in other non-current other assets (2022: $13.9m, $5.0m in current trade and other receivables and $8.9m in non-current other assets).

Testing of sensitivity for a $5/bbl reduction in long term oil price used would result in $0.6m decrease in contingent consideration to

$7.9m. The Group is entitled to contingent consideration depending on the average Brent Price each year from 2022 to the end of

2025 (with floor and cap at $62/bbl and c.$90/bbl respectively). The contingent consideration is calculated yearly and is capped at a

maximum total payment of $20.0m. On 1 June 2023, contingent consideration of $5.0m in respect of average Brent price during 2022

was received from IPR, assignment bonus of $0.5m settled to EGPC upon receipt of contingent consideration.

21. Cash and cash equivalents

As at 31 December 2023, cash and cash equivalents was $32.6m (2022: $45.3m). Of this balance, $1.2m (2022: $7.4m) were in

Money Market Funds that are valued at quoted prices of the funds in the active markets for the financial instruments.

22. Trade and other payables

		Group		Company
	2023	2022	2023	2022
	$ million	$ million	$ million	$ million
Amounts falling due within one year:
Other payables	11.3	6.3	3.5	1.1
Derivative financial instruments (see Note 25)	–	1.1	–	–
Accruals and deferred income	2.9	6.6	0.5	0.8
	14.2	14.0	4.0	1.9
Amounts falling due after one year:
Other payables	0.5	0.9	–	–
	0.5	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 48 to 59.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued

Annual Report and Accounts 2023

Pharos Energy

179

Financial Statements

Additional InformationGovernance Report

Strategic Report

As at 31 December 2023, $0.8m (2022: $3.7m) relates to the assignment fee for the sale of 55% of the Group’s operated interest in

each of our Egyptian Concessions, El Fayum and North Beni Suef, to IPR. $0.3m is booked as current other payable and $0.5m as

non-current other payable. Following receipt of contingent consideration amounting to $5.0m an assignment bonus of $0.5m was offset

against trade receivables from EGPC.

Accruals and deferred income include $0.4m (2022: $2.5m) in respect of a royalty provision for Egypt and reflects the amount payable

in the next year. The royalty provision relates to a historical arrangement granting a 3% royalty on Pharos’s share of profit oil and excess

cost recovery from El Fayum in Egypt.

23. Deferred tax

The following are the major deferred tax liabilities recognised by the Group and movements thereon during the current and prior

reporting period:

	Accelerated tax	Other temporary
	depreciation	differences	Group
	$ million	$ million	$ million
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 1 January 2023	89.2	3.7	92.9
Credit to income (see Note 12)	(22.8)	(1.9)	(24.7)
As at 31 December 2023	66.4	1.8	68.2

The credit to income includes a deferred tax credit of $(16.2)m (2022: $8.3m charge) that arises from the impairment of the TGT and

CNV producing assets as discussed in Note 16.

There are no unrecognised deferred taxation balances at either balance sheet date except in relation to gross losses that are not

expected to be utilised in the amount of $155.2m (2022: $143.2m). The gross losses have no expiry date.

A UK entity in the Group has entered into commodity swaps designated as cash flow hedges. In accordance with IAS 12, a deferred tax

asset has not been recognised in relation to the hedging losses of $0.2m (2022: $22.5m losses) recorded in the year as it is unlikely that

the UK tax group will generate sufficient taxable profit in the future, against which the deductible temporary differences can be utilised.

24. Borrowings

		Group
	2023	2022
	$ million	$ million
Borrowings:
Uncommitted Revolving credit facility	9.2	9.2
Reserve Based Lending Facility	30.0	65.0
RBL modification charge and amortisation of capitalised borrowing costs	1.3	-
Carrying value of total debt	40.5	74.2
Current	29.5	39.6
Non-current	11.0	34.6
Carrying value of total debt	40.5	74.2

	less than 1 year	1-2 years	Group
	$ million	$ million	$ million
Maturity - borrowings:
Uncommitted Revolving credit facility	9.2	–	9.2
Reserve Based Lending Facility	20.3	11.0	31.3
	29.5	11.0	40.5

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued

Annual Report and Accounts 2023

Pharos Energy

180

The maturity analysis for borrowings details the Group’s remaining contractual maturity for its borrowings with agreed repayment

periods. The tables have been drawn up based on the undiscounted cash flows of borrowings based on the earliest date on which the

Group can be required to pay. The reserve based lending facility is based on December 2023 redetermination.

Changes in liabilities arising from financing activities:

	2023	2023	2023	2022
	$ million	$ million	$ million	$ million
	Credit		Total	Total
	facility	RBL	Borrowings	Borrowings
Carrying value as of 1 January	9.2	65.0	74.2	80.5
Proceeds from Uncommitted Revolving credit facility	9.2	-	9.2	16.7
Repayments of borrowings	(9.2)	(35.0)	(44.2)	(27.1)
RBL modification charge and amortisation of capitalised borrowing costs	-	1.3	1.3	4.1
(see Note 9)
Interest payable and similar fees (see Note 9)	0.6	5.8	6.4	6.0
Interest paid during the year	(0.6)	(5.8)	(6.4)	(6.0)
Carrying value as of 31 December	9.2	31.3	40.5	74.2

See Note 33 for movements in lease liabilities which, together with borrowings, represent the Group’s financing related liabilities.

Reserve Based Lending facility (RBL)

In September 2018, the Group signed a $125m Reserve Based Lending facility secured against the Group’s producing assets in

Vietnam. The RBL had a five-year term and was due to mature in September 2023. In July 2021, the Group completed the refinancing

of its RBL. The new RBL provides access up to a committed US$100m with a further US$50m available on an uncommitted

“accordion” basis, has a four-year term that matures in July 2025 and bears a per annum interest rate of 5.25% plus Compound SOFR

plus CAS (Credit Adjustment Spread). Until June 2023 the RBL bore a per annum interest of 4.75% plus USD LIBOR.

The Group accounted for the change to SOFR, from 1 July 2023, using the practical expedient introduced by the Phase 2 amendments,

which allows the Group to change the basis for determining the contractual cash flows prospectively by revising the effective interest

rate (included in Finance costs line “RBL modification charge and amortisation of capitalised borrowing costs”).

The maximum borrowing base available under the RBL is revised every six months via a redetermination process by the relevant banks,

based on an estimate of the value of the Group’s reserves from its producing interests in Vietnam. For 2023, the principal repayment

made amounted to $35.0m (2022: $13.1m).

The $20.3m, categorised as current, is based on the outcome of the December 2023 RBL redetermination criteria and will likely change

following the June 2024 redetermination.

The RBL is subject to a number of financial covenants, all of which have been complied with during the 2023 and 2022 reporting

periods.

Uncommitted Revolving Credit facility - National Bank of Egypt

Pharos El Fayum signed an Uncommitted Revolving Credit facility for discounting (with recourse) of up to $18m with the National Bank

of Egypt (UK). In January 2024, the Group renegotiated the uncommitted revolving credit facility until 30 May 2025. This facility has

been put in place to mitigate the risk of late payment of our debtors. Under this arrangement, Pharos is able to access cash from the

facility, of up to 60% of the value of each El Fayum oil sales invoice, presenting the invoices as evidence to support its ability to repay

the facility. The oil sales invoices remain due to Pharos and it retains the credit risk. The Group therefore continues to recognise the

receivables in their entirety in its balance sheet.

Loans are available for up to one year from the date of utilisation. The loan bore a per annum interest rate of USD LIBOR plus 3.00% for

initial advances and 3.50% for any extensions beyond 180 days from the date of the utilisation until 30 June 2023. From 1 July 2023 the

loan bears a per annum interest rate of Term SOFR plus CAS plus 3.50% for initial advances and 4.00% for any extensions beyond 180

days from the date of the utilisation.

The amount repayable under the agreement at 31 December 2023 was $9.2m (2022: $9.2m) and it is presented as borrowing under

current liabilities. Performance under the facility agreement is subject to a parent company guarantee from Pharos Energy plc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued

Annual Report and Accounts 2023

Pharos Energy

181

Financial Statements

Additional InformationGovernance Report

Strategic Report

25. Hedge transactions

During 2023, Pharos entered into zero cost collar hedges to protect the Brent component of forecast oil sales and to ensure future

compliance with its obligations under the RBL over the producing assets in Vietnam.

The commodity hedges run until June 2025 and are settled monthly. For 2023, 36% of the Group’s total production was hedged,

securing average floor and ceiling prices for the hedged volumes at $64.5/bbl and $100.8/bbl, respectively. The Group’s RBL requires

the Company to hedge at least 35% of Vietnam RBL production volumes and the current hedging programme meets this requirement

through to December 2024, leaving 72% of Group production unhedged as at 31 December 2023 (2022: 30% of the Group’s total

production was hedged, securing a minimum price for these hedged volumes of $67.9 per barrel).

A summary of hedges outstanding as at 31 December 2023 is presented below, which are all zero cost collar.

	1Q24	2Q24	3Q24	4Q24	1Q25	2Q25
Production hedge per quarter - 000/bbls	120	120	150	120	60	60
Min. Average value of hedge - $/bbl	63.00	63.00	64.40	63.00	64.00	64.00
Max. Average value of hedge - $/bbl	91.50	87.88	88.66	89.00	90.00	90.00

Pharos has designated the zero cost collars as cash flow hedges. This means that the effective portion of unrealised gains or losses

on open positions will be reflected in other comprehensive income. Every month, the realised gain or loss will be reflected in the

revenue line of the income statement. For the year end 31 December 2023, a loss of $0.2m was realised (2022: loss of $22.5m). The

outstanding unrealised gain on open position as at 31 December 2023 amounts to $0.1m (2022: loss of $0.7m).

The carrying amount of the zero cost collars is based on the fair value determined by a financial institution. As all material inputs are

observable, they are categorised within Level 2 in the fair value hierarchy. It is presented in “Trade and other receivables” or “Trade and

other payables” in the consolidated statement of financial position. The receivable position as of December 2023 was $0.1m (2022:

liability position $1.1m).

26. Long-term provisions

		Group		Company
	2023	2022	2023	2022
	$ million	$ million	$ million	$ million
Decommissioning provision	53.8	54.3	–	–
	53.8	54.3	–	–

		Group
	2023	2022
Movement in decommissioning	$ million	$ million
As at 1 January	54.3	66.9
New provisions and changes in estimates	(2.5)	(13.9)
Unwinding of discount (see Note 9)	2.0	1.3
As at 31 December	53.8	54.3

The provision for decommissioning is based on the net present value of the Group’s share of the expenditure which may be incurred

at the end of the producing life of the TGT and CNV fields in Vietnam (currently estimated to be 7-8 years) in the removal and

decommissioning of the facilities currently in place. The provision is calculated using an inflation rate of 2.0% (2022: 2.0%) and a

discount rate of 3.9% (2022: 3.8%). The $2.5m decrease in provision in 2023 was driven by a revision to the CNV field abandonment

plan, which was formally agreed by all partners in April 2023. The $13.9m decrease in provision in 2022 was driven by the increase

in discount rate compared to prior year (from 1.5% in 2021 to 3.8% in 2022) and also a revision to the TGT field abandonment plan,

partially offset by the increase in abandonment costs relating to the TGT infill wells drilling programme completed during the year.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued

Annual Report and Accounts 2023

Pharos Energy

182

27. Share capital and Share premium

Share capital

Ordinary Shares of £0.05 each

				Group and Company
	2023	2022	2023	2022
	Shares	Shares	$ million	$ million
Issued and fully paid	432,026,943	441,795,126	33.7	34.3

		Group and Company
	2023	2022
	$ million	$ million
As at 1 January	34.3	34.9
Share buy back	(0.6)	(0.6)
Issued and fully paid	33.7	34.3

Share premium

		Group and Company
	2023	2022
	$ million	$ million
As at 1 January and 31 December	58.0	58.0

As at 31 December 2023, authorised share capital comprised 600 million (2022: 600 million) ordinary shares of £0.05 each with a total

nominal value of £30m (2022: £30m).

In January 2023, the Company announced the continuation of a further $3m share buyback programme, the First Programme

Extension, of which $2.8m had been incurred by the end of December 2023. A total of 9.9 million shares were bought, at a daily

average of 22.8p. The Board believes that the Company’s shares are trading at a material discount to their underlying net asset value,

despite the performance across the Group’s asset base, and the Board remains of the view that share buybacks is an appropriate

means of returning value to shareholders. The Company therefore intends to continue with the share buyback programme in 2024

by committing a further $3m (excluding stamp duty and expenses). This further extension of the programme (the Second Programme

Extension) is expected to commence following completion of the First Programme Extension.

28. Other reserves

						Group
	Capital
	redemption	Merger		Hedging	Share-based
	reserve	reserve	Own shares	reserve	payments	Total
	$ million	$ million	$ million	$ million	$ million	$ million
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 1 January 2023	100.9	194.0	(42.7)	(0.7)	2.1	253.6
Other comprehensive income	–	–	–	0.8	–	0.8
Share buy back	0.6	–	–	–	–	0.6
Share-based payments	–	–	–	–	1.0	1.0
Transfer relating to share-based payments	–	–	0.1	–	(0.7)	(0.6)
As at 31 December 2023	101.5	194.0	(42.6)	0.1	2.4	255.4

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued

Annual Report and Accounts 2023

Pharos Energy

183

Financial Statements

Additional InformationGovernance Report

Strategic Report

					Company
	Capital
	redemption	Merger		Share-based
	reserve	reserve	Own shares	payments	Total
	$ million	$ million	$ million	$ million	$ million
As at 1 January 2022	100.3	137.1	(40.3)	5.3	202.4
Shares 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 1 January 2023	100.9	137.1	(40.3)	2.0	199.7
Share buy back	0.6	–	–	–	0.6
Share-based payments	–	–	–	1.0	1.0
Transfer relating to share-based payments	–	–	–	(0.7)	(0.7)
As at 31 December 2023	101.5	137.1	(40.3)	2.3	200.6

The Group’s other reserves comprise reserves arising in respect of merger relief, upon the purchase of the Company’s own shares held

in treasury and held by the Pharos Employee Benefit Trust (‘the Trust’), as well as hedging and share-based payments.

The number of treasury shares held by the Group and the number of shares held by the Trust at 31 December 2023 was 9,122,268

(2022: 9,122,268) and 2,126,857 (2022: 2,126,857) respectively. The market price of the shares at 31 December 2023 was £0.2130

(2022: £0.2330). The Trust, a discretionary trust, holds shares for the purpose of satisfying employee share schemes, details of which

are set out in Note 31 and in the Directors’ Remuneration Committee Report on pages 126 to 142.

The trustees purchase shares in the open market which are recognised by the Company within investments and classified as other

reserves by the Group as described above. When award conditions are met, an unconditional transfer of shares is made out of the

Trust to Plan participants. The Group has an obligation to make regular contributions to the Trust to enable it to meet its financing costs.

Rights to dividends on the shares held by the Trust have been waived by the trustees.

29. Distribution to shareholders

Amounts recognised as distributions to equity holders in the year:

	2023	2022
	$ million	$ million
Final dividend for the year ended 31 December 2022 of 1.00 pence per share, paid in the year	5.6	–
Interim dividend for the year ended 31 December of 2023 of 0.33 pence per share, declared in year	1.7	–
	7.3	–
Proposed final dividend for the year ended 31 December 2023 of 0.77 pence per share	4.2	–

The proposed final dividend for the year ended 31 December 2023 of 0.77 pence per share takes the 2023 full-year dividend to 1.10

pence per share, in excess of the minimum 10% of Operating Cash Flow (OCF) per the Company’s dividend policy.

The final dividend of 1.00 pence per ordinary share in respect of the year ended 31 December 2022 ($5.6m) was paid on 12 July 2023.

The interim dividend of 0.33 pence per ordinary share was paid on 24 January 2024. The proposed final dividend of 0.77 pence per

ordinary share in respect of the year ended 31 December 2023, subject to approval of shareholders at the Company’s 2024 AGM in

May, is payable on 19 July 2024 to all shareholders on the register at the close of business on 14 June 2024.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued

Annual Report and Accounts 2023

Pharos Energy

184

30. Retained (deficit) / earnings

			Group
	Retained	Unrealised currency
	(loss)/profit	translation differences	Total
	$ million	$ million	$ million
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 1 January 2023	(20.4)	5.1	(15.3)
Loss for the year	(48.8)	–	(48.8)
Share buy back	(2.8)	–	(2.8)
Distributions to shareholders	(7.3)	–	(7.3)
Transfer relating to share-based payments	0.6	–	0.6
As at 31 December 2023	(78.7)	5.1	(73.6)

			Company
	Retained	Unrealised currency
	(loss)/profit	translation differences	Total
	$ million	$ million	$ million
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 1 January 2023	294.8	(222.1)	72.7
Loss for the year	(47.0)	–	(47.0)
Share buy back	(2.8)	–	(2.8)
Distributions to shareholders	(7.3)	–	(7.3)
Transfer relating to share-based payments	0.6	–	0.6
As at 31 December 2023	238.3	(222.1)	16.2

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued

Annual Report and Accounts 2023

Pharos Energy

185

Financial Statements

Additional InformationGovernance Report

Strategic Report

31. Incentive plans

Details of the Group’s employee incentive schemes are set out below. Additional information regarding the schemes is included in the

Directors’ Remuneration Committee Report on pages 126 to 142. The Group recognised total expenses of $1.3m (2022: $1.7m) in

respect of the schemes during the year, a proportion of which was capitalised in accordance with the Group’s accounting policies.

Long Term Incentive Plan

The Company operates a LTIP for employees of the Group. Awards vest over a period of three years, subject to criteria based on their

individual performance. Awards are normally forfeited if the employee leaves the Group before the award vests. Awards normally expire

at the end of ten years following the date of grant, subject to the requirement to exercise certain awards prior to 15 March of the year

following vesting.

Awards would normally be part cash and part equity-settled through a transfer at nil consideration of the Company’s ordinary shares.

267,779 awards were exercised during 2023 (2022: 392,779 shares exercised). The Company has no legal or constructive obligation to

repurchase or settle awards in cash. Details of awards outstanding during the year are as follows:

	2023	2022
	No. of share	No. of share
	awards	awards
As at 1 January	17,642,212	18,985,754
Adjustments	882,124	-
Granted	7,347,221	5,991,668
Exercised	(267,779)	(392,779)
Forfeited during the year	(5,449,945)	(6,942,431)
As at 31 December	20,153,833	17,642,212
Exercisable as at 31 December	–	–

1) In accordance with Share Scheme rules, adjustments were made for the payment of dividends in 2023.

Awards outstanding at the end of the year have a weighted average remaining contractual life of 1.4 years (2022: 1.4 years). The

weighted average market price and estimated fair value of the 2023 grants (at grant date) were £0.23 and £0.17, respectively.

The fair value of the LTIPs granted during 2023 has been provided by a Remuneration Consultant, which estimates the Company’s

performance against the targets using a Stochastic and Black Scholes model. The future vesting proportion in 2023 was 77% (2022:

72%).

The main assumptions for the calculation are as follows:

	2023	2022
Volatility	11.94%	43.89%
Risk free rate of interest	3.21%	1.51%
Correlation with comparator group	n/a	n/a

Other Share Schemes

The Company operates a discretionary share option scheme for employees of the Group. Awards vest over a three-year period, and

are normally forfeited if the employee leaves the Group before the option vests. Vested options are exercisable at a price equal to the

average quoted market price of the Company’s shares on the date of grant and are expected to be equity-settled. The Company has no

legal or constructive obligation to repurchase or settle options in cash. Unexercised options expire at the end of a ten-year period.

Other than to Directors, the Company can also grant options with a zero exercise price or with an exercise price which is set below

the market price of the Company’s shares on the date of grant. Such options, which are included in the table below, are granted by

reference to the rules of the discretionary share option scheme and are expected to be equity-settled.

The Company can additionally grant awards under the Deferred Share Bonus Plan with a zero exercise price or with an exercise

price which is set below the market price of the Company’s shares on the date of grant. Awards vest over a two-year period, and are

normally forfeited if the employee leaves the Group before the option vests. Such awards, which are also included in the table below, are

expected to be cash-settled.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued

Annual Report and Accounts 2023

Pharos Energy

186

		2023		2022
		Weighted average		Weighted average
	No. of share	exercise price	No. of share	exercise price
	awards	£	awards	£
As at 1 January	2,886,857	0.40	2,618,182	0.43
Adjustments	148,069	–	–	–
Granted	1,875,448	–	2,273,685	–
Forfeited during the year	(50,000)	–	(570,967)	–
Exercised	–	–	(1,434,043)	0.33
As at 31 December	4,860,374	0.34	2,886,857	0.40
Exercisable as at 31 December	578,172	0.41	578,172	0.41

1) In accordance with Share Scheme rules, adjustments were made for the payment of dividends in 2023.

There were no share options exercised during 2023 (the weighted average market price at the date of exercise during 2022 was £0.25).

Awards outstanding at the end of the year have a weighted average remaining contractual life of 8 years (2022: 6.5 years).

The fair value of the awards granted during 2023 and 2022 have been estimated using Black Scholes model, based on the market price

at date of grant and a nil exercise price. The main assumptions for the calculation are as follows:

	2023	2022
Volatility	n/a	n/a

32. Reconciliation of operating profit/(loss) to operating cash flows

		Group		Company
	2023	2022	2023	2022
	$ million	$ million	$ million	$ million
Operating (loss)/profit	(18.1)	100.2	(58.6)	44.2
Share-based payments	0.9	1.3	0.9	1.3
Depletion, depreciation and amortisation	55.6	55.2	–	–
Impairment charge/(reversal)	65.4	(27.9)	49.4	(53.9)
Operating cash flows before movements in working capital	103.8	128.8	(8.3)	(8.4)
Decrease/(increase) in inventories	3.9	(0.9)	–	–
(Increase)/decrease in receivables	(19.1)	(7.7)	(0.2)	1.2
Increase/(decrease) in payables	0.2	(9.5)	0.1	(1.8)
Cash generated by (used in) operations	88.8	110.7	(8.4)	(9.0)
Interest received	0.4	0.1	0.3	0.1
Other/restructuring expense outflow	–	(2.7)	–	(2.7)
Income taxes paid	(44.3)	(54.7)	–	–
Net cash from (used in) operating activities	44.9	53.4	(8.1)	(11.6)

1) Includes $2.2m (2022: $1.5m) increase in risk factor provision in respect of Egypt trade receivables.

During the year a total of $3.2m of trade receivables due from EGPC in Egypt were settled by way of non-cash offset, out of which

$2.2m relates to a second instalment of assignment bonus due to EGPC in relation to the IPR Farm out, $0.5m relates to a bonus due

to EGPC for the NBS development lease and $0.5m relates to training bonuses and fees paid to EGPC for participation in a bid round

process.

During 2022, a total of $4.6m of trade receivables due from EGPC in Egypt were settled by way of non-cash offset, out of which $1.0m

relates to 3rd Amendment signature bonus, $1.1m was set against trade payables, $2.0m Assignment bonus settled on behalf of the

Farm out partner, IPR, and $0.5m Group’s share of NBS Concession assignment bonus.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued

Annual Report and Accounts 2023

Pharos Energy

187

Financial Statements

Additional InformationGovernance Report

Strategic Report

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.

	2023	2022
	$ million	$ million
Lease liability recognised	0.8	–
as at 1 January
New leases	–	0.9
Interest expense	–	–
Principal repayments	(0.3)	(0.1)
Lease liability recognised	0.5	0.8
as at 31 December
Of which are:
Current lease liabilities	0.3	0.3
Non-current lease liabilities	0.2	0.5
Right-of-use assets recognised	0.8	–
as at 1 January
New leases	–	0.9
Depreciation	(0.3)	(0.1)
Right-of-use assets recognised	0.5	0.8
as at 31 December
Of which are:
Oil & Gas properties	0.5	0.8

During 2022, Pharos signed a new agreement for rental of gas

generators in Egypt, the agreement is effective from August 2022

to October 2025 and is accounted for as a lease under IFRS 16.

Pharos 45% share of the asset and liability which is applicable

post completion of the Farm out (21 March 2022) has been

recognised accordingly. The lease was measured at the present

value of the lease payments, discounted using the incremental

borrowing rate at the start of the lease, 6.3%.

The following table presents the amounts reported in the income

statement for short-term leases:

Operating lease expenses

by segment

	2023	2022
	$ million	$ million
SE Asia	10.1	13.1
Egypt	1.4	1.4
	11.5	14.5

At 31 December 2023, the Group is committed to its share of

$10.8m (2022: $10.9m) for short-term leases of less than 12

months and accordingly not included in the above. Certain short-

term leases contain discretionary options to extend the lease

period. These future periods are only included in the assessment

of the lease term only after consideration of the economic

incentives and if it is reasonably certain that the option will be

exercised.

34. Capital commitments

At 31 December 2023, the Group had exploration licence

commitments not accrued of approximately $26.3m (2022:

$26.6m), out of which $5.1m related to NBS was already incurred

and currently awaiting approval from EGPC.

35. Related party transactions

During 2022, the Company recorded a net cost of $0.01m in

respect of services rendered between Group companies.

Remuneration of key management personnel

The remuneration of the Directors of the Company, who are

considered to be its key management personnel, is set out below

in aggregate for each of the categories specified in IAS 24 Related

Party Disclosures. Further information about the remuneration of

individual Directors is provided in the audited part of the Directors’

Remuneration Committee Report on pages 128 to 134.

	2023	2022
	$ million	$ million
Short-term employee benefits	2.7	3.0
Post-employment benefits	0.1	0.1
Share-based payments	1.8	1.0
	4.6	4.1

36. Financial instruments

Financial Risk Management: Objectives and Policies

The main risks arising from the Group’s financial instruments are

commodity price risk, liquidity risk, credit risk, foreign currency

risk, interest rate risk and capital risk management. The Board

of Pharos regularly reviews and agrees policies for managing

financial risks that may affect the Group. In certain cases, the

Board delegates responsibility for such reviews and policy setting

to the Audit Risk Committee. The management of these risks is

carried out by monitoring of cash flows, investment and funding

requirements using a variety of techniques. These potential

exposures are managed while ensuring that the Company and

the Group have adequate liquidity at all times in order to meet

their immediate cash requirements. There are no significant

concentrations of risks unless otherwise stated. The Group does

not enter into or trade financial instruments, including derivatives,

for speculative purposes.

The primary financial assets and liabilities comprise cash, short-

and medium-term deposits, money market liquidity funds, intra

group loans, trade receivables and other receivables and financial

liabilities held at amortised cost. The Group’s strategy has been

to finance its operations through a mixture of retained profits and

bank borrowings. Other alternatives such as equity issues are

reviewed by the Board, when appropriate.

Commodity Price Risk

Commodity price risk arises principally from the Group’s Vietnam

and Egypt production, which could adversely affect revenue

and debt availability due to changes in commodity prices. To

reduce risk from Vietnam production, in 2023 the Company

and its partners signed a three year sales contract for all TGT

oil cargoes with BSR to cover the period 1 January 2024 to 7

December 2026. The premium on Brent for the Term Sales Period

will continue to be agreed every six months, which provides the

Group with significant downside price protection for production

from our largest Vietnam field, and protects margins through

eliminating export duty and additional transportation costs to

overseas customers.

The Group measures commodity price risk through an analysis of

the potential impact of changing commodity prices. Based on this

analysis and considering materiality and the potential business

impact, the Group may choose to hedge.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued

Annual Report and Accounts 2023

Pharos Energy

188

During 2023, Pharos entered into different zero cost collar hedges

to protect the Brent component of forecast oil sales and to ensure

future compliance with its obligations under the RBL over the

producing assets in Vietnam. The current commodity hedges

run until June 2025 and are settled monthly. Details of current

hedging arrangements and the categorisation of the instruments

in the fair value hierarchy can be found in Note 25.

Transacted derivatives are designated as cash flow hedge

relationships to minimise accounting income statement volatility.

The Group is required to assess the likely effectiveness of any

proposed cash flow hedging relationship and demonstrate that

the hedging relationship is expected to be highly effective prior to

entering into a hedging instrument and at subsequent reporting

dates.

Liquidity Risk

Pharos closely monitors and manages its liquidity risk using both

short- and long-term cash flow projections, supplemented by

debt and equity financing plans and active portfolio management.

Cash forecasts are regularly produced and sensitivities run for

different scenarios including, but not limited to, changes in asset

production profiles and cost schedules.

Details of the Group’s borrowings and debt facilities can be

found in Note 24. The Group is subject to half-yearly forecast

liquidity tests as part of the redetermination process for the RBL

facility agreement. The Group has complied with the liquidity

requirements of this test at all times during the year.

The Group invests cash in a combination of money market

liquidity funds and term deposits with a number of international

and UK financial institutions, ensuring sufficient liquidity to enable

the Group to meet its short and medium-term expenditure

requirements. This includes funding total shareholder returns

in the form of dividends and share buy backs, which totalled

$8.4m in the year (2022: $2.9m). A further interim dividend of

$1.7m (2022: $nil) was paid in January 2024 and the intention

is to commence a further $3m share buy back programme in

2024. The Group ensures that cash forecasts and sensitivity

analyses are robust to meet these funding requirements. Further

information can be found in Note 27 and Note 29.

Credit Risk

Credit risk arises from cash and cash equivalents, investments

with banks and financial institutions, trade and other receivables

and joint operation receivables.

Customers and joint operation partners are subject to a risk

assessment using publicly available information and credit

reference agencies, with follow-up due diligence and monitoring if

required.

Investment credit risk for investments with banks and other

financial institutions is managed by the Group Treasury function

in accordance with the Board-approved policies of the Group.

These policies limit counterparty exposure, maturity, collateral and

take account of published ratings, market measures and other

market information.

The Company’s policy is to invest with banks or other financial

institutions that, firstly, offer the greatest degree of security in the

view of the Group and, secondly, the most competitive interest

rates. The Board continually re-assesses the Group’s policy and

updates as required.

The maximum credit risk exposure relating to financial assets is

represented by the carrying value as at the balance sheet date.

The Group’s trade receivables in Note 20, although 100% (2022:

99%) concentrated with two customers across both Vietnam and

Egypt producing assets, are predominantly with a major oil & gas

company and the subsidiary of a government regulated entity.

The credit default risk is therefore deemed to be low and there is

no history of default, despite the payment delays from EGPC and

significant devaluation of the Egyptian Pound against US Dollar

discussed in the following section.

Foreign Currency Risk

Pharos manages exposures that arise from non-functional

currency receipts and payments by matching receipts and

payments in the same currency and actively managing the

residual net position. The Group does not hedge any foreign

exchange exposure.

The Group also aims where possible to hold surplus cash, debt

and working capital balances in the functional currency of the

subsidiary, thereby matching the reporting currency and functional

currency of most companies in the Group. This minimises the

impact of foreign exchange movements on the Group’s Balance

Sheet. Oil and gas sales in Vietnam are raised and settled through

a combination of Vietnamese Dong (VND) and US Dollars (USD),

along with associated tax and royalty payments. The Group holds

a number of VND and USD bank accounts that provide a natural

hedge against foreign exchange movements.

In the Egypt business, macroeconomic volatility has seen both

a significant devaluation of the Egyptian Pound and continued

restrictions on outgoing US Dollar transfers by the Central Bank

of Egypt. The Company has opted not to accept the payment

of trade receivables balance in Egyptian Pounds unless required

for operations. The progressive devaluation of EGP against USD

means that it is preferable to continue to hold USD denominated

receivables. As a result, Pharos’ receivables have increased

to $33.4m at 31 December 2023, after expected credit loss

provision of $4.0m (2022: $24.2m receivables after credit loss

provision of $1.8m).

Considering the expected significant devaluation, Pharos

considers it preferable to continue holding USD-denominated

receivables and accept part-payments of its receivables balance

in EGP only when local currency will be needed for the funding of

operations at the end of the IPR carry period, which is expected

to end in April 2024. Positive announcements by the Egyptian

Government highlighted in the CFO Statement, combined with

the Company reaching agreement with the operator of the Egypt

concessions, IPR, to pay a significant proportion of post-carry

cash calls in EGP, means that the Group is optimistic that its

receivables position and liquidity will improve significantly during

2024.

The Group’s UK head office contributes the majority of

administrative costs which are denominated in GBP. The level

of monetary working capital balances denominated in GBP

is relatively low and therefore the Group’s exposure to foreign

currency changes for all currencies is not considered to be

material.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued

Annual Report and Accounts 2023

Pharos Energy

189

Financial Statements

Additional InformationGovernance Report

Strategic Report

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). The Company’s principal borrowings, in the form of the

RBL loan and the NBE Uncommitted Revolving Credit facility,

both switched from USD LIBOR to SOFR plus CAS interest rates

from 1 July 2023. In addition, the ongoing global high-inflationary

economic environment means that interest rates could potentially

rise in the short to medium-term, thus increasing the cost of

borrowing.

As at 31 December 2023, Pharos had total borrowings of

$40.5m (2022: $74.2m) as described in Note 24. If interest rates

increased by 100 basis points, assuming the principal loans

stayed constant, the annualised interest payable by the company

would increase by $0.9m (2022: $0.8m) which would translate

through to profits and net assets. The Group’s interest received

on cash and cash equivalents is immaterial.

Capital Risk Management

The Group manages its capital to ensure that entities in the Group

will be able to continue as going concerns while maximising the

return to shareholders through the optimisation of the debt and

equity balances. To this extent, following a period of improved

commodity prices, the Group has committed to shareholder

returns in the form of both share buybacks and dividends to

shareholders. The Group’s overall strategy remains unchanged

from 2022.

The capital structure of the Group consists of net debt (cash and

borrowings disclosed in Note 20 and 24, respectively) and equity

(comprising issued share capital, reserves and retained earnings

as disclosed in notes 27 to 28). Management reviews the

capital structure on a semi-annual basis, and most of the capital

expenditure incurred is discretionary. The Group is not subject to

any externally imposed capital requirements and is aiming to be in

a net cash financial position during 2024.

Please see Non-IFRS Measures (Unaudited) for net debt and

gearing ratios as at 31 December 2023 and 31 December 2022.

37. Disposal of 55% interest in Egypt

Concessions and fair value movement

Following the completion of the farm-out transaction of Egyptian

assets to IPR, the accounting for the assets reflect the following:

The economic date of the transaction was 1 July 2020, with

completion on 21 March 2022.

Pharos owned and managed the business up to completion. On

completion, an adjustment to compensate for net cash flows

since the economic date has been adjusted for in the level of

carry to be provided by IPR to Pharos.

In the Financial Statements, for the period post completion,

Pharos 45% share of field costs – capex, opex and G&A – are

accounted for as incurred by Pharos, although all such costs are

paid by IPR and set off against the carry.

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 $35.9m is disproportionate funding contribution from

IPR adjusted for working capital and interim period adjustments

from the effective economic date of 1 July 2020 and completion

date.

Disposal of asset held for sale:

	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	13.6
Other receivable with IPR	0.5
Consideration received and to be received	55.4
Assignment fees payable to EGPC	(3.7)
Success fees paid on completion	(1.7)
Loss on disposal	(6.6)

$0.4m reduction in the amount classified as the carry element

from $36.3m to $35.9m following a change in the best estimate

of the adjustment relating to the interim period between the

economic date of 1 July 2020 and the completion date was

charged to the income statement as part of “Other/restructuring

expense” during 2023.

The fair value movement of $0.3m was charged to the income

statement during 2023. This is due to $0.4m revision of the

contingent consideration, partially offset by $0.1m reduction in

contingent liability (assignment fee). The fair value movement of

$0.3m relating to revision of the contingent consideration and

credited to the income statement during 2022 was reclassified

from “Loss on disposal” to “(Loss)/Gain on fair value movement of

financial asset” to be consistent with 2023 presentation.

38. Subsequent events

EGPC Trade Receivables

On 26 March 2024, following announcements from the Egyptian

government of increased liquidity in-country, the Group received

notification from EGPC that $10.0m will be paid as partial

settlement of outstanding trade receivables following payment

delays through 2023. The funds will clear on 27 March 2024,

according to the swift confirmation received.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued

Annual Report and Accounts 2023

Pharos Energy

190

Non-IFRS Measures (Unaudited)

NON-IFRS MEASURES (UNAUDITED)

Non-IFRS measures

The Group uses certain measures of performance that are not

specifically defined under IFRS or other generally accepted

accounting principles. These non-IFRS measures include cash

operating costs per barrel, DD&A per barrel, gearing, free cash

flow and operating cash per share.

For the RBL covenant compliance, three Non-IFRS measures are

included: Net debt, EBITDAX and Net debt/EBITDAX.

Cash operating costs per barrel

Cash operating costs are defined as cost of sales less DD&A,

production based taxes, movement in inventories and certain

other immaterial cost of sales.

Cash operating costs for the period is then divided by barrels

of oil equivalent produced. This is a useful indicator of cash

operating costs incurred to produce oil and gas from the Group’s

producing assets.

2023

$ million

2022

$ million

Cost of sales

111.2

116.8

Less:

Depreciation, depletion and amortisation

(55.4)

(55.1)

Production based taxes

(10.5)

(14.7)

Export duty

–

(3.2)

Inventories

(4.0)

1.8

Trade receivable risk factor provision

(2.2)

(1.5)

Other cost of sales

(1.8)

(1.3)

Cash operating costs 37.3

42.8

Production (BOEPD) 6,508

7,166

Cash operating cost per BOE ($) 15.70

16.36

Cash operating cost per barrel by segment

(2023)

Vietnam

$ million

Egypt

$ million

Total

$ million

Cost of sales 95.6 15.6

111.2

Depreciation, depletion

and amortisation

(51.0) (4.4)

(55.4)

Production based taxes (10.4) (0.1)

(10.5)

Inventories (3.9) (0.1)

(4.0)

Trade receivable

risk factor provision

– (2.2)

(2.2)

Other cost of sales (1.5) (0.3)

(1.8)

Cash operating costs

28.8 8.5

37.3

Production (BOEPD)

5,127 1,381

6,508

Cash operating cost per BOE ($)

15.39 16.86

15.70

DD&A per barrel

DD&A per barrel is calculated as net book value of oil and gas

assets in production, together with estimated future development

costs over the remaining 2P reserves. This is a useful indicator

of ongoing rates of depreciation and amortisation of the Group’s

producing assets.

2023

$ million

2022

$ million

Depreciation, depletion and amortisation

(55.4)

(55.1)

Production (BOEPD)

6,508

7,166

DD&A per BOE ($)

23.32

21.07

DD&A per barrel by segment (2023)

Vietnam

$ million

Egypt

$ million

Total

$ million

Depreciation, depletion and

amortisation

(51.0) (4.4)

(55.4)

Production (BOEPD)

5,127 1,381

6,508

DD&A per BOE ($) 27.25 8.73

23.32

Net debt

Net debt comprises interest-bearing bank loans, less cash and

cash equivalents.

2023

$ million

2022

$ million

Cash and cash equivalents

32.6

45.3

Borrowings*

(39.2)

(74.2)

Net Debt (6.6)

(28.9)

* Exclude unamortised capitalised set up costs

Annual Report and Accounts 2023

Pharos Energy

191

Additional Information

Financial StatementsGovernance Report

Strategic Report

NON-IFRS MEASURES (UNAUDITED) - continued

EBITDAX

EBITDAX is earnings from continuing activities before interest,

tax, DD&A, impairment charge/(reversal) of PP&E and intangibles,

exploration expenditure including pre-licence costs and Other/

restructuring expense items in the current year.

2023

$ million

2022

$ million

Operating (loss)/profit

(18.1)

100.2

Depreciation, depletion and amortisation

55.6

55.2

Pre-licence costs

0.4

–

Impairment charge/(reversal)

65.4

(27.9)

EBITDAX 103.3

127.5

Net debt/EBITDAX

Net Debt/EBITDAX ratio expresses how many years it would take

to repay the debt, if net debt and EBITDAX stay constant.

2023

$ million

2022

$ million

Net Debt

(6.6)

(28.9)

EBITDAX

103.3

127.5

Net Debt/EBITDAX (0.06)

(0.23)

Gearing

Debt to equity ratio is calculated by dividing interest-bearing bank

loans by stockholder equity. The debt to equity ratio expresses

the relationship between external equity (liabilities) and internal

equity (stockholder equity).

2023

$ million

2022

$ million

Total Debt *

39.2

74.2

Total Equity

273.5

330.6

Debt to Equity 0.14

0.22

* Exclude unamortised capitalised set up costs

Free cash flow

Free cash flow is calculated by subtracting capital cash

expenditure from net cash from operating activities.

2023

$ million

2022

$ million

Net cash from operating activities

44.9

53.4

Capital cash expenditure

(26.7)

(31.9)

Free cash flow 18.2

21.5

Operating cash per share

Operating cash per share is calculated by dividing net cash from

(used in) continuing operations by number of shares in the year.

2023

$ million

2022

$ million

Net cash from operating activities

44.9

53.4

Weighted number of shares in the year

427,170,044

439,253,641

Operating cash per share 0.11

0.12

Annual Report and Accounts 2023

Pharos Energy

192

Five Year Summary (Unaudited)

FIVE YEAR SUMMARY (UNAUDITED)

Year to

31 Dec 2023

$ million

Year to

31 Dec 2022

$ million

Year to

31 Dec 2021

$ million

Year to

31 Dec 2020

$ million

Year to

31 Dec 2019

$ million

Consolidated income statement

Oil and gas revenues

168.1

221.6 163.8 118.3 189.9

Commodity hedge (losses)/gains

(0.2)

(22.5) (29.7) 23.7 (0.2)

Gross profit

56.7

82.3 19.5 18.2 61.1

Operating profit/(loss)

(18.1)

100.2 48.3 (231.3) 38.0

Profit/(loss) for the year

(48.8)

24.4 (4.7) (215.8) (24.5)

2023

$ million

2022

$ million

2021

$ million

2020

$ million

2019

$ million

Consolidated balance sheet

Non-current assets

356.6

457.4 460.3 483.2 740.9

Net current assets

50.6

56.4 51.6 10.4 45.6

Non-current liabilities

(133.7)

(183.2) (207.5) (199.9) (276.4)

Net assets

273.5

330.6 304.4 293.7 510.1

Share capital

91.7

92.3 92.9 87.3 87.3

Other reserves

255.4

253.6 250.5 243.0 246.6

Retained earnings/(deficit)

(73.6)

(15.3) (39.0) (36.6) 176.2

Total equity

273.5

330.6 304.4 293.7 510.1

Year to

31 Dec 2023

$ million

Year to

31 Dec 2022

$ million

Year to

31 Dec 2021

$ million

Year to

31 Dec 2020

$ million

Year to

31 Dec 2019

$ million

Consolidated cash flow statement

Net cash from operating activities

44.9

53.4 10.8 56.4 72.3

Capital expenditure

26.7

31.9 41.8 41.3 63.4

Distributions

5.6

– – -- 27.4

Annual Report and Accounts 2023

Pharos Energy

193

Additional Information

Financial StatementsGovernance Report

Strategic Report

Reserves Statistics (Unaudited)

RESERVES STATISTICS (UNAUDITED)

Net working interest, MMBOE

TGT CNV Vietnam

El Fayum NBS Egypt

Group

Oil and Gas 2P Commercial Reserves

1,2

As at 1 January 2023 8.8 3.4 12.2 15.0 – 15.0 27.2

Production (1.3) (0.5) (1.8) (0.5) – (0.5) (2.3)

Revision (1.2) (0.1) (1.3) (0.9) – (0.9) (2.2)

Discoveries – – – – 0.8 0.8 0.8

2P Commercial Reserves as at 31 December 2023 6.3 2.8 9.1 13.6 0.8 14.4 23.5

Oil and Gas 2C Contingent Resources

1,2

As at 1 January 2023 7.4 3.4 10.8 8.9 – 8.9 19.7

Revision (1.1) 2.2 1.1 0.7 – 0.7 1.8

2C Contingent Resources as at 31 December 2023 6.3 5.6 11.9 9.6 – 9.6 21.5

Total of 2P Reserves and 2C Contingent Resources

as at 31 December 2023

12.6 8.4 21.0 23.2 0.8 24.0 45.0

1) Reserves and Contingent Resources are categorised in line with 2018 SPE standards.

2) Assumes oil equivalent conversion factor of 6,000 scf/boe.

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

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

Risks associated with reserves evaluation and estimation uncertainty are discussed in Note 4(b) to the Financial Statements.

Annual Report and Accounts 2023

Pharos Energy

194

Report on Payments to

Governments (Unaudited)

REPORT ON PAYMENTS TO GOVERNMENTS (UNAUDITED)

Disclosure

In accordance with the Financial Conduct Authority’s Disclosure

and Transparency Rule 4.3A in respect of payments made by

the Company to governments for the year ended 31 December

2023 and in compliance with The Reports on Payments to

Governments Regulations 2014 (SI 2014/3209), Pharos presents

its disclosure for the year ending 31 December 2023.

Basis for preparation

Legislation

This report is prepared in accordance with the Reports on

Payments to Governments Regulations 2014 as enacted in the

UK in December 2014 and as amended in December 2015.

The Reports on Payments to Government Regulations (UK

Regulations) were enacted on 1 December 2014 and require

UK companies in extractive industries to publicly disclose

payments they have made to Governments where they

undertake extractive operations. The aim of the regulations is to

enhance the transparency of the payments made by companies

in the extractive sector to host governments in the form of

taxes, bonuses, royalties, fees and support for infrastructure

improvements. The UK Regulations came into effect on 1 January

2015.

The payments disclosed for 2023 are in line with the EU Directive

and UK Regulations and we have provided additional voluntary

disclosures on payroll taxes, export duty, withholding tax and

other taxes.

In line with the UK Regulations, a payment of a series of related

payments which do not exceed $106,941 (£86,000) has not been

disclosed. Where the aggregate payments made in the period for

a project or country are less than $106,941, payments are not

disclosed for the project or country.

All of the payments disclosed in accordance with the EU Directive

have been made to National Governments, either directly or

through a Ministry or Department, or to a national oil company,

who have a working interest in a particular licence.

Payment

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 2023, there were no reportable dividend payments to

governments.

Bonuses

This represents any bonus paid to governments during the

year on achievement of commercial milestones such as signing

of a petroleum agreement or contract, achieving commercial

discovery, or after first production.

Licence Fees

This represents licence fees, rental fees, entry fees and other

consideration for licences and/or concessions paid for access to

an area during the year (with the exception of signature bonuses

which are captured within bonus payments).

Infrastructure improvement payments

This represents payments made in respect of infrastructure

improvements for projects that are not directly related to oil

and gas activities during the year. This can be a contractually

obligated payment in a Production Sharing Contract or a

discretionary payment for building/improving local infrastructure

such as roads, bridges, ports, schools and hospitals.

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.

Annual Report and Accounts 2023

Pharos Energy

195

Additional Information

Financial StatementsGovernance Report

Strategic Report

Transparency Disclosure 2023 (Unaudited)

TRANSPARENCY DISCLOSURE 2023 (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 16-1 883 73,971 31,961 8,889 – – 78 – 114,899 – – – – –

Block 9-2 557 36,814 12,541 2,130 – – 75 – 51,560 – – – – –

Total Vietnam 1,440 110,785 44,502 11,019 – – 153 – 166,459 – – – – –

Egypt

El Fayum 233 18,228 – – – – – – 18,228 194 – 4 11 209

North Beni Suef 2 150 – – – – 495 – 645 – – – – –

WES – – – – – – 178 – 178 – – – – –

Total Egypt 235 18,378 – – – – 673 – 19,051 194 – 4 11 209

United Kingdom (UK)

Corporate – – – – – – – – – 2,064 – – – 2,064

Total UK – – – – – – – – – 2,064 – – – 2,064

United States of America (US)

Corporate – – – – – – – – – 193 – – – 193

Total US – – – – – – – – – 193 – – – 193

Pharos Total 1,675 129,163 44,502 11,019 – – 826 – 185,510 2,451 – 4 11 2,466

UK Regulations Voluntary Disclosure

Production

entitlements

Production

entitlements

Income

Taxes Royalties Dividends

Bonus

Payments

Licence

fees

Infrastructure

improvement

payments Total

Payroll

Taxes

Export

Duty

With-

holding

Tax

Other

Taxes Total

Country/

Government bbls (000) $ 000’s $ 000’s $ 000’s $ 000’s $ 000’s $ 000’s $ 000’s $ 000’s $ 000’s $ 000’s $ 000’s $ 000’s $ 000’s

Vietnam*

Ho Chi Minh City

Tax Dept

– – 44,502 11,019 – – – – 55,521 – – – – –

Customs Office – – – – – – – – – – – – – –

PetroVietnam

E&P Corp

(PVEP)

1,440 110,785 – – – – 153 – 110,938 – – – – –

Total Vietnam 1,440 110,785 44,502 11,019 – – 153 – 166,459 – – – – –

Egypt

Egyptian General

Petroleum

Corporation

(EGPC)

235 18,378 – – – – 673 – 19,051 – – – – –

Tax department – – – – – – – – – 194 – 4 11 209

Total Egypt 235 18,378 – – – – 673 – 19,051 194 – 4 11 209

United Kingdom (UK)

Inland Revenue – – – – – – – – – 2,064 – – – 2,064

Total UK – – – – – – – – – 2,064 – – – 2,064

United States of America (US)

Internal Revenue

Service

– – – – – – – – – 193 – – – 193

Total US – – – – – – – – – 193 – – – 193

Pharos Total 1,675 129,163 44,502 11,019 – – 826 – 185,510 2,451 – 4 11 2,466

* Joint Operating Company Project’s tax payments reported on Pharos Net Working Interest Basis.

Annual Report and Accounts 2023

Pharos Energy

196

Glossary of Terms

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

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 expenditure including

pre-licence costs and other/restructuring

expense items.

EBT

Employee benefit trust

E&E

Exploration and Evaluation

El Fayum or the El Fayum Concession

The concession agreement for petroleum

exploration and exploitation entered into on

15 July 2004 between the Arab Republic

of Egypt, EGPC and Pharos El Fayum in

respect of the El Fayum area, Western

Desert, as amended from time to time

EGP

Egyptian Pound

EGPC

Egyptian General Petroleum Corporation

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 2023

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 Social

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

JOC

Joint Operating Company

Joint venture

Annual Report and Accounts 2023

Pharos Energy

197

Additional Information

Financial StatementsGovernance Report

Strategic Report

GLOSSARY OF TERMS - continued

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

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

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

STOIIP

Stock Tank Oil Initially In Place

TOR

Terms of Reference

TCFD

Task-Force for Climate-related Financial

Disclosures

TGT

Te Giac Trang field located in Block 16-1

TSR

Total shareholder return

TIA

Tie-in Agreement

United Kingdom

United States of America

WHP

Wellhead Platform

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

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

Annual Report and Accounts 2023

Pharos Energy

198