## Annual Report ## and Accounts ## 2021 Pharos Energy is an independent oil and gas exploration and production company with a focus on sustainable growth and returns to stakeholders. With a registered office in London and listed on the London Stock Exchange, we have production, development and exploration interests in Egypt and Vietnam and exploration interests in Israel. www.pharos.energy STRATEGIC REPORT FINANCIAL STATEMENTS Company overview 2 Independent Auditor’s Report 123 Pharos at a glance 3 Consolidated Income Statement 132 Where we operate 4 Consolidated Statement of | Capital discipline | 5 | Comprehensive Income 132 | | --- | --- | --- | | Growth opportunities | 7 | Balance Sheets 133 | | Diversity and inclusion | 9 | Statements of Changes in Equity 134 | | Sustainability | 10 | Cash Flow Statements 135 | | Chair’s statement 11 | | Notes to the Consolidated Financial | Statements 136 Market overview 13 CEO’s statement 15 Core strategic objectives 17 Business model 20 Key metrics 21 ADDITIONAL INFORMATION Operations review 26 | s.172(1) 35 | Non-IFRS Measures 163 | | --- | --- | | CFO’s statement 38 | Five Year Summary 165 | | Risk management 43 | Reserves Statistics 166 | | Risks 49 | Report on Payments to Governments 167 | | Corporate Responsibility 58 | Transparency Disclosure 2020 168 | Glossary of Terms 169 Company Information 171 GOVERNANCE REPORT Chair’s Introduction to Governance 79 Board of Directors 83 Corporate Governance Report 86 Environmental, Social & Governance 92 (‘ESG’) Committee Report Nominations Committee Report 95 Audit and Risk Committee Report 97 Directors’ Remuneration Report 102 Directors’ Report 117 Additional InformationGovernance Report Financial StatementsStrategic Report JANN BROWN INCOMING CHIEF EXECUTIVE OFFICER ## Our distinctive portfolio in the energy regions of Asia and MENA, together with ## a robust and disciplined capital allocation framework, supports our strategy of ## delivering long-term, sustainable growth. We have a range of opportunities in the ## portfolio to position us for a positive future. Our purpose is to continue to provide ## energy for communities around the world and fuel their lives and businesses. ## INVESTMENT CASE | Capital discipline | PAGE 5 | | --- | --- | | Portfolio of low-cost growth opportunities | PAGE 7 | | Diversity & Inclusion | PAGE 9 | | Sustainability | PAGE 10 | Pharos Energy Annual Report and Accounts 2021 2 PHAROS AT A GLANCE ## Pharos at a Glance 2021 KEY FIGURES 2021 GROUP HIGHLIGHTS ## 1997 $16.05 Founding year Cash operating costs * ($/boe) (2020: $11.60/boe) ## 20,537 ## $27.1m 2 Acreage Km Cash & cash equivalents ($m) (2020: $24.6m) ## 14 ($4.7m) Blocks & Licences Net loss (2020: Net loss $215.8m) ## $163.8m ## 12 Revenue ($m) Oil & Gas fields Prior to hedging loss of $29.7m (2020: $142.0m) | 65 | 0p | | --- | --- | | Employees | Return to shareholders | | (2020: 71 employees) | (Pence per ordinary shares) | (2020: 0p) ## 3 8,878 Countries Average net production (boepd) (2020: 11,373 boepd) * Read More Non-IFRS measures on page 163 3 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report WHERE WE OPERATE ## Responsible, Disciplined, Focused ## We have production, development and exploration ## assets in Egypt, Israel and Vietnam. Read More Operations Review on page 26 EGYPT ISRAEL VIETNAM | EGYPT (D,P,E) | VIETNAM (D,P,E) | ISRAEL (E) | | --- | --- | --- | | We have high quality oil production operations, | We have valuable and long- | Pharos, together with Capricorn | | development and exploration assets in Egypt. | established producing fields in | Energy PLC (formerly known as | | Production is from 10 development leases in the | Vietnam. Production is from two | Cairn Energy PLC) and Israel’s | | El Fayum Concession located in the Western | fields (TGT & CNV) and there is | Ratio Oil Exploration, have eight | | Desert south west of Cairo and close to local | further potential for growth from two | licences offshore Israel. Each party | | energy infrastructure. In 2021, Pharos was also | exploration blocks (Blocks 125 & 126). | has an equal working interest and | | an operator with a 100% working interest in | | Capricorn Energy is the operator. | the North Beni Suef (NBS) Concession, which is located immediately south of the El Fayum Concession. Upon completion of the farm- out transaction with IPR, IPR will hold a 55% working interest and operatorship in each of the El Fayum and North Beni Suef Concessions. Pharos will hold a 45% non-operated working interest in both Concessions. ## 3,318bopd 5,560boepd 33.33% 2021 Average production 2021 Average production (net) Working interest (2020: 5,270 bopd) (2020: 6,103 bopd) D: Development P: Production E: Exploration Pharos Energy Annual Report and Accounts 2021 4 INVESTMENT CASE – CAPITAL DISCIPLINE ## Robust capital discipline ## in our DNA ## As a business, our ability to deliver value is key to ## our investment case. Capital discipline and financial ## stability have always been key to the Company and ## continue to underpin the business. Read More CFO’s statement page 38 We take great care with our investors’ money and use our expertise: • To allocate capital to those assets which offer a combination of cash flow, growth and sustainability • To focus on our cost base wherever we are • To assess and develop high grade growth opportunities • To provide cash returns to shareholders 2020 was a year of significant change for Pharos, with the impact of the COVID-19 pandemic and the associated low oil prices, and 2021 continued to see a sustained macroeconomic environment of uncertainty. A major priority for the Board and the Group in the period was the preservation of cash in order to protect balance sheet strength. Therefore, in addition to a series of financing activities such as the equity placing and refinancing of the RBL, the Board had to make a difficult decision to restructure the London office and continue to suspend dividend payments for the second year. A commitment to cash returns to shareholders remains a core element of our overall allocation framework. We are not complacent about the situation, and it is our intention to return to shareholders through the combination of annual dividends and capital growth as soon as appropriate. ## 1. Responsible management • Cost and balance sheet actively managed through continued uncertainty in the macroeconomic environment • Positive operational cash flow • Active hedging programme • Gearing remains modest (net debt to EDITDAX 1.00x) ## 2. Flexibility in allocation • Low level of commitments • RBL facility in place • IPR carry on farm-down Egyptian concessions Capital allocation framework • Focus on shareholder returns over the long term • High-grade investment opportunities using a number of metrics • Focus on near-term cash flow positive development opportunities 5 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report OUR CASH POSITION $10.96m $27.1m $24.6m $20.6m $2m $41.8m | Cash Balance at | Operating | | Investment Activities | Investment Activities | | Financing Activities | Financing | Cash Balance at | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 31 December 2020 | | CF | - Capital Expenditure | | - Advanced | - RBL Refinancing, | Activities | 31 December 202 | | | | | | | consideration | NBE and Interest | - Placing | | on farm out of Egypt ## 3. Returns to shareholders • Integral part of approach to cost control • Growth opportunities in all areas of the portfolio • All opportunities screened for cash generation * OUR HISTORY OF SHAREHOLDER RETURNS In 2021, the Board had to make a difficult decision to continue to suspend dividend payments for the second year, given the continued uncertainty in the macro environment driven by COVID-19 and the pressure on oil price against this backdrop. The Board will continue to use the well-documented capital allocation criteria to assess where and how to apportion any free cash flow generated. The key goals are to preserve balance sheet strength, to invest in growth opportunities in excess of the cost of capital and to generate sustainable returns to shareholders, as we have done since 2006. Capital raised during equity 11.7 since 1997 ($m) 2018 2006 2016 23.3 2019 13.6 17.5 27.4 | Shareholder returns | | 2013 | 2014 | 2015 | | --- | --- | --- | --- | --- | | | since 2006 ($m) 0 100 200 300 400 500 600 | | | | | $10.8m | | 213.4 | 119.2 | 51.1 | 2012 32.9 2017 placing 2021 for the first time 2011 21 6.8 * Note: No dividends were issued in 2020 and 2021. 1 Pharos Energy Annual Report and Accounts 2021 6 INVESTMENT CASE – PORTFOLIO OF LOW-COST GROWTH OPPORTUNITIES ## Portfolio of low-cost growth ## opportunities to access free cash flow ## Over the past few years, we have created multiple growth opportunities in our ## diverse and complementary portfolio in Asia and MENA. We are always focused on ## value-adding activities that have potential to generate free cash flow. In Vietnam, our current growth opportunities include fully funded near-term development drilling programme in TGT and CNV, and seismic mapping on Block 125 & 126 to identify future prospects. In Egypt, this includes the full deployment of the waterflood programme to provide reservoir pressure support and maintain production. Upon completion of the transaction with IPR and transfer of operatorship in Egypt, the first phase of the main multi-year and multi-well development drilling programme at El Fayum will commence in order to increase production in break-even price on the Concession. ## EGYPT Egypt is a dynamic and growing economy, providing a stable business environment. In 2021, Pharos had a 100% working interest* in two concessions in Egypt - El Fayum and ## 37.8 North Beni Suef. The El Fayum Concession is located in the Western Desert, about 80km MMBBL OF 2P RESERVES south west of Cairo and close to local energy infrastructure. The El Fayum Concession 2 (2020: 40.8 mmbbl) covers an area of 1,722 km in Egypt’s low-cost and highly prolific Western Desert, and so benefits from extensive existing infrastructure and a well-developed service industry. 2 Additionally, the El Fayum development area is 256 km . The North Beni Suef Concession 2 covers an area of 5,060 km in the Beni Suef basin, immediately south of the El Fayum Concession and close to existing Egyptian production in adjacent development leases. ## 3,318 The existing dataset on the North Beni Suef Concession consists of 3,101 km 2D 2 seismic, 1,625 km 3D seismic and data from eight wells. BOPD 2021 PRODUCTION FROM EL FAYUM * In September 2021, Pharos announced the farm-out and sale of a 55% working (2020: 5,270 bopd) interest and operatorship in each of the El Fayum and North Beni Suef Concessions to IPR Lake Qarun Petroleum Co, a wholly owned subsidiary of IPR Energy AG. Pharos and EGPC have finalised all necessary documents to be presented to the Minister of Petroleum and Natural Resources to approve the transaction with IPR and this approval is expected shortly. ## 10 OIL FIELDS AT THE EL FAYUM CONCESSION Growth opportunities • Completion of the farm-out transaction and transfer of operatorship to IPR, which will provide the investment needed to accelerate the first phase of the main multi-year and ### multi-well development drilling programme at El Fayum and increase production 2 ## 7,038km • Waterflood programme in the El Fayum Concession provided reservoir pressure support and maintain production ahead of the main development programme ACREAGE (EL FAYUM AND NORTH BENI SUEF) • El Fayum full field development investment case that identifies a path towards production of over 10,000 bbls/day. The 2022 and 2023 work programme and budget associated with the investment case have been agreed in principle by IPR under the El Fayum farm-out agreement. • Potential for low-cost oil exploration in the North Beni Suef Concession, as well as possible extensions into the block of producing properties within separate development leases held by a third party JV 7 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report ## VIETNAM ## 5,560 Our 25-year history with Vietnam has been a success story both for the company and BOEPD 2021 AVERAGE the country. As at 2021, Pharos has invested c.$1.2 billion in the exploration, appraisal NET PRODUCTION FROM and development of oil and gas projects located offshore Vietnam since inception, of TGT & CNV which $6.2 million was for training levy and charity donation projects, making Pharos one (2020: 6,103 boepd) of the largest British investors in the country. The Group’s current producing interests, the Te Giac Trang (TGT) and Ca Ngu Vang (CNV) fields in the Cuu Long basin off the southern coast, together, are amongst Vietnam’s largest oil producers. We have further potential for growth from two deep-water exploration positions in Blocks 125 & 126 in the Phu Khanh basin off the eastern coast, where we expect to seek an industry partner ## 15.2 to fund our commitments and develop the blocks before drilling. We continue to have an excellent safety record in Vietnam, and are careful to maintain this. MMBOE OF 2P RESERVES (2020: 17.9 mmboe) Growth opportunities • Two additional TGT wells planned to be drilled from cash flow in Q3 2022 as part of the ## c.$1.2 approved TGT Full Field Development Plan (FFDP), following completion of the initial four-well drilling programme in 2021 ### BILLION • One well on CNV planned to be drilled in Q4 2022 after completion of the drilling of the INVESTMENT BY PHAROS two TGT wells IN OIL AND GAS PROJECTS OFFSHORE VIETNAM SINCE • Submission of licence extension requests for both TGT & CNV INCEPTION • Revised Full Field Development Plan for TGT & CNV by Q4 2022 • Final 3D seismic processed results on Block 125 expected in July 2022 and will proceed to seismic mapping to identify prospects and bring in an industry partner before drilling ## 11.4 MMBOE OF 2C RESERVES (2020: 12.2 mmboe) Pharos Energy Annual Report and Accounts 2021 8 INVESTMENT CASE – DIVERSITY AND INCLUSION ## Diversity and Inclusion at the ## heart of the business ## Greater diversity and inclusivity brings greater understanding of people. Led by ## the Pharos Guiding Principles of ‘Openness and Integrity’ and ‘Empowerment and ## Capability’, we have demonstrated our commitment to maintaining and building a ## culture of diversity and inclusion in meaningful ways. approach to sustainability by ## engaging with and taking into account views of these stakeholders. We believe in a workforce with a diversity Diversity in all forms Further Board refreshment of experience, nationalities, cultural The spirit of diversity, inclusion and trust In 2021, various Directorate changes were backgrounds and gender, to support our lies behind everything we do. In 2021, made to the Board to ensure that Pharos business strategy of long-term sustainable four of nine Pharos Board members were is guided by a lean management team growth. It is crucial to the success of women, and we are proud that women with diverse knowledge, deep experience our business that we retain and develop accounted for nearly 60% of employees and greater gender diversity. In March the diversity of our workforce and have at our London head office. Our offices 2021, the Company announced the diversity and inclusion at the heart of our across the organisation recruit talents appointment of Sue Rivett to the Board as recruitment, development and promotion from diverse backgrounds, ethnicity and Chief Financial Officer (“CFO”) effective 1 processes. | | experience. Most notably, our London | July 2021. Additionally, upon completion of | | --- | --- | --- | | Our Code of Business Conduct and | head office has 17 people from 10 | the transaction with IPR, Ed Story will step | | Ethics, associated policies and the Pharos | different nationalities, which ensures that | down from the Board as Chief Executive | | Guiding Principles commit us to providing | we cultivate a culture that recognises and | Officer (“CEO”) but will remain as President | | a workplace free of discrimination where all | promotes diversities in all forms, where | of the Vietnam business, and Jann Brown | | employees can fulfil their potential based | every voice is heard. | will assume the role of CEO as one of | | on merit and ability. They also commit us | | two Executive Directors alongside Sue. | | to providing a fully inclusive workplace, | | Mike Watts will also step down from the | Regional knowledge and while providing the right development Board on completion, though Mike will be experience opportunities to ensure existing staff have available to advise the Board for a period We apply our expertise locally with rewarding careers. in relation to its ongoing interests as the operational teams in each region, working Company may require. Finally, in support closely with joint operating companies. of the policy to slim down the Board and We encourage dialogue and co-operation having served as Non-Executive Director, between the different business assets to Senior Non-Executive Director and Deputy ensure new ideas and solutions are always Chairman in his nearly 9 years on the being considered. Board, Rob Gray will not be putting his | We are committed to providing meaningful | name forward for re-election as a Director | | --- | --- | | opportunities for training and capacity | at the 2022 AGM in May. The result of | | building in host countries. We have | these changes is reduction in the size | | maintained a gender-neutral recruitment | of the Board from nine Directors (four | | process and, wherever possible, are | Executive Directors and five Non-Executive | | ensuring that we first look to fill any | Directors) to six (two Executive Directors | | vacancy internally with a local candidate in | and four Non-Executive Directors), of | | London, Vietnam and Egypt. | which four out of six Directors are women. | The Company is committed to good governance and will continue to review the balance and effectiveness of the Board commensurate with our size and needs. Read More Corporate Governance Report page 86 - 91 and Corporate Responsibility Report page 58 - 78. 9 Pharos Energy Annual Report and Accounts 2021 Strategic Report Governance Report Financial Statements Additional Information # INVESTMENT CASE – SUSTAINABILITY # Sustainability in all areas of our business Our goal is to have a responsible and positive presence in the regions in which we operate, resulting in value for host countries, local communities, employees, contractors and shareholders. Pharos continually monitors and reviews its approach to sustainability by engaging with and taking into account views of these stakeholders. # Read More Corporate Responsibility Report page 58 - 78. ## Responsibility framework ### Environment **Further alignment with TCFD** through the completion of Phase Two of our project to bring our disclosures in line with the requirements of the Task Force on Climate-related Financial Disclosures ("TCFD"). Results of the completion of Phase Two can be found in the Corporate Responsibility Report on page 60 to 63 and the Risk Management Report on page 45 to 48. A number of key factors, such as oil price, operating and capex costs and discount rate, considered likely to be affected by climate climate-related risks are subject to sensitivity analyses and stress testing under various scenarios including testing the forward oil curve based on the IEA Net Zero Emissions scenario ![img-0.jpeg](img-0.jpeg) ### Society **$500,000** combined total training levies in Vietnam and Egypt for industry capacity building in 2021 **$265,000** in community and charitable investments supporting 12 social projects in Vietnam through the HLHVJOC Charitable Donation Programme ![img-1.jpeg](img-1.jpeg) ### Business **100%** TGT & CNV Oil and **100%** El Fayum Oil sold domestically, contributing to host country development goals and access to energy ![img-2.jpeg](img-2.jpeg) ### Ethics **100%** of staff received anti-bribery and corruption training **$198.2m** taxes and royalties to host governments in 2021, which includes $146.7m of host governments' entitlement share of production ![img-3.jpeg](img-3.jpeg) ### People **Zero** Lost Time Injury Frequency Rate (number of lost time injuries per million man-hours) across all operations in 2021 **4/9** Board positions held by women ![img-4.jpeg](img-4.jpeg) Pharos Energy Annual Report and Accounts 2021 10 CHAIR’S STATEMENT ## Chair’s Statement | Rebalanced and focused on values | Board Changes | | --- | --- | | I am pleased to report that Pharos has | We have long recognised that our board | | successfully navigated another challenging | would need to be reshaped following | | year in 2021 whilst continuing to make | the farm-down of our assets in Egypt | | the improvements necessary to rebalance | to IPR and the associated transfer | | our cost base, our capital structure and | of operatorship. We announced the | | our assets. We start 2022 with a clear | proposed changes in January of this year | | roadmap of how the company can drive | and Ed Story and Mike Watts will step | | value for all our stakeholders and we have | down from the board once the farm-down | | the right team in place to deliver that. | transaction completed. Ed will remain as | President of the Vietnam business, while The backdrop of the global pandemic Mike will be available to advise the Board persisted throughout 2021 and the during his notice period of one year. I ongoing climate of uncertainty remained would like to take this opportunity to the dominant challenge in planning, JOHN MARTIN thank Ed for his considerable contribution forecasting and managing capital. After Non-Executive Chair to Pharos over many years. We are the swift and decisive actions taken delighted that he will stay with us to help in 2020 to reduce costs and preserve the management of our relationships and liquidity, 2021 saw us take further vital activity in Vietnam. I would also like to steps to strengthen the capital structure thank Mike for his long-term dedication of the business, which had been severely to the Company and for his important impacted by the loss of revenues as a contributions during that time. Our Senior result of the oil price crash. The $11.7 Non-Executive Director and Deputy Chair, million equity placing, subscription and Rob Gray, will also step down in May of retail offering, completed in January this year at the 2022 AGM and again we 2021, was the first capital raised from the thank him for his long and valued service. market since 1997 and the support we | received is a testament to the strength | The result of these changes will be to | | --- | --- | | of our existing shareholder base and | reduce the size of the Board from nine | | the attraction of the company to new | Directors to six, commensurate with the | | investors. I welcome these new investors | scale of the business, and we have all | | and thank all our investors for their | of the skills and experience required to | | support. The refinancing of our RBL over | provide the necessary governance and | | the assets in Vietnam, completed in July | oversight of a Premium Listed Company. | | 2021, provided additional liquidity while | Pharos’ commitment to inclusion and | | maintaining our leverage at a comfortable | diversity remains strong. Following the | | level. The approval of improved fiscal | board changes described above, both of | | terms in Egypt reset the economics for | our executive directors will be female, with | | the El Fayum Concession, bringing down | a total of four of the six directors being | | the breakeven price and improving the | women, representing two thirds of the | | overall returns. The farm-down of our | Board. | Egyptian assets, a process that started in I am delighted Jann will be the CEO of 2020, achieved a key milestone with the Pharos and I look forward to working signature of conditional agreements with with her, Sue and the rest of my Board IPR in September. The transaction with colleagues into this next phase. IPR is a key step in the realignment of our asset base to match the levels of funding Sustainability available to generate cash flow and value. We now have a clear path to cash Sustainability is an increasing focus for our generation and value creation in Vietnam, entire industry. We recognise that oil and where our programme is self-funded, and gas will continue to play an essential role in Egypt where we will be carried through in the provision of energy security and the the next phase of investment by IPR. global energy mix for many years to come and that the importance of producing As part of our reshaping for the future we this energy in a safe, environmentally have driven down costs and created a sustainable and socially responsible way new, leaner organisational structure in the will continue to grow amidst the wider UK and these efforts will continue in Egypt energy transition. We stand ready to in 2022. This positions us well to thrive in a play our part in this transition and we stronger oil price environment. 11 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report can do that by providing transparent and Purpose and organisation to fund the right work programme on comparable sustainability disclosures, both Concessions in Egypt to maximise Our purpose has been expanded to embedding sustainability considerations in long-term growth and cash flow. Their include our commitment to sustainability; the way we operate and identifying where long-standing in-country presence and to provide the energy to support the changes in our field practices could make relationships with the Egyptian government economic development and prosperity of a difference in our efforts to reduce our and regulatory authorities will support the the countries, communities and families carbon footprint. expansion of operational activity needed wherever we work, in line with recognised to develop the resource base. The Board We have also continued to participate socially and environmentally responsible firmly believes that IPR is the right partner in various climate disclosures. Over the practices. for Pharos in Egypt, and we look forward past four years, we have participated in Our organisation has proved itself to be to working with them in 2022 and beyond. the CDP Climate Change Questionnaire resilient beyond expectations this year. We and have maintained our score (C), which Thanks to the effort and hard work of all of have had difficult decisions to make on is also the industry average. 2021 also our colleagues, the businesses is now in reducing our staffing levels in the UK as marks the first year that the Company significantly better shape, with funding in part of our efforts to manage costs. We submitted their response to the CDP place to make the investments needed to have lost many talented colleagues and I Water Security Questionnaire, which was deliver value from the assets already in the am delighted that so many of them have completed at a basic level in 2021 and we portfolio. On behalf of the Board, I would found new positions so quickly. The team plan to improve our level of transparency like to thank our shareholders for their who have stayed with us have all risen to on water usage and protection by support through the year, as well as our the challenges of delivering what has been completing the full version in 2022. More staff, partners, suppliers and advisers all needed and I have every confidence that recently, we commenced Phase 2 of the of whom have helped to provide stability they will continue to do so. project to bring our disclosures in line through this period of uncertainty and with the requirements of the Task Force The culture of the workforce is strong and volatility. on Climate-related Financial Disclosures is built on openness, safety and care, trust We enter 2022 with a more confident (“TCFD”) in accordance with LR 9.8.6. and respect for each other. Our workforce outlook. Pharos has a unique combination in the UK has indicated a clear preference Over the years, Pharos has embedded of complementary assets, a talented and for retaining flexibility in our way of working sustainability considerations throughout diverse workforce and capital discipline in and, throughout the period of mandatory our operations. We set up an ESG its DNA. Most importantly, it has a clear remote working, we have built well- Committee at Board level and an ESG roadmap to cash generation and value established channels of communication Working Group to operationalise our creation for the coming year. and ways of working which can approach. Climate change is now, accommodate these preferences with following TCFD guidance, recognised minimal disruption and no adverse impact as a principal risk for the Company and on delivery and efficiency. we engage our stakeholders regularly on all aspects of environmental, social Outlook and economic impacts. In 2021, the Despite the turmoil we have all Remuneration Committee has increased experienced in the global macro-economic the level of management incentives environment, our strategy to deliver which attach to improvements in our long-term, sustainable value for all our sustainability performance in order to stakeholders remains unchanged. We further encourage action on this agenda. have capital to allocate to exciting work Following the COP26 summit in Glasgow JOHN MARTIN programmes in 2022 and our commitment in November 2021, we recognise and Non-Executive Chair to returning cash to shareholders remains understand the growing need to accelerate a core element of our overall allocation business action on climate change. The framework. Board welcomed the outcomes of the It is with great sadness that we note the Glasgow Climate Pact and is now focused terrible situation that is ongoing in Ukraine. on reviewing what a possible pathway Alongside the humanitarian issues, there towards Net Zero entails. This will not be are increased business risks due to the straightforward, for Pharos and for the heightened volatility in commodity price wider industry, with a lot of solutions being and impact on inflation. We have no direct currently tried and tested. But we commit business in the region but we are carrying to being transparent in what can and out due diligence checks and reviewing what cannot be delivered and to keeping the supply chain implications in all parts stakeholders updated on the progress. of the business. No immediate impact During the net zero transition, we want has been identified but we will continue to ensure we do not lose sight of the to keep this under close review and will role our energy plays in driving economic devise mitigating actions if needed. development of those countries where it is produced. In Vietnam our status as a major investor in country plus our track record of managing operations stand us in good stead to deliver the next phase of value from our existing producing fields. In Egypt, we have a period of collecting revenues with all costs covered by the carry provided by IPR, our new partner. IPR has proven itself to be a technically proficient, effective and low-cost operator and are well capitalised Pharos Energy Annual Report and Accounts 2021 12 MARKET OVERVIEW ## Market overview ## While 2020 was characterised by the initial widespread shock brought about by ## the COVID-19 pandemic, 2021 will be remembered for the year where global ## vaccination programmes vastly changed how we lived and helped ease restrictions. ## Global growth was significant, albeit in an environment of caution, as virus ## mutations provided a reminder of how quickly circumstances can change. As well ## as volatile rates of COVID-19, there was significant volatility in the oil price. In 2021, ## we saw improved prices to an average Brent crude price of US$70.68 per barrel, a ## 68% increase from the previous year. | Economics and political | Oil price | | | --- | --- | --- | | Unsurprisingly the pandemic remained a | While an average Brent crude price of | interest of shareholders by considering | | significant force influencing global growth | US$70.68/bbl in 2021 was a significant | the balance between protecting the | | in 2021 as most economies began the | 68% increase from the average price in | Group in low oil price scenarios, set | | year in the grip of restrictions stifling | 2020, the picture was one of a steady | against the opportunity cost of being | | growth. However, as vaccination rates | recovery throughout the year as demand | unhedged. In addition, Pharos continues | | increased and restrictions were eased, the | for oil grew by 5.7mmbbls/d from the | to manage its overall portfolio to target | | economy made significant headway and | previous period. This increase in demand | a low break-even oil price, regardless | | business practices returned to something | was primarily due to fiscal and monetary | of actual oil prices. Our strong ethos | | similar to pre pandemic times, even if | stimulus supporting a buoyant economy, | of capital discipline ensures that cost | | most economic metrics remained lower. | with restrictions in movement easing | efficiencies are maintained, even in higher | | Global monetary and fiscal policies during | throughout the year as vaccination | oil price environments. Pharos ensures | | the crisis provided stimulus that has | programmes were deployed. This increase | all operational decisions – including new | | had a significant effect for a prolonged | in demand significantly outpaced supply | country entry, production optimisation and | | period across various economies, | as OPEC+ retained its restrictive policies | acquisitions – are reviewed through the | | which, added to the reopening of many | spanning from the depressed prices of | lens of full-cycle project economics in a | | previously closed sectors, led to demand | 2020, and prolonged periods of restrained | range of oil price scenarios. | | and prices increasing. In many countries | investment from other oil producing | | Commentary around the outlook for oil this has meant inflationary pressures are nations such as the US meant that supply prices in 2022 is mostly positive with an now prominent in many governments’ capacity was constrained. As well as estimated world GDP growth forecast of economic thinking going forward. increased pricing for crude, the market 4.2%, meaning a repetition of the strong saw significant inventory draws as nations From a market perspective, the S&P500 demand seen in 2021. Tight supply is attempted to meet demand as best as in the US finished the year just under expected to remain as investment in they could leading to the EIA estimating 27% up while the MSCI World index upstream assets remains subdued while that global petroleum inventories dropped finished up 31%, showing how global OPEC estimates global demand to rise by by 469 million barrels in the year. | equity markets reacted to the favourable | | 4.15 million barrels a day in 2022. Looking | | --- | --- | --- | | economic conditions. While in late 2021 | The ongoing volatility in the oil price was | forward, while interest rate increases ( | | the rapid spread of the Omicron strain of | still prevalent in 2021. Average realised | likely to be used as a tool to supress rising | | the COVID-19 virus provided a reminder | oil price per barrel achieved for Vietnam | inflation by many central banks) pose as | | of the fragility of the world’s markets, the | was c.$73/bbl representing a premium | a potential suppressant to the oil price, | | outlook for 2022 is regarded as positive | of just under $2/bbl to Brent. For Egypt | the crude market looks set to be well | | with levels of global vaccination and | the average realised price was c.$65/ | supported in the period. | | antibody count in the general population | bbl, representing a discount of c.$5/bbl | | For more information on the impact of high enough that returning to a situation to Brent. climate change on the long-term oil prices akin to the beginning of the pandemic is The Board’s strategy to mitigate this and demand, please see pages 56 to seen as unlikely. principal risk of commodity price instability 57 the Viability Statement. is set out on pages 49 to 57 in our discussion on principal risks. Pharos regularly evaluates whether the benefit of hedging its oil production is in the best 13 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report E&P Merger & Acquisition activities As with the oil price in 2021, M&A activity within the industry during the year increased significantly with a rise of 42% on deal value compared to 2020, with over US$90 billion worth of E&P deals occurring in the year. The acquisition of North Sea producer Lundin Energy AB by Aker BP represented the largest deal of the year at just under US$11 billion, with Australian producer Santos Ltd’s acquisition of Oil Search following closely behind at over US$10.5 billion. Climate change regulation | 2021 continued to see developments | Pharos has continued to review emissions | recommendations progressed well in 2021 | | --- | --- | --- | | on climate change regulation, with | with the objective of reducing them | with Phase 1 completed and the adoption | | wider ESG concerns at the forefront of | wherever possible. We seek to be | of our new Climate Change policy. Phase | | thinking for the wider global economy. | transparent in our emissions performance | 2 of this work was interrupted by the | | The 2021 United Nations Climate Change | reporting and in 2021 we continued to | impact of the COVID-19 pandemic in | | Conference, more commonly known as | report our emissions and disclose them in | 2020 but resumed in Q4 2021. Results of | | COP26, was hosted by Glasgow in the | accordance with UK industry requirements | the completion of Phase 2 can be found | | latter part of the year, putting focus on | and standards. Pharos participated in the | in the Corporate Responsibility Report on | | world leaders and their commitments to | CDP 2021 Climate Change Questionnaire | pages 56 to 57. | | reducing the effects of climate change. | and Water Security Questionnaire and we | | | The end of the conference saw nearly 200 | set an objective to continue to work to | | | countries agreeing the Glasgow Climate | improve GHG emissions management by | | | Pact to seek to limit global warming to | identifying realistic initiatives for emissions | | | 1.5C and accelerate action on climate | reduction. Work to ensure we are | | | change this decade. | prepared to report in line with the TCFD | | GLOBAL CRUDE OIL CONSUMPTION 2012-2022E 102 100 98.11 98 96 94 92 90 88 2012A 2014A 2016A 2018A 2020E 2022P Source: Bloomberg BRENT CRUDE 2012-2021 ($BBL) 100 80 70.95 60 40 20 0 Source: EA GLOBAL E&P M&A, 2012-2021 150.6 143.5 104 124.2 120.0 120 96.0 90.6 87.4 86.7 78.3 80.0 160.0 63.7 58.1 40.0 mmbpd 0 mmbpd Source: IHS Billions USD Pharos Energy Annual Report and Accounts 2021 14 2012 2014 2016 2018 2012 2013 2014 2015 2016 2017 2018 2019 2013 2015 2017 2019 2020 2020 2021E 2021 2021 CHIEF EXECUTIVE OFFICER’S STATEMENT ## CEO’s Statement | 2021 was a critical year for Pharos and | • In September, we announced the | | | --- | --- | --- | | several key steps were taken which | | signature of agreements for the farm- | | provide the foundations for the exciting | | down to IPR to of a 55% working | | programmes, focused on growth, cash | | interest in, and operatorship of, both | | flow generation and value, in 2022 and | | of our concessions in Egypt, full details | | beyond. | | of which transaction are set out in the | Financial Review. Pharos and EGPC • In January, we had strong support for have finalised all necessary documents an equity placing, subscription and to be presented to the Minister of retail offer, raising $11.7m in gross Petroleum and Natural Resources to proceeds, with net proceeds invested approve the transaction with IPR and in the El Fayum waterflood programme this approval is expected shortly. The to support production levels. JANN BROWN IPR Energy group has been present in • In March, we announced a reduction Incoming Chief Executive Officer Egypt for 40 years, currently has eight of our head office headcount of c.50%, concessions pre-acquisition, five of significantly reducing our ongoing which are operated, and has achieved annual G&A cost. Many talented significant growth in net production. We colleagues left the Company in this look forward to working with them to reorganisation and it is a testament to deliver the full potential of these fields. the team who have stayed with us that These steps, alongside the operational they have continued to deliver. activity set out below, have reset the | • In March we announced that we | | Group’s potential. That potential was | | --- | --- | --- | | | had reached agreement with EGPC, | already there in the portfolio, but we now | | | the industry regulator and state | have the access to funding to exploit | | | oil company in Egypt, to various | these to grow cash flow and increase | | | amendments to the El Fayum | shareholder value. We enter 2022 with a | | | Concession (known collectively as “The | refreshed portfolio, cost base, and access | | | Third Amendment”) the most important | to capital. | effect of which was an improvement in the fiscal terms backdated to Consistent operational November 2020. The improved terms delivery amidst ongoing global were subjected to parliamentary and uncertainties presidential approval, which were In Vietnam, the Group had a busy obtained in January 2022. As a result operational year. Most notable was of this Third Amendment, Contractor the commencement of the TGT well share of revenues increased by 20%, intervention and development drilling from c.42% to c50% whilst in full cost programme in July 2021, following the recovery mode. Signature of the Third approval of the updated FFDP and the Amendment was a key Condition two year extension on both the TGT and Precedent for the transfer of a 55% CNV licences which was announced participating interest (and operatorship) in 2020. Phase 1 of the campaign was in the El Fayum and North Beni Suef successfully completed in November Concessions to IPR. 2021, ahead of schedule and c.$20 million | • In July, we completed the refinancing | | below the JV gross budget. In 2021, the | | --- | --- | --- | | | of our Reserve Based Lending Facility | crude produced from the fields in Vietnam | | | (“RBL”) which provided access to | commanded a premium to Brent of just | | | a committed $100m with a further | under $2/bbl and the payback period for | | | $50m available on an uncommitted | the wells drilled is estimated at below 12 | | | “accordion” basis and has a four-year | months, making investment in these fields | | | term that matures in July 2025. The | an attractive proposition. | revised RBL facility extends the tenor of Production for 2021 from the TGT and the facility by 22 months, rephases the CNV fields net to the Group’s working repayment schedule and has provided interest averaged 5,560 boepd, in line with additional liquidity without taking guidance, and guidance for 2022 is set at gearing to unacceptable levels. 5,000 to 6,000 boepd. 15 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report | In July 2021, the Company announced the | zero on our Lost Time indicators. In 2021, | own economics further improved by the | | --- | --- | --- | | completion of its 3D seismic acquisition | we paid $198.2m in taxes and royalties to | carry, we consider that Egypt is now in an | | programme on the western part of Block | host governments, including their share | excellent position to deliver on its potential. | | 125 in the Phu Khanh Basin, offshore | of production entitlements. With 100% | | I would like to pay tribute to my colleagues Vietnam. The seismic processing work is of production sold domestically in 2021, leaving the board at this time. To Ed Story, ongoing, with the final processed results this has made a valuable contribution as he ends his 25 year leadership of the expected in mid-2022. In September to the host countries’ socio-economic company, having taken it through many 2021, Pharos received approval for a development, energy security and access different territories and phases, always with two-year extension of the initial exploration to energy. a focus on shareholder returns. He will be phase under the Block 125 & 126 PSC, But we go beyond what’s legally required, a key part of the team in Vietnam to deliver which now runs until November 2023. noting the growing expectations of all our on his long held view of the potential there. There is a commitment to drill one well on stakeholders. As we work predominantly Mike’s association with Pharos has also these Blocks within the initial exploration through Joint Operating Companies been formative and instrumental over the phase and, following completion of the (“JOCs”) we work collaboratively with long term. Finally, Rob Gray will step down seismic processing, we will look to bring in our partners to identify what else in May from his roles as both Deputy Chair an additional partner pre-drill. | | we can do. This extends to all our | and as Senior Non-Executive Director. | | --- | --- | --- | | In Egypt, after an operational hiatus | community initiatives, where our financial | All three have played an important role in | | in 2020, Phase 1B of the waterflood | contribution amounted to $265,000 in | putting the company where it is today and | | programme on El Fayum commenced, | 2021 via HLHVJOC Charitable Donation | I thank each of them for their own unique | | supported by the net proceeds of the | Programme. We are investigating | contributions. | | equity placing, subscription and retail offer | opportunities to reduce our carbon | | I would also like to thank our shareholders completed in January 2021. A three-well footprint by adopting different methods and wider stakeholders for their ongoing development drilling programme was and processes to power our operations support. | started in November 2021 to provide | and other carbon reduction technologies | | | --- | --- | --- | | reservoir pressure support and maintain | in the longer term and will provide updates | Last but not least, I would also like | | production ahead of the multi-year, multi- | on our progress. We will not make | to express my gratitude towards my | | well development programme planned | commitments or set targets which are | colleagues for their efforts, continued | | following completion of the transaction | vague or which rely on new technologies | hard work and commitment as we | | with IPR. Pharos will be carried through | or those being developed in the future, | have navigated through challenges and | | the first part of this programme by IPR | and which do not carry the support of our | uncertainties to build a business with a | | for its retained 45% working interest in El | partners. | return to growth. | Fayum. Outlook - Reaping our rewards in a In June 2021, Pharos announced the | modest discovery on the Batran-1X | new phase of growth | | --- | --- | | exploration commitment well, which | Over the past five years, we have built a | | reconfirmed the potential for additional oil | portfolio in Asia MENA with a combination | | on the El Fayum concession. | of assets which offer resilience in difficult | times, strong cash returns in better times The Board believes that 2021 was a plus valuable growth potential when turning point year for Pharos, with key investment capital is available. building blocks now in place to move forward into exciting programmes in both In Vietnam, the economics are attractive Vietnam and Egypt. on all fronts – premium commodity pricing, a low LOF Breakeven price, attractive Sustainability netbacks and rapid payback periods JANN BROWN on new development wells - with all Sustainability has been a challenge for our Incoming Chief Executive Officer planned activities funded from cash flows industry for many years and the focus on generated. Following the four wells drilled our activities on this front is increasing, on TGT in 2021, two further TGT wells and rightly so. Alongside our statutory are planned for 2022 plus one on CNV. obligations in the United Kingdom (where The JOC is now progressing work on we are listed) and Egypt, Israel and submitting licence extension requests for Vietnam (where we operate), we recognise both TGT & CNV, with a Revised Full Field that the expectations of all stakeholders Development Plan (“FFDP”) for both fields are growing in this respect. At Pharos, we to be submitted by Q4 2022. This would have been diligently preparing to ensure take the licence terms out to 2031 (TGT) that our disclosures are in line with the and 2032 (CNV) and would add two years Task Force on Climate-related Financial of reserves to the production profiles and Disclosures (“TCFD”) recommendations economics for these fields. and can report that we are on track to do | so, having completed Phase Two of our | In Egypt, upon completion of the | | --- | --- | | alignment project with TCFD’s reporting | transaction with IPR and transfer | | requirements. We also continue to meet | of operatorship which is expected | | our obligations under the Modern Slavery | imminently], we will enter a new phase, | | Act and anti-bribery legislation. As part | and will benefit from IPR’s experience as | | of local agreements, we are focused on | an Operator plus the carry of our retained | | meeting legal environmental, social and | 45% working interest through the first | | economic obligations: that is why we | part of the multi-year and multi-well | | provide $500,000 every year for local | development programme. With the field | | capability training in Vietnam and Egypt. | economics enhanced by the signing of | | I am proud that we continue to achieve a | the Third Amendment and the Group’s | Pharos Energy Annual Report and Accounts 2021 16 CORE STRATEGIC OBJECTIVES ## Navigating through ## challenging times ## 1. Responsible & Flexible stewards of capital ## A culture of prudent financial management, capital allocation and capital return. We exhibit capital discipline through a focus on cost management and control. Capital allocation decisions are taken to make investments where they will provide risk-adjusted full-cycle returns. It is this approach that has allowed us to return significant amounts of capital to shareholders. We have looked to add another strand to the story – capital growth – to underpin the sustainability of dividends over the longer term. | Activities in 2021 | | Priorities in 2022 | | Risks | | --- | --- | --- | --- | --- | | • Disciplined capital investment and | | • Continue to actively manage our cost | | • Commodity price risk | | | flexible allocation through: | | base, capital allocation and investments | | • Carbon tax into growth opportunities already in the - Completion of the equity placing, portfolio • Insufficient funds to finance growth subscription and retail offer in January plans and maintain dividends 2021 to fund Phase 1B of the • Manage a smooth transition of waterflood programme in El Fayum • Rising operational cost operatorship to IPR to accelerate - Refinancing of the Reserved Based investment into the Egyptian assets • Composition of the new workforce and Lending Facility (“RBL”) which provided • Complete the development drilling in Board / HR management access to a committed $100m TGT and CNV with a further $50m available on an • Regulatory risk; new regulations uncommitted “accordion” basis, thus • Complete the seismic processing • Climate related risk – transition and allowing the Company more financial and interpretation on 125 & 126 and physical risk flexibility initiate the process for seeking a further • Partner alignment risk • Responsible and decisive cost-cutting industry partner pre-drill actions to preserve balance sheet • Evaluate what we can do as a Mitigation strength through: responsible operator and good • Oil price hedging - Continued reviewing and reducing of all corporate citizen to reduce our carbon G&A costs across the Group, including footprint; and what commitments can • Close monitoring of business activities, voluntary salary reductions from staff be made towards our progress to Net financial position, cash flows and the Board Zero • Control over procurement costs/ - Continuation of working from home effective management of supply chains (WFH), thus reducing pre-pandemic office rental cost • Capital discipline with focus on controlling and managing costs - Reorganisation and redundancy programmes within the London and • Stress testing scenarios and Cairo offices sensitivities to ensure a level of | • Revenue stability through active | | robustness to downside price, carbon | | --- | --- | --- | | | hedging programme – approximately | tax, discount rates, and production | | | 59% of production hedged in 2021. | sensitivities, and review of capital | | | With the ongoing volatility in the oil | expenditure and operating cost | price still prevalent, Pharos used • Discretionary spend actively managed hedges judiciously to protect against the downside • Cultivating and maintaining good relationships with lenders • Maintained financial strength through bringing in an industry partner (IPR) to support the next stage of development in Egypt • Modest gearing level – Net debt to EBITDAX 1.00x 17 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report ## 2. Focus on stakeholders ## Dialogue with shareholders, local communities, host governments, employees, ## contractors, and others in the supply chain. We continue to consult and engage, through formal and informal processes, in an open dialogue with our stakeholders. These conversations consider matters that are important both to our stakeholders, and to the successful delivery of our corporate objectives. | Activities in 2021 | | Priorities in 2022 | | Risks | | --- | --- | --- | --- | --- | | • Board refreshment to bring further | | • Continue workforce and stakeholder | | • HSES reputational and operational risk | | | knowledge and deeper experience | | engagement, building on work in 2021 | | • Climate change –speed of the energy • Active employee engagement by the • Regular staff training and development transition and physical risks from Executive Directors with UK, Egypt and extreme weather events • Build on and improve new ways of Vietnam employees during the entirety working and communication to make • Human resource risk of lock-down via anonymous surveys, the business base fit for the workforce weekly Monday business meetings, • Political and regional risks going forward and off-site away days • Business conduct and bribery • Further Board reductions to ensure a • A hybrid working model of working from flatter organisational structure, shorter • Partner alignment risk home and working from physical offices lines of management and more direct, after consultation with employees accessible channels of communication Mitigation • Open and active dialogue with with leadership • Promoting a positive health and safety shareholders throughout the year via culture analyst research feed, Investor Meet • Continuing the implementation of Company online meetings and Q&A, COVID-19 precautionary measures and Results roadshows based on applicable law, regulation and • Engagement across our supply chain public health guidance to identify and address red-flag areas • Emergency preparedness of concern • Embedding climate change scenarios • Continued social engagement with local and evaluate decisions on key business communities during the pandemic to operations where we have control ensure continuous investments in local projects with the most positive impact • Complying with all legislative/regulatory frameworks and focus on a goal based • Transparent disclosure of ESG-related approach to improve safety metrics. Maintained grade C in CDP Climate Change questionnaire, with • Adhering to the Group’s Code of first time participation in the CDP Water Business Conduct and Ethics and Security questionnaire. Completion of associated policies Phase Two of the implementation of • Annual training and compliance Task Force on Climate-related Financial certifications by all associated persons/ Disclosures (TCFD) recommendations whistleblowing facility in place • Active participation in JOC management • Engaging directly with the relevant authorities on a regular basis Pharos Energy Annual Report and Accounts 2021 18 CORE STRATEGIC OBJECTIVES - CONTINUED ## 3. Enhanced growth potential ## A portfolio of low-cost growth opportunities that is resilient in difficult times, and ## thrive when economic environment improves. Building and enhancing growth opportunities in our current portfolio. Actively managing our portfolio through investments and divestments. Focusing on near-term development opportunities to create value for stakeholders whilst maintaining high operational and safety standards using local staff and suppliers. Activities in 2021 Priorities in 2022 Risks • Insufficient funds to meet commitments Egypt Egypt • Commodity price volatility, volatility in • Improved fiscal terms signed in January • Completion of the three-well production levels – sub-optimal well 2022 with revenue increases backdated development drilling programme performance to November 2020 | | | • Completion of the farm-out transaction | | • Partner alignment risk | | --- | --- | --- | --- | --- | | • Commencement of Phase 1B of the | | | with IPR and transfer of operatorship to | | | | waterflood programme in El Fayum | | support the next stage of development | Mitigation | in Egypt • Return to drilling with commencement • Regular review of funding options of the El Fayum Phase 1B waterflood Vietnam • Stress testing forecasts programme, three-well development drilling programme, and Batran-1X • Down side protection through hedging • Commencement of development commitment well oil discovery | | | drilling programme of two TGT wells | • Cultivating and maintaining good | | | --- | --- | --- | --- | --- | | • Interpretation of the large pre-existing | | in the FFDP in Q3 2022, and one CNV | | relationships with lenders | | | 3D seismic survey on the NBS | well | | | • Active participation in dialogue with Concession continues with several low • Processing 3D seismic results on Block JVs/ JOCs risk drillable prospects already identified 125 in order to identify future prospects • Commencement of the farm-out • Progressing work on submitting transaction with IPR to fund the capital licence extension requests for both programme on the Egyptian assets to TGT & CNV, and a revised Full Field increase production and fulfil the full Development Plan for both fields potential of the concessions Vietnam • Successful completion of the first phase of the 2021 TGT well intervention and development drilling campaign, on schedule and below budget • Approval for a two-year extension to the terms of Phase 1 of the Block 125 & 126 Exploration Period from the Ministry of Industry and Trade • Completion of the 3D seismic acquisition programme on Block 125 in the Phu Khanh Basin, with processing of the new data underway 19 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report BUSINESS MODEL ## Our Business Model ## is to Build for the Future ## We are building a business focused on generating sustainable returns. We look ## to grow Pharos through the responsible management of our current portfolio ## and careful selection of new opportunities, particularly those with near-term low- ## cost development and, where appropriate, exploration assets with transformative ## potential within Asia and MENA. VALUE INPUTS VALUE INPUTS VALUE INPUTS ### Our people Our assets Our capital • Extensive industry experience • Mix of complementary assets • Low operating cost • Technical expertise • Mature, short payback in Vietnam • Low breakeven oil price in Vietnam • Commercial acumen • Development drilling in Vietnam • Financial prudence • Relationship-driven • Low-cost onshore drilling in Egypt • Modest gearing • Strict capital allocation proces s ## Develop ## Assess Invest ## & Produce We assess opportunities which offer Our investment programme will continue Our production increases through the a superior risk-weighted return. Our to be allocated over our asset base in a development of existing discovered experienced management team identify disciplined manner to deliver sustainable resources. We seek to maximise margins established high margin, low-risk returns for our stakeholders. We through optimising production and low producing assets enabling geographical maintain a culture of prudent financial operating costs. We are committed to asset diversification and an increase in management, capital allocation, and responsible and safe operations at all exploration acreage growth leading to capital returns. times. value growth. In our assessment of capital allocation processes, we look to take account of the interests of all stakeholders and to balance the value of investing in the business against the value of returns to shareholders. VALUE OUTPUTS VALUE OUTPUTS VALUE OUTPUTS ### Growth opportunities Stakeholders Growth production ### metrics • Development of existing • Net Asset Value (NAV) growth discovered resources and share price • Responsible and safe operations • New prospects and leads in • Return to shareholders • Low cost per barrel Egypt and Vietnam • Local capability • Development of discovered • Conventional and unconventional Egyptian resources with our • In-country economic contribution + exploration potential partner IPR and social investment • Employment and training • Continued development of Vietnam assets Pharos Energy Annual Report and Accounts 2021 20 KEY METRICS # Reporting on our performance * Read More Non-IFRS measures on page 163 The financial and non-financial metrics facilitate better management of long-term performance and enable us to deliver on our sustainable responsible business plans. They are kept under periodic review and regularly tested for relevance against our strategies and policies. ## Financial measures ### LOW CASH OPERATING COST $/BOE * ![img-5.jpeg](img-5.jpeg) **16.05** #### Description Low operating expenditure helps deliver high margin production revenues. The cost of producing a single barrel of oil is influenced by industry costs, inflation, fixed costs and production levels. #### Objective To be profitable at lower oil prices. #### Performance Pharos achieved an operating cost of $16.05/boe in 2021, an increase over 2020, largely due to fixed costs in Vietnam such as the FPSO and other facilities being spread over fewer produced barrels and higher withholding tax. #### Outlook We continue to target improvements in 2022 and beyond through managing costs and increasing production. #### Links to strategy - Deliver value through growth #### Associated risks - Partner alignment risk - Political and regional risk Links to Remuneration Report (See pages 102 - 116) 21 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report CAPITAL EXPENDITURE ### 2021 39.8 CASH $M (includes abandonment funding) 2020 41.3 2019 63.4 ## 39.8 Description Investment in the asset base required to maintain and grow the business and directed to the assets in Egypt and Vietnam. Objective To achieve returns in excess of cost of capital. Performance The 2021 cash capital expenditure was marginally higher than 2020, when all discretionary capex was deferred. In 2021, the TGT infill development programme completed under budget and, in Egypt, Pharos return to drilling with commencement of the El Fayum Phase 1B waterflood programme, three-well development drilling programme, and Batran-1X commitment well oil discovery. Outlook Post farm-out, the cash capex is forecast as $27.8m. Links to strategy Associated risks • Deliver value through growth • Commodity price risk • Investment growth • Partner alignment risk CASH AND CASH EQUIVALENTS ### 2021 27.1 $M 2020 24.6 2019 58.5 ## 27.1 Description Pharos has a history of stable finances and a strong balance sheet due to the prudent management of producing assets. Objective To maintain financial strength through preserving the balance sheet, to invest in growth opportunities in excess of the cost of capital and to generate sustainable returns to shareholders Performance Pharos has a cash balance of $27.1m, an increase of 10% on prior year. Outlook Capital discipline and financial stability have always been key to the Company and continue to underpin the business. Links to strategy Associated risks • Deliver value through growth • Commodity price risk • Return to shareholders • Financial discipline and governance risk Pharos Energy Annual Report and Accounts 2021 22 KEY METRICS - CONTINUED # RETURNS TO SHAREHOLDERS PENCE PER ORDINARY SHARES 0 2021 0 2020 0 2019 5.5 # Description Commitment to cash returns to shareholders remains a core element of our overall allocation framework. # Objective To provide sustainable cash returns to shareholders. # Performance In 2021, the Board had to make a difficult decision to continue to suspend dividend payments for the second year, given the continued uncertainty in the macro environment driven by COVID-19 and the pressure on oil price against this backdrop. # Outlook An annual dividend is a key aspect of the Company's capital discipline and investment thesis and the Board will keep this under review. # Links to strategy - Deliver value through growth - Return to shareholders # Associated risks - Commodity price risk - Climate change risk - Sub-optimal capital allocation risks # Operational measures # LOST TIME INJURY FREQUENCY ("LTIF") PER MILLION MAN-HOURS WORKED 0 2021 0 2020 0.34 2019 0 # Description Safety of our workforce remains our number one priority. The Group is committed to operating safely and responsibly at all times. Having a positive impact on the wellbeing of our employees, our contractors and the local communities in which we operate is a priority. # Objective To achieve zero LTIF across the Group's operations. # Performance In Vietnam, our Joint Operations continue to deliver an exceptional record of safety, reporting zero LTIs since operational inception, representing ten production years on TGT and 13 production years on CNV. In Egypt, we continually reinforce and implement safe working procedures such as inspection of all instruments and equipment, obtaining the requisite permit to work applications, providing training and awareness sessions and above all implementing checks to ensure risks are reduced to acceptable levels and encourage the immediate use of stop-cards. In Vietnam, the JOC conducted over 200 and 100 HSE training sessions and emergency response drills respectively during 2021 to ensure safety and preparedness remain a top priority. # Outlook Continue to work with the Joint Operating Companies to maintain high safety standards and training with the aim of driving continuous improvement year-on-year. # Links to strategy - Focus on stakeholders # Associated risks - HSES and social risk - Partner alignment risk Links to Remuneration Report (See pages 102 - 116) 23 Pharos Energy Annual Report and Accounts 2021 Strategic Report Governance Report Financial Statements Additional Information # GROUP NET PRODUCTION BOEPD 8,878 ![img-6.jpeg](img-6.jpeg) Description Production revenues generate cash flows which are re-invested in the portfolio of assets, new business opportunities, and in returns to shareholders. Objective To optimise production from the Group's asset base. Performance Vietnam 2021 production 5,560 boepd net. Egypt production 3,318 bopd. Outlook 2022 production guidance for Vietnam is 5,000-6,000 boepd net. 2022 production forecast for Egypt will be evaluated following completion of the farm-down to IPR and transfer of operatorship. Guidance will be given at the AGM. Links to strategy - Deliver value through growth Associated risks - Reserve risk - Sub-optimal capital allocation risks - Commodity price risk Links to Remuneration Report (See pages 102 - 116) # SOCIAL AND ECONOMIC INVESTMENT $ 765,000 ![img-7.jpeg](img-7.jpeg) Description In Vietnam, a training levy of $150,000 for each joint operating company goes into a fund which is ring-fenced to support the development of future talent in the industry. In Egypt, under the El Fayum and North Beni Suef Concession Agreements, the Company contributes a total of $200,000 per year split equally between the two Concessions to support training and development within the industry. Objective To continue supporting local capability building and social investments in Vietnam and Egypt. Performance In 2021, in addition to the aforementioned training levy funds, the HLHVJOC Charitable Donation Programme also invested $265,000 in 12 community and charitable partnerships and investment projects in Vietnam. Additionally, in cooperation with the Ministry of Higher Education and Scientific Research, Petrosilah holds an annual summer training programme for all students applying from public and private Egyptian universities for training in the administrative office and the company's fields, of which they can obtain a training certificate from the company. Outlook Build on previous work, and continuously assess and review where the most valuable contribution to long-term social projects, both at the local level and more widely, can be made. Links to strategy - Focus on stakeholders Associated risks - Commodity price risk - Financial discipline and governance risk - Business conduct and bribery Pharos Energy Annual Report and Accounts 2021 24 KEY METRICS - CONTINUED EMPLOYEES UNDERTAKEN ANTI-BRIBERY ### 2021 100 AND CORRUPTION TRAINING % 2020 100 2019 100 ## 100 Description Our Anti-Bribery and Corruption (“ABC”) programme is designed to prevent corruption and ensure systems are in place to detect, remediate and learn from any potential violations. All personnel are required to complete annual ABC training. Objective To have all Group personnel complete the annual ABC programme including training, testing and self-declaration statement. Performance 100% of personnel completed the ABC training as at 31 December 2021. Outlook Maintain 100% completion rate for the ABC training and testing. Comply with new legislations and industry best practices and ensure the training programmes are up-to-date. Links to strategy Associated risks • Deliver value through growth • Partner alignment risk • Investment growth • Business conduct and bribery 25 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report OPERATIONS REVIEW ## Egypt ## In 2021, Pharos had 100% interest in two concessions in Egypt - El Fayum and ## North Beni Suef. * ## El Fayum (D&P) The El Fayum Concession is located in the low-cost and highly prolific Western Desert, about 80km south west of Cairo and close to local energy infrastructure. ## 3,318boepd 2021 Egypt production + See page 27 ## North Beni Suef (E) ## 10 The North Beni Suef (NBS)Concession is located south of the El Fayum Concession. Oil fields Pharos entered into the NBS Concession Agreement on 24 December 2019. + See page 28 CAIRO El Fayum Concession ISRAEL North Beni Suef Concession EGYPT * In September2021, Pharos announced the farm-out and sale of a 55% working interest and operatorship in each of the El Fayum and North Beni Suef Concessions to IPR Lake Qarun Petroleum Co, a wholly owned subsidiary of IPR Energy AG. Pharos and EGPC have finalised all necessary documents to be presented to the Minister of Petroleum and Natural Resources to approve the transaction with IPR and this approval is expected shortly. Pharos Energy Annual Report and Accounts 2021 26 OPERATIONS REVIEW - CONTINUED ## El Fayum ## Located in the Western Desert of Egypt CAIRO Area E ### EGYPT El Fayum Concession El Fayum Production El Fayum Exploration The Third Amendment also grants Contractor a three-and-a-half-year Production for 2021 from the El Fayum The Batran-1X commitment well was extension to the exploration term of the El Concession averaged 3,318 bopd (2020: drilled in May 2021 inside the Tersa Fayum Concession Agreement, with an 5,270 bopd). This is in line with the 2021 Development Lease. The well started additional obligation on Contractor to drill production guidance given in our Interim the first phase of a long production test two exploration wells and acquire a 3D Results statement on 15 September through Early Production Facility (EPF) seismic survey in the northern area of the 2021. in November by testing the single Upper concession. Bahariya UB-1 zone to evaluate reservoir continuity and pressure support. During El Fayum Development and the initial test the well produced between Operations 90 and 25 bopd and the rate of the well El Fayum Phase 1B waterflood continued to drop during the test. There programme commenced in H1 remains the option to test further reservoir 2021 with one workover rig, with a zones at a later date following completion second workover rig contracted in of the farm-down to IPR. August dedicated to the maintenance programme. Plans were put in place El Fayum Commercial to accelerate production enhancement | in the second half of the year, which | On 20 January 2022, the Company | | --- | --- | | included the arrival of a second workover | announced that the Third Amendment | | rig and the commencement of a three- | to the El Fayum Concession Agreement | | well development drilling programme in | had been signed by His Excellency Eng. | | November 2021. This was to help provide | Tarek El Molla (Minister of Petroleum & | | reservoir pressure support and maintain | Mineral Resources of the Arab Republic | | production ahead of the main multi-year | of Egypt), EGPC and the Company . The | | and multi-well development programme to | agreement, and the improved fiscal terms, | | be implemented following completion of | are retroactively effective from November | | the transaction with IPR. | 2020. | | Petrosilah, the El Fayum joint operating | While in full cost recovery mode, | | company, has tendered for a Drilling Rig | Contractor’s share of revenue increases | | and a candidate has been identified for | from c.42% to c.50% as from November | | a Q2 commencement of operations. The | 2020 (corresponding to additional net | | results of the recently drilled wells have | revenues to Contractor of c.$7 million to | | been encouraging and confirm our latest | the date of signature) significantly lowering | | subsurface modelling work. | the development project break-even. The | new arrangements will strongly encourage new exploration and development investments, aimed at maintaining and increasing production rates and optimising resources, to the mutual benefit of Egypt and the Contractor parties. 27 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report ## North Beni Suef ## Located south of the El Fayum Concession CAIRO ### EGYPT ### North Beni Suef block Interpretation of the large pre-existing 3D seismic survey on the NBS Concession continues with several low risk drillable prospects already identified. Following completion of the farm-down to IPR, the partners are planning to drill two low-risk low-cost commitment wells by end of 2022. ## Farm-down transaction and transfer of operatorship Business integration between IPR, Pharos and local JV operator Petrosilah started as soon as the SPA was signed in September 2021. A Transition Taskforce (TTF) team has been established to promote the smooth transition of operatorship to IPR, transfer the knowledge of Pharos to IPR and set up collaborative partnership environment. ## 2022 Work Programme The three-well drilling programme, which commenced in November 2021, is ongoing. Two wells have been completed and are on production, with the third one due to spud soon. Following award of the drilling rig contract by Petrosilah on behalf of the Joint Venture and upon completion of the transaction with IPR and transfer of operatorship, the Contractor parties expect to commence the main El Fayum multi- year and multi-well development programme in Q2 2022. Production forecast for 2022 will be evaluated following completion of the farm-down to IPR and transfer of operatorship. Guidance will be given at the AGM. Pharos Energy Annual Report and Accounts 2021 28 OPERATIONS REVIEW - CONTINUED # Vietnam A valued asset with organic future growth opportunities. Supportive relationships developed at the highest level of government. ## Block 16-1 TGT Field (D&P) The TGT Field is located in Block 16-1, offshore Vietnam in the shallow water Cuu Long Basin multi-stacked sandstone reservoirs. + See page 30 ## Block 9-2 CNV Field (D&P) The CNV Field is located in Block 9-2, offshore Vietnam, in the shallow water Cuu Long Basin. In contrast to the geology of TGT, the CNV Field reservoir is fractured granitic Basement. + See page 30 ## Blocks 125 & 126 (E) Blocks 125 & 126 are located in moderate to deep waters in the Phu Khanh Basin, north east of the Cuu Long Basin. + See page 31 ![img-8.jpeg](img-8.jpeg) We have established and valuable assets in Vietnam. Production is from two fields (TGT & CNV) and further potential for growth from two additional exploration blocks (Blocks 125 & 126). Blocks 16-1 and 9-2, which contain the TGT and CNV fields respectively, are located in shallow water in the hydrocarbon-rich Cuu Long Basin, near the Bach Ho Field, the largest field in the region with production already in excess of one billion barrels of oil equivalent. The Blocks are operated through non-profit joint operating companies in which each partner holds an interest equivalent to its share in the respective Petroleum Contract. The Group holds a 30.5% working interest in Block 16-1 which contains 97% of the Te Giac Trang (TGT) field and is operated by the Hoang Long Joint Operating Company. The Group's unitised interest in the TGT field is 29.7%. Pharos also has a 25% working interest in the Ca Ngu Vang (CVN) field located in Block 9-2, which is operated by the Hoan Vu Joint Operating Company. Its partners in both blocks are PetroVietnam Exploration and Production, a subsidiary of the national oil company of Vietnam and PTTEP, the national oil company of Thailand. ### Vietnam Production Production in 2021 from the TGT and CNV fields net to the Group's net working interest averaged 5,560 boepd. This is in line with the 2021 production guidance. TGT production averaged 13,887 boepd gross and 4,120 boepd net to Pharos in 2021 (2020: 15,296 boepd gross and 4,547 boepd net to Pharos). CNV production averaged 5,762 boepd gross and 1,440 boepd net to Pharos in 2021 (2020: 6,223 boepd gross and 1,556 boepd net to Pharos). Vietnam production guidance for 2022 is 5,000 to 6,000 boepd net. 29 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report ## Block 16-1 TGT Field ## Located in Block 16-1, offshore Vietnam, in the shallow water Cuu Long Basin. HO CHI MINH CITY ## 30.5% Working interest; operated by HLJOC VIETNAM ## 4,120 ### boepd net Block 9-2 CNV Field TGT 2021 production averaged 13,887 boepd gross and 4,120 boepd net to Pharos 2021 Activity on TGT TGT Well Intervention and Development Drilling In November 2021, the Company announced that the Hoang Long Joint Operating Company (HLJOC) had successfully completed its 2021 four-well development drilling campaign. The 2021 drilling campaign was completed safely (on 15 November 2021) with four wells successfully drilled ahead of schedule (approximately 54 days ahead) and budget. The production contribution of the drilling campaign mitigated against the field’s natural decline and maintained field production levels. The four wells were put on production by November 2021. Overall, field production was affected by the fault of the GTC-A compressor which was down for 74 days while the repair was done. This is now fully back in service. The results of the drilling and intervention activity will ultimately improve recovery from the field and support the additional opportunities set out in the Full Field Development Plan (i.e. nine contingent wells and an extensive well intervention programme), and a TGT licence extension request to December 2031. ## Block 9-2 CNV Field ## The CNV Field is located in Block 9-2, offshore Vietnam, in the shallow water ## Cuu Long Basin. HO CHI MINH CITY ## 25% Working interest; operated by HLJOC VIETNAM ## 1,440 ### boepd net Block 9-2 CNV Field CNV 2021 production averaged 5,762 boepd gross and 1,440 boepd net to Pharos 2021 Activity on CNV As planned, no new drilling activities took place on CNV during 2021. Operations on CNV focused on routine well maintenance and acid stimulation for two wells. Pharos Energy Annual Report and Accounts 2021 30 OPERATIONS REVIEW - CONTINUED ## Blocks 125 & 126 ## Located in moderate to deep waters in the Phu Khanh Basin, north east of the ## Cuu Long Basin. ## 70% CAMBODIA Operated working interest NHA TRANG Block 125 Block 126 VIETNAM HO CHI MINH CITY 2021 Activity on Blocks 125 & 126 In July 2021, the Company announced the completion of the 3D seismic acquisition commitment on the western part of Block 125 2 in the Phu Khanh Basin, offshore Vietnam. The 909 km 3D seismic programme was acquired on behalf of Pharos by Shearwater GeoServices Singapore Pte Ltd, using the SW Vespucci seismic vessel, across water depths of between 100m and 2,300m. The capital spend for the acquisition of the 3D survey was $8.5m. The seismic processing contract has been awarded, the work is on schedule and the final processed results are expected in July 2022. On 8 September 2021, Pharos received approval for a two-year extension to the initial exploration phase of the Block 125 & 126 PSC from the Vietnamese Ministry of Industry and Trade. ## 2022 Work Programme Following completion of the drilling of the initial four development wells in the TGT Full Field Development Plan (FFDP) and the HLJOC management committee’s budget approval in 2021, two additional TGT development wells are planned to be drilled in Q3 2022, with the Group’s share of the cost of the wells expected to funded from cash flow. In addition, extensive well interventions are planned for TGT in 2022. On CNV, one well is planned to be drilled in Q4 2022 after completion of the drilling of the two TGT wells. Additionally, as part of the work programme, the JOC is progressing work on submitting licence extension requests for both TGT & CNV, with a Revised Full Field Development Plan (“FFDP”) for both fields to be submitted by Q4 2022. This would take the licence terms out to December 2031 for TGT and December 2032 for CNV and would add two years of reserves to the production profiles and economics for these fields. On Block 125, final 3D seismic processed results are expected in July 2022. Following this, the Group will proceed to seismic mapping to identify prospects and expects to seek a further partner on the PSC before drilling. 31 Pharos Energy Annual Report and Accounts 2021 Strategic Report Governance Report Financial Statements Additional Information # Israel Option on East Mediterranean gas play. ## Zone A & Zone C (E) ![img-9.jpeg](img-9.jpeg) Pharos, with Capricorn Energy PLC (formerly known as Cairn Energy PLC) and Israel's Ratio Oil Exploration, have eight licences offshore Israel. Each party has an equal working interest and Capricorn Energy is the operator. Evaluation of all reprocessed seismic data has been finalised with an assessment of prospectivity being undertaken. ### 2021 Group reserves and contingent resources The Group Reserves Statistics table below summarises our reserves and contingent resources based on the Group's unitised net working interest in each field. Gross reserves and contingent resources have been independently audited by RISC Advisory Pty Ltd (RISC) for Vietnam and McDaniel & Associates Consultants Ltd. (McDaniel) for Egypt. #### GROUP RESERVES STATISTICS | Net Working Interest, MMBOE | TGT | CNV | Vietnam^{3} | Egypt^{4} | Group | | --- | --- | --- | --- | --- | --- | | **Oil & Gas 2P Commercial Reserves^{1,2}** | | | | | | | As of 1 January, 2021 | 13.0 | 4.9 | 17.9 | 40.8 | 58.7 | | Production | (1.5) | (0.5) | (2.0) | (1.2) | (3.2) | | Revision | (0.6) | (0.1) | (0.7) | (1.8) | (2.5) | | **2P Commercial Reserves as of 31 December 2021** | **10.9** | **4.3** | **15.2** | **37.8** | **53.0** | | **Oil & Gas 2C Commercial Reserves^{1,2}** | | | | | | | As of 1 January, 2021 | 8.3 | 3.9 | 12.2 | 19.0 | 31.2 | | Revision | (0.7) | (0.1) | (0.8) | (0.4) | (1.2) | | **2C Contingent Resources as of 31 December 2021** | **7.6** | **3.8** | **11.4** | **18.6** | **30.0** | | **Total Group 2P Reserves & 2C Contingent Resources^{3,4} as of 31 December 2021** | **18.5** | **8.1** | **26.6** | **56.4** | **83.0** | 1. Reserves and contingent resources are categorised in line with 2018 SPE standards. 2. Assumes an oil equivalent conversion factor of 6,000 standard cubic feet per barrel of oil equivalent. 3. Reserves and Contingent Resources have been independently audited by RISC. 4. Reserves and Contingent Resources have been independently audited by McDaniel, 100% working interest pre-farm-down with IPR. Pharos Energy Annual Report and Accounts 2021 32 OPERATIONS REVIEW - CONTINUED # **Vietnam Reserves and Contingent Resources** In accordance with the requirements of its Reserve Base Lending Facility, the company commissioned RISC to provide an independent audit of gross (100% field) reserves and contingent resources for TGT and CNV as of 31 December 2021. # **VIETNAM RESERVES STATISTICS** | Net Working Interest, MMBOE | TGT | CNV | Total Vietnam | | --- | --- | --- | --- | | **Oil & Gas 2P Commercial Reserves ^{1,2}** | | | | | As of 1 January, 2021 | 13.0 | 4.9 | 17.9 | | Production | (1.5) | (0.5) | (2.0) | | Revision | (0.6) | (0.1) | (0.7) | | **2P Commercial Reserves as of 31 December 2021** | **10.9** | **4.3** | **15.2** | | **Oil & Gas 2C Commercial Reserves ^{1,2}** | | | | | As of 1 January, 2021 | 8.3 | 3.9 | 12.2 | | Revision | (0.7) | (0.1) | (0.8) | | **2C Contingent Resources as of 31 December 2021** | **7.6** | **3.8** | **11.4** | | **Total Vietnam 2P Reserves & 2C Contingent Resources ^{3} as of 31 December 2021** | **18.5** | **8.1** | **26.6** | 1. Reserves and contingent resources are categorised in line with 2018 SPE standards. 2. Assumes an oil equivalent conversion factor of 6,000 standard cubic feet per barrel of oil equivalent. 3. Reserves and contingent resources have been independently audited by RISC. On TGT, 2P reserves and 2C contingent resources were revised downwards due to lower-than-expected well performance and reduced well intervention activity in the second half of the year because of drilling operations. On CNV, the 2P reserves and 2C contingent resources were revised downwards due to lower than anticipated results from the well interventions completed in the first half of 2021. # **Egypt Reserves and Contingent Resources** # **EGYPT RESERVES STATISTICS** | Net Working Interest, MMBOE | Egypt | | --- | --- | | **Oil 2P Commercial Reserves ^{1}** | | | As of 1 January, 2021 | 40.8 | | Production | (1.2) | | Revision | (1.8) | | **2P Commercial Reserves as of 31 December 2021** | **37.8** | | **Oil 2C Commercial Reserves ^{1}** | | | As of 1 January, 2021 | 19.0 | | Revision | (0.4) | | **2C Contingent Resources as of 31 December 2021** | **18.6** | | **Total Egypt 2P Reserves & 2C Contingent Resources ^{2} as of 31 December 2021** | **56.4** | 1. Reserves and contingent resources are categorised in line with 2018 SPE standards. 2. Reserves and Contingent Resources have been independently audited by McDaniel, 100% working interest pre-farm-down with IPR. On El Fayum, lower than expected field performance and the delay in the implementation of the field development plan have resulted in a downwards revision of the 2P reserves and 2C contingent resources. 33 Pharos Energy Annual Report and Accounts 2021 Strategic Report Governance Report Financial Statements Additional Information ## Group's Net Working Interest Reserves and Contingent Resources ### EL FAYUM FIELD AT 31 DECEMBER 2020 (MMBOE) | Reserves | 1P | 2P | 3P | | --- | --- | --- | --- | | Oil | 16.8 | 37.8 | 50.2 | | Contingent Resources | 1C | 2C | 3C | | Oil | 7.5 | 18.6 | 38.8 | | Sum of Reserves and Contingent Resources^{1,2} | 1P & 1C | 2P & 2C | 3P & 3C | | **Total** | **24.3** | **56.4** | **89.0** | 1. Reserves and Contingent Resources have been audited independently by McDaniel, 100% working interest pre-farm-down with IPR. 2. The summation of Reserves and Contingent Resources has been prepared by the Company. ### TGT FIELD AT 31 DECEMBER 2021 (MMBOE) (NET TO GROUP'S WORKING INTEREST) | Reserves^{3} | 1P | 2P | 3P | | --- | --- | --- | --- | | Oil | 8.0 | 10.0 | 12.0 | | Gas^{1} | 0.6 | 0.9 | 1.2 | | **Total** | **8.6** | **10.9** | **13.2** | | Contingent Resources^{3} | 1C | 2C | 3C | | --- | --- | --- | --- | | Oil | 4.2 | 7.2 | 10.2 | | Gas^{1} | 0.1 | 0.4 | 0.7 | | **Total** | **4.3** | **7.6** | **10.9** | | Sum of Reserves and Contingent Resources^{2} | 1P & 1C | 2P & 2C | 3P & 3C | | --- | --- | --- | --- | | Oil | 12.2 | 17.2 | 22.2 | | Gas^{1} | 0.7 | 1.3 | 1.9 | | **Total** | **12.9** | **18.5** | **24.1** | 1. Assumes oil equivalent conversion factor of 6,000 standard cubic feet per barrel of oil equivalent. 2. The summation of Reserves and Contingent Resources has been prepared by the Company. 3. Reserves and Contingent Resources have been audited independently by RISC. ### CNV FIELD AT 31 DECEMBER 2021 (MMBOE) (NET TO GROUP'S WORKING INTEREST) | Reserves^{3} | 1P | 2P | 3P | | --- | --- | --- | --- | | Oil | 2.4 | 2.8 | 3.2 | | Gas^{1} | 1.2 | 1.5 | 1.7 | | **Total** | **3.6** | **4.3** | **4.9** | | Contingent Resources^{3} | 1C | 2C | 3C | | --- | --- | --- | --- | | Oil | 1.5 | 2.5 | 3.5 | | Gas^{1} | 0.8 | 1.3 | 1.9 | | **Total** | **2.3** | **3.8** | **5.4** | | Sum of Reserves and Contingent Resources^{2} | 1P & 1C | 2P & 2C | 3P & 3C | | --- | --- | --- | --- | | Oil | 3.9 | 5.3 | 6.7 | | Gas^{1} | 2.0 | 2.8 | 3.6 | | **Total** | **5.9** | **8.1** | **10.3** | 1. Assumes oil equivalent conversion factor of 6,000 standard cubic feet per barrel of oil equivalent. 2. The summation of Reserves and Contingent Resources has been prepared by the Company. 3. Reserves and Contingent Resources have been audited independently by RISC. Pharos Energy Annual Report and Accounts 2021 34 S.172(1) COMPANIES ACT 2006 ## S.172(1) Companies Act 2006 ## The duty under section 172(1) of the Companies Act 2006 is applied in addition ## to the other duties of a Director. Each Director must discharge these duties in ## accordance with the duty of care, skill and diligence both objectively and to a ## subjective standard. | In accordance with section 172(1) of | a) The likely consequences of any | | any concerns arising from working from | | --- | --- | --- | --- | | the Companies Act 2006 (“s.172(1)”), | | decisions in the long-term | home in the past year. Ed Story, who was | | the Directors of the Company have a | | | CEO at the time, could not travel to the | During its meetings and discussions, the statutory duty to promote the success UK due to COVID-19 travel restrictions, Board considers decisions with keen of the Company. The Board at Pharos, but joined the off-site meeting virtually via regard to consequences in the long term as individuals and together, consider Microsoft Teams in order to participate in for the business, for example, the decision that they have acted in a way that would the sessions with the rest of the team. Ed to defer all discretionary spend in Egypt most likely promote the success of the also used the opportunity to communicate in order to preserve the group’s balance Company, and deliver the goals and the Company’s long-term strategy going sheet and position it for the longer term. objectives for the benefit of it¬s members forward, which was an additional area of Board papers are drafted to promote as a whole in relation to all stakeholders feedback from the anonymous surveys. discussion and provide options for the who may be affected by or engaging with Board to hold an informed and balanced In another survey, colleagues gave views the Company’s activities. debate. on future working patterns. Regardless of location, there was a clear preference For more information on how the Board Board meetings and discussions for permanently blending office with consider decisions with regards to the The Board has always taken into account home working in the future. This has long-term consequences for the business, its s.172(1) obligations during the year in informed the development of our balanced see pages 43 to 57 of the Risk line with current reporting requirements. working programme and led to our rental Management report for all principal risk. Their key decisions have been specifically of a WeWork office space in central confirmed at each Board meeting to London, which seeks to address UK b) The interests of the employees | take into account these matters. This | | employees’ working needs and provide | | --- | --- | --- | | has been supplemented by the roles of | The interests of the Company’s employees | greater flexibility in how and from where | | the individual directors giving due regard | is a key element of the statutory duty | those employees work after removal or | | and consideration of each element of the | under s. 172(1). Throughout the year, we | relaxation of travel and public gathering | | s.172(1) requirements including: | have run a dedicated Monday weekly | restrictions introduced in response to the | | | meeting to ensure all colleagues are | COVID-19 pandemic. | a) The likely consequences of any continuously informed about important decisions in the long-term; For more information on the Board’s business developments in the Company engagement with employees, see b) The interests of the employees; and have channels through which they pages 86 to- 87 of our Corporate can ask questions and provide input. c) The requirements to foster business Governance report, pages 11 to 12 Additionally, there was increased use relationships with suppliers, customers, of our Chair’s Statement, and pages of video camera during virtual calls to and others; 59, 60, 65 to 68, 76, 77 of maintain visibility and connection. The d) The impact on the community and our Corporate Responsibility report. recent reorganisation of the Group has environment of the Company’s instituted a flatter organisational structure, operations; allowing for shorter lines of management c) The requirements to foster and more direct, accessible channels of business relationships with e) The desirability of the Company communication with leadership. suppliers, customers, and others maintaining a reputation for high standards of business conduct; and The Group’s business relationships The Executive Directors receive regular with suppliers, customers and f) The need to act fairly as between updates on colleague engagement to others are subject to regular review members of the company. understand any complaints or troubles and consideration through vendor from the changing work environment. Illustration of how s.172(1) factors have due diligence and active contracts Following feedback from various been applied by the Board can be found management. Vendor due diligence is anonymous staff surveys, the Executive throughout the strategic report. actively undertaken before a service Directors took on board feedbacks provider of any size is engaged. Significant from the team and organised an off- contracts, concessions and commitments site away day for the London team to are considered by the executive and better understand employees’ working the Board, supported by Board papers preferences for working and to explore 35 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report outlining impact and consequences of community projects and ring-fenced funds f) The need to act fairly as between potential decisions. Our relationships for training to develop future talents in the members of the company. with our joint venture partners are key in industry. We believe in a workforce with a diversity developing these strong foundations and For more information on the Board’s of experience, nationalities, cultural will support our business in the future. | | commitment to ESG and considerations | backgrounds and gender, to support our | | --- | --- | --- | | The Board regularly monitors the Group’s | on the community and the environment, | business strategy of long-term sustainable | | business activities, financial position, | see pages 92 to 94 for the ESG | growth. It is crucial to the success of | | cash flows and liquidity through detailed | Committee report, pages 11 to 12 for the | our business that we retain and develop | | forecasts. Scenarios and sensitivities are | Chair’s Statement, and pages 58 to 78 for | the diversity of our workforce and have | | regularly presented to the Board, including | the Corporate Responsibility report. | diversity and inclusion at the heart of our | | changes in commodity prices and in | | recruitment, development and promotion | | production levels from the existing assets, | | processes. | e) The desirability of the Company plus other factors which could affect the maintaining a reputation for high Our Code of Business Conduct and Group’s future performance and position. | | | standards of business conduct | Ethics, associated policies and the Pharos | | --- | --- | --- | --- | | For more information on how the | Our Anti-Bribery and Corruption (‘ABC’) | | Guiding Principles commit us to providing | | Company foster relationships with | Policy and Code of Business Conduct | | a workplace free of discrimination | | suppliers and business partners, see | and Ethics have been followed rigorously | | where all employees can fulfil their | | pages 59, 64 to 68, 75 to 77 of our | in 2021, ensuring that our engagements | | potential based on merit and ability. We | | Corporate Responsibility report. | with government officials in all countries | | remain respectful and accepting in our | | For more information on Board oversight | are recorded and monitored internally. | | relationships with current and future | | on business activities and financial | This demonstrates that our Company | | employees without discrimination or | | position, see pages 43 to 57 of the Risk | understands its Code of Business | | prejudice on grounds of age, disability, | | Management report. | Conduct and Ethics and places it at the | | gender, marital status, sexual orientation, | | | forefront of our engagement with public | | colour, race, religion or any other | | | officials. Our Whistleblowing Policy | | characteristic protected by applicable | d) The impact on the community ensures that employees are protected laws. They also commit us to providing a and environment of the Group’s from possible reprisals when raising fully inclusive workplace, while providing operations concerns in good faith. In addition to the right development opportunities to The organisation has provided robust internal reporting channels, we have a ensure existing staff have rewarding evidence of its commitment to ESG in confidential ethics hotline supported by careers. the sector through its ESG Committee EthicsPoint with numbers displayed in and ESG Working Group. Over the For more information on our commitment local offices available 24 hours a day all past four years, we have participated to act fairly as between members of year round. | in the CDP (Climate Disclosure Project) | | the company, see page 9 of the | | --- | --- | --- | | Climate Change Questionnaire and have | The Board has an obligation and duty to | Investment Case, pages 67 to 68 | | maintained our score (C), which is also | ensure that we exercise our intention to | of the Corporate Responsibility report, or | | the industry average. 2021 also marks | behave responsibly. The management | visit our website at https://www.pharos. | | the first year that the Company submitted | team is obliged to execute the business | energy/responsibility/policy-statements/ | | their response to the CDP Water Security | responsibly and to the highest standards. | for our Human Rights statement. | | Questionnaire, which was completed | We communicate regularly with the | | The Company is committed to good at a basic level in 2021 and we plan to Executive Directors and maintain open governance and will continue to review the improve our level of transparency on water communication with the management balance and effectiveness of the Board usage and protection by completing the team to ensure the two-way information with a view to maintaining the right skills, full version in 2022. More recently, we flow is clear and open. Each Board experience and diversity to align with the re-engaged with Verisk Maplecroft, a member brings individual judgement and Group’s strategic goals. | third party Task Force on Climate-related | considerable experience to decision- | | | --- | --- | --- | | Financial Disclosures (“TCFD”) consultant, | making and carefully assesses the course | We will act and make decisions | | to commence Phase 2 of the project | of action which is most likely to promote | responsibly in the interests of the | | to bring our disclosures in line with the | the success of the Company. For | Company, our shareholders and other | | requirements of the TCFD. These efforts | example, in 2021, following anonymous | stakeholders, delivering our plan and | | had been interrupted by the impact of | feedback from the London office staff to | working closely to consider the best | | the pandemic in 2020 but have resumed | the Board and Executive Directors, the | opportunities for the Company. Detailed | | in Q4 2021. Results of the completion of | Company introduced a hybrid working | Board and Committee papers are carefully | | Phase 2 can be found in the Corporate | model of working from home and working | prepared and analysed to ensure all | | Responsibility report. | from a physical office in central London, | scenarios and options are fully considered | | | seeking to address UK employees’ | in a timely and consistent fashion in | In addition to this, the Company has working needs and provide greater meetings. always remained committed to creating flexibility in how and from where those value in a sustainable manner for host In accordance with s. 172(1), the employees work after removal or countries and local communities as Board has also continued to consult relaxation of travel and public gathering well as for staff. In recent years, we with, and take account of, the views restrictions introduced in response to the have structured our social investment of our investors, employees, partners, COVID-19 pandemic. For more programme to align more with the United governments, suppliers and other information on the Company’s Nations Sustainable Development Goals stakeholders throughout the year. commitment to maintaining high (UN SDGs). We’ve worked closely with our standards of business conduct, see local partners and joint ventures in order pages 59, 60, 66, 76 of the Corporate to make sure that our social initiatives in Responsibility report and pages 11 to 12 the region continue to bring more positive of the Chair’s Statement. impacts to the region. In 2021, a total of $765,000 was invested in long-term Pharos Energy Annual Report and Accounts 2021 36 S.172(1) COMPANIES ACT 2006 Our initiatives on stakeholder engagement included, but not limited to: • Robust process to refresh Board • Rigorous assessment of all suppliers/ members and reduce Board size potential suppliers/ partners and off- takers • Agile and responsible response to | | continued COVID-19 work restrictions | • Frequent meetings between Executive | | | --- | --- | --- | --- | | | – protecting people, cutting costs and | | Directors and in-country regulators and | | | deferring capex | | partners, reported to the Board | | • Ensuring the health and safety of | | • A section of the agenda for each | | | | our workforce by adhering to the | | regularly scheduled meeting of the | | | requisite precautionary procedures and | | Board being dedicated to investor and | | | vaccine recommendations, in line with | | stakeholder considerations. | the government directives in Egypt, • Reports from brokers and financial PR Vietnam and the UK firm on feedback from investors and • Re-engagement of Verisk Maplecroft research analysts. to complete Phase 2 of the project to • Confidential ethics hotline supported by bring our disclosures in line with the EthicsPoint with numbers displayed in requirements of the TCFD local offices available 24 hours a day all • Submission of CDP Water Security year round Questionnaire, in addition to the Climate Change Questionnaire, for the first time in 2021 to ensure transparency on water usage and protection • Open and active dialogue with its institutional private and retail shareholder via website, Twitter and LinkedIn, email communications, and online meeting with Q&A to allow the wider public a free platform to raise questions directly to the Executive Directors 37 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report CHIEF FINANCIAL OFFICER’S STATEMENT ## CFO’S Statement The revenue for Egypt of $32.8m (2020: Administrative Expenses $30.6m) increased largely as a result of | the higher average realised crude oil price, | Administrative expenses in 2021 of | | --- | --- | | up 76% to $65.12/bbl (2020: $37.08/ | $13.2m (2020: $14.7m) are lower than | | bbl), offset by lower average production, | prior year, due to continuous efforts | | of 3,318 boepd from 5,270 boepd . | to reduce the head office costs. After | | There are two discounts applied to the | adjusting for the non-cash items under | | El Fayum crude production – a general | IFRS 2 Share Based Payments of $2.2m | | Western Desert discount and one related | (2020: $2.8m) and IFRS 16 Leases $nil | | specifically to El Fayum. Both are set by | (2020: $0.7m), the administrative expense | | EGPC and combined stayed consistent at | is $11.0m (2020: $11.2m). Voluntary staff | | nearly $5/bbl over the year. | salary reductions at 20% continued from | 2020 through to 1Q 2021. The executive directors, who had previously volunteered Operating costs a 35% reduction in base salary in 2020 | | Group cash operating costs were $52.0m | agreed to a further reduction from 1 April | | --- | --- | --- | | SUE RIVETT | (2020: $48.3m). Vietnam increased by | 2021 to 50% of base salary. The non- | | Chief Financial Officer | 17% from $26.5m to $31.0m in 2021, | executive directors reduced their fees | | | which equates to $15.28/bbl (2020: | throughout most of 2020 and continued | | | $11.86/bbl). The increase is due to higher | those reductions throughout the whole | | | costs relating to the FPSO as a result of | of 2021. The fees will revert to previous | | Finance strategy | (i) lower TLJOC production throughput | levels post completion of the transaction | | | which increased Pharos’ share of the | with IPR. A programme of phased | Our finance strategy continues to costs and (ii) higher foreign contractor’s redundancies took place at head office in underpin the Group’s business model and withholding tax, of which the CIT element London during 2021. goes hand in hand with our commitment impacts the FPSO costs included in to building shareholder value through operating costs, from 2% to 5% from 27 Operating Profit capital growth and sustainable dividends. August 2018 to date, which was also In 2021, we recommenced investment in spread over fewer produced barrels. Cash Operating profit from continuing Vietnam and with the additional liquidity operating costs in Egypt were $21.0m operations for the year was $6.3m (2020: offered by our farm-in partner in Egypt, in 2021 (2020: $21.8m), which equates $3.5m) excluding the net impairment we are on the path back to focusing on to $17.34/bbl (2020: $11.30/bbl). The reversal of $42.0m (2020: $234.8m investing for cash flow generation and decrease in cash operating costs relates impairment charge), reflecting the higher growth in 2022. predominantly to a reduction in variable commodity price environment throughout costs as a result of decreased production, the year, offset by lower production Operating performance partially offset by higher well workover volumes. costs, but spread over fewer produced Revenues barrels. Other/Restructuring Expenses Group revenues for the year totalled to Other/restructuring expenses for the $163.8m prior to hedging loss of $29.7m, DD&A year totalled $3.3m (2020: $5.8m) and representing a 38% increase over the prior Group DD&A associated with producing included restructuring costs for both the year (2020: $118.3m plus hedging gain of assets decreased to $51.0m (2020: head office in London and the Egypt office $23.7m). | | $63.3m) due to the lower depreciating | in Cairo ($3.0m). In addition, there was | | --- | --- | --- | | The revenue for Vietnam of $131.0m | cost base following 2020 impairments | $0.3m charge relating to the premium on | | (2020: $87.7m) increased significantly | taken on both Vietnam and Egypt, | the transfer of the lease on the London | | year on year. The average realised crude | combined with lower production. DD&A | office. | | oil price was $72.61/bbl (2020: $44.70/ | per bbl is currently $21.19/boe for | | | bbl), a 62% increase year on year, and | Vietnam (2020: $21.40/boe) and $6.61/ | Finance Costs | | the premium to Brent was just under $2/ | boe in Egypt (2020: $8.04/boe). | | | bbl (2020: just over $3/bbl). Production, | | Finance costs increased to $6.4m (2020: | | however, declined from 6,103 boepd to | | $4.2m), mainly related to amortisation | | 5,560 boepd primarily due to the GTC-A | | of capitalised borrowing costs of $2.4m | | compressor fault on the TGT field in | | (2020: $1.5m gain due to changes in | | November 2021. | | future cash flows), interest expense | payable and similar fees of $3.8m (2020: $4.8m) and unwinding of discount on provisions of $0.8m (2020: $0.8m). Pharos Energy Annual Report and Accounts 2021 38 CHIEF FINANCIAL OFFICER’S STATEMENT - CONTINUED CASH OPERATING COST PER BARREL* 2021 $m 2020 $m Cost of sales 114.6 123.8 Less | Depreciation, depletion and amortisation | (51.0) | | (63.3) | | --- | --- | --- | --- | | Production based taxes | (10.1) | | (7.0) | | Inventories | | 0.1 | (2.3) | | Other cost of sales | | (1.6) | (2.9) | | Cash operating costs | | 52.0 | 48.3 | | Production (BOEPD) | 8,878 | | 11,373 | | Cash operating cost per BOE ($) | 16.05 | | 11.60 | DD&A PER BARREL* | | 2021 $m | | 2020 $m | | | --- | --- | --- | --- | --- | | Depreciation, depletion and amortisation | | (51.0) | | (63.3) | | Production (BOEPD) | | 8,878 | | 11,373 | | DD&A per BOE ($) | | 15.74 | | 15.21 | CASH OPERATING COST PER BARREL BY SEGMENT Vietnam $m Egypt $m Total $m Cost of sales 84.3 30.3 114.6 Less | Depreciation, depletion and amortisation (43.0) (8.0) | (51.0) | | --- | --- | | Production based taxes (9.8) (0.3) | (10.1) | | Inventories 0.1 - | 0.1 | | Other cost of sales (0.6) (1.0) | (1.6) | | Cash operating costs 31.0 21.0 | 52.0 | | Production (BOEPD) 5,560 3,318 | 8,878 | | Cash operating cost per BOE ($) 15.28 17.34 | 16.05 | DD&A PER BARREL BY SEGMENT | | Vietnam $m Egypt $m | Total $m | | | --- | --- | --- | --- | | Depreciation, depletion and amortisation (43.0) (8.0) | | | (51.0) | | Production (BOEPD) 5,560 3,318 | | | 8,878 | | DD&A per BOE ($) 21.19 6.61 | | | 15.74 | * Cash operating cost per barrel and DD&A per barrel are alternative performance measures. See pages 163-164. MOVEMENTS IN THE PROPERTY, PLANT AND EQUIPMENT | | 2021 $m | | | 2020 $m | | | | --- | --- | --- | --- | --- | --- | --- | | As at 1 Jan | | 435.8 | | | 676.9 | | | Capital spend | | 24.7 | | | 33.5 | | | Revision in decommissioning assets | | (1.9) | | | | 6.6 | | Disposal of other assets | | | - | | (0.5) | | | Derecognition of right-of-use asset | | | - | | (5.7) | | | Re-classification of assets held for sale | | (62.0) | | | | - | | DD&A- Oil and gas properties | | (51.0) | | | (63.3) | | | DD&A – Other assets | | (0.4) | | | (1.2) | | | Impairment reversal/(charge) – PP&E | | 54.6 | | | (210.5) | | | As at 31 Dec | | 399.8 | | | 435.8 | | | Property, Plant and Equipment | | 399.8 | | | 435.7 | | | Right-to-use-Asset (IFRS 16 Impact) | | | - | | | 0.1 | | As at 31 Dec | | 399.8 | | | 435.8 | | 39 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report Taxation The increase in receivables was $7.2m Tax strategy and total tax (2020: decrease in receivables of $19.6m). contribution The overall net tax charge of $43.3m The movement is mainly commodity price (2020: $25.6m credit) relates to tax Tax is managed proactively and driven, from YE20 the average oil price charges in Vietnam of $24.8m plus responsibly with the goal of ensuring that realised has increased from $44.70/bbl the deferred tax charge on impairment the Group is compliant in all countries in to $70.95/bbl, therefore increasing the reversal of $18.5m (2020: Vietnam tax which it holds interests. Any tax planning receivables balance held at YE21. | charges of $11.1m offset by a deferred | | undertaken is commercially driven and | | --- | --- | --- | | tax credit on impairment of $36.7m). | Capital expenditure on continuing | within the spirit as well as the letter of the | | | operations for the year was relatively flat at | law. | The Group’s effective tax rate $41.8m (2020: $41.3m). All discretionary approximates to the statutory tax rate in This approach forms an integral part of capex was deferred during 2020 following Vietnam of 50%, after adjusting for non- Pharos’ sustainable business model. the oil price crash to preserve balance deductible expenditure and tax losses not sheet strength and liquidity. During 2021, The Group’s Code of Business Conduct recognised. | | the TGT four well infill development | & Ethics seeks to build open, cooperative | | --- | --- | --- | | The Egypt concessions are subject to | was successfully carried out within | and constructive relationships with tax | | corporate income tax at the standard | schedule and under budget. Egypt | authorities and governmental bodies in | | rate of 40.55%, however responsibility | capital expenditure included the drilling of | all territories in which it operates. The | | for payment of corporate income taxes | commitment exploration well Batran-1X | Group supports greater transparency | | falls upon EGPC on behalf of Pharos El | in May 2021 and a three-well back-to- | in tax reporting to build and maintain | | Fayum (PEF). The Group records a tax | back development drilling programme | stakeholder trust. We have a number of | | charge, with a corresponding increase in | commenced in November 2021. | overseas subsidiaries which were set up | | revenue, for the tax paid by EGPC on its | | some time ago and the Group is now | Net cash inflows from financing activities behalf. Due to accumulated tax-deductible proactively planning to bring these into the of $31.1m (2020: $48.5m outflow) balances, there is no tax due on PEF this UK tax net to ensure greater transparency included net inflow of the RBL totalling period. and comparability. No additional taxes $20.9m following the refinancing in July are expected to be due as a result of this One of the Group company entered into 2021 ($21.8m further borrowing, offset exercise. | commodity swaps designated as cash | by $0.9m settlement of the original RBL). | | | --- | --- | --- | | flow hedges. In accordance with IAS | The revised RBL has provided access of | During 2021, the total payments to | | 12, a deferred tax asset has not been | up to a committed $100m with a further | governments for the Group amounted | | recognised in relation to the hedging | $50m available on an uncommitted | to $198.2m (2020: $150.9m), of which | | losses of $29.7m recorded in the year | “accordion” basis and has a four year | $151.9m or 77% (2020: $104.9m or 70%) | | as it is unlikely that the UK tax group | term that matures in July 2025. In 2020, | was related to the Vietnam producing | | will generate sufficient taxable profit in | the significant decrease in the oil price | licence areas, of which $102.6m (2020: | | the future, against which the deductible | during H1 2020 led to a reduction in the | $72.5m) was for indirect taxes based | | temporary differences can be utilised. | borrowing base and principal repayments | on production entitlement. In Egypt | | | during the year on the RBL totalled | payments to government totalled $44.7m | | Loss post tax | $42.8m. In addition for 2021, the Group | (2020: $42.2m), of which $44.1m (2020: | | | drew down on a new facility with National | $41.3m) related to indirect taxes based on | The post tax loss for the year from Bank of Egypt for a net amount of $6.5m production entitlement. continuing operations and prior to ($18.1m principal facility, less $11.6m the impairment reversal of $42.0m, of repayments). The carrying amount of impairment tax charge of $18.5m and Balance sheet our trade receivables balance includes exceptional costs of $3.3m was $24.9m Intangible assets increased during receivables in Egypt which are subject (2020: post tax loss for the year of the period to $12.4m (2020: $1.5m). to an Uncommitted Revolving Credit $11.7m from continuing operations Additions for the year related to Blocks Facility for Discounting (with Recourse) and prior to the impairment charge of 125 & 126 in Vietnam $10.6m (2020: arrangement. This facility has been put in $234.8m, impairment tax credit of $36.7m $2.0m), Egypt $3.9m (2020: $1.1m) and place to mitigate the risk of late payment and exceptional costs of $5.8m). The $0.7m (2020: $1.2m) for the Israeli bid of our debtors. Under this arrangement, overall loss for the year was $4.7m (2020: round licence fee. The Group has written Pharos is able to access cash from $215.8m). off $2.2m relating to the Israel asset as the facility using the El Fayum oil sales no substantive expenditure has been invoices as evidence to support its ability Cash flow identified under IFRS 6. In addition, $2.1m to repay the facility. The oil sales invoices of intangible assets relating to the Egypt Operating cash flow (before movements remain due to Pharos and it retains the concessions has been re-classified as in working capital) was $60.1m (2020: credit risk. The Group therefore continues assets held for sale. | $70.8m), after tax charges of $39.9m | to recognise the trade receivables in their | | | --- | --- | --- | | (2020: $26.5m), restructuring expense | entirety on the balance sheet. | The movements in the Property, Plant and | | $0.7m (2020: $2.7m) and working capital | | Equipment asset class are shown above. | In January 2021, also within financing adjustments of $8.6m (2020: $14.7m), activities, the Company announced the the cash generated from operations was Impairment successful completion of the placing, $10.8m (2020: $56.4m). | | subscription and retail offer resulting in the | As a result of ongoing oil price volatility | | --- | --- | --- | | Operating cash flow (before movements | issue of 44,661,490 new ordinary shares. | and movements in 2P reserves, we | | in working capital) adjusted for the impact | Through this transaction, Pharos raised | have tested each of our oil and gas | | of the hedging positions of $29.7m loss | additional capital of $10.9m (net of direct | producing properties for impairment and | | (2020: gain $23.7m) gives an underlying | issue costs of $0.8m). | impairment reversals. The results of these | | operational performance of $89.8m (2020: | | impairment tests are summarised below. | No final dividend was paid for the year $47.1m), which is consistent with the For Vietnam producing properties, the (2020: $nil). | improvement seen in commodity prices | recoverable amount has been determined | | --- | --- | | offset by the production decrease year on | using the value in use method which | | year. | constitutes a level 3 valuation within | Pharos Energy Annual Report and Accounts 2021 40 CHIEF FINANCIAL OFFICER’S STATEMENT - CONTINUED | the fair value hierarchy. The recoverable | these impairment charges and oil price | Long-term provisions comprise the | | --- | --- | --- | | amount is based on the fair value derived | scenario sensitivity testing, including | Group’s decommissioning obligations and | | from a discounted cash flow valuation | key assumptions in relation to oil price, | the royalty over the El Fayum asset. In | | of the 2P production profile for each | discount rate and 2P reserves in Vietnam, | Vietnam, the decommissioning provision | | producing property. For Egypt producing | are provided in Note 16 of the financial | decreased from $68.0m at 2020 year- | | property, the recoverable amount has | statements. | end to $66.9m at 2021 mainly due to | | been determined using the value-in-use | | an increase in discount rate from 0.9% | The agreement post year end of the Third method. to 1.5% as a result of an increase in Amendment to the El Fayum Concession prevailing risk-free market rates, partially For CNV, a pre-tax impairment reversal Agreement, with retroactive application of offset by the TGT infill well programme. of $3.8m (2020: impairment charge the improved fiscal terms from November The amounts set aside into the $23.3m) has been reflected in the income 2020 and a three and a half year abandonment funds total $48.1m (2020: statement with an associated deferred extension to the exploration period was $45.9m). No decommissioning obligation tax charge of $1.4m (2020: deferred tax not considered certain at 31 December exists in the El Fayum producing area credit $8.7m). As at 31 December 2021, 2021 and so has been treated as a non- under the terms of the Concession the carrying amount of the CNV oil and adjusting post balance sheet event. An Agreement in Egypt. | gas producing property, after additions | impairment reversal of $28.2m utilising the | | | --- | --- | --- | | of $0.3m, changes in decommissioning | circumstances of 31 December 2021 as | The royalty provision relates to a historical | | asset due to discount rate ($0.9m), DD&A | the basis has been calculated and will be | arrangement granting a 3% royalty on | | ($10.2m) and the impairment reversal | factored into the impairment reviews going | Pharos’s share of profit oil and excess | | ($3.8m), is $84.2m (2020: the carrying | forward. | cost recovery from El Fayum in Egypt. At | | amount of the CNV oil and gas producing | | 31 December 2021, the provision was | | property, after additions ($1.9m), DD&A | | increased by $0.2m, giving a total of | Balance sheet continued ($11.5m) and the impairment charge $5.6m ($3.4m of which is deemed to be Cash is set aside into abandonment ($23.3m) was $91.2m). repayable in 2022). funds for both TGT and CNV. These For TGT, a pre-tax impairment reversal abandonment funds are operated by Own shares | of $49.1m (2020: impairment charge | PetroVietnam and, as the Group retains | | | --- | --- | --- | | $81.8m) has been reflected in the income | the legal rights to the funds pending | The Pharos EBT holds ordinary shares | | statement with an associated deferred | commencement of abandonment | of the Company for the purposes of | | tax charge of $17.1m (2020: deferred tax | operations, they are treated as other non- | satisfying long-term incentive awards | | credit $28.0m). As at 31 December 2021, | current assets in our financial statements. | for senior management. At the end of | | the carrying amount of the TGT oil and | | 2021, the trust held 1,767,757 (2020: | Oil inventory was $5.9m at 31 December gas producing property, after additions 2,181,655), representing 0.40% (2020: 2021 (2020: $5.6m), of which $5.4m of $11.4m, changes in decommissioning 0.54%) of the issued share capital. related to Vietnam and $0.5m to Egypt. asset due to discount rate ($1.0m), DD&A Trade and other receivables increased to In addition, as at 31 December 2021, ($32.8m) and the impairment reversal $28.1m (2020: $22.9m) of which $18.2m the Company held 9,122,268 (2020: ($49.1m), is $266.0m (2020: the carrying (2020: $11.2m) relates to Vietnam and 9,122,268) treasury shares, representing amount of the TGT oil and gas producing $8.5m (2020: $10.0m) to Egypt, driven 2.02% (2020: 2.24%) of the issued share property, after additions ($14.8m), DD&A mainly by the higher oil price and timing of capital. ($36.3m) and the impairment charge crude oil cargos. ($21.9m) was $239.3m). Assets held for sale Cash and cash equivalents at the end of For Egypt, an impairment reversal (pre- the year were $27.1m (2020: $24.6m) In December 2021, the Company and post-tax) in the amount of $1.7m mainly due to the RBL refinancing in July announced that shareholders had (2020: impairment charge $105.4m) has and also the Placing in January 2021, approved the farm-out of 55% of the been reflected in the income statement. offset by the reduction in net cash from Group’s operated interest in each of our As at 31 December 2021, the carrying operating activities as a result of the Egyptian Concessions, El Fayum and amount of the Egypt oil and gas producing hedging losses during the year. North Beni Suef, to IPR, a group that has property, after additions ($12.9m), re- extensive experience in Egypt. | classification of PP&E to assets held for | Trade and other payables were $30.6m | | | --- | --- | --- | | sale of ($1.4m), DD&A ($8.0m) and the | (2020: $35.6m), of which $14.5m (2020: | As part of the transaction, IPR will fund | | impairment reversal ($1.7m), is $109.3m | $23.3m) relates to the Egypt payables, | Pharos’s share of the costs to a maximum | | (2020: the carrying amount of the Egypt | $4.8m (2020: $1.7m) Vietnam payables | of $33.425m (to be adjusted for working | | oil and gas producing property, after | and $6.5m (2020: $6.8m) net hedging | capital and interim period adjustments | | additions ($22.7m), DD&A ($15.2m) and | liability. Tax payable decreased to $5.4m | from the effective economic date of 1 July | | the impairment charge ($105.4m) was | (2020: $6.7m), consistent with lower | 2020). This is in addition to the deposit | | $104.1m). After the reclassification to | revenues. | at signing of the farm-out agreements of | | assets held for sale, the Egypt oil and gas | | US$2 million and a further US$3 million | Borrowings were $80.5m (2020: $53.7m), producing property amounts to $49.2m. payable on completion. This investment an increase of $26.8m and $20.3m programme should result in an increase The total non-cash, post tax impairment related to the RBL refinancing in July, in production and also fulfil commitments reversal amounts to $36.1m and the inclusive of capitalised borrowing costs. under the concessions. In addition, balance sheet carrying values of the oil In April 2021, the Group drew down on the Group will be entitled to contingent and gas producing properties stands at the new facility with the National Bank of consideration depending on the average $399.4m, after reclassification of assets Egypt and the amount repayable under Brent Price each year from 2022 to the held for sale in relation to Egypt of $61.6m the agreement at 31 December 2021 was end of 2025, capped at a maximum total (2020: the total non-cash, post tax $6.5m (2020: $nil). Net debt was $57.5m payment of US$20 million. impairment charge amounts to $173.8m (2020: $32.6m). and the balance sheet carrying values of the oil and gas producing properties stood at $434.6m). Further details of 41 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report An impairment of $10.4m was recognised to bring the value of the net assets classified as held for sale down to the fair value less costs to sell calculated as at 31 December 2021. The breakdown of assets held for sale at year end is as follows: 2021 $m | Intangible assets | 2.1 | | --- | --- | | Property, plant and equipment – oil and gas properties - NBV | 61.6 | | Impairment charge – Assets classified as held for sale | (10.4) | | Property, plant and equipment – oil and gas properties – after impairment | 51.2 | | Property, plant and equipment – other - NBV | 0.4 | | Inventories | 6.3 | | Trade and other receivables | 2.0 | Assets classified as held for sale 62.0 Trade and other payables (8.5) Liabilities directly associated with assets classified as held for sale (8.5) Net assets classified as held for sale 53.5 Going concern | Pharos continuously monitors its business | of the two TGT wells and one CNV well | The low breakevens and continuation | | --- | --- | --- | | activities, financial position, cash flows | in Vietnam over the rest of the business | of the TGT infield development plan in | | and liquidity through detailed forecasts. | with most falling outside 2022. Most of | Vietnam with two additional wells and | | Scenarios and sensitivities are also | our debt is secured against the Vietnam | one well infield well in CNV will support | | regularly presented to the Board, including | assets under the RBL with just $6.5m | the production profiles in a strong price | | changes in commodity prices and in | drawn on an uncommitted revolving credit | environment. | | production levels from the existing assets, | facility on the Egypt revenue invoices. | | The restructure of the London and Cairo plus other factors which could affect the The forecasts outlined above show that offices will be fully completed following Group’s future performance and position. | | the Group will have sufficient financial | the transfer of operatorship of the Egypt | | --- | --- | --- | | A base case forecast has been | headroom for the 12 months from the | concessions to IPR. The restructure | | considered which uses an oil price of | date of approval of the 2021 Accounts. | resets the cost base for the Group moving | | $76.9/bbl in 2022 and $70.2/bbl in | Based on this analysis, the Directors have | forward. | | 2023.The key assumptions and related | a reasonable expectation that the Group | | The measures we have taken during sensitivities include a “Reasonable Worst has adequate resources to continue in this period have set us up to be able to Case” (RWC) sensitivity, where the Board operational existence for the foreseeable reap the benefits of stable production has considered the risk of an oil price future. Therefore, they continue to use from our assets, improved fiscal terms, crash broadly similar to 2020 as a result the going concern basis of accounting low breakevens, improved liquidity from of the global outbreak of the COVID-19 in preparing the annual Financial our lenders, a streamlined organisation virus. This assumes the Brent oil price Statements. against a background of improved long drops to 49.0/bbl in April 2022 and term prices. gradually recovers to base price in next Financial outlook 12 months, concurrent with reductions in Pharos’ financial strength is founded on Vietnam and Egypt production compared our long-term approach to managing to our base case of 5% from March capital to provide risk adjusted full 2022. Both the base case and RWC cycle returns, which has allowed us to take into consideration the hedging that return significant amounts of capital has already been put in place for 2022 to shareholders in previous years. In a and 2023 which covers 24.6% of the prevailing stronger oil price environment, Group’s forecast Q2 2022 to Q2 2023 SUE RIVETT our focus can turn again to returns to entitlement volumes securing a minimum Chief Financial Officer shareholders. and maximum price for this hedged | volume of $67.5 and $81.4 per barrel, | We continue to have the support of | | --- | --- | | respectively. Under the RWC scenario, | our strong RBL lending banks who | | we have identified appropriate mitigating | approved the refinancing of the RBL | | actions, which could look to defer capital | during July, extending the tenor to July | | expenditure programme as required. | 2025. Additionally, we also signed an | uncommitted revolving credit facility with We have also developed a reverse stress National Bank of Egypt, which provides test sensitivity, which shows the extent to modest additional liquidity. which oil prices would need to fall before our financial headroom is breached, The improvement in the fiscal terms and keeping all other variables unchanged. the farm-down of our concessions in Egypt to IPR means that we will enjoy the In Egypt, the Base case assumes a full benefit from completion in 2022 and into investment scenario and a farm-down. 2023 of the carry of our share of operating | Our business in Vietnam remains robust | and capital costs. During the carry period | | --- | --- | | with a breakeven price of c.$25/bbl. We | we continue to receive our revenues with | | have limited capital expenditure outside | only Pharos 100% costs to cover. | Pharos Energy Annual Report and Accounts 2021 42 RISK MANAGEMENT ## Risk Management ## Report | Risk Management Framework | Control environment | Governance, authorities | | --- | --- | --- | | at Pharos | The Group’s control environment is based | and accountability | | Pharos carried out regular and robust | primarily on its Code of Business Conduct | The Board of Directors, supported by | | risk assessments to identify and manage | and Ethics, which carries a number of | its various Committees, ensures that | | its Principal and Emerging risks during | fundamental values, including openness | the internal control functions operate | | 2021 and continues to monitor closely | and integrity, safety and care for the | properly. The Audit and Risk Committee | | the evolving risk landscape during the | environment and respect for human rights. | oversees the implementation by the | | COVID-19 pandemic and the global | The control environment is also supported | Senior Management Team of the internal | | macroeconomic environment. Our | by a series of corporate policies, which | control and risk management procedures | | management undertook a number of | form part of the Group’s Business | based on the risks identified to support | | deep-dive exercises as the pandemic | Management System. These documents | the Group’s objectives. | | unfolded to gauge its risk appetite and | are distributed to all employees, followed | | | recalibrate its risk tolerance to ensure | up with training as required and are | | | the appropriate mitigating actions were | available on the Intranet. As part of the | | | implemented. The Board has closely | compliance programme, all employees | | | considered the potential impact and | have to do an anti-bribery and corruption | | | probability of these risks and related | training and assessment at least once a | | | events on its corporate strategy, | year. | | objectives and stakeholders’ perspectives of the Group. MANAGING OUR RISKS | Principal risks in 2021 | Principal and Emerging risks in 2022 | | --- | --- | | • Further lockdowns dampening oil demand | • Further lockdowns dampening oil demand | | • Insufficient funds to meet commitments | • Insufficient funds to meet commitments | | • Commodity Price volatility | • Commodity Price volatility | | • Volatility in Production levels | • Volatility in Production levels | | • Climate Change and speed of energy transition | • Rising operational costs | | • HSE & Social | • Climate Change - transition and physical risks | | • Unsuccessful Farm-out of Egypt assets | • HSE & Public Health Risk – COVID-19 resurgence | | • Partner alignment | • Partners’ alignment | | • Reserves downgrades | • Reserves downgrades | | • Cyber security | • Cyber security | | • Human Resources | • Human Resources | | • Sub-optimal capital allocation | • Sub-optimal capital allocation | | • Political and Regional | • Political and Regional | | • Business Conduct and Bribery | • Business Conduct and Bribery | 43 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report RISK MANAGEMENT FRAMEWORK Pharos Risk Management framework ### TOP DOWN Set Define Identify Apply risk Deliver Oversight strategic risk Principal assessment strategic objectives appetite risks process objectives Accountability Monitoring Risk Management Framework Deep-dive Review & Escalation The Board Risk identification Audit & Risk ESG and mitigations Committee Committee Maintain Risk registers Senior Management Team Risk Owners ### BOTTOM UP Asset/Projec/Function | The Pharos Risk Management Framework | 31000 Risk Management Principles | economies. Many sectors, such as | | --- | --- | --- | | requires that all business units within | and Guidelines. The BMS is supported | hospitality, aviation, transport and energy, | | the Group conduct on-going risk | by procedures and processes for each | have been greatly impacted as demand | | management and reporting to the | function and business unit to control day- | for their products and services dropped | | Audit and Risk Committee and the | to-day business activities. The internal | drastically while some other sectors | | Board. The Group’s Risk Management | control framework and risk management | such as technology and pharmaceutical | | Policy defines the specifics of the risk | process under the BMS seeks to ensure | benefited from an unexpected surge in | | management process, describes the risk | that risk identification, assessment and | demand, causing supply chain issues and | | tools (for example, the preparation and | mitigation are all properly embedded | inflationary pricing. | | maintenance of a Group risk matrix and | throughout the organisation. Whilst the | | The oil and gas sector experienced a risk register) and outlines the reporting Group’s approach to risk management roller-coaster ride in the last two years, process and responsibilities in order is designed to provide a reasonable with the Brent price dipping to as low as to meet the Group’s risk governance assurance that material financial $20/bbl at the start of the pandemic and framework. irregularities and control weaknesses averaging $42/bbl and $71/bbl in 2020 can be detected, the process does not Risk management and reporting is a and 2021 respectively. The second half of totally eliminate that a risk could have a necessary and important activity at 2021 saw a rising oil price and this trend material adverse effect on our operations, Pharos. It is an internal control process has continued in Q1 2022. However, earnings, liquidity and financial outlook. | implemented by the Board, management | | outlook for Brent price remains uncertain | | --- | --- | --- | | and all other personnel; applied | Risk is often described as an event, | well into 2022 due to a number of factors | | throughout the organisation and all | change of circumstances or a | and also due to the knee-jerk reactions | | functions, designed to identify potential | consequence. The Group’s risk reporting | of the financial markets on demand and | | events which may affect the business, | will focus on identifying risk as a “potential | supply outlook for energy: | | and manage those risks within its risk | event”. Each event will be assessed | | • OPEC + world geopolitics appetite. In addition, risk management on its potential impact to people, the is a process that provides reasonable environment, the respective asset / • Changes to national strategic energy assurance regarding the achievement of financial impact on operations, and the reserves the Group’s objectives. A comprehensive Group’s reputation in terms of severity and • Renewed lockdowns further reducing risk management approach allows Pharos likelihood. demand for oil to: • Natural Gas shortages in Europe and A challenging future • Assist the Group in achieving its Asia corporate objectives and develop COVID-19 was originally declared a • Oil futures trading and speculations alternate strategies pandemic back in March 2020, more than two years ago. During this time, this • Large investors and banks avoiding • Better manage the business by virus has caused millions of deaths and fossil fuel investments anticipating potential risks and devise triggered changes to people’s lives and preventive / mitigating measures • IEA’s sustainable outlook where fossil the way of doing business that previously fuels’ share may reduce in the overall • Meet regulatory requirements have been difficult to imagine. The energy mix scientific community developed a number • Promote sustainability and help build of COVID-19 vaccines in record time and • New legislation and regulation resulting more resilient systems many governments fast-tracked their in increased costs for heavy CO 2 The Business Management System approval and use for the general public. polluters (BMS) evolves continually at Pharos Numerous variants emerged leading to • Ukraine/Russia conflict but at its core comprises a set of renewed lockdowns, international travel policies and standards, including the restrictions and forcing many governments Risk Management Policy based on ISO to apply fiscal incentives to boost their Pharos Energy Annual Report and Accounts 2021 44 RISK MANAGEMENT - CONTINUED | Public Health risk – COVID-19 and | Climate Change risks | Climate Risk and Resilience | | --- | --- | --- | | the future variants | During 2021 a number of trends peppered | Climate change risks, both arising from | | The rise and fall of the Omicron impact | the energy sector; the energy price | energy transition and the physical effects | | around the world is being closely | inflation crisis, the rise of the activist | of changes in climate are identified and | | watched by scientists and governments | blaming companies on overpromising | assessed as part of the Group’s integrated | | - precautionary measures such as the | and under delivering on climate and the | risk management approach and mitigated | | effectiveness of lockdowns to control any | speed of recovery of oil price particularly | within the remit of a diverging set of key | | spread are dividing camps and may be | in the second half of 2021 as the Omicron | stakeholders’ aspirations and calibrated | | risky in triggering another recession. The | COVID-19 variant was still causing rising | within the Group’s risk appetite and | | waning immunity of those vaccinated and | infections and uncertainty on the markets. | corporate strategy. | | the need for regular boosters can cause | In August 2021, a landmark report from | | In January 2022, Pharos further advanced many logistical and equity issues. With IPCC* warned that global warming will hit its alignment with the four TCFD pillars very high levels of infection worldwide, 1.5C by 2040, thus potentially breaching and disclosures on Governance, further virus mutations are inevitable and the targets of the Paris Agreement. The Strategy, Risk Management and Metrics so is the emergence of new variants of report found that immediate, rapid and and Targets. A detailed analysis was concern. With this landscape, 2022 will large-scale reductions in emissions were commissioned with the help of aa Climate remain full of uncertainties and oil price is needed to avert a calamitous effect on the Change and TCFD specialist consultancy likely to see significant swings either way. planet. which produced in-depth assessments of | The health, safety and welfare of our staff, | The COP26 summit in Glasgow in | | the transition and physical climate risks | | --- | --- | --- | --- | | contractors and host communities across | November 2021 culminated with the | | followed by a hi-grading risk exercise | | our business remains the highest priority | agreement of the Glasgow Climate Pact | | based on the Group internal risk matrix. | | on the Board agenda, especially during | (GCP), where each participating country | | These assessments were then discussed | | the pandemic. The Group adhered to the | commits to their submitted nationally | | with the Senior Management Team and | | requisite precautionary procedures and | determined contributions (NDCs) but how | | submitted to the ESG committee of the | | restrictions, in line with the government | the various governments will achieve their | | Board. | | directives in Egypt, Vietnam and the | respective CO | reduction commitments by | | 2 The physical risk assessment focused UK. In Egypt at Petrosilah and Pharos passing legislation to tax heavy polluters on screening our interests in Vietnam, El Fayum, a vaccination campaign for all or incentivise renewable investments Egypt and Israel using the consultant’s employees in the main offices and fields remains uncharted territory. As the physical risks datasets and an attempt to started in Q2 2021 and culminated to success or failure of COP26 is debated, a quantify changes in key climate variables 97% (2 doses) of the workforce being number of ESG topics have been elevated (e.g. drought, rainfall, wave height) over a vaccinated at the end of December 2021. and will likely dominate 2022: 5 and 10 year timeframe under the three In Vietnam, the HLHV JOC strict 5-7 days • Focus on reporting and reducing Scope emissions scenarios – Representative quarantine regulations are being applied 3 emissions Concentration Pathways (RCPs). The for the workforce going offshore, in transition analysis focused on the potential addition to rapid and PCR tests one day • How private capital can influence and impacts of different future scenarios on prior to offshore mobilisation - 100% of assist the energy transition journey? the key transition risks facing the Group the workforce are vaccinated with at least • Carbon markets - how to set a globally and the oil and gas sector more broadly two doses at the end of December 2021. acceptable price and ensure carbon over the next 5-10 years. By undertaking For the office workforce at all locations, offsets are verifiable? these assessments, Pharos is in a better Pharos has continuously applied a hybrid- position to formulate strategies which • The rise of sustainability accounting working mode and will do so until further will increase its resilience to climate notice. • Focus on diversity, equity and inclusion related risks - and better cope with the | The new mode of working under the | | | uncertainty, speed and extent of the | | --- | --- | --- | --- | | pandemic has led to the culture of many | * UN Intergovernmental Panel on | | energy transition. The transition risk | | organisations including Pharos to change | | Climate change | analysis conducted by an independent | | overnight with more focus on flexibility | | | Climate Change and TCFD specialist | | and mutual trust. However, it is important | | | consultant was assessed under the | | that companies watch for any possible | | | International Agency (IEA) Sustainable | | negative signs - can workers’ health | | | Development Scenario (SDS) and | | and productivity suffer as a result of | | | Stated Policies Scenario (STEPS) | | prolonged Working from Home (WFH)? | | | over a timeframe of 5 and 10 years. | | How to ensure operational staff do not | | | Additionally, Pharos has considered | | feel disadvantaged as they cannot WFH? | | | the risk that climate change pressures | | An active and regular programme of | | | could reduce oil prices during the 3-year | | engagement between management and | | | Viability Statement window under the | | the workforce is important so that any | | | recommended IEA’s Net Zero Emissions | | issues can be discussed and tackled | | | scenario. For more information, please | | early. | | | see pages 56-57 for the Viability | Statement. 45 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report OVERVIEW OF THE KEY CLIMATE RISKS EGYPT: Water stress – limited saline ground water used for O&G operations Drought hazard PHYSICAL Sand and dust storms – health threats to workers, risk of downtime and damage to infrastructure RISKS Supply chain disruptions – caused by the frequency and severity of extreme weather events Assessment around the world timeframe: VIETNAM: Until 2050 Both heatwave events and extreme temperatures will become more frequent and longer in duration. Rises in sea levels potentially raising risks for facilities and infrastructure A strengthening of the dominant monsoonal circulation will result in greater disruption risks from winds Commodity prices: oil & gas price volatility Challenges in raising capital: pressure in investors to divest / avoid fossil fuel companies / TRANSITION projects RISKS Lack of portfolio diversification: transition towards low-carbon economy will see a reduced Assessment demand for oil timeframe: Carbon price: increased price of carbon through national and international schemes Over the next 5-10 years International measures to limit fossil fuel use: net zero commitments will result in a decreased demand for fossil fuels Uncertainty in the energy market: Shift in demand to less carbon intensive primary energy sources Physical Climate Risk Scenario efficiencies and even operational in the South China Sea due to shifts in analysis: downtime. the prevailing wind direction, reducing disruption risks to platforms and service This analysis adopted a data-driven • Offshore sites will experience increases vessels. approach to identify and analyse the in sea level of between 18cm and most material physical climate risks facing 22cm under all emissions scenarios Transition Risk Scenario Analysis Pharos Energy’s activities in Egypt, Israel considered with direct implications of and Vietnam and how those risks may offshore activities as well as onshore The aim of this analysis is to supplement manifest differently under three emissions infrastructure. the work that Pharos has already scenarios. It assesses current climate undertaken by assessing the potential • Onshore Egyptian operations are found extreme, such as flooding, heat stress and impacts of different future scenarios in locations which already experience storms, as well as how long-term shifts if on the key transition risks facing the extremely hot and dry conditions, climate features will affect these events. company, and the oil and gas industry climate change will marginally raise more broadly, over the next 5-10 years. The information provided will help Pharos risks of disruption from rare extreme understand the inherent risk profile of the rainfall and flash flooding events. By assessing how a range of transition locations and identify current and future risks manifest differently under these • Offshore sites in the Eastern operational weaknesses, vulnerabilities contrasting scenarios, Pharos can Mediterranean currently have low and opportunities and inform strategic demonstrate how it tests portfolio exposure to climate-related disruption decision around making resilience resilience amid the uncertainty of the risks. A reduction in average wind building. Furthermore, the assessment speed and extent of the energy transition speeds and wave heights is projected can inform climate risk disclosures in in line with the recommendations of under all emission scenarios, line with the recommendations of the the TCFD. As Pharos has already used suggesting that these threats could Taskforce on Climate-related Financial the International Energy Agency (IEA) weaken further by 2045. Disclosure (TCFD). Sustainable Development Scenario • The southern offshore Vietnamese (SDS) and NZE to benchmark its Key findings: blocks are more exposed to higher Reasonable Worst Case price curve, wind speeds than the northern blocks • Common to all onshore and offshore oil the same scenario is used here. This and these are projected to increase in and gas activities, projected increases is supplemented by the IEA’s Stated the future under all emission scenarios, in the frequency, duration, and intensity Policies Scenario (STEPS). Under creating more challenging operating of extreme heat events will pose SDS, it is assumed that there is a rapid environments for oil and gas activities. threats to the health of workers and implementation of clean energy policies However, wave heights are projected heat-sensitive equipment, which in that set the planet on course to meet the to fall under most emission scenarios some cases could result in reduced objectives of the Paris Climate Agreement. Pharos Energy Annual Report and Accounts 2021 46 RISK MANAGEMENT - CONTINUED | Meanwhile STEPS is a more conservative | operations, Pharos will then try to get | | Insurance costs / pollution liability | | --- | --- | --- | --- | | view of the future, in which only current | partners’ approval to support the CO | | | | | | 2 | The energy insurance premiums have | | and planned policies are enacted, and oil | reduction investment. | | | increased more or less in line with inflation and gas play a greater role in the energy over the last twelve months. This year the system for longer. | | Commodity Price risk | energy insurance markets may be more | | --- | --- | --- | | To tackle the climate and environmental | One of the key uncertainties in the energy | difficult to tap into and significant premium | | challenges Pharos will continue to focus | world in 2021 was the extent and timing | increases can be expected – selective | | on the following: | of the recovery in demand for oil, natural | covers and reduced limits may have to be | | | gas and electricity from lows earlier in the | evaluated to avoid excessive premiums | • Measuring and assessing our pandemic. Then in Q4 2021, both Brent but this strategy can result in increased environmental footprints and WTI oil spot prices climbed inexorably exposure in the event of a loss. Some • Conducting climate scenario analysis causing geo-political and economic other insurance markets have been badly tensions among some governments affected by the havoc caused by extreme • Evaluating our alignment with market forcing them to tap into their oil / gas weather events across the globe and this frameworks and regulations designed strategic reserves and boost supplies to can lead to a shrinkage in the insurance to support the transition to a low avoid excessive petrol rises at the pump energy market capacity as climate change carbon, sustainable and equitable and further inflationary pressures. Europe risks will be high on insurers’ radar for future and Asia in the meantime faced a severe oil and gas assets. As ESG issues and • Continuing on our TCFD commitments gas shortage causing gas prices to disclosures continue to dominate how and alignment shoot up. Further energy shocks can be financial markets should operate, the expected as a result of the recent Ukraine/ energy insurers may have to recalibrate • Exploring partnerships with effective Russia conflict. the portfolio and pricing to reflect the CO reduction solutions 2 increased risks of liability claims. A buoyant oil market and price is Identifying the costs of mitigating sometimes perceived as an unconditional The cost of directors’ and officers’ climate risks positive for the oil and gas sector, but liability insurance (D&O) has increased the costs of material and services in this dramatically over the last two years due to One of the most important considerations capital intensive industry can lead to big reduced D&O capacity being offered and in assessing climate risk is the cost of changes to predicted returns and stifle an increase in liability claims during the mitigation action and solutions. Given the cash flows. COVID-19 pandemic. The D&O market uncertainties surrounding potential losses, is unlikely to ease off in 2022 as both and the need to generate reasonable Carbon Tracker, a London-based not-for- businesses and insurers face increased returns in the near term, it is necessary to profit think tank researching the impact uncertainty on many fronts. balance the protection afforded with any of climate change on financial markets, economic costs of such measures. These warned oil producers they should not let questions are debated at the Board and Operational Cost risk high prices today lure investments into with senior management: Rising operational costs may become pricey new projects that will lose money when the fever breaks and the energy a big risk because they are directly • What sort of action to take to mitigate transition cripples fossil fuel demand over impacted by the other factors, particularly climate change? coming years. our ability to meet capex commitments. • Over what timeframe? Generally speaking, the larger a project, Commodity price uncertainty persists and the greater the legal and regulatory • And with what cost? is factored into all stages of the planning burden and associated costs. In addition, In Q4 2021, Pharos undertook a review process. Please refer to the Viability higher oil prices result in services of our Vietnamese operations and assets Statement on pages 56 to 57 for companies increasing prices, creating with the assistance of an independent more details of how the Group has stress further inflationary pressure. With the energy consultant focusing on the tested its assets and projected cash flows unpredictability of oil and other commodity potential application CO reduction against its principal risks. 2 prices and owing to global manufacturing technologies. Besides considering the beyond any one company’s control, there application of simpler technologies like Cyber risks are genuine cost concerns. the installing solar panels and hydrogen WFH also creates an increased storage batteries to power our operations Additionally many oil and gas firms dependence on cloud-deployed services thus reducing our own produced gas struggle to find and keep skilled and thus opening more vulnerabilities to as fuel, a number of more advanced employees during boom periods. Thus cyber-attacks. Pharos continues to its technologies such as the injector payroll can rapidly grow to add another focus on the robustness of its business technology and gas to liquid process will expense to the total picture. The cost continuity and collaborate closely with its be investigated further in 2022/23. of training employees in the oil and IT partners to minimise disruption to our gas sector has increased, reducing the These feasibility studies will be progressed business. number of firms in the industry. As a result, during 2022 to further assess their oil and gas have become a very capital- technical applicability on the existing intensive business with fewer participants infrastructure as there may be a number each year. Out--sourcing is becoming of logistical constraints on the existing more common in the industry, and while infrastructure. Once the studies support this offers flexibility to operators, it also that the technical hurdles can be results in greater exposure to increases overcome and potential CO reduction 2 in daily rates for essential services, such will ensue a more detailed cost/benefit as drilling and well services, when the oil analyses will be undertaken - when an price rises. investment case for a particular CO 2 reduction technology shows it has potential for implementation into our 47 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report | The long-term ramifications of COVID-19 | as BRINDEX and assesses news alerts | control mechanisms of policies, | | --- | --- | --- | | on labour and business practices to | from such sources as Oil & Gas UK, | procedures and guidelines through which | | ensure a safe working environment | FT, Refinitiv (Eikon and Worldcheckone) | the Group assesses, manages and | | and workforce welfare will likely lead to | Bloomberg Green and World Economic | mitigates its HSES risks and impacts, is | | further HSE regulations which can add | Forum. Pharos also conducts internal | described more fully in the Corporate | | to operational costs. With heightened | benchmarking analyses with its industry | Responsibility Report on pages 58 to 78. | | scrutiny on environmental, social, and | peers to better understand emerging | | The Board has carried out a review governance (ESG) transparency, there trends in the sector. of the uncertainties surrounding the will be continuous and more onerous Group’s principal and emerging risks regulatory challenges which oil and gas Opportunities and recognised that a potential adverse companies must handle to sustain their For the oil and gas sector the lack of event can have a material impact on the growth and purpose. | | liquidity and increased scrutiny from | Group’s future earnings and cash flows. | | --- | --- | --- | | There has been a major organisation | investors on fossil fuel producers to | The fluctuating prices of crude oil and gas | | re-structuring of the workforce through | decarbonise may create investment | remain a significant variable to monitor | | a managed redundancy programme at | opportunities for oil and gas independents | closely for the Group. Flash events | | Head Office during 2021. In January | with a lower cost base than the oil majors | are happening more frequently from | | 2022, Pharos announced directorate | and which are more able to adapt to a | international trade tensions, geopolitical | | changes reducing the size of the Board | rapidly changing risk landscape. In the | tensions, sudden outbreak of diseases, | | from nine Directors to six (two Executive | short term, capital allocation and discipline | speed of climate change transition and | | Directors and four Non-Executive | will be rigorously maintained while at the | physical risks which may require changes | | Directors) upon completion of the farm- | same time exploring opportunities to | to our corporate price assumptions and | | out transactions with IPR and the 2022 | reduce our carbon footprint by adopting | productions outlook which in turn may | | AGM. The headcount reduction at all | different methods / processes to power | trigger impairment of assets. | | levels will contribute to lower G&A costs. | our operations, including the possibilities | | of solar power, and other carbon reduction technologies in the longer term. Emerging Risks Our asset base is operated by separate As the pandemic persists into its second independent Joint Operating Companies, year, it acts as a catalyst for many leaving our role in both Egypt and Vietnam changes and creates opportunities for one of joint, rather than unilateral, control. businesses to re-assess their resilience. Other areas of emerging risks will be Board Responsibility around regulatory changes, digital transformation, remote working, risks of The Board fulfils its role in risk oversight social disorders and the role of the Board by developing policies and procedures in crisis situations. The pandemic has around risk that are consistent with the highlighted further existing inequalities organisation’s strategy and risk appetite, such as the disparity to access to digital taking steps to foster risk awareness information and the unequal vaccine and encouraging a company culture of rollout between high and low income risk adjusting awareness throughout the countries. Group. The Audit and Risk Committee reports back to the Board regarding the ESG activism continues to grow – the adequacy of risk management measures COP26 summit in Glasgow in November so that the Board has confidence that 2021 highlighted that governments management can support them. The around the world must reassess Board periodically reviews the principal and renew their commitments to the and emerging risks facing the business, Paris Climate Agreement to avert including an annual review of the catastrophic irreversible consequences. effectiveness of the risk management However, the path to decarbonisation process in identifying, assessing and must garner much more cohesive mitigating any significant risks which may participation and collaboration from affect the Group’s business objectives. the highest CO emitting countries, as 2 | otherwise a disorderly climate transition | Risk management and the principal | | --- | --- | | will exacerbate inequalities and lead | financial risks and uncertainties facing the | | to significant economic and societal | Group are discussed in Note 3 and Note | | hardships. With so much uncertainty, | 36 to the Financial Statements. The | | severe short-term commodity shocks | Group’s Risk Management Framework, | | may manifest more regularly and will | Policy and associated procedures are | | make business planning and cash flow | further discussed in the Corporate | | forecasting increasingly difficult. | Governance Report on pages 86 to 91 | and in the Audit and Risk Committee Similar to our principal risks, emerging Report on pages 97 to 101, where the risks are identified using our bottom significant issues related to the 2021 up approach with the regular risk Financial Statements are also reported. assessments with risk owners and The Group’s Business Management reporting to and discussing the emerging System, which includes the Health, Safety, trends at the quarterly management Environmental and Social Responsibility risk meetings and the Audit and Risk (‘HSES’) Management System, which Committee meetings. Pharos is engaged incorporates the Company’s internal with the industry with organisations such Pharos Energy Annual Report and Accounts 2021 48 RISKS ## Principal risks ## and mitigations ## A summary of the key risks affecting Pharos and how these are mitigated to enable ## the Company to achieve its strategic objectives is as follows: Key to change in likelihood Increase No Change Decrease New Risk Change in Principal risks likelihood Causes Risk Mitigation ## STRATEGIC • Emergence of new variants or other • Continue to maintain and promote 1. Further viruses precautionary measures to minimise disruption lockdowns to business • Waving efficacy of vaccinations and dampening oil boosters • Procure long lead items as early as possible demand from reliable suppliers / contractors • COVID-19 infections continue to go up • Tight cash management and forecasting • The virus maintains its pandemic status throughout 2022 • Hold back on discretionary spend • Sub-optimal pricing on commodity sales • Social disorder as poorer nations / • Oil price hedging populations fall behind on vaccination • The bulk of our output sold on the local • Reduced revenue to programmes markets where demand remains strong finance operations • Closely follow and comply with all applicable law, regulation and public health guidance relating to the COVID-19 pandemic • Reallocation of capital away from oil • Regular review of funding options 2. Insufficient and gas funds to meet • Proactive dialogue with banks and other • Huge swings in oil and other providers of capital commitments commodity prices • Opportunity screening • Assets bubble bursts • Effective project management and • Inability to invest • Global debt crises emerging resourcing in line with growth • Inadequate cost control strategy • Cost carry by farm-in partner(s) • Poor technical data to support • Thorough capital allocation process allocations • High inflation • Inadequate waterflood responses • Develop a clear wells strategy, focusing 3. Volatility in • Incorrect well placements on performance improvement, regulatory Production compliance and increased activity • Development wells uncommercial levels • Increase drilling activity / plan-drill additional • Poor reservoir models injection wells / frac injection zone • Lack of financing for drilling programme • Sub-Optimal well • Reduce cost of well construction performance • Increase surveillance and intervention rates • Reduced drilling • Perform Target workovers on Producer / injection wells • De-risk best prospects / drill best prospects • Improve Reservoir models • Implement planned drilling programmes 49 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report Change in Principal risks likelihood Causes Risk Mitigation • Business disruption due to workforce • Implement precautionary measures based 4. Health, Safety, affected by COVID-19 on WHO guidance, restrict business travel Environmental and facilitate working from home, PCR • Health and safety and environmental and Social Risk testing risks of major explosions, leaks or spills • Improve structural and Asset Integrity • High risk operating conditions and • Reputational through strong operational and HSES risks maintenance processes which are critical to • Operational outages • Climate change impacts on the sector, preserving a safer environment leading to lower such as extreme weather, sea level production rise and water availability affecting • Comply with all legislative / regulatory production frameworks and transitioning to a goal based approach focused on improving • Gas venting and flaring hazards and safety risks - well blow outs, land/water contamination • Promote a positive health and safety culture where workers are given proper training • Non-alignment of new acquisitions and incentives to work “safe” with a zero HSES practices with Pharos Corporate standards tolerance for non-compliance • Increased disparities and societal risks • Environmental and Social Impact in health, technology or workforce Assessments relating to, for example: opportunities - climate impacts and need to adapt to changing climate conditions over the life of the asset - regulatory developments • Enhance emergency preparedness and spill prevention plan - Controlled venting - Control and management of pressurised oil and gas from boreholes - Use of low impact extraction chemicals where alternatives exist - Water management - securing of a sustainable water supply, recycling and reuse wastewater - Marine management plan - especially for offshore drilling - Carry out scenario exercises to improve preparedness • Maintaining adequate energy insurance for our assets and operations Pharos Energy Annual Report and Accounts 2021 50 RISKS - CONTINUED Change in Principal risks likelihood Causes Risk Mitigation • Pressure on investors to divest / avoid • Transparent reporting and participation in 5. Climate fossil fuel companies / projects Carbon Disclosure Project (CDP)and Water Change – questionnaire • Inability to find economically viable CO transition and 2 reduction solutions • Continue alignment with TCFD physical risks recommendations • Lack of alignment between our key stakeholders’ priorities and climate • Further integrate climate risk management • Lack of Capital change concerns within Pharos Risk Management • Reputational • Global transition to a lower carbon Framework intensity economy • Increased capex and • Stress test our going concerns under a Net operating costs • Increased climate regulation and Zero Emissions price scenario and carbon disclosure tax • Physical Damage to Assets • Increase in carbon taxes / • Embed Climate change scenarios and decarbonisation charges evaluate decisions on key business • Lower oil prices operations / directions • transformational shifts leading to • Stranded assets reduced demand for fossil fuels • Continuous improvement of GHG emissions • Regulatory changes – • Climate activists pressing prominent management and get JOCs to support CO 2 potential taxes institutions and investors to abandon emissions reduction initiatives fossil investments - “greening” the • Update our Climate Change Policy and financial system keep it fit for purpose and in line with • Increased frequency of extreme evolving decarbonisation developments weather events • Comprehensive insurance cover for • Supply chain disruptions causing delay/ Physical Damage shutdowns to operations • Regional close monitoring of extreme • Lack of partner alignment on weather developments so that evacuation decarbonisation initiatives or shut-down are activated in good time • Regular and timely control of inventories to ensure essential spares are sourced in advance • Prepare business case or back pay study to support decarbonisation initiatives 51 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report Change in Principal risks likelihood Causes Risk Mitigation ## FINANCIAL • On-going market volatility and • Oil commodity Hedging 6. Commodity uncertainties from COVID-19 - Comply with RBL requirements Price risk • Geo-political factors and international - Maintain robust processes around treasury, conflicts governance, forecasting, credit and risk • Uncertainty on • Pressure on investors to divest / avoid • Close monitoring of business activities, planning fossil fuel companies / projects financial position cash flows • Inability to fund work • Lower long-term prices tighten the • Control over procurement costs / effective programme / dividend margin of error for investments management of supply chains derived from third parties - suppliers, joint venture partners, • Forecasting volatility swings are more investors, and contractors complex as it is challenging to gauge | what that means for the industry as | • Stress test scenarios and sensitivities via | | --- | --- | | market dynamics are influenced by the | principal compound risk analysis to ensure | | speed of recovery from COVID-19 and | a level of robustness to downside price | | growing ESG pressures | scenarios | | • Negative cash flows & earnings | • Capital discipline with focus on controlling and | | degradation | managing costs | | • Market speculation and trading in oil | • Discretionary spend actively managed | futures • Maintain and cultivate good relationships with • Resurgence of new COVID-19 variants lenders • Global inflation • Regular updates to yearly budgets and 7. Rising forecasts operational • Turmoil in the energy markets causing sharp price hikes • Focus in discretionary spend costs • Sudden unplanned rate increases for oil • Secure long-term contracts where appropriate and gas services without lock-ins • Reduced profits • Explore applying new technological advances, • Strain on cash flows focus on prevention and early detection • Shortages in skilled • Headcount re-structure at all levels labour Pharos Energy Annual Report and Accounts 2021 52 RISKS - CONTINUED Change in Principal risks likelihood Causes Risk Mitigation ## OPERATIONAL • Inaccurate reserves estimates • Monitor and maintain standards of 8. Reserves Risk reserves reporting by adhering to three key • Subcontracting certain reserves considerations: of consistency, transparency estimation work to independent reserve • Future cash flows and utility, including disclosure of movements engineers outside the direct control of and value depend in reserves on a country-by-country basis, the Group on producing our disclosure of material projects and moderation reserves • Earlier impairment triggers due to low of subjective judgements commodity price • On-going evaluation of projects in existing and | • Capital constraints jeopardise planned | potential new areas of interest and pursue | | --- | --- | | exploration / development initiatives | development opportunities | | • Inherent uncertainties in the evaluation | • Regular reviews of reserves estimates by | | techniques to estimate the 2P reserves | independent consultants (Lloyds Registered) | | • Increased DD&A costs | • Ensure continuing adherence to industry best | practice regarding technical estimates and • Lower than expected well judgements performances and drilling results • Ensuring peer and independent verification of • Slower drilling programmes future production profiles and reserve recovery • RBL facility compliance - Vietnam Reserves are audited independently by reserves consultants approved by lenders • Co-venturers divergent views on Drilling • Active Participation in JOC management 9. Partner and Upgrade programme 2021/22 Alignment Risk • Direct secondment • FPSO Tie-in Agreement from other • Build Senior Management level relationship Operator with local Partners VIETNAM • Delay in the Field Development Plans • Continue good relationship with other Foreign • Misalignment at JV/ • Technical disagreement caused by Partner JOC level can delay quality of JV staff, work ethic, low investment • 2022 TGT Work Programme agreed in productivity, competency issues principle and preliminary preparation of bid • Adverse impact on • Geological Modeling differences packages Production and Cash resulting in sub-optimal well locations flow • Close collaboration with incoming and current • Incoming partner (IPR) and current partner EGYPT partner (EGPC) divergent views on • Support JV training initiatives • Technical investments, and difference in value- Misalignment of JV drivers. • Engage with new JV Exploration Manager. Company Achieve technical buy-in to ERCE model • Adverse impact on • Waterflood analogue success education Production and Cash flow 53 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report Change in Principal risks likelihood Causes Risk Mitigation • Sophistication and frequency of cyber- • Update Service level agreement with IT 10. Cyber risk attacks increasing providers • Heavy reliance on and disruption to • Offsite Installation of back-up system and • Major cyber security critical business systems Business Recovery / continuity Plan in place breach may result | in loss of key | • Infiltration of spam emails corrupting | • Enhance our Cloud back-up data and | | --- | --- | --- | | confidential data | our systems | solutions | | • Unavailability of key | • Critical reliance on remote working | • Prevention & detection of cyber threats via a | | systems | in light of COVID-19 pandemic and | programme of effective continuous monitoring | expectation of longer term hybrid • Plan for staged integration (new acquisition) working practices and upgrade of IT systems • Failure to recruit and retain high calibre • Remuneration Committee retains independent 11. Human personnel to deliver on and implement advisors to test the competitiveness of Resource Risk growth strategy compensation packages for key employees • Challenges in the recruitment & • On-going succession planning • Good skilled people integration of additional technical • Maintain a competitive remuneration mix re are essential to ensure expertise for any new acquisition bonus, long-term incentive and share option success • Negative view of the oil and plans gas industry amongst younger • Build and use people networks in each professionals, particularly in light of country and advertise vacancies in these climate change impacts networks • High costs of recruiting experienced • Maintain a programme for staff wellbeing workforce • Facilitate and encourage workforce • Weakened corporate culture and communication via employee surveys and collegiate responsibility due to remote shared feedback working • Restructuring workforce • Board re-composition and retirements ## REPUTATION • Scarcity of capital for investment • Carry out robust economic analyses based on 12. Sub-optimal projects opportunities high-grading to support capital capital allocation • A volatile macroeconomic environment allocation resulting in significant differences to key • Key KPIs such as NPV, IRR and payback used assumptions underpinning investment to compare across many project scenarios • Adverse reaction decisions • Rig count investment scenarios are stress- from current / future • Pressure to invest and produce tested against a range of Brent oil price stakeholders growth and returns in the short term to • Seeking to maximise influence to promote • Investment decisions maintain dividend payments best practice in non-operated ventures - based on realistic / • Shareholder focus on increasing achievable economic • Seek the views of stakeholders through direct returns in conflict with wider strategic assumptions and indirect engagement considerations • Maintain a balanced investment portfolio • Inability to “switch-off” drilling / which allows a degree of resilience in adjusting investment commitments if economic short-term investment commitments assumptions change rapidly • Prepare business case or back pay study to • Lack of partner/stakeholder alignment support decarbonisation initiatives on decarbonisation initiatives Pharos Energy Annual Report and Accounts 2021 54 RISKS - CONTINUED Change in Principal risks likelihood Causes Risk Mitigation • Operations in challenging regulatory • Canvass support in risk management by using 13. Political and and political environments both international and in-country professional Regional risk advisors • Changes to fiscal regimes without robust stabilisation protections • Engage directly with the relevant authorities on • Energy sector a regular basis • Protracted approval processes causing exposed to a wide delays • Assess country risk profiles, trend analyses range of political and on-the-ground reports by journalists / developments which • Government reform, political instability academics may impact adversely and/or civil unrest on operating costs, • Thoroughly evaluate the risks of operating compliance and • Impact of economic and trading in specific areas and assess commercial taxation sanctions on industry counterparties acceptability (in particular, Russian state-controlled entities as a result of the conflict in • Maintain political risk insurance at appropriate Ukraine) levels of cover • All operations are located outside of the EU and USD is the main currency of our business • Working group established for monitoring sanctions arising from conflict in Ukraine and mitigation planning underway in relation to a small number of counterparties • Present in countries with below average • Ensure adequate due diligence prior to 14. Business score on the Transparency International on-boarding with a risk based approach, Conduct and Corruption Index including independent “Red flags” checks Bribery • Lack of transparent procurement and • Annual training, testing and compliance investment policies certifications by all associated persons • Reputational damage • Non-compliance with Criminal Crime • Increase awareness of the Group’s Code of and exposure to Offences (CCO) and/or UK Bribery Act Business Conduct and Ethics and related criminal charges policies for all employees and associated • Corruption and human rights issues persons • Mandatory Gifts and Hospitality declaration and register • Group Whistleblowing Policy and confidential ethics 24 hour hotline supported by EthicsPoint with numbers displayed in all offices • CCO risk assessment and on-going implementation of adequate procedures to prevent facilitation of tax evasion across all operations • Comply with the principles of the Extractive Industries Transparency Initiative 55 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report Viability Statement Strategy & business model Key Assumptions In accordance with the UK Corporate • Business model drawing on During the three year period the working Governance code, the Board has geoscience, engineering, financial and assumption is that Group will be assessed the prospects of the company commercial talent dependent on its two cash generating over a period longer than the twelve assets in Vietnam and the El Fayum months required to support the Going • Responsible and Flexible stewards of concession in Egypt with the Farm down Concern Statement on page 42 of capital of 55% working interest in Egypt’s assets. the CFO’s statement. The Audit & Risk • Focus on stakeholders Committee reapproved in December 2021 The underlying oil and gas reserves in The principal and emerging risks, which that the appropriate length which the both Vietnam and Egypt have been are relevant to the assessment of the Viability Statement (“VS”) should cover is certified by Reserves Auditors, RISC (for Group’s prospects, are the same as those 3 years. A significant factor in the Group’s Vietnam) and McDaniel (for Egypt). In used to stress test our viability over the forward cash position is the oil price our model, we have used management’s three-year period. | assumption, and as most of the source | | best estimate of future commodity | | --- | --- | --- | | data relates to a 3 year period this is | | prices, resulting in a base oil price prior | | considered the appropriate lookout period | How we assess our viability | to scenario testing of $73.9/bbl in 2022, | | for the VS. | | $70.2/bbl in 2023 and $67.8/bbl in 2024. | Our forecast is built on an asset by asset The base model also includes the Group’s In undertaking this assessment, the basis using a bottom up model and is latest life of field production models and Board has carried out a robust review of stress tested by compounding downward expenditure forecasts. the principal and emerging risks facing scenarios. the Group, including those that would The company has a Reserves Based The three year period selected for testing threaten its business model, future Lending (RBL) facility of $125 million over covers the Group’s medium term capital performance, solvency or liquidity, giving its Vietnam producing assets taken out in plans and projections, in particular oil particular attention to the principal and September 2018. In July 2021, the Group price projections, a fundamental driver of emerging risks. completed the refinancing of its RBL that the groups operating cash flows, where now matures in July 2025. The current Our strategy and associated principal and market consensus data becomes less borrowing levels and the repayment emerging risks underpin both the Group’s reliable for periods further ahead than schedules in the model is based on the three year base forecast and scenario three years. RBL’s economic and technical assumption testing, plus our longer term prospects Although individual assets are often as of the December 2021 redetermination. and position. modelled for periods longer than three In the current VS period, the majority of years, to reflect the return on investments the RBL loan is forecast to be repaid. Group’s current position being considered over the life of field, the three year period has been selected • Production assets in Vietnam and Egypt by the Board as most appropriate with low operating cost base for the group as a whole. It provides • Carry in Egypt Concessions following management and the Board with sufficient completion of farm down to IPR and realistic visibility of the future industry • Flexibility in the capital expenditure environment whilst capturing the Group’s programme future expenditure commitments on its licences, its near term drilling programmes • Operating cash flows in line with oil and Full Field Development Plans (FFDPs). prices and supported by hedging programme In assessing the Group’s viability over the next three years, it is recognised that • Focus on capital discipline all future assessments are subject to a • Excellent HSES standards level of uncertainty which increases with time and that future outcomes cannot be • Repayment of current RBL loan in the 3 guaranteed. year period of the VS Pharos Energy Annual Report and Accounts 2021 56 RISKS - CONTINUED Stress testing linked to Principal Risks As well as the base model, the Group also considers other scenarios and has stress tested the forecast for a combination of a number of severe but plausible events (linked to the majority of the Group’s principal risks) that could impact its ability to fund planned activities and/ or comply with the covenants and undertakings within its reserves based lending (RBL) facility agreement. These events include: • A material reduction in the oil price putting pressure on the Group’s capital available for investment • A material reduction in production • An unfavourable event resulting in lost production and oil price shock The oil price sensitivity reflects a level of price reductions broadly similar to 2020 as a result of the global outbreak of the COVID-19 virus, to reflect the similar risk of the oil price crash during the 3 year VS period. Base Forecast flexed for combinations of the Link to Principal Risks following scenarios and Uncertainties Level of Severity Tested Conclusion Base Forecast flexed for Link to Principal Risks combinations of the following Level of Severity Tested Conclusion and Uncertainties scenarios Sharp drop in the oil price, down by Sustained and sharp drop in oil a third to $49/bbl rising gradually Company remains viable with 1, 2, 5, 6 price over a year till in line with base mitigating actions price 5% drop in production over the Company remains viable with Reduction in production 2,3,4,8,9,12,13,7 period of testing mitigating actions Unfavourable event leading to 1,2,3,4, 5, 6,7 8,9,11, Company remains viable with Combination of tests above lost production and price shock 12,13 mitigating actions Climate Change | We have also taken into consideration | It should be noted that majority of the | Based on all of these assessments, | | --- | --- | --- | | the risk that climate change pressures | existing RBL facility is within the 3-year | including the availability of actions | | could reduce oil prices during the 3 | viability statement window, we currently | which could be taken in the event of | | year VS window. In doing so, we have | have some protection from the risk that | plausible negative scenarios occurring, | | considered the price curve as an output | Climate Change concerns begin to restrict | the Directors confirm that they have a | | of a Net Zero Emissions by 2050 (NZE) | the availability of capital. | reasonable expectation that the Group will | | based on IEA’s World Outlook 2021 | | continue to operate and meet its liabilities | In all combinations tested, the Group had report, which is consistent with achieving as they fall due for the three year period to access to mitigating actions, including 1.5 °C stabilisation in global average 31 December 2024. hedging and deferring non-committed temperatures and a net zero CO emission 2 capital expenditure beyond the 3-year by 2050. The nominal Brent prices used window of the VS. in this scenario is similar to our base case | oil price assumptions over the 3 year VS | Directors have reviewed the realistic | | --- | --- | | period. Nevertheless, we have concluded | mitigating actions that could be taken | | that the stress testing outlined above | to reduce the impact of the underlying | | adequately takes into consideration the | risk. The forecast cash flows are regularly | | risk of any downside adjustments to our | monitored and reviewed to provide | | revenue base over the 3 year VS period | early warnings of any issues and to give | | due to climate change pressures. | sufficient time to take any necessary | mitigating actions. To date there is no official carbon tax determined in both jurisdictions where our The potential impact of each of the other operations are i.e. Vietnam and Egypt. principal risks on the viability of the group Furthermore, the imposition of carbon during the assessment period has also taxes would likely to uplift the Brent prices been considered. Such risks include the as some of the burden will be passed to inability to attract and retain appropriately the consumer. skilled people, Cyber risk and Business Conduct and Bribery risk. The Board has As a sensitivity test, we have run the effect considered the risk mitigation strategy of carbon tax from 2024 on Base case for each of these risks and believes that without assuming any increment in Brent the mitigation strategies are sufficient to price and the Group remains viable over reduce the impact of each risk to make it the 3 year VS period. unlikely to jeopardise the Group’s viability during the three-year period. 57 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report CORPORATE RESPONSIBILITY ## Responsibility ## framework Our aim is to add value in ## Business everything we do through responsible, efficient and safe energy production. ## 100% 100% We take our role in society very El Fayum oil TGT/CNV Oil seriously. We are committed to open, transparent communication, and taking Oil sold domestically in Egypt and Vietnam in 2021, contributing a rigorous, conscientious approach to to host country development goals and access to energy the environment, our role in society, our business practices and ethics, and how we relate to people. That includes all our stakeholders: the ## Ethics people who work with us directly and indirectly, those who live where we operate, and the host governments and | $198.2m | 100% | authorities that regulate our activities. | | --- | --- | --- | | Taxes and royalties to host | Percentage of staff | | | governments, includes | receiving anti-bribery and | Corporate Responsibility | | $146.7m host governments | corruption training by 31 | governance & management | | share of production | December 2021 | A long-term goal of the Group is to be a | | entitlements in 2021 | | 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 ## People financial discipline and return of value to shareholders as it will to the Group’s objective of striving towards the goal ## 0 LTIs 60% of establishing and maintaining the | Zero Lost Time Injury | Female employees at | highest operating standards across | | --- | --- | --- | | events across Group | corporate level in London | Environmental, Social and Governance | | operations in 2021 | in 2021 | (“ESG”) matters. To reflect the Group’s | ongoing commitment to operating a sustainable business, the Board has established an ESG Committee. The ESG Committee has itself established a ## Environment separate ESG working group comprising representatives from head offices Egypt and Vietnam, to discuss, implement and ## 316 3 share ideas on ESG matters. Tonnes CO e per 1,000 Oil/chemical spills 2 tonnes of hydrocarbon (quantities greater than produced in 2021 100 litres) in Egypt in 2021 ## Society | $500,000 | $ 265,000 | | --- | --- | | Combined total training | Community and charitable | | levies in Vietnam and Egypt | investments supporting 12 | | for investment in industry | social projects in Vietnam | | capacity building in 2021 | through the HLHVJOC | Charitable Donation Programme in 2021 Pharos Energy Annual Report and Accounts 2021 58 CORPORATE RESPONSIBILITY - CONTINUED Climate change risks In January 2022, Pharos further advanced its alignment with the four TCFD pillars and disclosures on Governance, Strategy, Risk Management and Metrics and Targets. A detailed analysis was commissioned with the help of an external climate expert consultancy which produced in-depth assessments of the transition and physical climate risks followed by a hi-grading risk exercise based on the Group internal risk matrix. These assessments were then discussed with the Senior Management Team and submitted to the ESG committee of the Board. Stakeholder groups and corporate responsibility topics Structure of the Group’s Corporate Responsibility and How we engage with them and Key areas of concern HSES Management System Stakeholder group understand any concerns for stakeholder groups 1. Code of Business Conduct Local communities Environmental and social impact Community investment and Ethics assessments and grievance Effluents and waste mechanisms at project level management 2. Key CR/HSES policies Biodiversity supporting the Code Human Rights Policy Transparency Health, Safety and Environment Policy Security Policy National and host Regular dialogue Payments to Social Responsibility Policy governments governments Biodiversity and Conservation Policy Local capability building Tax Strategy Statement Environmental Prevention of Modern Slavery and Human Trafficking Policy management Climate Change Policy Health and safety Employees and Promote adherence to WHO Keep workforce safe 3. Standards, procedures and contractors COVID-19 guidelines and during guidance support the policies respective governments’ guidelines COVID-19 pandemic See https://www.pharos.energy/ Regular dialogue and grievance responsibility/policy-statements/ for the Local capacity building mechanisms full text of the current versions of each of these policies. Contractor management Completed 2021 Employee Survey Staff wellbeing Employee Focus Groups Shareholders Regular dialogue Climate risk/energy transition and other ESG risks HSES Health and Safety HSES Management System Preventing corruption International Responding to inquiries Climate risk/energy community and media scanning transition GHG emissions Preventing corruption Human rights 59 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report The Constitution and Terms of Reference The Pharos Health, Safety, Environmental ESG materiality screening of the ESG Committee sets the framework and Social Responsibility Management Following an earlier screening of material to: System (“HSES MS”) describes the ESG factors relevant to the oil and Group’s internal processes to manage • Assist the Board in defining the Pharos gas sector, in 2021 Pharos has been risks and is consistent with the Group’s strategy relating to ESG referring to the Sustainability Accounting requirements of internationally recognised matters; Standards Board (SASB) materiality standards (ISO 14001, ISO 45001) and map for Oil & Gas - Exploration and • Assess the effectiveness of the aligned with the World Bank’s International Production, to ensure that the material Pharos Group’s policies, programmes, Finance Corporation (“IFC”) Environmental issues of importance to its activities are practices and systems for identifying, and Social Performance Standards. appropriately managed and reported. managing and mitigating or eliminating The Chief Executive Officer is accountable ESG risks in connection with the The Board will further reinforce the to the Board for implementation of CR Pharos Group’s operations and integration of climate considerations policies and HSES performance. The corporate activity; into its governance frameworks by Board and the Audit and Risk Committee implementing the principles stated in • Provide oversight of the Pharos Group’s oversee the adequacy and effectiveness our Climate Change Policy. Further management of ESG matters and of our policies, standards and TCFD alignment started in Q4 2021 and compliance with legal and regulatory management system for HSES. The ESG culminated in early in January 2022 with requirements, including applicable rules Committee has responsibility, inter alia, a detailed climate change physical and and principles of corporate governance, for defining the Group’s strategy related transition risks analyses - the results and applicable industry standards; to ESG matters, reviewing the Group’s of this work have been discussed ESG policies, programmes and initiatives • Report on these matters to the internally and used to develop on-going and, more generally, has oversight of the Board and, where appropriate, make programmes, recognise best practice Group’s management of ESG matters. recommendations to the Board; and and provide clear direction on our ESG CR objectives are defined annually strategy during 2022. For further details • Report as required to shareholders of and reviewed quarterly in relation to: on our TCFD work, please refer to the the Company on the activities and remit our business, our ethics, our people, Risk Management report on pages 45 of the Committee. environment and society. to 48. The Board is also fully committed to effective compliance with the 2018 UK Our approach on environmental and social Stakeholder engagement reporting in 2021 has taken into account Corporate Governance Code, applicable | to the current financial year of the | In determining our CR strategy, we | the Voluntary Sustainability Reporting | | --- | --- | --- | | Company ending 31 December 2021. | consider issues that are important to | guidance (4th edition, published March | | The Board’s objective is to be recognised | the successful delivery of our corporate | 2020)” issued by IPIECA, the global not- | | for meticulous governance, with a | objectives and the matters that are | for-profit oil and gas industry association | | considerate and pragmatic approach to | important to our stakeholders. We | for environmental and social issues, in | | its business. | have developed communication and | partnership with the American Petroleum | | | stakeholder guidance setting out the | Institute and the International Association | In terms of corporate responsibility and controls and arrangements for effective, of Oil and Gas Producers. In 2022, Pharos community engagement, the Board is timely and transparent processes. We will continue to review best practice to committed to treating all stakeholders in receive feedback from stakeholders further guide our ESG reporting. We report every area of operations with honesty, through a range of formal and informal on jointly operated companies in Egypt fairness, openness, engagement and processes. This takes place at a project and Vietnam. respect, and to conducting all business and at a corporate level. ethically and safely. The Group will only work with parties that share these values. Our Code of Business Conduct and Ethics (“our Code”) sets out our expectations for how we do business, clarifying our commitments to ethical, social and environmental performance. Our Group CR and HSES policies described above support our Code. Our corporate standards, procedures and guidelines support the policies. Project- specific operational plans, programmes and procedures set out the specific approach to CR and HSES issues and risks within each project. Pharos Energy Annual Report and Accounts 2021 60 CORPORATE RESPONSIBILITY - CONTINUED ![img-10.jpeg](img-10.jpeg) # Business Our objective is to provide responsible and sustainable development throughout our operations. ## Climate risks and global energy transition Climate change is considered a principal risk to the Group and its business over the medium and long term, and this is discussed in more detail in the Risk Management and risk report on pages 43 to 57. Both transition and physical climate risks may further impact many of the Group's principal risks including those associated with commodity price, access to capital, reserves, operations, political, stakeholders' and reputational risks. We recognise that the global energy transition to a lower carbon intensity world in response to climate change could result in reduced demand for fossil fuels, lower oil prices and increased operating cost, increased capital cost, further regulation and carbon taxation which may significantly increase our operating costs and reduce our revenue. Our overall risk management framework integrates climate change and carbon related risks by stress-testing key a number of our principal risks on key variables for the Going Concern and Viability Testing. Established management processes include any physical risks associated with climate change and our energy insurance programmes cover to a large extent our asset portfolio against the risks of extreme weather events. Pharos is cognisant of the potential diminished role of fossil fuels in the global energy mix as depicted in the IEA Sustainable Recovery Plan. However, at the same time, we also recognise that energy demand for oil and gas will continue to be an important component of the global energy mix for many decades to come. In 2021, Vietnam remained one of the most dynamic emerging countries in East Asia region. Vietnam has become a net energy and oil and gas importer and most of the oil and gas produced in Vietnam is consumed domestically, with the HLHVJOCs continuing to contribute to this economic success story. Pharos will continue to develop its oil and gas resources responsibly to aid global economic development and deliver value for all our stakeholders. We believe that countries such as Egypt and Vietnam can continue to have economic and social benefits from the responsible development of their natural resources and we are committed to using our influence within JOCs to ensure this is undertaken in a sustainable way. We will also continue to support our host governments as they seek to use oil revenues to promote sustainable and inclusive economic development, and we will support the actions that they take to manage climate change. Egypt will host COP27 in November 2022 and Pharos will work closely with our partners to ensure climate change risks are evaluated in our processes and a decarbonisation plan is implemented for the medium and long term. We report transparently and have participated in the CDP (formerly Climate Disclosure Project) Climate Change Questionnaire over the past four years. In 2021, we maintained our score of (C), originally awarded in 2019. 2021 also marks the first year that the Company submitted their response to the CDP Water Security Questionnaire. This Questionnaire completed at a basic level in 2021 and we plan to improve our level of transparency on water usage and protection by completing the full version in 2022. Our greenhouse gas emissions ("GHG") are reported in the Environment section on page 69 to 75 and on page 78 of the Corporate Responsibility report. ## On-going commitment to align with TCFD Pharos is committed to implementing the TCFD's recommendations and a working group consisting of personnel from the London head office and the business units in Egypt and Vietnam is now set up to achieve this with the support of an outside consultant. The project is on-going and consists of two phases. Phase 1, which is now completed, consisted of a thorough peer benchmarking, internal document review and gap analysis and culminated in the development and approval by the Board of the Group Climate Change Policy in December 2020. As part of the Group's continued alignment with the TCFD recommendations, Phase 2 started in 2H 2021 - an external climate consultancy expert worked with our internal team to draw up a long-list of climate-related risks facing the business. The risk identification process was undertaken in 2021 Q4 and considered both the company's asset locations and primary markets, as well as macro-scale socio-economic, political and environmental trends. Specific operational risks were out of scope for this study but are still assessed, managed and reported taking into consideration climate related impact on our operations as part of the Group's Risk Management Framework. 61 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report PHASE 1 (2020): PHASE 2 (2021): CLOSING GAPS ESTABLISHING GAPS AND LAYING THE GROUNDWORK | Task Description | | | Task Description | | | | --- | --- | --- | --- | --- | --- | | 1.1 Climate Policy | • Benchmark jurisdiction with Verisk | | 2.1 Risk | • Literature review to identify sector-specific actual | | | Horizon Scan: identify | | Maplecroft’s Carbon Policy Index. | identification | | and potential risks for pharos with respect to climate | | current and future | | | and high | | change | • Identify current and emerging national (and climate change policy grading regional if relevant) legislation and regulation • Define climate change risks pertinent to revenues, trends in 4 countries of pertinent to oil and gas industry. expenditures, assets, liabilities and capital operation (UK,Vietnam, assessments frameworks (e.g. enterprise risk register) | Egypt, Israel). | • Qualitative analysis of key regulatory risk | | | | | | --- | --- | --- | --- | --- | --- | | | | drivers and medium-term (5yr) political | | • Provide recommendations to inform future risk | | | | | outlook. | | | mitigation actions | | 1.2 Internal review: | • Review existing Pharos climate change | | 2.2 Scenario | | | Transition Risk assess existing documentation (policies, risk register, CDP analysis: assess documentation submission, etc.) physical and • Qualitative assessment of how high-graded policy, (policies, risk register, transition risks technology, market and reputational risks may vary • Conduct a gap analysis against TCFD CDP submission, and opportunities under different scenarios recommendations. etc.) against TCFD recommendations • Highlight key improvement areas and provide Physical risk recommendations on how to close gaps. • Screening of interests in Vietnam, Egypt and Israel using Verisk Maplecroft physical risk datasets | 1.3 Peer | • Benchmark current TCFD approaches/best | | | | | --- | --- | --- | --- | --- | | benchmarking: | | practices among 4-5 peers. | • Quantify changes in key climate variables (e.g. | | | compare climate risk | | | | drought, rainfall, wave height) under 3 emissions | • Assess peers against consistent framework. disclosure approaches scenarios at mid-century among peers • Provide qualitative analysis regarding implications for | 1.4 Climate Change | • Develop the content of Pharos Energy’s | | | operations | | --- | --- | --- | --- | --- | | Policy development | | Climate Change Policy (this will be agreed | | | | | | with Pharos based on their position, | 2.3 Board | | • Review output from Steps 2.1, 2.2 and 2.3 portfolio size, growth strategy, performance presentation management etc.) • Discuss and agree management actions next steps and discussion The risk ratings were assigned to each identified climate risk to represent an initial risk assessment (i.e. pre-mitigation) and were based on the risk matrix detailed in the Group’s Risk Management policy. Risk ratings are assigned based on 5-year and 10-year timeframes to help capture the evolution of risks in these periods to enable mitigation planning. While these time-horizons may be longer than a ‘typical’ business strategy, they are designed to highlight the importance of sustainability and climate-related issues in the longer-term. Also, many climate-related risks are likely to manifest in the medium- and long-term, so longer time-horizons ensure these risks are not excluded from consideration. Assessment Approach under TCFD recommendations: • A long-list of climate-related risks facing Pharos (as of 2021 Q4, post COP26), based on existing assessments from Pharos, peer review, industry bets practice, grey literature and internal knowledge and expertise of the external climate consultancy • The assessment considers Pharos’ asset locations and primary markets, as well as macro-scale socio-economic, political and environmental trends. (Specific operational risks are out of scope of this study - for more details refer to the Risk Management Report) Climate risks considered: • Transition: regulatory, technology, financial, market, legal, reputation • Physical: chronic, acute 0 GLOBAL TEMPERATURE (RELATIVE TO PRE-INDUSTRIAL) IN C 5 6 4 3 2 1 0 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 Source: IPCC 2021, IEA 2021 Pharos Energy Annual Report and Accounts 2021 62 SDS STEPS RCP2.6 RCP4.5 RCP8.5 CORPORATE RESPONSIBILITY - CONTINUED Climate related Physical Risk Climate related Transition Risk assessment: assessment: Transition risks were assessed under the International Energy Agency’s (IEA) Sustainable A data-driven approach was used to Development Scenario (SDS) and Stated Policies Scenario (STEPS): identify and analyse the most material • SDS assumes a rapid implementation of clean energy policies that set the planet on physical climate risks facing Pharos course to meet the objectives of the Paris Climate Agreement. The SDS assumes that Energy’s activities in Egypt, Israel and all current net zero pledges are achieved, following significant efforts to realise near- Vietnam under three emissions scenarios term reductions. - see chart above re RCPs. The analysis assesses acute and chronic risks (for • STEPS is a more conservative view of the future, in which only current and planned e.g. current climate extremes, such as policies are enacted, and oil and gas play a greater role in the energy system for longer. flooding, heat stress and storms, as well It considers specific policy initiatives that have already been put in place but also of as how long-term shifts such as sea level those that are under development. It assumes that policy proposals are implemented rise): in the near term, even if specific measures required for implementation have yet to be specified. • Regional profiles detail current risk The severity and likelihood associated with each transition risk identified is assessed exposure across a range of dimensions, under baseline conditions, STEPS and SDS based on Pharos’ Risk Matrix. including flooding, water stress and heat stress The transition risk assessment focused on assessing the potential impacts of different • Climate model projections are used to future scenarios on the key transition risks facing the company, and the oil and gas assess how future climate may evolve industry more broadly, over the next 5-10 years. By undertaking this assessment, Pharos under different scenarios out to 2050 can demonstrate how it tests portfolio resilience amid the uncertainty of the speed and extent of the energy transition (in line with the recommendations of the TCFD). • Assessing the impacts under different Furthermore, a desktop assessment of the current political context in Egypt, Vietnam and emissions scenarios, helps Pharos to Israel was used to compliment the broader global trends depicted by the IEA in the SDS identify weaknesses, vulnerabilities and STEPS. Where appropriate, assumptions are made as to the future policy trajectory and opportunities and informs capital in these countries under the two scenarios. allocation and resilience building. Pharos is fully committed to the TCFD’s recommendations and will continue its journey Outputs: of continuous improvement with transparent disclosures and reporting on how climate related risks can impact on its operations and how our strategies and mitigating plans • Provide inherent risk profiles of current evolve to ensure we maintain a sustainable business in line with our stakeholders’ locations of interest expectations. • Identify potential current and future operational risks, existing and potential weaknesses, vulnerabilities and CLIMATE DISCLOSURE opportunities IS JOURNEY OF • Inform capital allocation and supports CONTINUOUS strategic decision-making around IMPROVMENT resilience building STAKEHOLDER ENGAGEMENT GAP ANALYSIS REPORTING & DISCLOSURE INTERNAL ALIGNMENT Approach • Build a roadmap • Adopt an integrated approach • Approach as cyclical process Benefits • Demonstrates awarness of growing importance of climate-relations issues to key stakeholders • Staying ahead of mandatory disclosure requirements • Creates efficiences and relieves reporting burden 63 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report Business partners and influence Relationships with business partners, host governments and local communities where we operate are critical for our business. Our Code sets out our commitment to doing business honestly and ethically and to complying with all applicable laws and regulations. It sets out our expectations to take steps to only do business with others who share our values. Our ability to influence our business partners and JOCs depends on our degree of ownership and operatorship. Where we are the designated operator, we fully apply the Pharos HSES MS. Where we are a joint operating partner or part of a JOC, we seek to influence and ensure alignment with our systems. Where we have a minority interest, we seek to make our views heard and ensure that minimum standards are met in accordance with our commitment to the IFC Performance Standards. VIETNAM INTERESTS AND OPERATIONS Degree of Pharos Pharos 2021 Target HSES influence Blocks Country ownership role field activity outcome Completion of 3D seismic | | Blocks 125 & | | acquisition programme | Full application of the | | --- | --- | --- | --- | --- | | High | | Vietnam 70% Operator | | | | | 126 | | on Block 125. Seismic | Pharos HSES MS | processing underway Completion of Phase 1 Joint operating partner Influence to bring of TGT 4 well intervention Moderate Block 16-1 Vietnam 30.5% * (in Hoang Long Joint alignment to the and development drilling Operating Company) Pharos HSES MS campaign Production of oil and gas Joint operating partner (in Routine well Moderate Block 9-2 Vietnam 25% Hoan Vu Joint Operating maintenance and acid Company) stimulation for two wells * Pharos has a 30.5% working interest in Block 16-1 which contains 97% of the Te Giac Trang (TGT) field and is operated by the Hoang Long Joint Operating Company. The Group’s unitised interest in the TGT field is 29.7% EGYPT INTERESTS AND OPERATIONS Degree of Pharos Pharos 2021 Target HSES influence Blocks Country ownership role field activity outcome Commencement of the El Fayum Phase 1B waterflood programme, three-well development Influence to bring | | El Fayum | | Joint operating partner | drilling programme, and | | | --- | --- | --- | --- | --- | --- | | Moderate | | Egypt 42.6% | | | alignment to the | | | Concession | | (in Petrosilah) | Batran-1X commitment | | Pharos HSES MS well oil discovery Commencement of El Fayum Phase 1B waterflood programme Interpretation of pre- | | | | | existing 3D seismic | Influence to bring | | --- | --- | --- | --- | --- | --- | | | North Beni Suef | | Joint operating partner | | | | Moderate | | Egypt 100% | | survey. Several low | alignment to the | | | Concession | | (in Petrosilah) | | | | | | | | risk drillable prospects | Pharos HSES MS | identified. * In September 2021, Pharos announced the farm-out and sale of a 55% working interest and operatorship in each of the El Fayum and North Beni Suef Concessions to IPR Lake Qarun Petroleum Co, a wholly owned subsidiary of IPR Energy AG. Pharos and EGPC have finalised all necessary documents to be presented to the Minister of Petroleum and Natural Resources to approve the transaction with IPR and this approval is expected shortly. ISRAEL INTERESTS Degree of Pharos Pharos 2021 Target HSES influence Blocks Country ownership role field activity outcome No field activity Evaluation of all reprocessed seismic Licences data has been finalised 39,40,47,48 Ensure minimum with an assessment Low (Zone A) and Israel 33.33% Non-operator standards during of prospectivity being 45,46,52,53 ownership (Zone C) undertaken ahead of a Joint Venture drill or drop decision on the licences in Q3 2022. Pharos Energy Annual Report and Accounts 2021 64 CORPORATE RESPONSIBILITY - CONTINUED HSES Management System KEY PERFORMANCE INDICATORS We undertake a range of activities to continuously improve our KPI Target 2021 2020 2019 HSES MS to ensure that the Company’s policy commitments are applied. We may work in countries that have different HSES regulatory 1 Zero 0 0 0 standards and we review any potential gaps to ensure adherence non-compliances to our policies in dialogue with our business partners. Routine 1. Although three regulatory non-compliances were reported in our monitoring is undertaken to assess and improve performance and Egyptian assets in 2019, these occurred in January, prior to the periodic audits are conducted. completion of our acquisition. HSE trainings and exercises In Vietnam, the HLHVJOCs continued HSE induction to new staff, Contractor management maintained its HSE Training Matrix such as travel safely by boat, Contractors are used throughout all aspects of our business. firefighting and rescue, working at height and also conducted Our Contractor Management Procedure sets out requirements training for offshore production team such as Personal Protective through all stages from selection through to management and Equipment training, refresh safety induction for contractors, service delivery. behavioural safety and tank inspection procedure. In HSES critical activities, bridging documents are put in place to In Egypt, HSES training focused on lifesaving rules, permit to ensure Pharos and contractor alignment with our requirements. work, hot work hazards and safety requirements in confined space entry and working at heights. All five staff HSE engineers obtained Nebosh general certificates. Hours worked in Vietnam Percentage and Egypt assets of total Company staff: 779,216 25% Contractors: 2,391,204 75% Overall objective To provide responsible and sustainable development 2021 Objectives 2021 Outcomes 2022 Objectives In Egypt, training is currently suspended on account of the COVID-19 pandemic. Each asset to further enhance their own Further alignment with Pharos HSES Management In Vietnam offshore staff complete regular HSES training programme. system HSE training; onshore staff training currently limited due to working from home. Confirm that outstanding recommendations from gap analysis of Merlon HSES MS against Work closely with new partner HSES department Findings are 98 percent closed PHAROS Corporate HSES MS requirements to ensure a similar HSES approach is shared have been closed Implement recommendations from gap analysis of Joint Operated Company (JOC) Completed Update Pharos HSES Management System Management system in Vietnam against Pharos HSES MS requirements. Pharos new Crisis Management Plan rolled out Pharos new Crisis Management Plan Pharos Energy to consider creating a single Further enhance in-country respective rolled out easily accessible online repository for accessing Emergency Response Teams interface with emergency response and relevant project Head Office Crisis Management Response Corporate Crisis Response team training documentation to ensure this can be readily Team. conducted sourced following an emergency. Virtual Crisis Room setup 65 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report ## Ethics ## Our objective is to conduct our business in an honest ## and ethical manner. of the effectiveness the Group’s risk Payments to host governments management and internal control systems, Wealth generated by natural resources see the Audit and Risk report pages 97 plays an important part in the growth ## 100% to 101. Bribery is prohibited throughout and development of countries in which Employees and relevant the organisation, both by our employees we operate. Revenues to governments contractors have undertaken and by those performing work on our become payable by the Group due anti-bribery and corruption behalf. The Code of Business Conduct to oil production entitlements, taxes, training by 31 December 2021 and Ethics supports all businesses that royalties, licence fees and infrastructure are conducted in an honest and ethical improvements. manner across the organisation. Our Anti-Bribery and Corruption (“ABC”) During 2021, the total payments to Preventing corruption | | programme is designed to prevent | governments for the Group amounted | | --- | --- | --- | | Pharos currently operates in Vietnam, | corruption and ensure systems are in | to $198.2m (2020: $150.9m), of which | | which is allocated a low score on | place to detect, remediate and learn from | $151.9m or 77% (2020: $104.9m or 70%) | | Transparency International’s most recently | any potential violations. This includes due | was related to the Vietnam producing | | published Corruption Perception Index | diligence on new vendors, annual training | licence areas, of which $102.6m (2020: | | (“CPI”), and is ranked number 87 (104 | for all personnel, requisite compliance | $72.5m) was for indirect taxes based on | | in 2020) out of 180 countries in the | declarations from all associated persons, | production entitlement. Egypt was paid a | | 2021 CPI. Egypt is ranked at 117 on | Gifts and Hospitality declaration and | total of $44.7m (2020: $42.2m) of which | | the same CPI. Israel is ranked at 36 | comprehensive ‘whistleblowing’ | $44.1m (2020: $41.3m) relates to indirect | | on the CPI, indicating a lower risk of | arrangements. | taxes based on production entitlement. | | corruption. We recognise that, with both | | The breakdown of other contributions, | Our Whistleblowing Policy and Procedure areas of operation having a reputation including payroll taxes and other taxes is ensures that employees are protected for a lack of transparency and relatively contained within the additional information from possible reprisals when raising high risk of corruption, it is vital that the on pages 167 to 168. Our Code concerns in good faith. In addition to Group’s policies, procedures and working prohibits contributions to political parties, internal reporting channels, we have a practices are fit for purpose. Pharos candidates or other political organisations. confidential ethics hotlines supported by maintains internal control systems to EthicsPoint with numbers displayed in guide and ensure that our ethical business local offices available 24 hours a day all standards for relationships with others are year round. Zero calls were made to the achieved. The Audit and Risk Committee EthicsPoint hotlines in 2021. and the Board have carried out a review Overall objective To conduct our business in an honest and ethical manner 2021 Objectives 2021 Outcomes 2022 Objectives All personnel to complete the annual ABC All personnel to complete the annual ABC programme including training, testing and Completed programme including training, testing and self-declaration statement. self-declaration statement Continue to review ABC programme and Continue to review ABC programme and No updates required update as required. update as required Update and republish the Modern Slavery Update and republish the Modern Slavery The annual statement on Modern Slavery has annual statement and all other corporate annual statement. been published on the Pharos website. policy statements Pharos Energy Annual Report and Accounts 2021 66 CORPORATE RESPONSIBILITY - CONTINUED ## People ## Our objective is to ensure the health, safety, security and welfare of ## our employees and those with whom we work and to ensure that ## we have a workforce that is performing at its best. | Our Health, Safety and Environment | - 100% of the workforce are vaccinated | We are able to share our practices and | | --- | --- | --- | | Policy and Code of Business Conduct | with 2 doses at the end of December | lessons learned with others in the industry | | and Ethics commit us to protecting | 2021. For the office workforce at all | and are contributing to further capacity | | the health and safety of our workforce, | locations Pharos has continuously applied | building. | | to providing a workplace free of | a hybrid-working mode and will do so until | | In Egypt, we are pleased to report no discrimination where diversity is valued further notice. recordable health and safety incident in and to ensure that we consult and 2021. engage with our employees. Occupational health and safety Safety of our workforce remains our We value the contribution made by all Safety is the highest priority in our number one priority and Pharos has employees and strive to ensure that business and we are committed to reinforced the use of stop cards and we have training and development operating safely and responsibly at safety training across all of the Group’s opportunities for everyone. all times and to providing a safe and operations. healthy working environment for staff and During 2021, the Group maintained its contractors. Following from our Health, priority of keeping our workforce safe Safety and Environment Policy and Critical Incident Risk Management during the global pandemic. Code of Business Conduct and Ethics, Pharos has emergency response plans our HSES MS provides the framework in place for all projects and assets. On-going monitoring and for our approach and is implemented The plans are communicated to the | precautionary / preventive | at each stage of a project supported by | workforce and response personnel receive | | --- | --- | --- | | measures under COVID-19 | Occupational Health and Safety Guidance | training to ensure they are competent | | | and Standard Operating Procedures. | to carry out their emergency roles. This | The Group adhered to the requisite While Pharos had no field activity in is supplemented by periodic refresher precautionary procedures and restrictions, 2021 in which we were the operator, we training. Drills and training exercises are in line with the government directives in continued to work with our partners in carried out. We ensure asset integrity and Egypt, Vietnam and the UK. At Petrosilah Vietnam where the HLHVJOCs continued control operations in order to effectively and Pharos El Fayum, a vaccination to maintain a high level of safety. We manage all significant risks during all campaign for all employees in the main have worked to build and contribute stages of the operations. offices and fields started in Q2 2021 to improvements in the safety culture and culminated to 97% (2 doses) of the During 2021, there were no Process in Vietnam and we are proud of that workforce being vaccinated at the end of Safety Events classified Tier 1 or Tier record of achievement. HSES training, December 2021. In Vietnam, the HLHV 2 to be reported. All incidents were drills, workshops and inspections are JOC strict 5-7 days quarantine regulations investigated and lessons learned as conducted on an annual basis to ensure are being applied for the workforce going appropriate and actions to prevent that the zero target is maintained. offshore, in addition to rapid and PCR recurrence were implemented. tests one day prior to offshore mobilisation SAFETY RECORD 2021 2020 2019 4 KPI Target rates Pharos IOGP Pharos IOGP Pharos IOGP 1 Fatal Accident Frequency Rate Zero 0 34 0.55 0 0.82 2 Lost Time Injury (“LTI”) Frequency Rate Zero 0 0.34 0.22 0 0.24 3 Total Recordable Injury Rate <0.34 0 0.34 0.70 0.42 0.92 Million-man hours worked 3.17 2.97 2,544 2.35 3,038 1 Fatal accident frequency rate: Number of fatal accidents per hundred million man-hours for both employees and contractors 2 Lost time injury frequency rate: Number of lost time injuries per million man-hours for both employees and contractors 3 Total Recordable Injury rate; Number of recordable injuries per million man-hours for both employees and contractors 4 International Association of Oil and Gas Producers (“IOGP”) - Statistics not yet available for 2021 67 Pharos Energy Annual Report and Accounts 2021 Strategic Report Governance Report Financial Statements Additional Information ### Safety indicators (for both Pharos employees and contractors) | Indicator | 2021 | | --- | --- | | Lost Time Injury frequency rate ("LTI") | 0 | | Fatal Accidents | 0 | | Medical Treatment Cases | 0 | | First Aid Cases | 0 | | Number of Motor Vehicle Crashes | 1 | | Roll-over | 1 | | HSES Near Miss | 9 | | HSES Inspections | 797 | | HSES Audits | 1,022 | | HSES Toolbox Talks | 6,131 | | HSES Meetings | 1,194 | ### Safety indicators | Indicator | 2021 | | --- | --- | | Emergency Response Drills | 102 | | Process Safety Events (Tier 1 or Tier 2) | 0 | | Other minor events | 49 | ### Diversity and Inclusion Greater diversity and inclusivity brings greater understanding of people. Through our Guiding Principles of 'Openness and Integrity' and 'Empowerment and Capability', we have demonstrated our commitment to maintaining and building a culture of diversity and inclusion in meaningful ways. We believe in a workforce with a diversity of experience, nationalities, cultural backgrounds and gender, to support our business strategy of long-term sustainable growth. It is crucial to the success of our business that we retain and develop the diversity of our workforce and have diversity and inclusion at the heart of our recruitment, development and promotion processes. Our Code of Business Conduct and Ethics, associated Policies and the Pharos Guiding Principles commit us to providing a workplace free of discrimination where all employees can fulfil their potential based on merit and ability. They also commit us to providing a fully inclusive workplace, while providing the right development opportunities to ensure existing staff have rewarding careers. The spirit of diversity, inclusion and trust lies behind everything we do. In 2021, four out of nine Board members were women, and this will become four of six Board members following completion of the farm-out transactions with IPR and the 2022 AGM. We are also proud that women accounted for nearly 60% of employees at our London head office. Our offices across the organisation recruit talents from diverse backgrounds, ethnicity and experience. Most notably, our London head office has 17 people from 10 different nationalities, which ensures that we cultivate a culture that recognises and promotes diversity in all forms and where every voice is heard. ### 2021 CORPORATE EMPLOYEES* ■ Male ■ Female #### Non-Executive Directors #### Executive Directors #### Senior Management #### Other Employees * Figures correct as at 31 December 2021 ### Local capability building We are committed to providing meaningful opportunities for technical cooperation, training and capacity building in host countries. We have maintained a gender-neutral recruitment process and, wherever possible, are ensuring that we first look to fill any vacancy internally with a local candidate in London, Vietnam and Egypt. In Egypt, under the El Fayum and North Beni Suef Concession Agreements, the Contractor party commits to a total of $200,000 split equally between the two Concessions for training and development of employees. Additionally, in cooperation with the Ministry of Higher Education and Scientific Research, Petrosilah holds an annual summer training programme for all students applying from public and private Egyptian universities for training in the administrative office and the company's fields, from which they can obtain a training certificate after completing the programme. In Vietnam, as part of the HLHVJOCs, we contribute to local capability building. A training levy of $150,000 for each JOC goes into a fund which is ring-fenced to support the development of future talent in Vietnam in the industry. The HLHVJOCs also invest in staff development and training. ### Overall objective To ensure the health, safety, security and welfare of our employees and those with whom we work; to sustain and grow a global cultural of diversity and inclusion such that diversity is at the core of who we are and where inclusion drives innovation and solutions | 2021 Objectives | 2021 Outcomes | 2022 Objectives | | --- | --- | --- | | Build an action plan based on the areas that employees identified as requiring improvement in the employee engagement survey. Further enhance understanding of different cultures and sharing of ideas through training sessions and focus groups made up of cross country groups | Survey completed and feedback reviewed and discussed with senior management | Close gaps and initial improvements identified in employee surveys | | Maintain and implement procedures to ensure a COVID-safe workplace and practices | Maintained precautionary measures WFH where applicable Coordinated a successful vaccination programme | Focus on maintaining safe working environment | Pharos Energy Annual Report and Accounts 2021 68 CORPORATE RESPONSIBILITY - CONTINUED ## Environment ## We recognise the potential impacts of our business on the ## environment. Our Health, Safety and Environment Policy sets out ## our commitment to conduct all business activities in a responsible ## manner. In setting the Group’s corporate responsibility priorities, our ## objective is to protect the environment and conserve biodiversity. | Greenhouse gas emissions | Pharos Energy plc has complied | Metrics and Targets (c) Describe the | | --- | --- | --- | | (“GHG”) | with the requirements of LR 9.8.6R | targets used by the organization to | | | by including climate-related financial | manage climate-related risks and | GHGs associated with energy use and disclosures consistent with the TCFD opportunities and performance against with natural gas flaring and venting are a recommendations and recommended targets key issue for the Group. disclosures Pharos is compliant with 9 | In 2021, we continued to monitor | out of 11 of the TCFD recommended | The baselines for GHG emissions for | | --- | --- | --- | | our emissions and disclose them in | disclosure. The two exceptions are | 2021 are disclosed in the Corporate | | accordance with industry requirements | Strategy (b) and Metrics and Targets (c), | Responsibility section under Environment | | and standards, participated in the | details of which are noted below. | (please refer to pages 69 to 75 | | Carbon Disclosure Project (“CDP”), with | | and page 78 but no carbon reduction | | further work completed in Q1 2022 on | | target has been set yet. During the | Strategy (b) Describe the impact of implementing the TCFD recommendations course of 2022, Pharos will progress climate-related risks and opportunities and alignment. further feasibility studies on CO reduction on the organisation’s strategy and 2 technologies, improve our management financial planning of flaring and venting, explore where TCFD alignment To date Pharos has not yet formulated operational processes can be altered The physical risk assessment focused its decarbonisation plan as part of our and evaluate the use of greener energy on screening our interests in Vietnam, corporate strategy as the physical and sources to replace the use of our own Egypt and Israel using the consultant’s transition scenario risk analyses were produced gas as fuel for our operations. physical risks datasets and an attempt to completed in February 2022 and further By the end of 2022, Pharos will be in a quantify changes in key climate variables assessments/discussions will take place better position to set a specific carbon (e.g. drought, rainfall, wave height) over a during 2022 to consider adaptation footprint reduction targets against the 5 and 10-year timeframe under the three strategies to mitigate the identified climate 2021 GHG baselines. emissions scenarios - Representative risks. Pharos has a comprehensive Concentration Pathways (RCPs). The portfolio of climate related risks under transition analysis focused on the potential multiple scenarios which will be regularly impacts of different future scenarios on tracked, re-assessed and re-calibrated the key transition risks facing the Group regularly to reflect the evolving climate and the oil and gas sector more broadly landscape. Risk mitigation is already being over the next 5-10 years. By undertaking considered in financial planning as part this assessment, Pharos demonstrated of our going concern and viability testing how it evaluated its portfolio resilience on oil future price curve based on the amid the uncertainty of the speed and recommended IEA’s NZE scenario. Also, extent of the energy transition. Transition some stress testing has been carried risks were assessed by Pharos’ TCFD out on a carbon tax impact on our future consultant under the International Agency base cash balance and the impact was (IEA) Sustainable Development Scenario deemed not material. The risks and (SDS) and Stated Policies Scenario opportunities were assessed over a 5 (STEPS). Additionally, Pharos has and 10 year timeframe. A comprehensive considered the risk that climate change decarbonisation/ climate mitigation pressures could reduce oil prices during plan will be formulated by our Senior the 3 year Viability Statement window Management by Q1 2023 to embed the (please refer to the Viability Statement mitigation plan into our medium and long- from pages 56-57 under the term corporate strategy. recommended IEA’s Net Zero Emissions scenario. 69 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report The Group’s status - TCFD pillars and disclosures Recommended Disclosures Pharos status GOVERNANCE a) Describe the board’s oversight of Our ESG Committee oversees climate-related risks and opportunities and reports to the Board. climate-related risks and opportunities The Chair of the Board, John Martin, is also the Chair of the ESG Committee. For more information on Board oversight and composition of the ESG Committee, please see page 82 and pages 86 to 91 of the Corporate Governance Report. For more information on the ESG Committee meetings, please see the ESG Committee report on pages 92 to 94 of the Governance Report (b) Describe management’s role in ESG issues and reporting remain a key element of Pharos. assessing and managing climate-related For more information on how ESG issues are considered at Board and management level, please risks and opportunities see page 92 to 94 for the ESG Committee report of the Governance Report. STRATEGY (a) Describe the climate-related risks High grading of key transition and physical risks over multiple time-horizons and scenarios and opportunities the organization has For more information, please see pages 45 to 48 in the Risk Management report, and identified over the short, medium and pages 61 to 63 for the ‘On-going commitment to align with TCFD’ section in the Corporate long-term Responsibility Report in the Strategic Report. (b) Describe the impact of climate- Transition risks will impact on oil price volatility, demand for oil & gas and availability and cost of related risks and opportunities on the capital causing earlier impairment / risk of stranded assets and rising operating costs organisation’s strategy and financial Physical risks will potentially cause damage to our assets, increase insurance costs and force planning unexpected shutdowns of our operations. For more information on Transition and Physical risk, please refer to the On-going commitment to align with TCFD section on pages 61 to 63 in the Strategic Report. A decarbonisation plan will assist the company to gain the confidence of the investors and also have better access to sources of capital. In Q4 2021, Pharos undertook a review of our Vietnamese operations and assets with the assistance of an independent energy consultant focusing on the potential application CO 2 reduction technologies. For more information on our consideration, please refer to page 47 in the Risk Management Report. (c) Describe the resilience of the Risk registers are maintained across all functions and locations organisation’s strategy, taking into Internal quarterly risk assessments with all risk owners consideration different climate-related Principal and emerging risks, including climate-related risks are reported to the ESG Committee. scenarios, including a 2 degree or lower scenario For more information, please refer to pages 49 to 57 of the Risk Report and pages 61 to 63 in the Strategic Report. Pharos Energy Annual Report and Accounts 2021 70 CORPORATE RESPONSIBILITY - CONTINUED Recommended Disclosures Pharos status RISK MANAGEMENT (a) Describe the organisation’s processes Climate-related risks were assessed over multiple time-horizons, external data-sets and for identifying and assessing climate- recommended scenarios and the risks categorised / calibrated and hi-graded using Pharos Risk related risks Matrix For more information, please see pages 45 to 48, 51, 57 and pages 61 to 63 of the Strategic Report. (b) Describe the organisation’s processes Continuous monitoring / reporting of key performance indications including CO emissions levels 2 for managing climate-related risks and intensity in our quarterly HSES reports Yearly GHG reporting and certification ESG targets, including GHG reduction targets as part of the Directors’ remuneration policy. For more information on our ESG targets and performance, please see the 2022 KPI in the Directors’ Remuneration report on page 112. Stress-testing oil price volatility in various climate-related scenarios Assess the impact of carbon pricing on our going concern and viability tests For more information for going concern and viability testing, please see the Viability Statement on pages 56 to 57 in the Strategic Report. For more information on the Group’s process for managing climate-related risk, please see page 51 in the Strategic Report. (c) Describe how the processes for Risk registers are maintained across all functions and locations identifying, assessing and managing Internal quarterly risk assessments with all risk owners climate-related risks are integrated Principal and emerging risks, including climate-related risks are reported to the ESG Committee. into the organisation’s overall risk management For more information, please refer to pages 49 to 57 of the Risk Report and 61 to 63 in the Strategic Report. METRICS AND TARGETS a) Disclose the metrics used by the Measure and report our CO emissions across all operations 2 organization to assess climate-related Calculate and report our carbon intensity risks and opportunities in line with risk GHG metrics and climate change are now included as part of our remuneration policy. management process For more information, please see pages 69 to 75 and page 78 of the Strategic Report. (b) Disclose Scope 1, Scope 2 and if Both Scope 1 and Scope 2 are measured and reported. For more information on Scope 1 and 2, appropriate, Scope 3 GHG emissions, please refer to page 78 in the Non-Financial Disclosures in the Corporate Responsibility report. and the related risks Scope 3 emissions are currently not being reported but Pharos is planning to review in 2022 the various categories of its scope 3 emissions. The company is cognisant that TCFD advocates and decide on the reporting of scope 3 and the Group will endeavour to follow this route, in line with TCFD recommendations going forward. For more information, please see pages 69 to 75 and 78 in the Strategic Report. c) Describe the targets used by the Please see the Metrics and Targets (c) paragraph on page 69 for more information. organization to manage climate-related risks and opportunities and performance against targets 71 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report | GHG reported | | the lease for the Pharos London Office | started to report our direct methane | | --- | --- | --- | --- | | | | at 48 Dover Street was assigned to a | emissions resulting from venting. In 2021, | | Pharos reports carbon dioxide (CO | ), | | | 2 | | | | new tenant and the associated emissions | gas fuel and gas flaring in TGT remain the | | --- | --- | --- | --- | --- | | methane (CH | ), and nitrous oxide (N | O) | | | | | 4 | 2 | | | | | | | have therefore not been reported in 2021. | largest single contributor to Pharos total | combined into carbon dioxide equivalent Since the middle of July 2021, Pharos emissions. Venting represented 9 percent (CO e) based on the gases’ 100-year 2 has rented flexible office space consisting of our gross emissions. Global Warming Potential (GWP). These of six desks at WeWork based in Soho, | three gases are produced through | | | The Group’s total CO | e emissions for | | | --- | --- | --- | --- | --- | --- | | | | London. The electricity consumption from | | 2 | | | combustion, although N | O quantities | | 2021 is 372,151 tonnes of CO | | equivalent | | | 2 | | | | 2 | this office is not included in the figures | produced via combustion is relatively | | (120,628 tonnes of CO | equivalent based | | --- | --- | --- | --- | | | discussed thereafter. | | 2 | | small. | | on equity share). This corresponds to | | | | Pharos Energy commits to making all | a decrease of 5 percent compared to | | In addition to emissions resulting from efforts to minimise all GHG Emissions 2020 (3 percent based on equity share). combustion, in 2021, Pharos has started during its ongoing exploration activities Pharos overall reported emissions have to report its direct methane emissions in Blocks 125 & 126, where it has decreased due to a lower level of drilling from routine venting. | | operational control. Where we are a joint | activities, which counterbalanced potential | | --- | --- | --- | | The other greenhouse gases, HFCs, PFCs | operating partner, we seek to influence | causes for increase, namely inclusion of | | and SF6, are not closely associated with | and ensure alignment with our systems | routine venting emissions and compressor | | the petroleum industry. Their respective | to promote best practice. Where we have | issues resulting in increased flaring in | | emitting activities are not core parts of | a minority interest, we seek to make our | Block 16-1 in Vietnam, | | Pharos operations. The total emission of | views heard and ensure that minimum | | Activity data pertaining to GHG emissions these gases is therefore expected to be standards are met in accordance with by the HLHVJOCs and Egypt is reported small and has not been calculated. our commitment to the IFC Performance to Pharos. Telos NRG assisted with data Standards and TCFD recommendations. collation and GHG emissions calculations. Emissions scope Verification was undertaken by RPS Reported Scope 1 direct emissions Methodology Planning and Environment. comprise direct GHG emissions resulting Pharos applies the expectations set by from equipment or other sources owned the ISO 14064-1 standards in terms of Approaches to reducing emissions (partly or wholly) and/or operated by Relevance, Completeness, Consistency, The restaging of two gas compressors the Company (for example, gas flaring Transparency and Accuracy which are on the TGT FPSO was finally completed operations and fuel gas/diesel use to endorsed by IPIECA, the Greenhouse in 1H 2021 and this has contributed generate power or for vehicle use, as well Gas Protocol Initiative and Part 7 of The to better gas flaring management. as venting). Reported Scope 2 indirect Companies Act 2006 (Strategic Report Unfortunately, in November 2021 one of emissions comprise those arising from and Directors’ Report) Regulations 2013. the two gas compressors overheated and purchased energy already transformed Emission factors for GHG calculations had to be shut down and returned to the into electricity, heat or steam generation. were taken from UK Government GHG manufacturer in the US for diagnostics For Pharos activities, Scope 2 emissions Conversion Factors for Company and repairs. This incident resulted in an comprise electricity supplied by the Reporting (BEIS, 2021) and EEMS, 2008, increase in flaring levels. | national grid in our Cairo office (Egypt) | Atmospheric Emissions Calculations; | | | | --- | --- | --- | --- | | and in Ho Chi Minh City (Vietnam). No | for the calculation of associated gas | During 2021, Pharos carried out a high- | | | Scope 3 emissions (indirect emissions | consumed as fuel and flared in Vietnam, | level review of the Vietnamese assets with | | | created in the value chain) are reported. | the emission factors were calculated | the assistance of an external consultant | | | Scope 3 emissions are currently not being | based on the carbon content of gas | to investigate the main CO | emission | 2 | reported but Pharos is planning to review | analysed of a blend of TGT and Hai Su | contributors, to understand what solutions | | | --- | --- | --- | --- | | in 2022 the various categories of its scope | Trang Den (HSTD) export gas for the TGT | have been implemented or discounted | | | 3 emissions. The company is cognisant | field, and of the CNV Field by the Vietnam | by the JOC and focusing on possible | | | that TCFD advocates and decide on the | Petroleum Institute in 2021, and for the | CO | emissions reduction options. A | 2 reporting of scope 3 and the Group will calculation of gas consumed, vented and number of CO reduction technologies 2 | endeavour to follow this route, in line with | flared in Egypt, the emissions factors were | such as ejector technology, gas to liquid, | | | --- | --- | --- | --- | | TCFD recommendations going forward. | calculated based on the carbon content | hydrogen storage unit may have potential | | | | of gas analysed at the North Silah Deep, | to reduce our Scope 1 emissions, but | | | Reporting boundary | North East Tersa, South Silah and Silah | further study work and cost benefit | | | | Base Separators (EPRI Central Analytical | analysis comparisons including a CO | | | Pharos has elected to report its emissions | | | 2 | | | Labs, 2018). | reduction benefit versus CAPEX payback | | of GHGs from Egypt and Vietnam analysis will be required to pursue any operations on the basis of equity share. In 2021 we have again reported our GHG of these solutions. Additionally putting emissions intensity in tonnes of GHG Under equity share reporting, Pharos costs of these technologies aside, there per 1,000 tonnes of oil produced by reports a pro-rata share of the emissions are significant logistical constraints – for equity share to align with the International from partnerships or assets over which example, the current FPSO infrastructure Association of Oil and Gas Producers the Group has operational control (i.e., configuration has to be examined in (“IOGP”) benchmarks. | Vietnam Blocks 125 &126) and a pro-rata | | details and partners’ backing has to be | | --- | --- | --- | | share of the emissions from partnerships | Key sources of our emissions are from | obtained. | | or assets it does not control (i.e., Vietnam | flaring and use of associated gas as | | | Blocks 9-2 and 16-1 and Egypt, all | fuel to generate power on our offshore | | | of which are operated through JOCs) | production sites in Vietnam and likewise | | | according to its ownership interest. Note | for our onshore production in Egypt. In | | | that although Pharos has interest in Israel, | 2021, in addition to our emissions from | | | to date, no operations have taken place | combustion which have been the focus | | | in country. In addition, in December 2020, | of Pharos reporting until now, we have | | Pharos Energy Annual Report and Accounts 2021 72 CORPORATE RESPONSIBILITY - CONTINUED Annual Environmental Measurements - in accordance with the requirements of the Egyptian Environmental Law 4 for year 1994, the Company carried out annual environmental measurements, and all environmental measurements resulted in less than the threshold limit in the law. Environmental permit non-compliances - the company achieved zero Legal Environmental Violation during 2021 and did not obtain any violations from the Environment Authority in Egypt in 2021. The Company obtained 6 Environmental Approvals from the Ministry of Environment during 2021. GHG emissions and activity data CARBON INTENSITY OF PRODUCTION (TCO e PER 1,000 2 GHG DATA - TONNES OF CO EQUIVALENT FOR 2019 TO 2021 TONNES OF OIL EQUIVALENT PRODUCED) 2 458,129 328 316 450,000 300 291 287 287 287 287 400,000 390,944 274 276 277 372,151 250 245 350,000 338,705 300,000 200 179 250,000 150 200,000 147,173 150,000 100 124,218 120,628 106,380 100,000 50 50,000 | 0 | | | | | | | 0 | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 2019 | 2020 2021 | | | | 2021 | | | 2019 | 2020 2021 | | | 2021 | | | (year round) | | (Venting excluded) | | (with Venting) | | | (year round) | | | (Venting excluded) | (with Venting) | | | | Gross GHG Emissions (CO e (t) | | | Net GHG Emissions (CO e (t) | | | | | | Vietnam Egypt Overall | | | | Scope One and Two emissions from the Group’s operated and joint-operated projects on an equity share basis calculated pro-rata to its ownership interest. | GREENHOUSE GAS EMISSIONS CONTRIBUTIONS | | GREENHOUSE GAS EMISSIONS CONTRIBUTIONS | | | --- | --- | --- | --- | | (TOTAL CO | e (T)) FOR 2021 - VIETNAM (BASED ON | (TOTAL CO | e (T)) FOR 2021 - EGYPT (BASED ON TOTAL | | | 2 | | 2 | | TOTAL FIELD EMISSIONS) | | FIELD EMISSIONS, INCLUDING VENTING) | | ### EGYPTVIETNAM 25,384 13,063 | | Gas Fuel | 149,361 (50.4%) | | | Venting | 33,445 (44.2% | | --- | --- | --- | --- | --- | --- | --- | | | Gas Flared | 115,962 (39.1%) | | | Gas Fuel | 17,989 (23.8% | | 149,361 | | | 10,590 | 33,445 | | | | | Marine Gasoil | 25,384 (8.6%) | | | Gas Flared | 10,590 (14%) | 115,962 | Diesel | 5,595 (1.9%) | | Diesel | 13,063 (17.2% | | --- | --- | --- | --- | --- | | | | | Petrol | (0.4%) | | | | 17,989 | Diesel (Vehicle) | (0.2%) | | | | | Electricity from Grid | (0.2%) | In 2021, 43 tonnes of gas were flared for every 1,000 tonnes of total hydrocarbon production from Group assets on a gross basis (not equity share adjusted). This is a slight increase from 39 tonnes in 2020. 500,000 350 Venting Routine venting emissions have been included for the first time in GHG report in 2021. Routine venting only occurs in Egypt. Although there is no routine venting in Vietnam, accidental leaks can occur. In addition, some activities do occasionally require depressurisation of differing process systems. In these instances, the system(s) will be isolated, and depressurised to as low as possible, and then drained to a closed drain tank. A minor amount of gas commingled with liquid will evacuate out through cold vent line to a safe area. Associated emissions are expected to be negligible and are not included in the 2021 report, but Pharos is committed to include them within the report from 2022. 5,595 Although venting in Egypt was not recorded before 2020, quantities involved are likely to have been lower, as the oil production decrease in 2021 meant the amount of gas produced has become insufficient to operate flare or power gas generators and has been vented instead. ) The Group’s energy use from grid electricity was 311,692 kWh in 2021 for overseas offices in Egypt and Vietnam. In 2020, the Group’s ) energy use was 309,942 kWh; 24,559 KWhs for London and 285,383 KWh for oversea. Pharos assigned the leasehold interest in the former London head office at 48 Dover Street in December 2020. Since the middle of July 2021, Pharos has rented a flexible six-desk office space in London, the electricity consumption of which is not included in the report. ) 73 Pharos Energy Annual Report and Accounts 2021 2 2 Additional InformationGovernance Report Financial StatementsStrategic Report Effluents and waste During 2021, Pharos maintained its record of no spills into the environment in Vietnam. In Egypt, there were three environmental spills as follows: Date Location Description Estimated Quantity (bbls) High salinity water drained on the ground by oil tanker Jan 2021 Egypt - Aboud-1x 3 A full cleaning up of the contaminated soil and disposal by Petrotrade company Minor oil spill around the shipping pump due to failure of Jan 2021 Egypt – Saad-2x 2 its mechanical seal Egypt - El Fayum fields to Suez oil Crude oil shipping truck overturned on regional road August 2021 processing company, about 2 km away 372 causing a leak in tank– no injury from Suez city Water is extracted along with hydrocarbon reservoir fluids as part of normal production operations. In 2021 we generated 6.1 million cubic metres of produced water. In Vietnam, the produced water is cleaned by separating the hydrocarbon phase before discharging to the sea in line with national standards. In Egypt, our produced water is all disposed of in disposal wells. The company has three Produced Water Treat Facilities, PWTF, two of them are in-service at SILAH GS & N. Silah Deep GS and the third is yet to be used at N. E Tersa-1. The produced water is being collected in both PWTF (SILAH & NSD) and then disposed into A/R “E” formation in (+/- 5,000 bbl water disposed into SILAH-15 & +/- 6,000 – 6,500 bbl water disposed into NSD-1-1) disposal wells respectively. In Vietnam, waste is generated from both our production operations as well as from our offshore drilling activities. Drilling waste includes cuttings, used oil and other materials. We work to recycle as much non-hazardous waste as possible. We have a third-party contract for the disposal of hazardous waste, with a reporting system into the specific Vietnamese authorities for checking, audit, and approval. In Egypt, waste generated is segregated into hazardous and non-hazardous waste and disposed of in a licensed facility. Freshwater is used to support our operations. In 2021, freshwater consumption for both Vietnam and Egypt amounted to 58,525 cubic metres. Our use of freshwater has been almost halved compared to 2020, due to the limited number of drilling activity carried out through the year, as the business continued to respond to the low oil price and impact of COVID-19. TONNES (T) OF CO E EQUIVALENT FOR 2021 OPERATIONS 2 CO e (t) per 1000 tonnes of oil 2 3 CO e (t) produced by equity share 2 | | Reported | Operational | | Based on equity | | | | | Per | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | 1 | | | 1,2 | | | | | Country | operations | phase Overall | | | share | | Per field | country | | | UK Rented flexible office space | | Administration (office – electricity usage) - - - - | | | | | | | | - not reported Israel No activity - - - - Egypt Office Administration support for exploration 409 174 - - El Fayum Concession Production 73,458 31,293 328 328 Field development 1,874 1,874 - - Vietnam Cuu Long Office Administration (electricity usage) 1 1 - - Basin (offshore) Blocks 125 & 126 Seismic exploration 2,755 1,929 - - Block 9-2 – Ca Ngu Vang Production 16,640 4,160 59 258 (CNV) field Field development 0 0 - - Block 16-1 – Te Giac Trang Production 266,734 79,220 359 - (TGT) field Field development 10,280 3,053 - - Total 372,151 120,628 316 - 1. Figures include rounding to the nearest whole number. 2. Under equity share, Pharos reports a share of the emissions from the partnerships pro-rata its ownership interest. 3. GHG emission intensity is calculated, per field, and at country level, based on equity share, and gross/net boepd produced in 2021 in the CNV and TGT fields as well as in El Fayum Concession. Pharos Energy Annual Report and Accounts 2021 74 CORPORATE RESPONSIBILITY - CONTINUED Biodiversity The Group’s Biodiversity and In Vietnam, safe practices were adhered • Handling, transportation and disposal Conservation Policy commits us to meet to ensure the surrounding environment is of hazardous waste was undertaken as the objectives of the Convention on protected at all times: follows: Biological Diversity (1992). We identify • The oil in water content of produced - solid hazardous waste to approved whether a project is located in modified, landfill water were continuously monitored natural or critical habitats, or a legally - liquid and solid hydrocarbon waste to protected or internationally recognised • Hazardous wastes have been strictly approved landfill area; and whether the project may managed, with hazardous wastes - waste water to ULTRA EXTRACT potentially impact on, or be dependent manifests completed and submitted to treatment factory on, ecosystems services over which the relevant authorities Pharos has direct management control - water-based mud cutting waste to the • All waste waters and sewage generated or significant influence. In Egypt, the El Fayum Governorate landfill. on the drilling rigs, supply vessels Fayum Concession borders the multiple- An annual environmental monitoring was and FPSO have been treated before use management area and the natural conducted over Petrosilah work locations discharge protectorate area of Lake Qarun which by IMS Company to assess compliance includes important bird habitats. It is • All solid wastes were collected, with applicable environmental law and adjacent to the Wadi El Rayan protected segregated and transported to shore regulation. area, which includes the Wadi Al-Hitan and sent to the appointed contractors who provided waste treatment system We are committed to developing site- World Heritage Site. In Vietnam, Blocks specific biodiversity action plans in the 125 & 126 are approximately 50km In Egypt, similar safe practices were in event that operational sites are within offshore to the Nha Trang Bay Protected place: sensitive areas, incorporating country- Area and the Thuy Trieu Marine Protected • For normal waste, handling and specific strategies and action plans and Area. Consistent with the Biodiversity and disposal was undertaken in compliance working in association with external Conservation Policy, Pharos does not with applicable environmental law advisers to ensure that best practice operate in any UNESCO designated World and regulatory requirements, involving conservation priorities are achieved. Heritage Site and ensures that activities in buffer zones around these sites do contracting with local units. not jeopardise the Outstanding Universal Value (as defined by UNESCO) of these sites. NON-FINANCIAL KPIS (HSES) Target - 2022 2021 2020 2019 Spills to the environment* 0 3 4 2 *Number of spills reported. Target 2021 2020 2019 | Solid non-hazardous waste produced (tonnes) Set per project | 111 | 94 104 | | --- | --- | --- | | Percentage of non-hazardous waste reused or recycled Set per project | 24 | 25 15 | | Solid hazardous waste (tonnes) Set per project | 48 | 41 3,112 | | Percentage of hazardous waste reused or recycled Set per project | <1 | 4 <1 | OVERALL OBJECTIVE To protect the environment and conserve biodiversity 2021 Objectives 2021 Outcomes 2022 Objectives Commission all necessary EIAs before start All environmental permits obtained prior to Obtain all necessary environmental permits for all of activities or projects starting operational activities drilling programmes / seismic studies Complete gap analysis and fully implement Improve methane emissions management and Work in progress Pharos standards reporting Implementation of the new country entry There has been no new country entry in To be applied if there is a new country entry procedure prior to any acquisition. 2021 Partly achieved – one GTC was shut down Flaring in Vietnam is better managed with Carry out further feasibility studies / cost benefit in mid-Nov 21 this caused an increase in re-staged compressors analysis on a few CO reduction technologies daily flaring levels 2 Phase 2 of TCFD implementation Look to resume at the appropriate time completed Continue with TCFD alignment - disclosure & reporting Continue Phase 2 TCFD implementation Project GOO has been placed on hold due Map out Pharos decarbonisation plan Project GOO - Greening our Operations to lack of funding 75 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report ## Society ## Our Social Responsibility and Human Rights Policies set our ## requirements for social responsibility, community engagement ## and human rights. Human rights continue to have positive impacts on the Egyptian universities for training in the region. In addition to the training levy of administrative office and the company’s The Group Human Rights Policy commits $300,000 per year in a ring-fenced fund fields, of which they can obtain a training Pharos to conducting its business to support developing future Vietnamese certificate from the company (UN SDG 4: in accordance with the fundamental expertise in the industry, a further Quality education). principles of human rights set out in the $265,000 was invested in 12 community Universal Declaration of Human Rights Social projects like these have been part projects. The JOCs actively inquired and and reflects the terms of both the OECD of Pharos since inception, and we have listened to locals to identify which areas Guidelines for Multinational Enterprises always sought to invest sustainably so of the country would need the greatest and the United Nations Guiding Principles that the initiatives that we helped set up, assistance in order to ensure that we on Business and Human Rights. Together stay in place, and have lasting impacts for were investing in local projects that with our Social Responsibility Policy, it many generations. would bring the most sustainable positive sets out our commitments to align with impact to the community. For instance, the Voluntary Principles on Security and in Q1 2021, the Group provided financial Local capacity Human Rights. We respect indigenous support for autistic children at Anh Dao We support local capacity building during rights and cultures of the communities Specialised Educational Centre in Ha the exploration or development phases of where we operate. | | Tinh province, with additional donations | a project to ensure a positive imprint and | | --- | --- | --- | | Our human rights due diligence includes | towards providing therapy for children with | legacy. All our licence agreements include | | processes to address, monitor and | disabilities at An Tue Social Assistance | a high degree of local content, which | | communicate actual or potential impacts. | Centre, Thua Thien Hue province (UN | commits us to hire locally where possible | | | SDG 3: Good health & wellbeing and UN | and provide training to develop new | For Egypt, all Group corporate policies SDG 4: Quality education). In Q2 2021, skills. Our policy commits us to provide including the Human Rights Policy and the Donation Programme helped fund meaningful opportunities for technical co- the Social Responsibility Policy, have been the construction of a community culture operation, training and capacity building translated into Arabic for dissemination house in Hop Hung commune, Vu Ban within any host country in which we locally. district, Nam Dinh province which, once operate. In accordance with the UK Modern finishes, will act as a communal education Slavery Act, Pharos reports annually on house for children in the area for years Community projects in Vietnam the steps it has taken to mitigate the risk to come (UN SDG 4 Quality education 2021 via the HLHVJOC Donation of modern slavery occurring in any part and UN SDG 9: Industry, innovation and Programme of its business. The Group’s Statement infrastructure). on Modern Slavery is available on the While the yearly contributions from As at 2021, Pharos has invested c.$1.2 Company’s website at https://www. HLHVJOC Foreign Partners for community billion in the exploration, appraisal and pharos.energy/modern-slavery-act/. and social projects are set at $200,000, development of oil and gas projects historically, HLHVJOC charitable located offshore Vietnam since inception, donations have been in excess of this. The Community and social investment of which $6.2 million was for training levy additional contributions were raised by Pharos remains committed to creating and charity donation projects, making staff through fundraising event and from value for host countries and local Pharos one of the largest British investors various donations by expat members, communities as well as for staff and in the country. anytime during the year when there are shareholders. We understand that our unforeseen typhoons or national disasters In Egypt, under the El Fayum and North success is reliant upon building strong that cause widespread devastation, such Beni Suef Concession Agreements, the relationships and being welcomed as a as flooding and landslides destroying Company contributes a total of $200,000 responsible partner in our host countries infrastructure, houses, livestock, and split equally between the two Concessions and communities. In recent years, we crops. Additionally, staff donations are to support long-term training and have structured our social investment matched by HLHVJOC and then added to development of talents within the industry programme to align more with the United the total budget. (UN SDG 9: Industry, innovation and Nations Sustainable Development Goals infrastructure). Additionally, in cooperation (UN SDGs). We look to replicate this in the future with with the Ministry of Higher Education and our community and social investment In Vietnam, in 2021, we worked closely Scientific Research, Petrosilah holds an programmes in Egypt and London. with the JOCs in order to make sure annual summer training programme for all that our social initiatives in the region students applying from public and private Pharos Energy Annual Report and Accounts 2021 76 CORPORATE RESPONSIBILITY - CONTINUED UN SDG 1 – NO POVERTY SOCIETY CASE STUDY End poverty in all its forms everywhere ### Engaging with host ### communities • Financial support for low-income households in Tran Hung Dao commune, Ha Nam province and Son Binh commune, Ha Tinh province in 2021 Lunar New Year VIETNAM • Financial support for low-income households in Doan Ket commune, Bu Dang district, Binh Phuoc province on 2021 Lunar New Year • Financial support the House of Grace Orphanage (Hồng Ân House) in Thu ### $30,400 Duc city, Ho Chi Minh city, Viet Nam Charitable donation from the HLHVJOCs • Financial support to green summer volunteers to build roads for the low- to autistic children at Anh Dao income community in Dong Thap province Specialised Educational Centre in Ha • Financial support towards children in areas hit hardest by the COVID-19 Tinh province, with additional $30,400 pandemic donations towards providing therapy for children with disabilities at An Tue • Financial support to Agent Orange victims in the central provinces in Quang Social Assistance Centre, Thua Thien Tri and Thai Binh province Hue province. UN SDG 3 – GOOD HEALTH & WELL-BEING ### $100,000 Charitable donation to fund the Ensure healthy lives and promote well-being for all construction of a community culture at all ages house in Hop Hung commune, Vu Ban district, Nam Dinh province which, • Financial support for Tran Hai Nam, our Vietnamese employee, and his once finishes, will act as a communal mother for cancer treatment education house for children in the area • Financial support the COVID-19 epidemic prevention fund through the for years to come. HLHV JOCs Labor Union • Funding to support the Government’s COVID-19 Vaccine Fund through ### PVEP $25,400 In financial support for the COVID-19 pandemic prevention fund through the HLHVJOCs’ Labour Union and the UN SDG 4 – QUALITY EDUCATION Government’s COVID-19 Vaccine Fund through PVEP. Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all • Financial support to Autistic Children at Anh Dao Specialised Educational Center – Ha Tinh Province EGYPT • Financial support to therapy for children with disabilities at An Tue Social Assistance Center – Thua Thien Hue province. In cooperation with the Ministry of Higher • Financial support construction funding community education culture house Education and Scientific Research, in Hop Hung commune, Vu Ban district, Nam Dinh province Petrosilah holds an annual summer training programme for all students applying from public and private Egyptian universities for training in the administrative office and the company’s fields, of which they can obtain a training certificate from the company. ## Total ## $265,000 Overall objective To consult with and contribute into our host communities 2021 Objectives 2021 Outcomes 2022 Objectives Country managers to implement recommendations from Continuation of the social investment programme in On target human right due diligence exercise prior to any operation Vietnam, with further alignment to UN SDGs Honour social obligations under production sharing Improvement in social investment programmes in On target agreements. Egypt and London Review and implement recommendation from human rights due diligence report for Israel 77 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report ## Corporate Responsibility ## Non-Financial Indicators | | | | | 2021 | | | 2020 2019 | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Hours worked (million) | | | | 3.1 | | | 2.97 2.35 | | | | | Lost Time Injury Frequency Rate (number of lost time injuries per million man-hours) | | | | | 0 | | 0.34 0 | | | | | Fatal Accident Frequency Rate (number of fatal accidents per hundred million man-hours) | | | | | 0 | | | 34 0 | | | | Fatal Accidents | | | | | 0 | | | 1 0 | | | | Total Recordable Injury Rate (number of recordable injuries per million hours worked) | | | | | 0 | | 0.34 0.42 | | | | | | | 6 | | | | | | 1 | | 1 | | Total GHG emissions (tCO | e) by equity | | 120,628 | | | 124,218 | | | 147,173 | | 2 1 1 Scope 1 total GHG emissions (tCO e) by equity 120,561 124,151 147,101 2 1 1 Scope 2 total GHG emissions (tCO e) by equity 67 67 72 2 Scope 3 total GHG emissions (tCO e) by equity Not measured 2 2 2 GHG intensity by production (tonnes of CO e per 1,000 tonnes of oil produced by equity share) 3161 276 287 2 Total hydrocarbons flared (Tonnes of hydrocarbons flared for every 1,000 tonnes of production on 2 2 43 39 38 a gross basis) Energy use (grid electricity kWh) 311,692 309,942 335,873 Total energy consumption (from fuel combustion, other operations and purchased electricity) 3 285,942 256,913 266,884 in MWh Non-hazardous waste produced (tonnes) 111 94 104 4 | Hazardous waste produced (tonnes) | | 48 | | 41 3,112 | | --- | --- | --- | --- | --- | | Percentage non-hazardous waste recycled | | 24 | | 25 15.05 | | Percentage hazardous waste recycled | | <1 | | 4 0.12 | | Spills to the environment (>100 litres) | | 3 | | 4 2 | | Oil in produced water content (Vietnam Blocks 16-1/9-2) | | 28 | | 29 28 | | Freshwater use (cubic metres) | 58,525 | | 102,820 202,453 | | 5 | HSES regulatory non-compliance | | 0 | | 0 0 | | --- | --- | --- | --- | --- | | Community investment spend ($) | 265,000 | | 245,191 245,379 | | | Community investment spend ($) | 245,191 | | 245,379 209,408 | | Note 1: Pharos normalised emissions in 2021 include emissions from venting in Egypt, whilst they were not included in 2019 and 2020. Note 2: Pharos equity in Vietnam TGT field changed from 30.04 % in 2019 to 29.7 % in 2020. The equity variation is not significant compared to Pharos total emissions, and therefore data of 2019 and 2020 provide a meaningful comparison. Note 3: In line with the UK government’s Streamlined Energy and Carbon Reporting (SECR) policy, energy consumption from fuel combustion Note 4: During 2019, in Egypt, many open drain pits were cleaned and backfilled, resulting in the disposal of a significant volume of hydrocarbon contaminated soil. Note 5: Although three regulatory non-compliances were reported in our Egyptian assets in 2019, these occurred in January, prior to the completion of our acquisition. Note 6: Under Section 385(2) of the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations, 2013 and in line with the requirements of the Climate Change Act (2008), carbon reporting for UK-listed companies in directors’ annual reports is mandatory for reports published after 30th September 2013. The regulations cover the six Kyoto Protocol GHG cited in Section 92 of the Climate Change Act: carbon dioxide (CO ), methane (CH ), 2 4 nitrous oxide (N O), hydrofluorocarbons (HFC), perfluorocarbons (PFC) and sulphur hexafluoride (SF6). The Companies Act 2006 regulation does not state 2 which methodology a company has to use but requires that this methodology is clearly disclosed. Approval of the Strategic Report This report was approved by the Board of Directors on 15 March 2022 and is signed on its behalf by JANN BROWN Managing Director Pharos Energy Annual Report and Accounts 2021 78 CHAIR’S INTRODUCTION TO GOVERNANCE ## Focus on delivering ## full potential Dear shareholders In March 2021, the Company announced that we had reached agreement with 2021 was a transformative year for EGPC, the industry regulator and Pharos Energy. In the first half of 2021 state oil company in Egypt, to various we completed the equity placing, amendments to the El Fayum Concession subscription and retail offer to raise (known collectively as “The Third finance for the El Fayum waterflood Amendment”) the most important effect programme, followed in the second of which was an improvement in the fiscal half of the year by the restructuring of terms backdated to November 2020. the organisation due to the industry The improved terms were subjected to downturn. This was a necessary action parliamentary and presidential approval, to reposition the business on a path to which were obtained in January 2022. growth with careful cost reduction and As a result of this Third Amendment, capital allocation in the best interests of JOHN MARTIN Contractor share of revenues increased all stakeholders. The restructuring realised Non-Executive Chair by 20%, from c.42% to c50% whilst in full significant efficiencies and reductions in cost recovery mode. overheads, allowing the Group to meet future challenges with a leaner structure. In Vietnam, we were pleased to announce in July 2021 the completion of the 3D There has been significant progress this seismic programme on the western part year in both Egypt and Vietnam; Pharos of Block 125 in the Phu Khanh Basin, has successfully managed the impacts of and in September 2021 the Government the global COVID-19 pandemic and the approval for a 2-year extension to the resultant oil price crash and is creating the initial exploration period of the Block right opportunities to thrive in the future. 125 & 126 PSC. There is a commitment | In particular, 2021 saw the successful | to drill one well on these Blocks within | | --- | --- | | conclusion of the process to seek | this period and we will look to bring in | | a partner for our Egyptian assets. | a partner pre-drill following processing | | In December 2021, the Company | and interpretation of the newly acquires | | announced that shareholders had | seismic data. The gathered 3D data will | | approved the farm-out of 55% of the | be critical to attracting an investment | | Group’s operated interest in each of our | partner for any subsequent drilling phase, | | Egyptian Concessions, El Fayum and | and exposure to acreage with such | | North Beni Suef, to IPR, an integrated | material potential will offer significant | | energy services group with extensive | growth opportunity for the future. On | | experience in Egypt. Following completion | TGT, the TGT four-well well intervention | | of the farm-out and the transfer of | and development drilling programme | | operatorship, IPR is set to embark on | commenced in July 2021. Phase 1 of the | | a multi-year investment waterflood and | campaign was successfully completed in | | drilling campaign on El Fayum. As part | November 2021, ahead of schedule and | | of the transaction, IPR will fund Pharos’s | c.$20 million below the JV gross budget. | | retained 45% share of the costs of the | Two further TGT wells are planned to be | | future work programme on the Egyptian | drilled in 2022, plus one well on CNV. | | assets to a maximum of $33.425m (to be | The JOC is now progressing work on | | adjusted for working capital and interim | submitting licence extension requests for | | period adjustments from the effective | both TGT & CNV, with a Revised Full Field | | economic date of 1 July 2020). This is | Development Plan for both fields to be | | in addition to the deposit at signing of | submitted by Q4 2022. | the farm-out agreements of US$2 million and receipt of a further US$3 million in cash on completion. This investment programme should result in an increase in production on El Fayum and will also fulfil work commitments under the concessions. 79 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report | The Board approved a restructure of | During 2021 the Nominations Committee | The Executive Directors at the start of | | --- | --- | --- | | the head office organisation, realising | (see the report on pages 95 to 96) | the year continued to take a reduction of | | significant efficiencies and reductions in | focused on reviewing our Board | 35% of their salaries for the first quarter | | the overhead costs of the company and | composition, succession planning for key | and then further reduced this by another | | allowing the Company to meet future | roles at Executive level, a review of annual | 15% (to a total reduction of 50%) from | | challenges with a leaner structure. In July | Board evaluation, and annual Director | 1 April 2021 for the Executive Directors | | 2021 we also completed the refinancing | re-appointments. The Board ensured full | in office at that date. These reductions | | of the Group’s RBL facility secured by the | compliance with the 2018 Corporate | were in place for the remainder of the | | producing assets in Vietnam, providing | Governance Code. | year. The Chairman, who had reduced | | access to a committed $100m facility | | his fee by 25% on assuming the role in | I am delighted that we were able to fill the with a further $50m is available on an March 2020, also took an additional 25% position of Chief Financial Officer (“CFO”) uncommitted accordion basis. The reduction along with the other Non- with an internal candidate - Sue Rivett, refinancing also extended the tenor of Executive Directors as from 1 May 2020, who took on the role from 1 July 2021 the facility by 22 months, providing useful which reductions continued throughout and joined the Board at that time. Further funding flexibility. the full year 2021. The Executive Directors changes to the Board were discussed volunteered to reduce significantly their Pharos continues to manage its towards the end of 2021, and these were LTIP award for 2021, the second year of operations carefully in light of the finalised and announced on 13 January a reduced award. The policy limit is 200% COVID-19 pandemic and associated legal 2022 to take effect when the farm-out of salary but existing Executive Directors and regulatory restrictions and public transaction with IPR is completed. On received an award in 2021 equivalent to health guidance. The Group is adhering completion of that transaction, Jann 29% of contractual entitlement, whilst closely to applicable procedures, rules Brown will assume the role of Chief Sue Rivett, as the new CFO, received an and requirements within all host countries. Executive Officer (“CEO”) as one of two award of 35% of contractual entitlement. Executive Directors alongside CFO Sue Throughout the year, the Board devoted Additionally, the bonus award for 2021 Rivett. Jann has been a member of the considerable time to supporting and was voluntarily reduced by 20% from Board since 2017 and was formerly challenging the executive team in 72.5% to 58% for the Executive Directors. Managing Director and CFO. Also on assessing farm-down opportunities, As set out in the Directors’ Remuneration completion, Ed Story will step down portfolio management and capital Report from pages 102 to 116, an from the Board as CEO, after leading allocation. The Board received regular updated Remuneration structure has been the Company for over 20 years since detailed updates from the executive team put in place effective upon completion its admission to the main market of the and other key members of staff and time of the transaction with IPR to reflect the London Stock Exchange in 1997. Ed was allocated to strategic, operational, scale of the business. will remain as President of the Vietnam ESG and corporate matters. In pursuit business, which provides both cash flow Finally, I look forward to continuing to of the best interests of shareholders, and growth potential to the Group. In work closely with the Board and senior the Non-Executive Directors (“NEDs”) addition, as part of the post transaction management as we focus on delivering brought constructive challenge to the restructuring, Dr Mike Watts will step the full potential of the Company’s executives’ proposals and direction, down from the Board on completion. opportunities and a return to growth built offering direction and support. Key areas Mike has been actively involved with the on all of the work that has been done to of focus for the NED’s discussions in 2021 Company for over 25 years, since its pre- refresh the Company, its governance and were overseeing the reorganisation of the IPO inception, and has been instrumental its Board. A priority for 2022 will be to head office, farm out of Egypt, succession in building its international portfolio during ensure a smooth transition of operatorship planning, ESG, effective implementation this period including its current projects in Egypt to IPR. Looking ahead, we of Group strategy and oversight of in Vietnam and Egypt. I thank Mike for his intend to focus on the Company’s operational, financial performance and strong contribution. existing asset portfolio, and to continue KPIs. to carefully manage the cost base and Finally, in support of the succession policy Safety has remained a top priority for the capital structure to balance the need for to slim down the Board and having served Group. In 2021, we delivered an excellent efficiency in the short term with the need as Non-Executive Director, Senior Non- performance from a health and safety for investment in the long term. I am Executive Director and Deputy Chairman perspective. There were zero Lost Time excited about the prospects for Pharos in his nearly 9 years on the Board, Rob Injuries (LTIs) across all Group operations Energy and look forward to the year Gray has indicated that he will not be throughout the year. ahead. putting his name forward for re-election | The ESG Committee continues to focus | as a Director at the AGM in May 2022. | | --- | --- | | on its stakeholders’ health and safety | We thank Rob for all his commitment and | | during the COVID-19 pandemic. The | support over the years. | development of ESG KPIs including Looking ahead to 2022 the result of these climate change and health and safety changes will be to reduce the size of the metrics demonstrate that the Group Board from nine Directors (four Executives takes its responsibilities in this area very and five NEDs) to six (two Executives seriously. Further focus has been around and four NEDs), which will be more approval and oversight of the work on appropriate to the size and shape of the Phase of 2 of TCFD, ongoing social Company. project investments in Vietnam and a JOHN MARTIN review and discussion on ESG practices Non-Executive Chair across industry peers and CO reduction 2 options for Pharos. Pharos Energy Annual Report and Accounts 2021 80 CHAIR’S INTRODUCTION TO GOVERNANCE - CONTINUED Board Members John Martin* Dr Mike Watts Lisa Mitchell * Non-Executive Chair and Chair of Managing Director and ESG Committee Non-Executive Director, Chair of Audit and Nominations Committee and ESG member (retiring from Board upon Risk Committee, Nominations Committee Committee completion of the IPR transaction) member and ESG Committee member Ed Story Rob Gray* Marianne Daryabegui* President and Chief Executive Officer, Deputy Chair, Non-Executive Director and Non-Executive Director, Audit and Risk Nominations Committee member Senior Independent Director, Audit and Committee member, Remuneration and ESG Committee member (retiring Risk Committee member, Remuneration Committee member, Nominations from Board upon completion of IPR Committee member, Nominations Committee member and ESG Committee transaction) Committee member and ESG Committee member member (retiring from Board at the conclusion of the 2022 AGM) | Jann Brown | Geoffrey Green* | | --- | --- | | Managing Director (also CFO until 30 | Non-Executive Director, Chair of | | June 2021) and ESG Committee member | Remuneration Committee, Nominations | | (Appointed as CEO upon completion of | Committee member, Audit and Risk | | the IPR transaction) | Committee member and ESG Committee | member * Independent Non-Executive Directors. Diversity of skills, backgrounds and experience The Board places importance on the diversity of approach, experience, knowledge, skills, and professional, educational and cultural backgrounds. This diversity has brought an international and global outlook which has been particularly beneficial to the Board’s discussions about the strategic positioning of its current and new business ventures. As at 31 December 2021, the Group had a Board of nine Directors. Meeting attendance During each Director’s respective term of office during 2020 Environmental, Board meeting Audit and Risk Remuneration Nominations Social and (scheduled Board meeting Committee Committee Committee Governance Director quarterly) (additional) meeting meeting meeting Committee meeting John Martin ++++ ++++ ***** *** +++ ++++ Ed Story ++++ ++++ ***** * * ++++ Jann Brown ++++ +#++ * * * ++++ Dr Mike Watts ++++ +#++ ** * * ++++ Sue Rivett (appointed **++ ++++ ***** * **++ (1) director 1 July 2021) Rob Gray ++++ +#++ +++++ +++ +++ ++++ Geoffrey Green ++++ ++++ +++++ +++ +++ +++ Lisa Mitchell ++++ ++++ +++++ ** +++ +++ Marianne Daryabegui ++++ +#++ +++++ +++ +++ ++++ + Attended as member * Attended as invitee # Not attended In addition to the four scheduled quarterly meetings, the Board met in 2021 on an additional four occasions to deal with specific business matters which required Board approval. One of the additional meetings included a Board strategy meeting in October 2021, which was fully attended. Notes: (1) Sue Rivett was invited to attend two Board meetings prior to her appointment on 1 July 2021. Following the Government guidance and the Company’s health and safety considerations in response to the COVID-19 pandemic, it was not possible for Directors to attend the 2021 AGM in person – this meeting was attended by the Chair and another Pharos designated shareholder representative present in order to meet the meeting quorum requirements. 81 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report Management Board of Directors Executive leadership teamManagement Committees Further support the Board and comprise the Responsible for day-to-day management of our following key committees: business and operations and for monitoring detailed performance of all aspects of our business. • Disclosure • Treasury • Bid Defence Principal Committees of the Board Environmental, Social and Audit and Risk Committee Remuneration Committee Nominations Committee Governance Committee L Mitchell (Chair) G Green (Chair) J Martin (Chair) J Martin (Chair) R Gray* M Daryabegui E Story** R Gray* M Daryabegui R Gray* R Gray* E Story** Geoffrey Green M Daryabegui M Watts** L Mitchell J Brown G Green M Daryabegui L Mitchell G Green S Rivett Responsible for the Responsible for the Responsible for ensuring Responsible for defining integrity of the Financial design, development and the leadership needs the Group’s strategy Statements and narrative implementation of the of the Company are related to ESG matters, reporting, including annual Company’s remuneration sufficiently appropriate to review of the Group’s ESG and half year reports. policy. ensure continued ability to policies, programmes compete effectively in the and initiatives and, more marketplace. generally, oversight of the Group’s management of ESG matters. * Retiring from Board and all Board committees with effect from the conclusion of the 2022 AGM ** Retiring from Board and all Board committees upon completion of IPR transaction. Pharos Energy Annual Report and Accounts 2021 82 BOARD OF DIRECTORS ## Experienced leaders ## guiding our future ### 1 2 3 ### 4 5 6 ### 7 8 9 83 Pharos Energy Annual Report and Accounts 2021 Strategic Report Governance Report Financial Statements Additional Information ## 1: John Martin ### Non-Executive Chair Appointed: October 2019 John has more than 30 years' experience in international banking in the oil and gas industry and was a Senior Managing Director in the Oil and Gas team at Standard Chartered Bank. Prior to joining Standard Chartered in 2007, John worked for ABN Amro for 26 years, specialising in the energy sector. John has served as the Senior Vice President of the World Petroleum Council, and as an Independent Non-Executive Director of Rockhopper Exploration plc. He was previously Chairman of Falkland Oil and Gas Limited, an Independent Non-Executive Director on the board of Bowleven plc and, an Independent Non-Executive Director and Chair of the Audit Committee of Total E&P UK Limited. ## 2: Ed Story ### President and Chief Executive Officer Appointed: April 1997 (retiring as Chief Executive Officer and a member of the Board upon completion of IPR transaction) Ed was a founding Director of the Group. Under his leadership, the Group acquired its principal assets in Vietnam and progressed the assets from initial exploration through to being one of the largest producing fields in Vietnam. Ed has over 50 years' experience in the oil and gas industry, beginning with various roles at Exxon Corporation, including seven years resident in the Far East. He was formerly the Vice President and CFO of The Superior Oil Company, a co-founder and Vice Chairman of Conquest Exploration Company and a co-founder and President of Snyder Oil Corporation's international subsidiary, which merged its Australian-controlled entity, Command Petroleum, into Cairn Energy. Ed was a Non-Executive Director of Cairn Energy plc until 2008 and Cairn India Limited until 2017. Ed is currently a Non-Executive Director of Vedanta Resources plc and a founder and member of the Cleveland Clinic International Leadership Board. ## 3: Jann Brown ### Managing Director Appointed: November 2017 (Managing Director and Chief Financial Officer November 2017 – July 2021; Managing Director from July 2021 – present; and Chief Executive Officer upon completion of IPR transaction) Jann served as co-head of the Company's Business Development group between February 2017 and November 2017 before her appointment to the Board. Jann currently serves as an Independent Non-Executive Director and Chair of the Audit Committee of Troy Income and Growth Trust plc and of the Scottish Ballet. She is also an Independent Non-Executive Director of RHI Magnesita N.V. Jann previously served as an Independent Non-Executive Director and Chair of the Audit Committee of John Wood Group P.L.C. and was formerly the Managing Director, Chief Financial Officer and Executive Director of Cairn Energy PLC (now Capricorn Energy PLC) where she had responsibility for project managing Cairn India Limited's initial public offering. Jann also previously served as the Joint Chief Executive Officer and Chief Financial Officer at Magna Energy Limited, of which she was also co-founder and is a past president of the Institute of Chartered Accountants of Scotland. ## 4: Dr Mike Watts ### Managing Director Appointed: November 2017 (retiring as member of Board post completion of IPR transaction) Mike served as co-head of the Company's Business Development group between February 2017 and November 2017, and as an Independent Non-Executive Director of the Board between August 2009 and January 2017. He was formerly the Deputy Chief Executive of Cairn Energy PLC (now Capricorn Energy PLC) and the Chief Executive Officer and Managing Director of the Amsterdam listed Holland Sea Search Holding NV. Mike joined Royal Dutch Shell in 1980 and has nearly 40 years of oil industry experience. He has been associated with over 50 oil and gas discoveries. Mike was also the architect of the South Asia strategy at Holland Sea Search and Cairn, which led to the creation of a >200,000 boepd business. Mike has held senior technical and management roles with Premier Oil, Burmah and Shell. ## 5: Sue Rivett ### Chief Financial Officer Appointed: July 2021 Sue Rivett, formerly Group Head of Finance and UK General Manager, has been with the Company for over six years. Prior to joining Pharos, Sue held senior finance roles with Conoco, ARCO British (subsidiary of Atlantic Richfield Company), JKX Oil & Gas plc and Seven Energy. Sue's various roles have included heading up full FTSE finance functions including finance, taxation, treasury, IT, corporate planning and Company Secretary. She was Head of ARCO British trading arm's back office and mid office and has considerable joint venture experience and numerous years M&A experience. Sue is a Fellow of the Chartered Institute of Management Accountants ("FCMA") with international experience and over 38 years in the energy business. Pharos Energy Annual Report and Accounts 2021 84 BOARD OF DIRECTORS - CONTINUED ## 6: Rob Gray ### Deputy Chair, Non-Executive Director and Senior Independent Director Appointed: December 2013 (retiring May 2022 on conclusion of the 2022 AGM) Rob has been an adviser to the natural resources sector for more than 30 years. Rob qualified as a solicitor in 1981 at Allen & Overy and then went on to help establish James Capel & Co. Petroleum Services, a successful advisory and Mergers & Acquisitions practice. Rob's experience includes 13 years at Deutsche Bank where he was latterly a Senior Advisor having been Chairman of UK Investment Banking for five years and formerly Global Head of Natural Resources. Rob was previously a Director and Head of the Natural Resource Group at Robert Fleming & Co. Ltd. for four years, a group which he established. Between 2000 and 2010, Rob was an Advisory Board Member for Heerema Marine Contractors. Rob was a co-founder of RegEnersys, a natural resources investment entity and is currently the principal of ReVysion LLP. In 2018 Rob was appointed an adviser to the T2 Energy Transition Fund of Tikehau Capital. ## 7: Marianne Daryabegui ### Non-Executive Director Appointed: March 2019 Marianne is currently the Chief Financial Officer of Lithium de France, a renewable company focused on geothermal energy and lithium extraction. She was Head of Natural Resources at BNP Paribas and then Managing Director at Natixis in the Energy sector. She has extensive experience in corporate transactions and capital markets and has advised majors, independent E&Ps and national oil companies. Prior to leading the Oil and Gas Corporate Finance Team in 2006 at BNP Paribas, Marianne headed the Commodity Structure Finance team for the Middle East and Africa. Before joining the banking sector Marianne spent eight years at TOTAL. Marianne has a Master's degree in Finance and Capital Markets from Sciences Po University, Paris and a Masters in Tax and Corporate Law. ## 8: Lisa Mitchell ### Non-Executive Director Appointed: April 2020 Lisa is currently the Chief Financial Officer of Orca Energy Group Inc. a TSX-V listed company, and also serves as a Non-Executive Director of Wiluna Mining Corporation Limited, a company listed on the Australian Securities Exchange ("ASX"). Lisa is an experienced CFO with over 25 years' international experience, across the oil and gas, mining and the pharmaceutical industries. She was most recently CFO of San Leon Energy plc and was previously CFO and Executive Director of Lekoil Limited, the African-focused oil and gas exploration and production company with interests in Nigeria. Prior to this, Lisa was CFO and Executive Director at Ophir Energy plc, formerly a FTSE 250 company where she was responsible for contributing to the overall business strategy of Ophir; leading the finance function including all financial, taxation, treasury and funding requirements and investor relations. Lisa's previous roles include CSL Limited, and Mobil Oil Australia. Lisa is a Certified Practicing Accountant (FCPA Australia) and holds a Bachelor of Economics (major in Accounting) from La Trobe University, Melbourne and a Graduate Diploma in Applied Corporate Governance from the Governance Institute of Australia. ## 9: Geoffrey Green ### Non-Executive Director Appointed: May 2020 Geoffrey has many years of legal and commercial experience in advising UK listed companies on corporate governance, mergers and acquisitions and corporate finance. He retired as a partner of Ashurst LLP, a major international law firm, in 2013 after 30 years as a partner including 10 years of service as the firm's elected senior partner and chair of its management board. He then served as head of Ashurst's Asia practice from 2009 to 2013, based in Hong Kong, and was responsible for leading the firm's strategy and business development throughout the Asia region. Until 31 December 2020 Geoffrey was the Non-Executive chair of the Financial Reporting Review Panel, one of the main subsidiary bodies of the Financial Reporting Council, and is currently a member of the FRC's Conduct Committee. He is also a Non-Executive director of a Hong Kong based private equity fund and was until recently a Non-Executive director of Vedanta Resources plc, formerly a FTSE 250 natural resources company, where he was also chair of the Remuneration Committee. He has a degree in Law from Cambridge University and qualified as a solicitor at Ashurst LLP and investor relations. Lisa's previous roles include CSL Limited, and Mobil Oil Australia. Lisa is a Certified Practicing Accountant (FCPA Australia) and holds a Bachelor of Economics (major in Accounting) from La Trobe University, Melbourne and a Graduate Diploma in Applied Corporate Governance from the Governance Institute of Australia. 86 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report CORPORATE GOVERNANCE REPORT ## Corporate governance report | 2021 statement of compliance with | monitoring the culture of the Group and | Company’s long-term strategy going | | --- | --- | --- | | the 2018 Code | ensuring that the Group’s policies and | forward, which was an additional area | | | practices are aligned with this. There | of feedback from the anonymous | We are committed to the highest are a number of ways in which the surveys. standards of corporate governance and Board monitor and assess the culture, to compliance with the UK Corporate In another survey, colleagues gave which is detailed in our colleague Governance Code 2018 which sets out views on future working patterns. engagements below. | the principles that emphasise the value of | | Regardless of location, there was | | --- | --- | --- | | good corporate governance to long-term | The Board placed great importance | a clear preference for permanently | | sustainable success. The Company was | on the level of engagement with senior | blending office with home working | | in full compliance with the provisions of | management and other colleagues. | in the future. This has informed the | | the 2018 Code throughout the year. | The Board remains passionate about | development of our balanced working | | | workforce engagement and fostering | programme and led to our rental of a | The section below demonstrates our a genuine dialogue between the small serviced office space in central application of the Principles of the 2018 Company and staff. Throughout London, which seeks to address UK Code. | | the year, we ran a dedicated | employees’ working needs and provide | | --- | --- | --- | | | Monday weekly meeting to ensure | greater flexibility in how and from where | | Board Leadership and Company | all colleagues were continuously | those employees want to work after | | Purpose | informed about important business | removal or relaxation of travel and | | | developments in the Company and | public gathering restrictions introduced | | Purpose and Culture | have channels through which they | in response to the COVID-19 | | | can ask questions and provide input. | pandemic. | It has been important to the Board Additionally, there was increased use to preserve and enhance a corporate Additionally, there has been other forms of video camera during virtual calls to culture of honesty, fairness, transparency, of engagement including extending maintain visibility and connection. The engagement and respect. The Board participation in the Company’s share recent reorganisation of the Group schedule format has been adjusted to schemes and other feedback channels, has instituted a flatter organisational give space for increased engagement including through the Group’s structure, allowing for shorter lines amongst the NEDs, including the Whistleblowing Policy and access to a of management and more direct, Senior Independent Director and the dedicated, anonymous and confidential accessible channels of communication Chair, without the presence of the ethics hotline. with leadership. During the year, the Executive Directors, and to provide designed Non-Executive Director further opportunity to raise and discuss responsible for workforce engagement • Shareholder engagement concerns. Our purpose is to continue carried out town hall meetings with to provide energy for communities The Board as a whole has responsibility staff in the UK, Egypt and Vietnam around the world and fuel their lives and for ensuring that a satisfactory dialogue offices, during which everyone could businesses. with shareholders takes place. The share their feedback and views about Executive Directors are responsible for the Company. Outcomes of these Stakeholder engagement ensuring that effective communication meetings were then communicated is maintained with key stakeholders back to the Board. • Colleague engagement and partners, including an appropriate The Executive Directors received level of contact with major shareholders The Board understand that the strategy regular updates on colleague and ensuring that their views are and long-term success of the Group engagement to understand any communicated to the Board. The Chief is dependent on a strong culture and complaints or troubles from the Financial Officer has management set of values that is clear and guide changing work environment. Following responsibility for investor relations. everything we do. Our approach feedback from various anonymous is driven by the strength, skills and To maintain a clear understanding of staff surveys, the Executive Directors imagination of our people, and our the views of shareholders, all Directors organised an off-site away day for the shared purpose to make a positive receive a quarterly investor relations London team to better understand impact in everything we do. The way report, which includes market updates, employees’ working preferences and we work and do business is based on brokerage and communications to explore any concerns arising from five guiding principles which we call reports, share register and share working from home in the past year. Ed the Pharos Way: Safety & Care, Energy performance analysis and comments Story, who was CEO at the time, could & Challenge, Openness & Integrity, and notes from research analysts and not travel to the UK due to COVID-19 Empowerment & Accountability, proxy agencies. travel restrictions, but joined the off-site and Pragmatism & Focus. They are meeting virtually via Microsoft Teams Pharos had an open and active reinforced by our Code of Conduct in order to participate in the session dialogue with its institutional, private and Business Ethics. The Board with the rest of the team. Ed also used and retail shareholders throughout has responsibility for assessing and the opportunity to communicate the the year. The Company uses its online Pharos Energy Annual Report and Accounts 2021 86 CORPORATE GOVERNANCE REPORT - CONTINUED presence to post and disseminate key information promptly to a wide audience. The Company's website is regularly used by shareholders and stakeholders for email communication with management. The official Twitter and LinkedIn accounts of Pharos continue to be used actively. The Company uses a PR agency to provide assistance in the dissemination of information to shareholders and the general public and also to solicit active feedback as to the effectiveness of such efforts. Additionally, in 2021, for the first time ever, the Company embedded an analyst research feed on to its corporate website at https://www.pharos.energy/investors/analyst-research/. This was to allow a wider audience of private and retail shareholder free access to analyst research notes about the Company. Also in 2021, the Company engaged with an online platform Investor Meet Company to host an online meeting with a Q&A session in April to allow the wider public a free platform to raise questions directly to the Executive Directors. During the year, the Executive Directors and investor relations colleagues met and engaged with 29 different institutions and family offices in over 40 meetings. The NEDs are each responsible for taking sufficient steps to understand shareholder views, including any issues or concerns. This includes being available to major institutional shareholders and responding to requests for additional communication with the Chair, Senior Independent Director or other NEDs. The delegated role of the Senior Independent Director includes being available to shareholders if they have concerns which cannot be fully or appropriately addressed by the Chair or the Executive Directors. Additionally, both before and after the formal proceedings of each AGA, and subject to travel or public gathering restrictions in response to the COVID-19 pandemic, all Directors and senior management, including the Chairs of the Audit and Risk, Remuneration and Nominations Committees, make themselves available to answer shareholder questions and respond to any specific queries. • Local communities, governments and employees Our goal is to have a responsible and positive presence in the regions in which we operate, resulting in value for host countries, local communities, employees, contractors, suppliers and shareholders, and we engage with them on a regular basis. Additionally, the requirements in the Modern Slavery Act are dealt with through our due diligence and on boarding processes with suppliers. In Vietnam, commitment to local sourcing, employment, training and industry capacity building has continued with a training levy of $300,000 per year in a ring-fenced fund to support developing future Vietnamese expertise in the industry. In Egypt, under the El Fayum and North Beni Suef Concession Agreements, the Contractor contributes a total of $200,000 per year split equally between the two Concessions to support training and development in industry. In recent years, we have structured our social investment programme to align more with the United Nations Sustainable Development Goals (UN SDGs). In Vietnam, in 2021, in addition to the training levy mentioned above, a further $265,000 was invested in 12 community projects. The JOCs actively inquired and listened to locals to find out which areas of the country would need the greatest assistance in order to ensure that we were investing in local projects that would bring the most sustainable positive impact to the community. For instance, in Q1 2021, the Group provided financial support for autistic children at Anh Dao Specialised Educational Centre in Ha Tinh province, with additional donations towards providing therapy for children with disabilities at An Tue Social Assistance Centre, Thua Thien Hue province (UN SDG 3: Good health & wellbeing and UN SDG 4: Quality education). In Q2 2021, the Donation Programme helped fund the construction of a community culture house in Hop Hung commune, Vu Ban district, Nam Dinh province which, once finishes, will act as a communal education house for children in the area for years to come (UN SDG 4 Quality education and UN SDG 9: Industry, innovation and infrastructure). For full details of all the projects the JOCs have invested in 2021, please see our Corporate Responsibility report on pages 58 to 78. • Conflicts of interests & Ethics hotline Our Whistleblowing Policy and associated procedures ensure that employees are protected from possible reprisals when raising concerns in good faith. In addition to internal reporting channels, we have a dedicated, anonymous and confidential ethics hotline supported by EthicsPoint with numbers displayed in local offices available 24 hours a day all year round. Zero calls were made to the EthicsPoint hotline in 2021. # Division of Roles & Responsibilities # Responsibilities of the Board The statutory duty of the Directors is to act in what they consider to be in the best interests of the Company and, as a unitary Board, they are responsible for the long-term success of the Company. The Board determines and develops the strategy for the business and provides it with the necessary entrepreneurial leadership. It ensures the Company is adequately resourced to meet its strategic objectives and can meet its obligations to its stakeholders. The Board sets the values, standards and controls necessary for risk to be effectively assessed and managed. Some of its responsibilities have been delegated to committees of the Board, including the Audit and Risk, Remuneration and Nominations Committees. The roles of the Chair and Chief Executive Officer are separated and their responsibilities are clearly established, set out in writing and agreed by the Board. Both are collectively responsible for the leadership of the Company. The Chair chairs the Board meetings, leads the NEDs in the constructive challenge of the Executive Directors' strategy and is accountable for the Board's effectiveness. This includes encouraging an open and frank boardroom culture, setting the Board's agenda, facilitating the NEDs' contribution and ensuring sufficient time and information to promote effective and challenging discussions. The Chair has been in his current role since March 2020. The CEO is responsible for the everyday management of the Company. The CEO leads the Executive Directors and management team in the implementation of the Board's strategy and management's performance in running the business. The NEDs have a supervisory role that contributes to the development of the strategy through supportive and challenging inquiry. They scrutinise the Executive Directors' performance in meeting their agreed goals and objectives, and play a key role in their appointment or removal. The Company Secretary is appointed by the Board. He facilitates the communications and processes of the Board, the induction programme for new Directors and provides advice through the Chair as may be required in the ongoing discharge of the Directors' duties. This includes ensuring that the Company provides the necessary resources for access to independent advice and any individual professional training and development needs agreed with each Director. 87 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report | The Board operates within a framework | Only Committee members are entitled | The Committee formed its | | --- | --- | --- | | that distinguishes the types of decisions | to attend their respective meetings. | recommendations regarding the re- | | to be taken by the Board, including | Other Directors were invited to attend, | election resolutions at the 2022 AGM | | determination of strategy, setting the | as determined appropriate or beneficial, | following assessments of Board balance, | | principal operating policies and standards | and committee chairs provide an update | composition and independence. | | of conduct, approval of overall financial | at the full Board meeting. There was full | | | budgets and financing agreements, | attendance of committee members at | Board effectiveness and evaluation | | approval for establishing key corporate | the Audit and Risk, Remuneration and | | | relationships and approval of any actions | Nominations and ESG Committees in | The Nominations Committee assesses | | or matters requiring the approval of | 2021. | the Board’s balance of skills, experience, | | shareholders. | | independence, diversity, tenure and | knowledge of the Company and Composition, succession and Board composition the industry on an annual basis. evaluation The assessment in 2021 included As at December 2021, the Board consideration of the Company’s leadership Board composition and succession comprised of nine Directors including the needs within the context of growth, Chair, made up of four Executive Directors The Nominations Committee ensures the portfolio diversification and long-term and five Non-Executive Directors. leadership needs of the Company are met strategy. The discussions determined that and maintained appropriately to allow it the current balance remains appropriate Tony Hunter was Company Secretary to compete effectively in the marketplace. and sufficient to effectively promote the throughout the year and his appointment Board appointments are made through long-term success of the Company and was approved by the Board as a whole. a formal process led by the Nominations would be further enhanced through the Responsibilities & Composition of the Committee. In relation to the recruitment process already underway to increase the Committees and appointment of Non-Executive number of Independent NEDs. Directors, the Committee recognises the There are four principal committees of the emphasis placed by the 2018 Code on Remuneration Board: the engagement of an external search • The Audit and Risk Committee – consultancy or the open advertising of Remuneration principles responsible for the integrity of the vacancies. The Remuneration Committee is Financial Statements and narrative The Directors’ roles are established in responsible for the design, development reporting, including annual and half year writing and approved by the Board. and implementation of the Company’s reports Biographical details are provided on page Remuneration Policy. | • The Environmental, Social and | | 84 to 85. | | | --- | --- | --- | --- | | | Governance (ESG) Committee - | | In determining the remuneration packages | | | responsible for defining the Group’s | | awarded to management, the Board | Diversity and Inclusion strategy related to ESG matters. and the Remuneration Committee have We believe in a workforce with a diversity continued to aim at providing incentive • The Nominations Committee – of experience, nationalities, cultural schemes that reflect the characteristics of responsible for ensuring the leadership backgrounds and gender, to support our attractive rewards, fairness and restraint. needs of the Company are sufficiently business strategy of long-term sustainable Appropriate advice on best practice is appropriate to ensure continued growth. Our Code of Business Conduct taken from an independent advisor. ability to compete effectively in the and Ethics, associated policies and marketplace the Pharos Guiding Principles commit Remuneration Policy • The Remuneration Committee us to providing a workplace free of – responsible for the design, discrimination where all employees can Our overarching aim is to operate a development and implementation of the fulfil their potential based on merit and Remuneration Policy which rewards senior Company’s remuneration policy ability. They also commit us to providing a management at an appropriate level for fully inclusive workplace, while providing delivering against the Company’s annual Each principal Board committee has a the right development opportunities to and longer-term strategic objectives. formal Terms of Reference (“TOR”), which ensure existing staff have rewarding The policy is intended to create strong sets out the Committee’s delegated role careers. alignment between Executive Directors and authority and is approved by the and shareholders. Board. The TOR as well as the Committee For more information on the gender members are available on the Company’s In line with the requirements of applicable balance of our corporate employees and website at https://www.pharos.energy/ law, requiring us to review our Directors’ senior management, please see page about-us/governance/committees/. remuneration policy every 3 years, the 68 of the Corporate Responsibility report. policy was reviewed and proposed at Time commitment the 2020 AGM and will next be put to shareholders for approval at the 2023 Annual re-election of Directors The Board has four scheduled meetings AGM. Few changes were proposed to the a year although additional meetings are policy, principally relating to developments All Directors annually retire and seek re- scheduled as required. in best practice guidelines including the election by shareholders at the Company’s AGM. The Nominations Committee makes introduction of post-cessation shareholder In 2021, in addition to the four scheduled its recommendation to the Board on guidelines. The new policy was approved quarterly meetings, the Board also met on each re-election resolution. Pending the by 92.6% of our shareholders at the 2020 an additional four occasions to deal with Chair confirming his satisfaction that each AGM. specific business matters which required Director continues to perform effectively Board approval. One of the additional and with the appropriate commitment to meetings included a Board strategy the role, the full Board then determines its meeting in October 2021, which was fully own recommendation to shareholders in attended. relation to those resolutions. Pharos Energy Annual Report and Accounts 2021 88 CORPORATE GOVERNANCE REPORT - CONTINUED | Pension and benefits | Based on this detailed analysis, | complementary but separate to the audit | | --- | --- | --- | | | management has concluded that the | work undertaken by the Group’s external | | All eligible employees have the same | Group will continue as a Going Concern | auditor, Deloitte. | | access to the same pension contribution | for 12 months from the date of signing of | | In 2021, internal assurance has been rate (15% of salary) and access to a the 2021 Financial Statements. handled by the Group management. The similar level of benefits. lack of an Internal Audit function in 2021 Following its review of management’s had no impact on the work of the external Directors’ shareholdings and share paper to the Audit and Risk Committee auditor. | interests | and in-depth walk through of | | | --- | --- | --- | | | assumptions, the Committee is satisfied | The Board is responsible for maintaining | | The Board has a policy requiring Executive | that it is appropriate to prepare the | a sound system of internal controls to | | Directors to build a minimum shareholding | Financial Statements on a Going Concern | safeguard shareholders’ investment and | | of 200% of their annual salary. | basis. | the assets of the Company. There is an | | Additionally, LTIP awards require a two- | | effective internal control function within | For more information, please see the year holding period following vesting. This the Company which gives reasonable Viability Statement in the Strategic Report is intended to emphasise a commitment assurance against any material on pages 56 to 57. to the alignment of Executive Directors misstatement or loss. The Board and with shareholders and a focus on long management will continue to review the Internal controls and risk management term stewardship. effectiveness and the adequacy of the systems Company’s internal control systems and Audit, Risk and Internal Control update such as may be necessary. The Group’s internal control framework Significant reporting and accounting and risk management processes are External auditor matters designed to ensure that risk identification, assessment and mitigation is properly Deloitte was appointed as external During the first half of 2021, the Group’s embedded throughout the organisation. auditor in 2002 and no tender has accounting policies, in accordance The risk management approach is been conducted since that date. In with best practice, were reviewed by designed to provide the Audit and Risk accordance with the Code’s guidance management and the Audit and Risk Committee and the Board with reasonable concerning external audit tendering and Committee to ensure that they remained assurance that financial irregularities and rotation, a competitive tender process appropriate for the Group’s activities. control weaknesses will be identified to is required at least once every 10 years Following this review, the Group’s mitigate risks that could potentially have typically. However, taking into account accounting policies were judged to be fully a material adverse impact on the Group’s the transitional provisions of Statutory up-to-date and no significant changes operations, earnings, liquidity and financial Auditors and Third Country Auditors were recommended to the Board by the prospects. Regulation 2016 the Group plans to Audit and Risk Committee. The Board is primarily responsible for conduct a competitive tender process the effectiveness of the Group’s internal during 2022. Fair, balanced and understandable control systems which are monitored and The Committee assesses the improved on an ongoing basis. The Audit The Audit and Risk Committee advised performance of the auditor based on and Risk Committee has been delegated the Board whether the annual report their experience, the quality of their the responsibility to monitor and assess and accounts taken as a whole are fair, written and oral communication and input the effectiveness of the control systems balanced and understandable and provide from management, prior to making any operated by management. The external the range of information necessary for recommendation as to the re-appointment auditor, Deloitte, also provides feedback shareholders to assess the Group’s of the auditor at the AGM. The Committee and recommendations on controls which performance, business model and also assesses the independence of the are brought to the attention of the Audit strategy. The Directors have confirmed external auditor once a year and the lead and Risk Committee. | this in their Responsibility Statement | | partner is required to be rotated every five | | --- | --- | --- | | set out on page 121 of the Directors’ | Internal controls and risk management | years. On completion of David Paterson’s | | Report. | issues are discussed in detail and | term Anthony Matthews succeeded | | | reviewed for effectiveness at each Audit | him and is compliant with the rotation | | Viability statement and Going concern | | requirements. Other senior audit staff are | and Risk Committee meeting, with a report being provided to the Board for also rotated every five to seven years. Management completed their Going approval. Concern assessment which was Principal and emerging risks challenged and reviewed by the Audit Internal audit and Risk Committee. The assessment On page 43, we set out our included a “Base Case” for the Group, In previous years, based on the size and assessment of the principal risks including cash flow estimates for scale of the Group’s activities, an Internal facing the business. The Group Risk both Egypt and Vietnam, as well as a Audit function could not be justified. Management framework requires that all “Reasonable Worst Case” scenario, giving However, following the acquisition of the business units within the Group conduct particular regard to the commodity price Egyptian assets and the Group’s stated on-going risk management and reporting volatility. growth strategy in 2020, the Audit and to the Audit and Risk Committee and Risk Committee had recommended and the Board. The Group Risk Management Under these scenarios, management the Board approved the appointment Policy defines the specifics of the risk has assessed, on a conservative basis, of KPMG to carry out various internal management process, describes the risk the risks around commodity pricing, audits. The Committee discussed and tools (for example, the preparation and operational risk and political and regional subsequently resolved that, following maintenance of a Group risk matrix and risks... The assessments also took the curtailment of the Group’s growth risk register) and outlines the reporting into account the impact of potential plans in 2020 and 2021 as a result of the process and responsibilities in order discretionary reductions in capital COVID-19 pandemic, the detailed internal to meet the Group’s risk governance expenditures, as well as the hedging of audit plan should be rescheduled for 2022 framework. production volumes to mitigate against commodity price fluctuations. start date. This internal audit plan will be 89 Pharos Energy Annual Report and Accounts 2021 Strategic Report Governance Report Financial Statements Additional Information # **BOARD LEADERSHIP AND COMPANY PURPOSE** | | Page(s) | | --- | --- | | Purpose and Culture | 02, 09, 12, 86 | | Colleague engagement | 12, 17, 35, 86 | | Shareholder engagement | 17, 35, 36, 37, 79, 80, 86, 87 | | Local communities, government and employees | 16, 18, 24, 36, 59, 66, 77, 87 | | Conflicts of interests & Ethics hotline | 09, 36, 66, 87 | # **DIVISION OF ROLES & RESPONSIBILITIES** | Responsibilities of the Board | 82, 87, 88 | | --- | --- | | Board composition | 88 | | Responsibilities & Composition of the Committees | 82, 88 | | Time commitment | 88 | # **COMPOSITION, SUCCESSION AND EVALUATION** | Board composition and succession | 88 | | --- | --- | | Diversity and Inclusion | 09, 36, 68, 88 | | Annual re-election of Directors | 88, 96 | | Board effectiveness and evaluation | 88, 96 | # **REMUNERATION** | Remuneration principles | 102, 103 | | --- | --- | | Remuneration policy | 115-116 | | Pension & Benefits | 89, 104, 112, 115 | | Directors' shareholdings and share interests | 108, 109 | # **AUDIT, RISK AND INTERNAL CONTROL** | Significant reporting and accounting matters | 98 | | --- | --- | | Fair, balanced and understandable | 98 | | Viability statement and going concern | 42, 56, 57, 89, 98 | | Risk management and internal controls | 98-101 | | Internal audit | 89, 100, 101 | | External auditor | 89, 101 | | Principal and emerging risks | 43 | Pharos Energy Annual Report and Accounts 2021 90 # **CORPORATE GOVERNANCE REPORT - CONTINUED** # **ACCOUNTABILITY STATEMENT PAGE REFERENCES** | Accountability statements | Report | Page(s) | | --- | --- | --- | | Business model and Strategic objectives | Strategic Report | 17-20 | | Directors' responsibility statement | Directors' Report | 121 | | Auditor's statement | Independent Auditor's Report | 123 to 131 | | Going concern statement | CFO's statement | 42 | | | Directors' Report | 121 | | Viability statement | Risk Management Report | 56-57 | | Critical judgements and accounting estimates | Note 4 to the Financial Statements | 139-140 | | Risk Management and Internal Control | Risk Management Report | 43 | | | Corporate Governance Report | 89 | | | Audit and Risk Committee Report | 98-99 | | Audit and Risk Committee | Corporate Governance Report | 89 | | | Audit and Risk Committee Report | 97-101 | | Nominations Committee | Corporate Governance Report | 88 | | | Nominations Committee Report | 95-96 | # **CHANGES DURING THE YEAR 2021** | The Board | | | --- | --- | | Members | 9 | | Execs | 4 (from 1 July 2021, previously 3) | | NEDs | 5 | | Independent NEDs | Rob Gray John Martin Geoffrey Green Lisa Mitchell Marianne Daryabegui | | Appointed | Sue Rivett (1 July 2021) | | Retired | | | Audit and Risk Committee | | | --- | --- | | Members | 4 | | Appointed | | | Retired | | | Remuneration Committee | | | --- | --- | | Members | 3 | | Appointed | | | Retired | | | Nominations Committee | | | --- | --- | | Members | 6 | | Appointed | | | Retired | | | Environmental, Social and Governance Committee | | | --- | --- | | Members | 9 | | Appointed | Sue Rivett (1 July 2021) | | Retired | | 91 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report ENVIRONMENTAL, SOCIAL AND GOVERNANCE (‘ESG’) COMMITTEE REPORT ## Environmental, Social & Governance ## (‘ESG’) committee report DEAR SHAREHOLDERS, | Membership and responsibilities | ESG Committee meetings in 2021 | | --- | --- | | During 2021, the Environmental, Social | The Committee met four times during | | and Governance (‘ESG’) Committee | 2021. These meetings were regularly | | was comprised of myself as Chair, Rob | scheduled Committee meetings held in | | Gray, Ed Story, Jann Brown, Mike Watts, | March, May, September and December. | | Marianne Daryabegui, Lisa Mitchell | The Committee examines and discusses | | and Geoffrey Green. I was delighted to | at each meeting: | welcome Sue Rivett to the Committee • Review of inventory of current ESG from her appointment to the Board social projects in Vietnam, and on 1 July 2021. Rob, Marianne, Lisa, proposed carbon-reduction investment and Geoffrey are all Independent Non- JOHN MARTIN projects in Egypt and Vietnam Executive Directors each having recent ESG Committee Chair and relevant financial and legal experience • Review of HSES policies and in the energy sector. procedures, CDP climate change reporting, annual Corporate As Chair of the Committee, I convene MEETING ATTENDANCE Responsibility (“CR”) Report, Annual meetings on a regular basis and report to Health, Safety, and Environmental and 2021 the Board throughout the year. Committee member Social (“HSES”) Plan attendance The ESG Committee has a formal • Review of the development of ESG John Martin (Chair) ++++ document outlining its responsibilities, KPIs including climate change and Rob Gray (Deputy Chair) ++++ which is reviewed and updated as health and safety metrics appropriate by the Board on an annual Ed Story (President & CEO) ++++ • Review of ESG practices across the basis. Jann Brown Group’s industry peers ++++ (Managing Director & CFO) The ESG Committee Terms of Reference • Review of the work on Phase 2 of Mike Watts (Managing Director) ++++ are available on our website, https://www. TCFD alignment pharos.energy/about-us/governance/ Marianne Daryabegui * ++++ committees/ . In addition to members of the Committee, Lisa Mitchell * ++++ additional non-committee members, such Geoffrey Green * ++++ as Risk Manager, Reservoir Engineer and Key responsibilities 1,2 Investor Relations Analyst were invited Sue Rivett * ++ The Committee is constituted by the to attend Committee meetings. Internal Board to: + Attended. ESG working group meetings were also * Independent NED. • Assist the Board in defining and held separately from ESG Committee implementing the Pharos Group’s meetings. There was noted to be buy-in 1 Appointed as a Director 1 July 2021 strategy relating to ESG matters; on ESG matters across the Group. 2 Sue Rivett attended two additional meetings • Review the policies, programmes, during the year as a non-committee member practices and initiatives of the Pharos Group relating to ESG matters ensuring they remain effective and up to date; • Oversee the Pharos Group’s management of ESG matters and compliance with legal and regulatory requirements, including applicable rules and principles of corporate governance, and applicable industry standards; • Report on these matters to the Board and, where appropriate, make recommendations to the Board; and • Report as required to shareholders of the Company on the activities and remit of the Committee, and in achieving ESG targets. Pharos Energy Annual Report and Accounts 2021 92 ENVIRONMENTAL, SOCIAL AND GOVERNANCE (‘ESG’) COMMITTEE REPORT - CONTINUED During 2021, the following additional September investments in Vietnam; review and areas were discussed at meetings of the discussion on ESG practices across Review and discussion on: Committee: industry peers and CO reduction options 2 • Group’s HSES matters and for Pharos. performance. GHG emissions were March noted to be at par with last year despite COVID-19 precautionary measures Review and discussion on: reduced activities and ways in which The health, safety and welfare of our • Progress for the ESG KPIs, noting emissions could be reduced were staff, contractors and host communities these could not be finalised for Egypt commented upon. Spills in Egypt were across our business remains the highest until the farm-out terms had been reviewed and discussed including priority on the Board agenda, especially agreed whether another service company during this global pandemic. The Group or better training could be used to • Ongoing work on the reduction of GHG adhered to the requisite precautionary improve matters, albeit this was dealt emissions, noting these were likely to procedures and restrictions, in line with with at a JV level | increase as the capital development | | | the government directives in Egypt, | | --- | --- | --- | --- | | work proceeded | • Update on social projects in Vietnam in | | Vietnam and the UK. At Petrosilah and | | | | H1 2021 | Pharos El Fayum, a vaccination campaign | • Draft ESG Committee report to be for all employees in the main offices and included in the Annual Report • The alignment towards TCFD fields started in Q2 2021 and culminated recommendations. The proposal • Ongoing work on TCFD to 97% of the workforce being double from Verisk Maplecroft, an external • Group’s GHG emissions reporting vaccinated at the end of December 2021. TCFD consultant company, to review compared to peer groups In Vietnam, the HLHVJOC strict 5-7 and develop a roadmap to carbon days quarantine regulations are being reductions, was approved • Group’s Health, Safety, Environment applied for the workforce going offshore, and Social (HSES) matters performance • Improvements in flaring both in Vietnam in addition to rapid and PCR tests one to date, noting 2020’s sub-contractor and in Egypt day prior to offshore mobilisation. 100% fatality and four spills in Egypt and • Future meeting on potential actions that of our workforce in Vietnam are double actions taken to prevent a recurrence. could be taken in relation to climate vaccinated at the end of December 2021. Major disruptions to operations from change, taking account of input from For office staff at all locations, Pharos COVID-19 have been avoided, noting consultants and examples in other has implemented ongoing facilitation of the precautions taken. companies Working From Home (WFH) measures • Inventory of social projects to date where possible until further notice. Health & Safety December May In 2021, the Company has delivered Review and discussion on: an excellent performance from a health Review and discussion on: • The development of corporate ESG and safety perspective. There were • The new format of Annual Report, targets for management incentives, zero Lost Time Injuries (LTIs) across all noting it had worked well and that to be reported to the Remuneration our operations through-out the year. In ESG matters had been appropriately Committee Vietnam, the JOCs continue to deliver incorporated in this an exceptional record of safety, reporting • Group’s HSES matters, noting the zero LTIs since operational inception, • Ongoing work on TCFD reparation of the faulty compressor representing ten production years on in Vietnam, flaring would again be • Group’s HSES matters and TGT and 13 production years on CNV. reduced, which would determine performance, noting no H&S incidents In Egypt, we continually reinforce and whether there would be an to report in the period and one minor implement safe working procedures improvement on prior year performance spill such as inspection of all instruments • KPIs for both safety and environmental and equipment, obtaining the requisite • Peer and industry ESG reporting matters permit to work applications, providing • Submission of CDP Climate Change training and awareness sessions and • CO reduction options, noting that cost and Water Security questionnaires, 2 above all implementing checks to ensure benefit analysis of this would be looked noting its previous rating of ‘C’ and risks are reduced to acceptable levels at ways to improve this rating and encourage the immediate use • ESG practices across Pharos industry of stop-cards. In Vietnam, the JOCs peers, noting more research to look into conducted over 200 and 100 HSE training what Vietnam and Egypt had signed up sessions and emergency response drills to at COP26 respectively during 2021 to ensure safety and preparedness remain a top priority. During the year the Committee HSES performance of the Group was focused on the following matters: reviewed and discussed at every The Committee and its working group ESG Committee meetings in 2021. focused on its stakeholders’ health and All spillage incidents during the year safety during the COVID-19 pandemic; were investigated and lessons learned the development of ESG KPIs including as appropriate and actions to prevent climate change and health and safety recurrence were implemented. metrics; approval and oversight of the work on Phase of 2 of TCFD; oversight and approval of the Group’s CDP Climate Change and Water Security Questionnaires; ongoing social project 93 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report ESG KPIs ESG peer benchmarking and CO infrastructure). Additionally, in cooperation 2 reduction options with the Ministry of Higher Education and The Committee reviewed and discussed Scientific Research, Petrosilah holds an the progress of ESG KPIs. However, after During the year, the Committee reviewed annual summer training programme for all careful consideration, the Committee various CO reduction options, such 2 students applying from public and private agreed that these could not be finalised as ejector technology and gas to liquid Egyptian universities for training in the for Egypt until the farm-out terms had technology. There were inputs from HSE administrative office and the company’s been agreed. ESG KPIs for Vietnam Country Managers, Reservoir Engineers fields, of which they can obtain a training are noted in the 2022 KPI in the and Risk Managers during the process. certificate from the company (UN SDG 4: Remuneration Report on page 112. The Committee have taken this into Quality education). consideration, noting that further cost TCFD benefit analysis would be looked at in For full details of all the projects the JOCs further depth. have invested in 2021, please see our The Company commenced Phase 2 of Corporate Responsibility report on pages the project to bringing our disclosures in ESG best practices and reporting 76 to 77. | line with the requirements of the Task | standards across the Group’s industry | | | --- | --- | --- | | Force on Climate-Related Financial | peers were also discussed in 2021. The | | | Disclosures (“TCFD”). These efforts had | | Focus for 2022 | Committee noted that more research | been interrupted by the impact of the | would be done to understand what the | • Continue to work with JOC’s for | | | --- | --- | --- | --- | | pandemic in 2020 but Phase 2 of the | Company could do, and to look into the | | continued improvements and trainings | | project was approved in Q3 2021 and | commitments made by Vietnam and | | with respect to GHG’s emissions | | commenced in Q4 2021, after careful | Egypt at COP26. | | reductions, initiative’s to reduced | | considerations and review from the ESG | | | emissions and spillages | Committee and ESG working group. Social • Maintain current work programme Results of the completion of Phase 2 can In recent years, we have structured our through the JOC’s social project be found in the Corporate Responsibility social investment programme to align investment and review outcomes of Report on page 60 to 63. more with the United Nations Sustainable local indicative’s that benefit local Development Goals (UN SDGs). communities and host countries CDP In Vietnam, in 2021, we worked closely • Proposal and review of ESG metrics in Over the past four years, the Company with the JOCs in order to make sure that Remuneration and KPI have participated in the CDP Climate our social initiatives in the region continue • Continue engagement and dialogue Change Questionnaire. In 2021, we have to bring more positive impacts to the with the ESG working group as it maintained our score of (C), originally region. In addition to the training levy of progresses during 2022 awarded in 2019 and which is also the $300,000 per year in a ring-fenced fund industry average. Most notably, 2021 to support developing future Vietnamese marks the first year that the Company expertise in the industry, a further submitted their response to the Water $265,000 was invested in 12 community Security Questionnaire, in addition to and projects. The JOCs actively inquired and at the same time as the Climate Change listened to locals to find out which areas Questionnaire. The Water Security of the country would need the greatest Questionnaire was completed at a basic assistance in order to ensure that we level in 2021, and we plan to improve our were investing in local projects that level of transparency on water usage and would bring the most sustainable positive protection by completing the full version impact to the community. For instance, in 2022. | | in Q1 2021, the Group provided financial | JOHN MARTIN | | --- | --- | --- | | Both Questionnaires were completed | support for autistic children at Anh Dao | Environmental, Social and Governance | | through collaborative efforts across | Specialised Educational Centre in Ha | | (ESG) Committee Chair | multiple disciplines and functions within | Tinh province, with additional donations | | --- | --- | | the Group and after thorough discussions | towards providing therapy for children with | | within the ESG working group, with | disabilities at An Tue Social Assistance | | oversight and approval from the ESG | Centre, Thua Thien Hue province (UN | | Committee before submission | SDG 3: Good health & wellbeing and UN | SDG 4: Quality education). In Q2 2021, the Donation Programme helped fund the construction of a community culture house in Hop Hung commune, Vu Ban district, Nam Dinh province which, once finishes, will act as a communal education house for children in the area for years to come (UN SDG 4 Quality education and UN SDG 9: Industry, innovation and infrastructure). In Egypt, under the El Fayum and North Beni Suef Concession Agreements, the Contractor contributes a total of $200,000 split equally between the two Concessions to support long-term training and development of talents within the industry (UN SDG 9: Industry, innovation and Pharos Energy Annual Report and Accounts 2021 94 NOMINATIONS COMMITTEE REPORT ## Nominations committee report Membership During the year, the Committee comprised John Martin as Chair, the Chief Executive Officer Ed Story and the four Independent Non-Executive Directors (‘NEDs’), Rob Gray, Marianne Daryabegui, Lisa Mitchell and Geoffrey Green. The qualifications of each of the Chair and members are set out on pages 84 to 85. Meetings The Committee conducted its duties through three meetings held during 2021. During the year the following areas were discussed at the Committee meetings: Meeting Matter JOHN MARTIN Nominations Committee Chair Finalisation of Sue Rivett as a Director and CFO Review and approval of Nominations Committee report for inclusion in MEETING ATTENDANCE Q1 the 2020 Annual Report and Accounts 2021 Annual review of conflicts of interest register Committee member attendance Annual Director reappointment John Martin * (Chair) +++ | Ed Story (President and CEO) + | | Q2 | No Meeting | | --- | --- | --- | --- | | Rob Gray * (Deputy Chair and | | Q3 | | | | +++ | | Ongoing succession planning | Senior Independent Director) Q4 Succession planning continued Marianne Daryabegui* +++ Lisa Mitchell * +++ As at 31 December 2021, the Board comprised four Executive Directors and five NEDs, Geoffrey Green* +++ including the Chair. All of those NEDs were considered independent for the purposes + Attended. of the 2018 Code. John Martin remains Chair of the ESG Committee, and Chair of the Nominations Committee. * Independent NED. Jann Brown and Mike Watts attended as Board refreshment and succession Independence non-committee members for the first meeting | of the year. | planning | All NEDs are independent in full | | --- | --- | --- | | | Board refreshment and succession | compliance with the provisions of the | | | planning continue as ongoing processes. | 2018 Code. | | Role of the Committee | In 2021, the priority was to maintain the | | | Ensuring the composition of the | independent component of the Board and | Board balance | | Company’s leadership remains effective | to fully comply with the 2018 Code. | | The Committee assesses the and competitive Board’s balance of skills, experience, In March 2021 we announced the appointment of Sue Rivett to the Board independence, diversity, tenure and Leading the process for Board and as Chief Financial Officer (“CFO”) knowledge of the Company and committee appointments and making effective 1 July 2021. Jann Brown, who the industry on an annual basis. recommendations to the Board | | was Managing Director (“MD”) and | The assessment in 2021 included | | --- | --- | --- | | Annually reviewing the Board balance, | CFO, remained as MD following Sue’s | consideration of the Company’s leadership | | structure, composition, diversity and | appointment, focused on delivering the | needs within the context of growth, | | succession planning | next phase of the Group’s strategic plan. | portfolio diversification and long-term | strategy. The discussions determined Establishing an ongoing process for that following the recent changes in evaluating the Board’s performance and Appointments process the business the current balance is effectiveness During 2021, the Committee assessed the appropriate and sufficient to effectively suitability of Sue Rivett for appointment The Committee has continued to ensure promote the long-term success of the to the Board, taking into account her that Board independence was evident Company. previous sector experience and work during 2021 and will continue into 2022 history, and concluded that her expertise The Board’s current balance and taking into account the Board composition and track record in oil and gas, would composition are shown on page 82. requirements of the 2018 UK Corporate complement and enhance the skills and Governance Code. experience of the current Board. 95 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report Diversity to the Chair. Following the evaluation Board development, information process, a number of areas were identified and support Our approach to diversity and for ongoing focus in 2022 including: | inclusiveness is embedded within the | | Throughout 2021, all Directors received | | --- | --- | --- | | Group’s Human Rights Policy available on | • Continued focus on strategy | ongoing access to resources for the | | the Company’s website at https://www. | | update of their skills and knowledge; both | • Maintaining review of key risks pharos.energy/responsibility/policy- on an individual and a full Board basis. statements/. A key aim of the Policy is a • Ongoing communications to Comments are solicited in the annual workplace that is inclusive and free from shareholders and other stakeholders Board evaluation and discussed with the discrimination. Chair. • Evolution of reporting in line with In applying the Human Rights Policy development of the Group to Board composition, the Committee Conflicts of interest • Continued focus on Climate Change pursues diversity of approach, experience, The Board has the power, subject to and ESG Agenda knowledge, skills, and professional, certain conditions, to authorise, where educational and cultural backgrounds. appropriate, a situation where a Director Re-election The international and global perspective has, or can have, a direct or indirect All Directors annually retire and seek achieved has enhanced the Board’s interest that conflicts, or possibly may re-election by shareholders at the discussions on business development, conflict, with the Company’s interests. Company’s AGM. The Committee makes M&A and operational and financial Such authority is in accordance with its recommendation to the Board on integration. section 175 of the Companies Act 2006 each re-election resolution. Pending the and the Company’s articles of association. In its annual review of diversity, the Chair confirming his satisfaction that each Procedures are in place for ensuring that Committee noted diversity of gender, Director continues to perform effectively the Board’s powers to authorise conflicts age, demographics, skills, professional and with the appropriate commitment to are used effectively and appropriately. backgrounds, experience and education the role, the full Board then determines its Directors are required to notify the amongst the Board and senior own recommendation to shareholders in Company of any conflicts of interest or management. relation to those resolutions. potential conflicts of interest that may The full Board retired and offered itself arise, before they arise, either in relation to Board evaluation | | for re-election by shareholders at the | the Director concerned or their connected | | --- | --- | --- | | In early 2022, having delayed the process | Company’s AGM in June 2021. All | persons. The decision to authorise each | | to ensure that this incorporated all the | Directors were duly re-elected at the 2021 | situation is considered separately on its | | events of 2021, the Board carried out its | AGM, each receiving more than 97% of | particular facts. | | annual evaluation of its own performance | the proxy votes submitted in advance of | | Only Directors who have no interest in and effectiveness and that of its principal the meeting. the matter are able to take the relevant Committees, the Chair and the individual Ed Story and Dr Mike Watts will retire as decision to authorise a conflict and Directors. In doing so, the outcomes of Directors upon completion of the farm-out must act in a way they consider, in good last year’s review and recently agreed transaction with IPR. In addition, Rob faith, will be most likely to promote the actions in connection with succession Gray will not seek re-election as a Director Company’s success. The Directors planning and Board changes were also at the 2022 AGM and will accordingly will impose such limits or conditions considered. The Committee Chair led retire with effect from the close of that as they deem appropriate when giving the process which was facilitated by the meeting. The remaining six Directors will authorisation or when an actual conflict Company Secretary and followed a similar retire and will offer themselves for re- arises. These may include provisions format to that of prior years. Directors election at the 2022 AGM. relating to confidential information, completed confidential questionnaires attendance at Board meetings and covering the key areas as set out below. The Committee is satisfied that each availability of Board papers, along The questions were structured to individual Director’s performance with other measures as determined encourage full, in-depth responses on continues to be effective and appropriate. each area of focus. demonstrates commitment to the role and, accordingly, has recommended Each Director has notified the Board of • Strategy and risk, including how to the Board that each such Director either the potential for or the absence the Board has handled risk and remains in office subject to re-election by of conflicts. The Board assesses every opportunities shareholders at the AGM. notification of a conflict on its own • Shareholder and Stakeholder Relations merits, including the implementation of The Committee formed its appropriate limits and conditions, prior • The performance of the Chair recommendations regarding re-election to giving authorisation for any specific • Board effectiveness and operation following assessments of Board balance, conflict or potential conflict to exist. composition and independence. • The operation of the principal Board The Board assesses its conflict committees authorisations on an ongoing basis Workforce engagement • Board training and development needs throughout the year and additionally In November 2021, the Chair joined performs a scheduled review in • Any other general matters Directors head office staff for the afternoon during December. wished to raise an offsite staff meeting, at which staff The results were reported on an members were able to discuss matters unattributed basis and discussed by the of interest. This engagement has proved Committee, led by the Committee Chair, an effective communication route for the then shared with the whole Board. The employees and demonstrates the values results of the Chair’s performance review of openness and integrity to which we are were discussed with the other NEDs, committed. JOHN MARTIN led by the Deputy Chair and Senior Nominations Committee Chair Independent Director, and communicated Pharos Energy Annual Report and Accounts 2021 96 AUDIT AND RISK COMMITTEE REPORT ## Audit and risk committee report DEAR SHAREHOLDERS, Membership and responsibilities Detailed review of internal controls and implementation of upgrades During 2021, the Audit and Risk Committee comprised myself as Chair, Review of risk register and risk Rob Gray, Marianne Daryabegui and management reports Geoffrey Green. Marianne, Rob, Geoffrey In addition to members of the Committee, and I are all Independent Non-Executive all members of the Board, the finance Directors each having recent and relevant management team, operational financial experience in the energy sector. management and the Group’s external As Chair of the Committee, I convene auditor, Deloitte, attended each of the meetings on a regular basis and report to Audit and Risk Committee meetings. the Board throughout the year. During 2021, the following additional LISA MITCHELL The Audit and Risk Committee has areas were discussed at meetings of the Audit and Risk Committee Chair a formal document outlining its Committee: responsibilities, which is reviewed and updated as appropriate by the Board on March (2 meetings) an annual basis. | MEETING ATTENDANCE | | | Update and review of Modern Slavery and | | --- | --- | --- | --- | | | | The Audit and Risk Committee Terms of | Human Trafficking Statement, HSE Policy, | | | 2021 | Reference are available on our website, | Social Responsibility Policy, Biodiversity | Committee member attendance https://www.pharos.energy/about-us/ and Conservation Policy, Human Rights Lisa Mitchell * +++++ governance/committees/. Policy and Code of Business Conduct and Ethics Rob Gray* +++++ Key responsibilities Marianne Daryabegui* +++++ Finance update including the Internal Reviewing key financial, operational and Controls Report, Reserves Update, Geoffrey Green * +++++ corporate responsibility risk management Impairment Analysis, review of the IFRS + Attended. processes with strong focus on 16 Lease paper, Royalty paper and * Independent NED. Environmental, Social and Governance Treasury review (“ESG”) issues Ed Story, Jann Brown, Mike Watts, Sue Rivett and Review and approval of 2020 financial John Martin also attended most of the meetings as Reviewing and testing the integrity of the statements, including reviews that they non-committee members/ guests | Group’s financial statements to ensure | were fair, balanced and understandable, | | --- | --- | | full compliance with international financial | reviews of Going Concern and Viability | | reporting standards and requirements | Statements | | Overseeing the planning and execution | Review of 2020 external audit status, | | of the ongoing external audit programme | including analyses of findings of the | | including a detailed review of audit quality | external audit and key judgemental areas | and results Review and update of the Audit and Risk Reviewing the effectiveness of internal Committee governance matters, with control processes and systems, including attention to internal controls processes IT control platforms and systems, and a detailed review of Risk management issues and mitigation Audit and Risk Committee | meetings in 2021 | May | | --- | --- | | The Committee met five times during | Review and update of Internal Controls | | 2021. These meetings were the regularly | Report including Financial review | scheduled Committee meetings held in Status update on Treasury activities March, May, September and December, including the RBL and hedging status with the March meeting split into 2, firstly to review the internal Committee papers Review and assessment of Risks and and the second to review the final 2020 mitigations year-end release and the auditor’s paper. The Committee examines and discusses at each meeting: 97 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report | September | Significant issues related to the | Oil and gas reserves | | --- | --- | --- | | Finance update including the Internal | 2021 Financial Statements | The Group’s estimates of oil and gas | | Controls Report, Reserves Update, | The Committee met twice in March to | reserves have a crucial impact on the | | Impairment Analysis, review equity placing | go through the significant issues that | Financial Statements, especially in relation | | paper and insurance review | should be taken into consideration in | to DD&A and impairment of PP&E assets. | | | relation to the Financial Statements for | Oil and gas reserves, as discussed in the | Review and Approval of 2021 Interim the year ended 31 December 2021, Viability Statement on pages 56 to 57 are Accounts, including presentation by being key issues which may be subject to calculated using best practice and external auditor, Deloitte, and Audit and heightened risk of material misstatement. industry evaluation techniques which have Risk Committee comments These key issues are set out below. uncertainties in their application. Review and approval of the Going The Committee reviewed, in conjunction Concern Paper, including stress testing Fair, balanced and understandable with management the results of and mitigations | | The Committee advised the Board | independent third party assessments | | --- | --- | --- | | An update on financing, covenant | whether the annual report and accounts | conducted by ERCe during 2021 for | | compliance monitoring and commodity | taken as a whole are fair, balanced and | Vietnam assets TGT and CNV, and | | hedging | understandable and provide the range of | subsequently audited by the Group’s | | | information necessary for shareholders | reserves auditor, RISC Advisory Pty Ltd | | | to assess the Group’s performance, | (“RISC”) which are described in the review | December business model and strategy. The of operations on pages 32 to 34. Review and update on Internal Controls Directors have confirmed this in their and Risk Report including: Finance review In addition, the Committee reviewed, Responsibility Statement set out on page and Treasury update in conjunction with management and 121 of the Directors’ Report. Deloitte, the reserves assessment Review of the Group Budget and capital conducted by McDaniel for the El Fayum allocation Going Concern Concession in Egypt. Annual Review and Approval of Terms Management completed their Going The various reserves estimates have of Reference of the Audit and Risk Concern assessment which was been scrutinised by management, Committee challenged and reviewed by the taking into account the status of each Committee. The assessment included Review of 2021 year-end planning field’s development, to be satisfied that a “Base Case” for the Group, including reserves estimates are appropriate, that cash flow estimates for both Egypt and Review and discussion of Significant DD&A calculations are correct and that Vietnam, as well as a “Reasonable Worst Risks particularly around the impact of rigorous impairment testing has been Case” scenario, giving particular regard to COVID-19 and Climate Change and the carried out. Management also reviewed the continuing impact of commodity price impact on Going Concern and Impairment its estimates of future costs (including volatility. A further assessment was also of assets decommissioning costs) associated with undertaken to show the impact of a farm producing reserves. Reserve estimates are Review and discussion on Section 172 of down of the Egyptian concessions. inherently uncertain, and are revised over the Companies Act 2006 | | Under these scenarios, management | the producing lives of oil and gas fields as | | --- | --- | --- | | Review of external audit scope, review of | has assessed, on a conservative basis, | new reserves estimates become available | | audit quality and 2021 audit plan | the risks around commodity pricing, | and economic conditions evolve. | operational risk and political and Review of recent developments in regional risks, particularly in Egypt. The Internal controls and risk relation to FRC requirements, proposed assessments also took into account developments in relation to external management systems the impact of potential discretionary auditors’ responsibilities, and other related The Group’s internal control framework reductions in capital expenditures, as well regulatory and compliance matters and risk management processes are as the hedging of production volumes designed to ensure that risk identification, to mitigate against commodity price Financial reporting and significant assessment and mitigation is properly fluctuations. accounting issues embedded throughout the organisation. Based on this detailed analysis, The risk management approach is During the first half of 2021, the Group’s management has concluded that the designed to provide the Committee and accounting policies, in accordance Group will continue as a Going Concern the Board with reasonable assurance with best practice, were reviewed by for 12 months from the date of signing of that financial irregularities and control management and the Committee to the 2021 Financial Statements. weaknesses will be identified to mitigate ensure that they remained appropriate risks that could potentially have a for the Group’s activities. Following this Following its review of management’s material adverse impact on the Group’s review, the Group’s accounting policies Committee paper and in-depth walk operations, earnings, liquidity and financial were judged to be fully up-to-date and no through of assumptions, the Committee prospects. | significant changes were recommended to | are satisfied that it is appropriate to | | | --- | --- | --- | | the Board by the Committee. | prepare the 2021 Financial Statements on | During 2021, the Group continued to | | | a Going Concern basis. | carry out comprehensive reviews of the | overall effectiveness of its internal controls framework and continued to work on improvements. The Board is primarily responsible for the effectiveness of the Group’s internal control systems which are monitored and improved on an ongoing basis. The Committee has been delegated Pharos Energy Annual Report and Accounts 2021 98 AUDIT AND RISK COMMITTEE REPORT - CONTINUED the responsibility to monitor and assess repayment schedule and provision of for cash flows, ensure compliance with the effectiveness of the control systems additional funds available for general the terms of the RBL Facility Agreement, operated by management. The external corporate purposes. and to help mitigate the redetermination auditor, Deloitte, also provides feedback risk implicit with any RBL. Under the revised RBL facility agreement, and recommendations on controls the Group is required to be compliant with A Treasury Committee, comprising the which are brought to the attention of the certain debt covenants for each half year Chief Financial Officer as Chair and senior Committee. | | ending 30 June and 31 December, as set | members of the Group’s finance team, | | --- | --- | --- | | Internal controls and risk management | out on page 163. | convene on a regular basis to review the | | issues are discussed in detail and | | Group’s strategy and the open hedge | The Committee has reviewed reviewed for effectiveness at each positions to ensure that these are still management’s assessments of debt Committee meeting, with a report being fit for purpose in light of current market covenant calculations and is satisfied that provided to the Board for approval. conditions. Over the course of 2021, the Group is fully compliant. the hedged positions were out of the money by $29.7m, the hedge position Reserve Based Lending Facility Commodity hedging – treasury having been taken out to satisfy the 35% (RBL) management minimum Vietnam production hedge During 2021, the Group completed the During the year, the Group actively required under the RBL and hedges to refinancing of its RBL facility providing managed its exposure to commodity mitigate the impact on Reasonable Worst access to a committed $100m facility price risk by entering into an ongoing Case for Going Concern and the Working based solely on the Vietnam assets, of programme of hedging. The objectives Capital Test for the Egypt farm down. which $78.1m was drawn at December of the hedging programme have been 2021. A further $50m is available on In 2022, the Group seeks to extend this to protect the Group’s Reasonable an uncommitted accordion basis. The coverage further to protect budgetary Worst case and the Working Capital Test refinanced facility has a four-year term cash flow and ensure compliance with required for the farm down of its Egyptian that matures in July 2025. The refinancing and help mitigate redetermination risk on concessions to any downward commodity extended the tenor of the facility by 22 the RBL. price movements and to provide certainty months, allowing for a rephasing of the KEY JUDGEMENTS AND ESTIMATES IN FINANCIAL REPORTING Key judgements and estimates in Audit and Risk financial reporting Committee review Outcomes The Group’s short and long-term price Asset carrying values and Reviewed the Group’s oil price assumptions assumptions were increased in line with the impairment testing – including improvement in commodity prices judgements on future oil pricing, discount rates, production profiles, Upstream impairment charges were reviewed twice reserves and cost estimates Impairment reversal of assets during the year Management’s assessments of DD&A Reviewed DD&A estimates, based on reserves reports, judged to be reasonable based on prudent Significant risks that could potentially units of production and future development costs assumptions impact on financial statements – including DD&A estimates, override Under ISA 240 management override of management controls Reviewed override of management controls controls is presumed significant risk. No breaches were found Reviewed the Group’s guidelines and policy for compliance with oil reserves disclosure regulations; Oil reserves accounting – including including governance and control management’s assumptions for Costs held in Vietnam pending future work future oil prices which have a Reviewed exploration charges programme and costs in Israel impaired due to direct impact on the estimate of no substantive future work programme the recoverability of asset values reported in the Financial Statements Updated third party estimates and independent Reviewed at each Committee meeting an update on the audit completed, with results disclosed in the status of all updated estimates 2021 Financial Statements Exploration and evaluation assets and impairment review | The Committee reviewed the Group’s | At both the half year and year end 2021, | they are realistic and justified. Following | | --- | --- | --- | | intangible exploration and evaluation | the Committee considered whether | the impairment testing, the Committee | | assets individually in Egypt, Israel and | various indicators of impairment existed, | recommended to the Board that following | | Vietnam for any indications of impairment, | and also whether there were issues arising | 3D seismic acquisition on Block 125 in | | including the various indicators specified | from the results of impairment reviews by | Vietnam and the forward programme | | in paragraphs 18 to 20 as set out in IFRS | management. Such reviews are carried | of work that no impairment had been | | 6 – “Exploration for and Evaluation of | out in relation to both exploration and | triggered. The minor commitment | | Mineral Resources”. Please refer to Note | evaluation assets, with the role of the | programme of work in Israel will be | | 4 (b) to the Financial Statements for more | Committee being focused on challenging | completed in 1H 2022, but there being | | information on climate change and energy | management’s underlying assumptions | no major work budgeted or planned the | | transition. | and estimates and to judge whether | Group have impaired the assets. | 99 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report Producing assets, property, plant As part of the transaction, IPR will fund Internal controls focus for 2021 and equipment (“PP&E”) and Pharos’s share of the costs to a maximum In previous years, based on the size and of $33.425m (to be adjusted for working impairment review scale of the Group’s activities, an Internal capital and interim period adjustments Audit function could not be justified. The Committee reviewed individually the from the effective economic date of 1 July However, following the acquisition of the Group’s oil and gas producing assets 2020). This is in addition to the deposit Egyptian asset and the Group’s stated classified as PP&E on the balance sheet at signing of the farm-out agreements of growth strategy in 2020, the Committee for impairment with reference to IAS 36 US$2 million and a further US$3 million had recommended and the Board – “Impairment of Assets”. During 2021, payable on completion. This investment approved the appointment of KPMG the Group’s PP&E oil and gas assets programme should result in an increase to carry out various internal audits. The comprised its two Vietnam producing in production and also fulfil commitments Committee discussed and subsequently licences, TGT and CNV, as well as its El under the concessions. In addition, approved that following the curtailment Fayum Concession in Egypt. These are the Group will be entitled to contingent of the Group’s growth plans in 2020 described in the operations review on consideration depending on the average and 2021 as a result of the COVID-19 pages 32 to 34. Brent Price each year from 2022 to the pandemic that the detailed internal audit This review focused on an updated end of 2025, capped at a maximum plan should be rescheduled for 2022. This assessment of the recoverable amount total payment of US$20 million. We have internal audit plan will be complementary of each asset compared to their carrying calculated the contingent consideration but separate to the audit work undertaken value in the accounts. If the recoverable using our Brent oil price curve as at 31 by the Group’s external auditor, Deloitte. amount dropped below the carrying December 2021 (not recognised the full $20m). In 2021, internal assurance has been value, there would have been an handled by the Group management. The impairment charge to reduce the carrying $$53.5m net assets were reclassified as lack of an Internal Audit function in 2021 value. The Committee considered the held for sale. Details on the calculation of had no impact on the work of the external various assumptions underpinning the the AHFS net assets are set out in Note auditor. assessment of the recoverable amount, 37 to the Financial Statements. including underlying reserves, commodity The Treasury Committee will continue prices, production rates and discount to meet regularly to review the RBL Concession Agreement rates. Based on the Group’s approved covenants compliance and to review the Amendment El Fayum area economic assumptions, the Committee Group’s liquidity, hedging requirements recommended to the Board that On 19 January 2022, the Third and investment strategy. | impairment reversals were made on the | Amendment to the El Fayum Concession | | | --- | --- | --- | | 2two Vietnam fields, and small impairment | Agreement was signed by His Excellency | The Committee reviewed and approved | | charge on the El Fayum Concession in | Eng. Tarek El Molla (Minister of Petroleum | the related compliance statements set | | Egypt. | & Mineral Resources of the Arab Republic | out in the Risk Management Report. | | | of Egypt), EGPC and the Company. | The Committee has also reviewed and | On our CNV field in Vietnam, a pre-tax approved the statements regarding impairment reversal of $3.8m has been Signature of the Third Amendment compliance with the 2018 Code, in reflected in the Income Statement with an was a key Condition Precedent for the the Corporate Governance Report on associated deferred tax charge of $1.4m. transfer of a 55% participating interest page 86. The Committee reviewed As at 31 December 2021, the carrying (and operatorship) in the El Fayum and and discussed with management and amount of the CNV oil and gas producing North Beni Suef Concessions to IPR Lake the external auditor the Company’s property is $84.2m. Qarun. relevant financial information prior to recommendation for Board approval. On our TGT field in Vietnam, a pre-tax Under the terms, the cost recovery This included the Financial Statements impairment reversal of $49.1m has been percentage will be increased from 30% and other material information presented reflected in the Income Statement with an to 40% allowing Pharos a significantly in the annual and half year reports. The associated deferred tax charge of $17.1m. faster recovery of all its past and future Committee considered the significant As at 31 December 2021, the carrying investments. In return, Pharos has agreed financial reporting issues, accounting amount of the TGT oil and gas producing to waive its rights to recover a portion policies and judgements impacting the property is $266.0m. of the past costs pool ($115 million) and Financial Statements, and the clarity of reduce its share of Excess Cost Recovery For our El Fayum concession in Egypt, disclosures. The Committee conducted Petroleum from 15% to 7.5%. While in full an impairment reversal of $1.7m, no tax a review of its Terms of Reference for cost recovery mode, Contractor’s share of applicable, is reflected in the Income best practice, which were approved by revenue increases from 42.6% to 50.8% Statement. As at 31 December 2021, the Board in early 2021. These will be as from November 2020 (corresponding the carrying amount of the El Fayum oil reviewed again during 2022. to additional net revenues to Contractor of producing property is $109.3m, pre- $7.0m to the date of signature). The Audit and Risk Committee and reclassification to Assets held for sale. the Board have carried out a review of After the reclassification to assets held The relevant final approvals from the the effectiveness of the Group’s risk for sale, the Egypt oil and gas producing Egyptian Government had not been management and internal control systems. property amounts to $49.2m. obtained at 31 December 2021 and so this has been accounted as a non- Overall, the control environment was Asset Held for Sale (AHFS) adjusting balance sheet event, as per considered to be operating effectively. Note 38 to the Financial Statements. In December 2021, it was announced that We recognise the oil and gas industry shareholders had approved the farm-out faces many challenges ahead, including Assuming conditions at 31 December of 55% of the Group’s operated interest the technical, financial, environmental 2021, the discounted cash flows from the in each of our Egyptian Concessions, El and political challenges of accessing an remaining 45% share held and calculated Fayum and North Beni Suef, to IPR, a increasingly scarce resource base and at for impairment purposes would increase group that has extensive experience in the same time coping with the opposing from $49.2m to $77.4m. Egypt. dual challenges of production growth but managing transition to a low carbon Pharos Energy Annual Report and Accounts 2021 100 AUDIT AND RISK COMMITTEE REPORT - CONTINUED future. The pressure to move to a low External auditor External audit fees carbon future have been brought to the Deloitte was appointed as external Total audit and non-audit fees in 2021 forefront during the pandemic. | | auditor in 2002 and no tender has been | were $0.5m and $0.3m respectively. | | --- | --- | --- | | Our Strategic Framework takes into | conducted since that date. In accordance | The Committee approved all non- | | consideration the range of potential | with the 2018 Code’s guidance | audit services provided by the external | | risks and the nature of their impact on | concerning external audit tendering and | auditor in 2021.The principal non-audit | | the business. The strategic ambitions of | rotation, a competitive tender process | fees during 2021 were $0.1m for the | | the Group, achieving our financial and | is required at least once every 10 years | interim review and $0.1m for reporting | | ESG objectives, maintaining operational | typically. However, taking into account | accountant services associated with the | | effectiveness, ensuring our reputation to | the transitional provisions of Statutory | Class 1 Circular relating to the farm down | | markets, partners, and stakeholders are | Auditors and Third Country Auditors | of its Egyptian concessions. | | all assessed in the context of our appetite | Regulation 2016 the Group plans to | | The Committee reviews its non-audit for risk. conduct a competitive tender process services policy on an annual basis and during 2022. The Board is responsible for maintaining current policy requires all non-audit a sound system of internal controls to The Committee assess the performance services to be pre-approved by the safeguard shareholders’ investment and of the auditor based on their Committee. It is noted that the Group’s the assets of the Company. There is an experience, the quality of their written policy sets out the permitted services and effective internal control function within and oral communication and input those that are prohibited. the Company which gives reasonable from management, prior to making Review of the effectiveness of the Audit assurance against any material any recommendations as to the re- and Risk Committee misstatement or loss. The Board and appointment of the AGM. The committee management will continue to review the also assesses the independence of the During the year, the Committee has effectiveness and the adequacy of the external auditor once a year and the lead undergone a comprehensive review of its Company’s internal control systems and partner is required to be rotated every five effectiveness and results were reported update such as may be necessary. years. On completion of David Paterson’s to the Board. The Committee was term Anthony Matthews succeeded considered by the Board to be operating him and is compliant with the rotation effectively and in compliance with the Risk assessment requirements. Other senior audit staff are 2018 Code and associated guidance. The Committee carried out a detailed also rotated every five to seven years. risk assessment in which it reviewed existing risks and identified new risks External auditor – non-audit as appropriate. The likelihood and services significance of each risk was evaluated along with proposed mitigating factors The external auditor is appointed primarily and was reported to the Board. All to carry out the statutory audit and their new risks or changes to existing risks continued independence and objectivity were monitored throughout the year is crucial. In view of their knowledge of and discussed at each Committee the business, there may be occasions meeting. The Committee maintains a when the external auditor is best placed comprehensive bribery risk assessment to undertake other services on behalf of and mitigation procedure to ensure that the Group. The Committee has a policy the Group has procedures in place to which sets out those non-audit services eliminate bribery, and that all employees, which the external auditor may provide agents, contractors, and other associated and those which are prohibited. Within persons are made fully aware of the that policy, any non-audit service must be LISA MITCHELL Group’s robust policies and procedures approved by the Committee. Audit and Risk Committee Chair on a regular basis. Before approving a non-audit service, We recognise the sad situation ongoing in consideration is given to whether the Ukraine. We have no direct business in the nature of the service, materiality of region but are taking steps and carrying the fees, or the level of reliance to out due diligence checks to assess if there be placed on it by the Group would are any parts of the business likely to be create, or appear to create, a threat to directly affected and will devise mitigating independence. If it is determined that such actions if needed. 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. 101 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report DIRECTORS’ REMUNERATION REPORT ## Directors’ ## remuneration report DEAR SHAREHOLDERS, On behalf of the Board, we are pleased to present the Directors’ Remuneration Report for the financial year ended 31 December 2021. This report has been prepared in accordance with section 421 of the Companies Act 2006 and Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended). Highlights of Committee actions in Board, Rob Gray will not put his name forward for re-election as a Director 2021 at the 2022 AGM. The result of these 2021 represented a year of considerable changes will be to reduce the size of challenge, with much progress made the Board from nine Directors (four in both our operational and strategic GEOFFREY GREEN Executive Directors and five NEDs) to objectives. In terms of remuneration, Remuneration Committee Chair six (two Executive Directors and four we wish to draw your attention to the NEDs) following matters: 1. Reduction in Salary – the Executive How performance was reflected in TABLE A: REMUNERATION COMMITTEE Directors at the start of the year the pay of our Executive Directors MEETING ATTENDANCE DURING 2021 continued to take a reduction of 35% As reported throughout the Strategic of their salaries for the first quarter and | | | 2021 | | Report, 2021 has been a year of | | --- | --- | --- | --- | --- | | Committee member | | | then further reduced this by another | | | | attendance | | | significant change for the business, | 15% (to a total reduction of 50%) from not least dealing with the continued Rob Gray ++++ 1 April 2021 for the Executive Directors impact of the COVID-19 virus and the in office at that date. These reductions volatility in oil prices. Continued strong Marianne Daryabegui ++++ have remained in place for the leadership of the Company by the remainder of the year. The Chairman, Executive Directors and other senior Geoffrey Green (Chair) ++++ who had reduced his fee by 25% on management has meant that once again + Attended. assuming the role in March 2020, also we have not had to furlough any staff, took an additional 25% reduction along nor have we borrowed any Government Ed Story, Jann Brown, Mike Watts, John Martin, with the other Non-Executive Directors Lisa Mitchell and Sue Rivett attended some of the m o n e y u n d e r t h e l o a n s c h e m e s . meetings as non-committee members as from 1 May 2020 which reductions continued throughout the full year 2021. Strategic 2. 2021 LTIP awards – The Executive | | Directors volunteered to reduce their | The Company successfully completed an | | --- | --- | --- | | Role of the Committee | LTIP awards significantly in 2021, | equity placing and retail offering in January | | | the second year of a reduced award. | 2021 which raised gross proceeds of | The Remuneration Committee is The policy limit is 200% of salary but approximately $11.7m. responsible for setting the remuneration of the Chair and the Executive Directors existing Executive Directors received The farm-out of the Egypt concessions and has oversight of pay more generally, an award in 2021 equivalent to 29% received overwhelming shareholder and is responsible for appointing any of contractual entitlement, whilst Sue support at a General Meeting in consultants it may engage in carrying out Rivett, as the new Chief Financial December 2021. Pharos and EGPC have its duty. Officer, received an award of 35% of finalised all necessary documents to be contractual entitlement. presented to the Minister of Petroleum | 3. Board changes – Sue Rivett joined | | and Natural Resources to approve the | | --- | --- | --- | | | the Board on 1 July 2021 as Chief | transaction with IPR and this approval is | | | Financial Officer. As announced on 13 | expected shortly. | January 2022, following the expected completion of the transaction with These strategic milestones have IPR, Ed Story and Mike Watts will step strengthened the medium-term outlook for down from the Board and Jann Brown the Company in terms of a return to free will assume the role of Chief Executive cash flow and ultimately to distributions to Officer. In support of the policy to slim shareholders in due course. down the Board and having served as Non-Executive Director, Senior Non-Executive Director and Deputy Chairman for nearly 9 years on the Pharos Energy Annual Report and Accounts 2021 102 DIRECTORS’ REMUNERATION REPORT - CONTINUED Operational Outlook for 2022 Conclusion Upon completion of the farm-down The continued disruption of the COVID-19 On an operational basis, the Company of our Egypt concessions to IPR, the pandemic has made the last financial year performed well across a broad range of Executive Directors will be Jann Brown, extremely difficult to navigate, but our metrics. Production levels in Vietnam were Chief Executive Officer and Sue Rivett, progress is down to the exceptional efforts in line with guidance, whilst maintaining Chief Financial Officer. Jann’s base salary of all our employees. The Remuneration strong safety and environment outcomes will be £420,000, which represents a Committee feels that the remuneration and retaining focused cost discipline c.21% reduction on her previous salary outcomes for 2021 are a fair reflection of across the business. as Managing Director and is intended to the context in which decisions had to be The strong performance despite represent the new size of the business made. challenging market conditions were and her expanded role. Jann has also We look forward to receiving your support reflected in the KPI assessment and pay voluntarily proposed to invest a third of her at the upcoming AGM and to working out-turn for 2021, with no bonuses having after tax salary in Pharos shares, subject with you face to face when circumstances been paid the previous year. Following a to share dealing restrictions. Sue’s base allow. | robust assessment of the performance | salary will be £280,000, a 7.7% increase, | | --- | --- | | criteria the Committee determined the | reflecting her responsibilities in the | | formulaic outturn for bonuses at 72.5% of | changed structure of the business since | | the maximum potential. However, given | she joined the Board. Sue has volunteered | | the wider stakeholder experience, the | to invest an amount equal to her after tax | | Committee decided it was appropriate | salary increase in Pharos shares, subject | | to reduce the outcome by 20% to 58% | to the same share dealing restrictions. | of maximum. Bonus outcomes for the It is intended that Non-Executive Director wider workforce also reflect corporate fees, having been reduced by 25% KPIs achieved as well as personal from 1 May 2020, will also return to performance but were not subject to the their previously agreed level following discretionary reduction applied to the completion of the Egypt farm-down to Executive Directors and therefore paid in IPR. GEOFFREY GREEN full. The average bonus outturn across the Remuneration Committee Chair | workforce was 78.7% of maximum. The | Annual bonus potential and LTIP award | | --- | --- | | 2019 LTIP awards due to vest in March | levels permitted under the remuneration | | 2022 are expected to lapse through a | policy remain unchanged. The main | | failure to meet the required relative TSR | elements of the 2021 bonus plan will | | performance conditions. | be unchanged as regards structure, | measures for performance (safety and environment, operational, financial, governance and licence to operate – albeit with a reduction the weighting for operational management and a corresponding increase in safety and environment weighting) and deferral requirements. The Committee intends to develop and update certain specific objective criteria during the course of the year, given the changing structure of the business. The LTIP performance metrics will be a mixed weighting of TSR (40%) relative and (15%) absolute and 15% weighting to each of cash flow from operations, return to capital employed, and emission reduction targets. These changes reflect feedback from major shareholders in recent years that the LTIP should be subject to a balanced scorecard of performance measures. 103 Pharos Energy Annual Report and Accounts 2021 Strategic Report Governance Report Financial Statements Additional Information ## Annual Report on Remuneration (Audited section) ### Single total figure of remuneration The table below sets out the total remuneration in respect of qualifying services for both Executive and Non-Executive Directors for the financial year 2021. It also provides comparative figures for 2020: | 2021 | Fees/salary $000's | Benefits $000's | Bonus $000's | LTIP $000's | Pension $000's | Total $000's | Fixed $000's | Variable $000's | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | **Executive Directors^{1}** | | | | | | | | | | E Story | 377 | 60 | 611 | - | 57 | 1,105 | 434 | 671 | | J Brown^{2} | 394 | 54 | 638 | - | 59 | 1,145 | 453 | 692 | | M Watts^{2} | 394 | 73 | 638 | - | 59 | 1,164 | 453 | 711 | | S Rivett^{2,4} | 173 | 5 | 155 | - | 27 | 360 | 200 | 160 | | **Non-Executive Directors^{3}** | | | | | | | | | | R Gray | 137 | - | - | - | - | 137 | 137 | - | | J Martin | 173 | - | - | - | - | 173 | 173 | - | | M Daryabegui | 62 | - | - | - | - | 62 | 62 | - | | L Mitchell | 85 | - | - | - | - | 85 | 85 | - | | G Green | 85 | - | - | - | - | 85 | 85 | - | | **Total** | **1,880** | **192** | **2,042** | **-** | **202** | **4,316** | **2,082** | **2,234** | The benefits receivable by Executive Directors include private medical insurance, permanent health insurance, life assurance cover, critical illness cover, travel and car benefits. E Story also receives expatriate benefits including tax protection or equalisation for any travel to the UK. The benefits column for Non-Executive Directors includes taxable travel and accommodation expenses to attend Board functions in the year, and the tax payable thereon, in accordance with HMRC guidance. 1. The near-term average exchange rate at the end of the performance period of 1.3707 has been used to convert share price from GB pounds to US dollars. 2. Executive Directors' fees and the salaries of Jann Brown, Dr Mike Watts and Sue Rivett are set in GB pounds and are reported in US dollars at the annual average exchange rate. 3. Ed Story, Jann Brown and Dr Mike Watts agreed to a reduction of 35% of their salary from 1 August 2020 and a further 15% reduction from 1 April 2021 for the remainder of the year. Non-Executive Directors agreed to a 25% reduction of their fee throughout 2021. The figures above reflect the reductions in salary and fees. 4. Sue Rivett was appointed to the Board on 1 July 2021. 5. The total Directors' bonuses include the following: a) Cash bonus paid in December 2021 of $986k; b) Deferred bonus of $493k to be granted under the Deferred Share Bonus Scheme; c) Deferred bonus until completion of the Egypt farm-out ($375k of which will be paid in cash and $188k of which will be in the DBSP). * Fees and/or salaries paid to the Directors are in proportion with their dates of service. | 2020 | Fees/salary $000's | Benefits^{1} $000's | Bonus $000's | LTIP $000's | Pension $000's | Total $000's | Fixed $000's | Variable $000's | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | **Executive Directors^{3}** | | | | | | | | | | E Story | 556 | 188 | - | - | 83 | 827 | 639 | 188 | | J Brown^{2} | 544 | 48 | - | - | 82 | 674 | 626 | 48 | | M Watts^{2} | 544 | 54 | - | - | 82 | 680 | 626 | 54 | | **Non-Executive Directors^{3}** | | | | | | | | | | R de Sousa* | 59 | 1 | - | - | - | 60 | 59 | 1 | | E Contini* | 29 | - | - | - | - | 29 | 29 | - | | R Gray | 145 | 1 | - | - | - | 146 | 145 | 1 | | J Martin | 161 | - | - | - | - | 161 | 161 | - | | M Daryabegui | 64 | - | - | - | - | 64 | 64 | - | | L Mitchell* | 64 | - | - | - | - | 64 | 64 | - | | G Green* | 46 | - | - | - | - | 46 | 46 | - | | **Total** | **2,212** | **292** | **-** | **-** | **247** | **3,430** | **2,458** | **292** | The benefits receivable by Executive Directors include private medical insurance, permanent health insurance, life assurance cover, critical illness cover, travel and car benefits. E Story also receives expatriate benefits including tax protection or equalisation for any travel to the UK. The benefits column for Non-Executive Directors includes taxable travel and accommodation expenses to attend Board functions in the year, and the tax payable thereon, in accordance with HMRC guidance. 1. The near-term average exchange rate at the end of the performance period of 1.28 has been used to convert share price from GB pounds to US dollars. 2. Executive Directors' fees and the salaries of Jann Brown and Dr Mike Watts are set in GB pounds and are reported in US dollars at the annual average exchange rate. 3. Executive Directors agreed to a reduction of 25% of their salary from 1 May 2020 and a further 10% from 1 August 2020. Non-Executive Directors agreed to a 25% reduction of their fee from 1 May 2020. The figures above reflect the reductions in salary and fees. * Fees paid to the Executive and Non-Executive Directors are in proportion with their dates of service. **The aggregate emoluments of all Directors during the year was $4.3m.** Pharos Energy Annual Report and Accounts 2021 104 DIRECTORS’ REMUNERATION REPORT - CONTINUED Notes to the single figure table Annual bonus Setting measures The Company seeks to set challenging, yet achievable, performance measures designed to link pay to performance against its core strategic objectives. The performance measures were chosen to ensure that Executive Directors are focused on the near-term objectives that build the long- term delivery of value to shareholders, which results in a combination of measures being used covering strategic, operational, financial, business development and CR goals. While we monitor the Group’s performance with a broader mix of financial and non-financial KPIs, the measures impacting the annual bonus emphasise those deemed most relevant to management performance and take into account the annual budget and the prevailing economic environment. The performance measures and targets for 2021 were set prior to the full impact of the COVID-19 pandemic becoming evident. No subsequent adjustments have been made to the targets. 2021 annual bonus measures and out-turns Metric Weight Performance Bonus awarded | SAFETY AND ENVIRONMENT | | 15% 9% | | | --- | --- | --- | --- | | Zero LTIs | | 6 % 6% | | | Link to strategy | Target | Performance | Outcome | | • Safety of our people | • Zero LTIs | • Zero LTIs | • Achieved | • Sound oil field practices | TRIR Target of 0.8 | | 3% 3% | | | --- | --- | --- | --- | | Link to strategy | Target | Performance | Outcome | | • Safety of our people | • 0.8 | • Zero TRIR recorded to date | • Achieved | • Sound oil field practices | Zero environmental spills | | 3% 0% | | | --- | --- | --- | --- | | Link to strategy | Target | Performance | Outcome | | • Sound oil field | • Zero environmental spills | • 3 environmental spills recorded in | • Not Achieved | | practices | | Egypt. | | • Management of our carbon footprint wherever we work | Carbon footprint improvements | | 3% 0% | | | --- | --- | --- | --- | | Link to strategy | Target | Performance | Outcome | | • Management of our | • Maintain or reduce GHG | • HG emissions dropped by 14.4% in | • Achieved | | carbon footprint | emissions against 2020 | 2021 or 3% if venting included. | | • Partially Achieved wherever we work baseline. • GHG intensity was at par with • Implement second stage of 2020 at 36kg of CO e per BOE 2 work towards compliance with of hydrocarbon produced (excl. the G20 Financial Stability Venting).or 41kg of CO e per BOE if 2 Board’s Task Force on Climate venting included. -Related Financial Disclosures • Phase 2 TCFD alignment (TCFD) Transition risks were assessed over a 5-10 year period under IEA’s recommended SDS and STEPS scenarios Physical risks were assessed against physical risk datasets under the three emissions scenarios over a 5 and 10 year timeframe. Continued commitment to disclose and report in line with TCFD recommendations. 105 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report Metric Weight Performance Bonus awarded | OPERATIONAL/PORTFOLIO MANAGEMENT | | 40% 30.5% | | | | --- | --- | --- | --- | --- | | Reserves replacement of production | | 2.5% 2.5% | | | | Link to strategy | Target | Performance | | Outcome | | • Replace produced | • Reserves audit Q1 2021 | • Q1 2021 Reserves audit confirmed | | • Achieved | | reserves and add to | to confirm replacement of | | addition over and above production | | | reserve base | produced reserves | | | | | Production | | 12.5% 3% | | | | --- | --- | --- | --- | --- | | Link to strategy | Target | Performance | | Outcome | | • Prudent | • Vietnam production volumes | • Vietnam production outturn was | | • Part Achieved for Vietnam | | Management in | 5,200 – 6,200 boepd | | 5,560 boepd | | • Not Achieved for Egypt a low oil price • Egypt production volumes • Egypt production outturn year was environment 4,100 – 4,700 boepd 3,318 boepd. | Secure extension on Blocks 125/126 | | 5% 5% | | | | --- | --- | --- | --- | --- | | Link to strategy | Target | Performance | | Outcome | | • Continued | • Secure extension on Phase 1 | • Two-year extension secured in | | • Achieved | | development of | | | September 2021 | | Vietnam assets | Farm Out | | 20% 20% | | | | --- | --- | --- | --- | --- | | Link to strategy | Target | Performance | | Outcome | | • Effective portfolio | • Completion of farm down of | • Approvals announced in December | | • Expected to achieve in Q1 2022 | | management | Egypt | | 2021 with completion expected in | and payment of this element to be | | | | | Q1 2022 | paid on completion | | FINANCIAL | | 30% 25% | | | --- | --- | --- | --- | | Opex per bbl for each producing asset | | 5% 0% | | | Link to strategy | Target | Performance | Outcome | | • Control expenditure | • Vietnam cash opex bbl | • Vietnam cash opex bbl $15.28 | • Not Achieved for Vietnam | <$13.80 • Egypt cash opex bbl $17.34 • Not Achieved for Egypt • Egypt cash opex bbl <$12.90 | Overall reduction in cost base | | 10% 10% | | | | --- | --- | --- | --- | --- | | Link to strategy | Target | Performance | | Outcome | | • Control expenditure | • Maintain cost base reductions | • Full year administrative expenses | | • Achieved | | | achieved in 2020. | | lower by 10%, inclusive of | | • Maintain strong employee bonuses which were not balance sheet paid in 2020. • Cash at bank has increased from $24.6m to $27.1m and net assets have risen from $293.7m to $304.4m. Pharos Energy Annual Report and Accounts 2021 106 DIRECTORS’ REMUNERATION REPORT - CONTINUED Metric Weight Performance Bonus awarded | Net debt | | 15% 15% | | | --- | --- | --- | --- | | Link to strategy | Target | Performance | Outcome | | • Access affordable | • Net debt/EDITDAX of <2 | • Net debt/EDITDAX of 1.00 | • Achieved | sources of funding • All Bank Covenants met • •All bank covenants have been met • Return to • Funding plan in place for all • In July 2021, RBL secured against shareholders | activities covered by cash/ | the Group’s producing assets in | | --- | --- | | available debt plus headroom | Vietnam with a four-year term that | | of $10m | matures in July 2025. | | GOVERNANCE/LICENCE TO OPERATE | | 15% 8% | | | --- | --- | --- | --- | | Skills gap analysis | | 5% 5% | | | Link to strategy | Target | Performance | Outcome | | • Develop talent | • Skills gap analysis to map and | • Head Office restructure and Board | • Achieved | | throughout our | deliver forward strategy | refreshment | | business | Compliance review | | 5% 0% | | | --- | --- | --- | --- | | Link to strategy | Target | Performance | Outcome | | • Strong governance | • Complete independent review | • Programme delayed by COVID-19, | • Not Achieved | | and personal codes | of key policy compliance | but we look to resume the review | | | of conduct | across the Group | in 2022. | | | Social Investment | | 5% 3% | | | --- | --- | --- | --- | | Link to strategy | Target | Performance | Outcome | | • Strong governance | • Social investment plan | • In Vietnam, commitment to local | • Achieved in part | | and personal codes | approved and implemented | sourcing, employment, training | | | of conduct | | and industry capacity building | | has continued with a training levy of $300,000 per year in a ring- fenced fund to support developing future Vietnamese expertise in the industry. In addition to the training levy mentioned above, a further $265,000 was invested in 12 community projects. • In Egypt, under the El Fayum and North Beni Suef Concession Agreements, the Contractor party contributes a total of $200,000 per year split equally between the two Concessions to support training and development within the industry. Additionally, in cooperation with the Ministry of Higher Education and Scientific Research, Petrosilah holds an annual summer training programme for all students applying from public and private Egyptian universities for training in the administrative office and the company’s fields, from which they can obtain a training certificate after completing the programme. | | Total assessment | 72.5% | | --- | --- | --- | | Overall 100% | Discretionary adjustment | (14.5%) | | | Final outturn | 58% | 107 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report As noted in the Chair’s statement, notwithstanding that the Executive Directors delivered a number of the KPIs in challenging circumstances, the Committee felt that the overall performance and the experience of stakeholders in 2021 should be reflected in the overall bonus outcome. Therefore, discretion was used to reduce the bonus from 72.5% of maximum to 58% of maximum. The Committee also noted that the Executive Directors who had served on the Board throughout the year had waived c.46% of their salary over the year and the CFO’s salary had been set at a much lower level. Executive Directors receive a third of any bonus as awards under the Deferred Share Bonus Plan. This ensures their interests remain closely aligned with shareholders. For 2021, the total Directors’ bonuses include the following: a) Cash bonus paid in December 2021 of $986k; b) Deferred bonus of $493k to be granted under the Deferred Share Bonus Scheme; c) Deferred bonus until completion of the Egypt farm-out $563k ($375k of which will be paid in cash and $188k of which will be in the DBSP). Date of grant No. of shares Face value of award Award as % of salary | E Story | 6 October 2021 1,550,855 £310,171 58% | | --- | --- | | M Watts | 6 October 2021 1,550,855 £310,171 58% | | J Brown | 6 October 2021 1,550,855 £310,171 58% | | S Rivett | 6 October 2021 909,317 £181,630 70% | Based on contractual salaries at time the award was made Face value based on share price at the time of awards were determined on 4 October 2021 (being £0.20) Awards are subject to relative TSR performance over a three-year period from date of grant. The awards vest at 25% for a median ranking rising on a straight-line basis to full vesting for an upper quartile ranking. Directors’ interests as at 31 December 2021 The Board has a policy requiring Executive Directors to build a minimum shareholding of 200% of their annual salary. Additionally, LTIP awards require a two–year holding period following vesting. This is intended to emphasise a commitment to the alignment of Executive Directors with shareholders and a focus on long term stewardship. The table below sets out the Directors’ interests as at 31 December 2021 and any subsequent changes to their beneficially owned shares are shown as at the date of this report: Shareholding requirement Awards subject to Option | | | | | Beneficially | | Awards subject | | | Price 120 | | Awards subject to | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Beneficially owned | | owned shares | | | to performance | | pence as at | | | service conditions | | | | Achieved | | shares as at 31 | as at the date of | | conditions as at 31 | | | 31 December | | | as at 31 December | | | | | | | | | | | 1,2 | | | | | | 1 | | (Yes/No) | | December 2021 | | this report | December 2021 | | | | | 2021 | | 2021 | (% of salary) | Executive | E Story | (step down | | | | | | | --- | --- | --- | --- | --- | --- | --- | | from the Board upon | | | 3 | | 3 | | | | | 200% Yes 16,087,407 | | 16,271,613 | | 5,316,028 - 317,971 | completion of the IPR transaction) 5 J Brown 200% No 716,612 1,536,692 4,519,507 - 438,171 5 M Watts (stepped down from the Board 200% No 851,533 1,083,348 4,519,507 - 438,171 upon completion of the IPR transaction) S Rivett (appointed to the Board on 1 July 200% No 1,775 1,775 1,405,546 90,000 267,779 2021) Non-Executive J Martin - - 130,000 130,000 - - - M Daryabegui - - 36,757 36,757 - - - R Gray - - - - - - - G Green - - - 95,000 - - - - L Mitchell - - - 51,9584 - - 1. Figures include accrued dividend equivalents. 2. LTIP awards potentially vesting in March 2022 in respect of awards made in 2019 lapsed and are excluded from the above table. 3. Of these shares, 14,596,613 shares are held through The Story Family Trust, a closely associated person to Ed Story. 4. These shares are held by Alexander Barblett (husband of Lisa Mitchell), and a closely associated person to Lisa Mitchell. 5. At the date of this report, J Brown, M Watts and S Rivett are yet to reach the 200% shareholding requirement. While the Executive Directors, as potential beneficiaries, are technically deemed to have an interest in all ordinary shares held by the Company’s EBT, the table above only includes those ordinary shares held by the EBT which are potentially transferable to the Directors pursuant to Options granted to them under the Company’s incentive schemes. Details of the EBT and its holdings are set out in Note 28 to the Financial Statements. There have been no changes to the Directors’ interests subsequent to 31 December 2021 other than as set out above and as described in the notes to the table above. Pharos Energy Annual Report and Accounts 2021 108 DIRECTORS’ REMUNERATION REPORT - CONTINUED Share awards outstanding at 31 December 2021 Date | Type of | | | As at | Granted/ | | | | | | | | | As at | potentially | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 7 | | | | 1 | | 2 | | 4 | | 3 | | | | 3,4 | | | award | | 1 Jan 2021 | | awarded | | Adjusted | | Lapsed | | Released | | 31 Dec 2021 | | vested | | Expiry date | 5,6 E Story LTIP 1,564,899 - - 1,564,899 - - - - LTIP 2,214,318 - - - - 2,214,318 07.03.22 - LTIP 1,550,855 - - - 1,550,855 12.05.23 - LTIP - 1,550,855 - - - 1,550,855 06.10.24 - DSBP 383,792 - - - 383,792 - 03.01.21 - DSBP - 317,971 - - - 317,971 09.01.22 - 5,6 J Brown LTIP 1,078,649 - - 1,078,649 - - - - LTIP 1,417,797 - - - - 1,417,797 07.03.22 07.03.29 LTIP 1,550,855 - - - 1,550,855 12.05.23 12.05.30 LTIP - 1,550,855 - - - 1,550,855 06.10.24 06.10.31 DSBP 235,469 - - - - 235,469 03.01.21 03.01.29 DSBP 202,702 - - - - 202,702 09.01.22 - 5,6 M Watts LTIP 1,078,649 - - 1,078,649 - - - - LTIP 1,417,797 - - - - 1,417,797 07.03.22 07.03.29 LTIP 1,550,855 - - - 1,550,855 12.05.23 12.05.30 LTIP - 1,550,855 - - - 1,550,855 06.10.24 06.10.31 DSBP 235,469 - - - - 235,469 03.01.21 03.01.29 DSBP 202,702 - - - 09.01.22 09.01.22 - - - - 202,702 09.01.22 - S Rivett (appointed to the LTIP 496,229 - - - - 496,229 07.03.22 07.03.29 Board on 1 July 3,6,8 2021) LTIP 267,779 - - - - 267,779 12.05.23 12.05.30 LTIP - 909,317 - - - 909,317 06.10.24 06.10.31 DSOP 25,000 - - - - 25,000 31.05.19 31.05.26 DSOP 65,000 - - - - 65,000 31.05.19 31.05.26 1. The face value of awards: - granted to E Story, J Brown and M Watts in the year was c.58% of salary, or c.29% of contractual entitlement. - granted to S Rivett was c.70% of salary, or c.35% of contractual entitlement. 2. Outstanding awards under the Company’s share schemes were adjusted for dividend equivalents in accordance with plan rules (see Note 31 to the Financial Statements). 3. LTIP awards vest subject to Pharos’s relative TSR performance against a group of comparator companies and subject to a further holding requirement. DSBP awards vest subject to continued service over a two-year vesting period. S Rivett’s 2020 LTIP award prior to being appointed to the board is not subject to TSR performance, but is instead based on continuous employment and effective performance ratings for the vesting period. 4. LTIP awards with a potential vest date of 7 March 2022 did not achieve the performance threshold and lapsed. 5. DSBP Awards granted in 2020 to E Story, M Watts and J Brown were structured as conditional awards. 6. LTIP Awards to E Story were structured as conditional awards. Awards to M Watts, J Brown and S Rivett were structured as nil cost options. 7. LTIP awards vest at 25% when the threshold is met. 8. DSOP awards have an exercise price of 120 pence and do not have any performance conditions. Payments for loss of office and payments to former Directors There have been no payments for loss of office during the year nor any payments to former Directors. As announced on 13 January 2022, Ed Story and Dr Mike Watts will step down from the Board on completion of the farm-out of the Egyptian assets to IPR. Ed Story will remain employed as President of the Vietnam business and remuneration arrangements have been adjusted to reflect this role. Dr Mike Watts will continue to be paid base salary (on a pre-waiver level), benefits and pension provision for his notice period and continue to be eligible for a bonus in relation to 2022 for the period actively worked. He will not be eligible for any further LTIP awards and he will be treated as a good leaver for the purposes of his outstanding LTIP awards, which shall remain subject to the original performance conditions and time pro-rating. The full terms of the leaver arrangements will be detailed in next year’s Directors’ Remuneration Report. 109 Pharos Energy Annual Report and Accounts 2021 Strategic Report Governance Report Financial Statements 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 current TSR comparator group used for the LTIP award. Note that this does not represent either the comparator group or time period against which performance is assessed under the LTIP which was assessed in relation to the performance period ending in March 2022 ### TOTAL SHAREHOLDER RETURN (TSR) (£) ![img-11.jpeg](img-11.jpeg) ### CEO outcomes The table below shows the total remuneration paid to the CEO over the same ten-year period. In addition, the annual bonus and LTIP awards vesting are set out in respect of each year as a percentage of the maximum: | | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | CEO single figure of remuneration ($000s) ^{1} | 2,362 | 2,992 | 3,154 | 3,659 | 2,875 | 2,018 | 2,122 | 2,262 | 1,938 | 827 | **1,105** | | Annual bonus pay-out (% of maximum) | 100% | 100% | 100% | 80% | 75% | 35% | 65% | 105% | 50% | 0% | **58%** | | LTIP vesting (% of maximum) | 53% | 71% | 66% | 100% | 96% | 46% | 0% | 0% | 0% | 0% | **0%** | 1. The current year annual average exchange rate has been applied to convert GB pounds to US dollars for all periods to ensure consistency between periods. Pharos Energy Annual Report and Accounts 2021 110 DIRECTORS’ REMUNERATION REPORT - CONTINUED Percentage change in remuneration of the Directors The table below illustrates the percentage change in salary, benefits and annual bonus for each Director and all other employees. | | | | % change | | | % change | % change in | | | % change in | | | % change in | | % change in | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | in salary | | | in salary | | benefits | | | benefits | | annual bonus | | annual bonus | | | | | | | | 3 | | | | 1 | | | 2 | | 2 | | 2 | | | | (2021/2020) | | | | (2020/2019) | (2021/2020) | | | (2020/2019) | | | (2021/2020) | | (2020/2019) | | | E Story | | | | -32.1% -39.9% -67.8% 4.4% 100.0% -100.0% | | | | | | | | | | | | | | M Watts | | | | -32.1% -5.9% 26.4% 4.5% 100.0% -100.0% | | | | | | | | | | | | | | J Brown | | | | -32.1% -5.9% 5.5% 3.3% 100.0% -100.0% | | | | | | | | | | | | | | | 4 | | | | N/A N/A N/A N/A N/A N/A | | | | | | | | | | | | S Rivett 5 N/A N/A N/A N/A N/A N/A J Martin | M Daryabegui | | -10.0% 5.2% 0.0% 0.0% – – | | | --- | --- | --- | --- | | R Gray | | -11.2% -16.7% -100.0% -31.1% – – | | | | 6 | | N/A N/A N/A N/A N/A N/A | L Mitchell 7 N/A N/A N/A N/A N/A N/A G Green All other employees 7.0% -4.4% -25.8% 10.0% 100% -100.0% 1. The decrease in benefits for CEO is due to a decrease in UK taxable benefits. 2. Bonuses are normally awarded in respect of the calendar year. No bonuses were awarded in relation to 2020. 3. The figures detailed above reflect the salary reductions that have been taken by the Directors. The Executive Directors at the start of the year continued to take a reduction of 35% of their salaries for the first quarter of 2021 and then further reduced this by another 15% (to a total reduction of 50%) from 1st April 2021 for the Executive Directors in office at that date. These reductions stayed in place for the remainder of the year. The Chairman, who had reduced his fee by 25% on assuming the role in March 2020, also took an additional 25% along with the other Non-Executive Directors from 1st May 2020 which continued through the full year 2021. 4. S Rivett was appointed to the Board on 1 July 2021. 5. J Martin was appointed as Chair in March 2020 on a lesser remuneration of £150,000 per annum. 6. L Mitchell was appointed to the Board on 1 April 2020. 7. G Green was appointed to the Board on 20 May 2020. Chief Executive Officer’s pay ratio The Company currently has 21 UK employees and therefore has no statutory requirement to publish a CEO pay ratio. Given the relatively few employees, the Committee is aware of pay levels and does not feel the need to produce a ratio. The Committee will continue to review the appropriateness of publishing pay ratios in the future. Relative importance of spend on pay The chart below illustrates the year on year change in total remuneration as per Note 11 to the Financial Statements compared to the change in shareholder returns, which would include capital returns, dividends and share buybacks. * In 2020 no bonuses were awarded. External appointments With prior approval of the Board, Executive Directors are allowed to accept non-executive appointments on other boards and to retain the associated directors’ fees. Under this Policy: • Ed Story serves on the boards of Vedanta Resources PLC and Essar Exploration and Production Limited Mauritius, for which he retained associated fees for 2021 in the amounts of $35,932 (2020: $79,995) and $23,757 (2020: $nil) respectively; and 2021: 0 • Jann Brown serves on the boards of Troy Income and Growth Trust and RHI Magnesita, for which she retained associated fees for 2021 in the amounts of £28,625 (2020: £28,297) and €52,566 (2020: €nil) respectively. 2020: 0 • Implementation for 2022 14.3 10.9* 0 161412108642 111 Pharos Energy Annual Report and Accounts 2021 2021 2020 Additional InformationGovernance Report Financial StatementsStrategic Report Base salary The following table shows the Executive Director pre-waiver base contractual salary levels. 2022 Base salary 000s 2021 Base salary 000s* Increase from 2021 % | E Story | | $702 | $702 –% | | --- | --- | --- | --- | | J Brown | £535 /£420 | | £535 –% | | M Watts | | £535 | £535 –% | | S Rivett | | £280 | £260 7.7% | * The figures given above do not include the temporary reduction in salary that the Executive Directors volunteered to take in 2020 and which remain in place. As noted in the Chair’s Statement, on completion of the farm down, Jann Brown’s salary as Chief Executive Officer will be reset to £420,000 and the waivers will cease. Jann voluntarily proposes to invest a third of her after tax salary into buying shares in the Company, subject to share dealing restrictions. Furthermore, Sue Rivett voluntarily proposes to invest an after tax salary equivalent to £20,000 gross pay into buying shares, subject to the same share dealing restrictions. Benefits For 2022, benefits available to Executive Directors will be consistent with those set out in the Directors’ Remuneration Policy approved at the 2020 AGM and as summarised further below. Pension For 2022, a pension benefit at 15% of salary will be provided to each Executive Director through contributions to the Company’s money purchase plan up to plan limits or a cash supplement. Our Pension Policy for Executive Directors is already consistent with that for all employees (as a percentage of salary). Annual bonus It is intended that annual bonus awards will be considered for Executive Directors in December 2022. The maximum total bonus opportunity for an Executive Director in each year is 150% of salary, including cash and deferred components in accordance with the approved Policy. The table below sets out the weighted performance measures which will be applied in determining annual bonus awards for 2022, and identifies the link from each of these measures to our core strategy of: 2022 KPI’S Metric Weight Performance criteria which will be considered Safety & environment 18% Strategic objectives; to preserve the safety of all • Zero LTIs our people, staff and contractors and preserve the • TRIR target – 0.8 environment through sound oil field practices and • Zero environment spills management of our own carbon footprint wherever we work. • Carbon footprint improvements • GHG emissions lower than baseline 2020 • TCFD Phase 2 Operational/ portfolio management 37% Strategic objectives: to replace produced reserves and • Production volumes for all producing assets add to the reserve base in a way which value and/or • Complete farm down of Egypt and execute initial development drilling cashflow accretive. programme • Seek farm in partner for 125/126 commitment well • Secure extension on NBS • Complete 2 well Development drilling campaign on TGT and 1 well on CNV Financial 30% Strategic objectives: to control expenditure and access • Opex per bbl for each producing asset affordable sources of funding in order to maintain a • Maintain cost base reductions achieved in 2020/2021 strong balance sheet with sufficient liquid resource to • Net debt to EBITDAX fund planned activities. • All bank covenants met • Funding plan in place to cover commitments Governance/ licence to operate 15% Strategic objectives: to instil a way of working that is • Streamline Board structure strong on governance and personal codes of conduct; • Social investment plan approved and implemented to develop talent throughout our business to support • Complete independent review of key policy compliance across the Group overall performance and succession planning. Pharos Energy Annual Report and Accounts 2021 112 DIRECTORS’ REMUNERATION REPORT - CONTINUED Details of how the Committee assessed performance against these weighted measures will be set out in next year’s report. The Committee retains discretion over the amount of bonus paid out to ensure that appropriate consideration is given to the relative importance of the achievements in the year and the actual contribution of these towards furthering the Group’s strategy, as well as the prevailing economic environment. LTIP The LTIP grant level for 2020 and 2021 was reduced substantially and the Committee will take this and all other relevant circumstances into account in considering the appropriate grant level for 2022. The performance conditions for the 2022 awards are expected to be a mixed weighting as follows: of TSR (40%) relative and (15%) absolute and 15% weighting to each of cash flow from operations, return on capital employed, and emission reduction targets. Metric Weight Targets TSR – Relative 40% Same criteria As above. TSR – Absolute Achieve 20% growth over the 3 year period awards 3.75% 15% 20% to 30% sliding scale to 30% for the full 15% ESG medium term measures (base 2021) Achieve 10% reduction over a 3 year period awards 3.75% 15% 10% to 15% reduction in emissions. sliding scale to 15% for the full 15%. Cash flow from operations Achieve $150m cash flow from operations over the 3 year period 15% $150m to $200m awards 5% sliding scale to $200m for the full 15% Return on Capital Employed Achieve over 6% average per year for the 3 year period to 15% 6% to 10% achieve 3.75% sliding scale to 10% for the full 15% Shareholder dilution Pharos monitors the number of shares issued under employee share plans and their impact on dilution limits. These will not exceed the limits set by The Investment Association Principles of Remuneration currently in force, in respect of all share plans (10% in any rolling ten-year period). Malus and clawback provisions All variable pay arrangements for Executive Directors are subject to provisions which enable the Committee to reduce vesting, or recover value delivered if certain circumstances occur. These circumstances include serious misconduct, an error in calculation, misstatement of the Company’s financial results, fraud, insolvency of the Company or serious reputational damage to the Company. In each case the occurrence of those circumstances and the effect on variable pay arrangements will be determined by the Committee. Non-Executive Director remuneration Non-Executive Director fees, which have been set within the aggregate limits set out in the Company’s articles of association and approved by shareholders, are set out in the table below: Fee from 1 January 2022 Fee from 1 January 2021 | Chair of the Company | £150,000 | £150,000 | | | --- | --- | --- | --- | | Deputy Chair & Senior Independent Director* | £120,000 | £120,000 | | | Non-Executive Director | £60,000 | | £60,000 | | Additional fee: Chair of Audit and Risk Committee | £15,000 | | £15,000 | | Additional fee: Chair of Remuneration Committee | £15,000 | | £15,000 | | Additional fee: Workforce Engagement Nominated Director | £5,000 | | £5,000 | * Includes fees for any Committee role 113 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report The Chair fees were reviewed and approved by the Remuneration Committee. The Non-Executive Director fees were reviewed and approved by the Board, excluding the Non-Executive Directors. The fees of all Non-Executive Director are expected to return to May 2020 pre-waiver levels upon completion of the farm-down of the Egypt concessions. For 2022, benefits available to Non-Executive Directors will be consistent with those set out in the Policy approved at the 2020 AGM. Non-Executive Directors are not eligible for participation in the Company’s incentive or pension schemes. Service Contract (reference Table A: Directors Contract on page 118. Consideration by Committee of matters relating to Executive Directors’ remuneration The Directors who were members of the Remuneration Committee when matters relating to Directors’ remuneration for the year were being considered were Rob Gray, Marianne Daryabegui and Geoffrey Green. The Committee received assistance from Ed Story, Jann Brown and Sue Rivett subsequently, except when matters relating to their own remuneration were being discussed. The Committee additionally received assistance from other Non-Executives Directors when required. The Committee has appointed FIT Remuneration Consultants LLP (“FIT”) as its remuneration advisers, and fees of £19,913 were paid in 2021 for their advisory services. FIT is a member of the Remuneration Consultants Group and complies with their professional code of conduct. FIT do not provide any other services to the Group which, along with FIT’s credentials and proven performance, contributes to the Committee’s view that the advice received has been appropriate, objective and independent. The Committee reviews all aspects of remuneration on an annual basis and with respect to individual and corporate performance during the year. The review is aided by comparison to published data on executive pay in the sector and in similar sized companies. More detailed benchmarking may be conducted, such as upon an indication of a change in market ranges, with results being monitored for indications of potential unwarranted upward ratcheting. The Committee receives regular updates on evolving regulatory and market practice including market trends, key developments, and a broad range of published principles and guidelines. The Committee takes into account pay conditions elsewhere in the Company, and considered matters related to Group remuneration. Shareholder voting The binding resolution on the Directors’ Remuneration Policy was passed at 2020 AGM. The advisory vote on the Directors’ Remuneration Report was approved at last years’ AGM. The table below shows votes from shareholders on the relevant resolutions: | | Directors’ Remuneration Report (2021 AGM) | | | Directors’ Remuneration Policy (2020 AGM) | | | | --- | --- | --- | --- | --- | --- | --- | | | | | Votes % | | | Votes % | | Votes in favour | | 210,985,269 96.56% | | | 217,778,159 92.62% | | | Votes against | | 7,526,738 3.44% | | | 17,354,025 7.38% | | | Total votes | | 218,512,007 100.00% | | | 235,132,184 100.00% | | | Votes withheld | | | 4,136 – | | | 3,773 – | Pharos Energy Annual Report and Accounts 2021 114 DIRECTORS’ REMUNERATION REPORT - CONTINUED Policy Report (Unaudited) This Directors’ Remuneration Policy became effective from the date of the 2020 AGM. This section provides a summary of the Policy approved. The full Policy can be viewed in the 2020 Annual Report on our website at: https://www.pharos.energy/investors/results- reports-and-presentations/. Operation Maximum Performance criteria • Contractual fixed cash amount paid monthly • Any salary adjustments will normally be in line • N/A with those of the wider workforce • Particular care is given in fixing the appropriate salary level considering that incentive pay is generally set at • The Committee retains discretion to award a fraction or multiple of base salary higher increases in certain circumstances such as increased scope and responsibility • The Committee takes into account a number of of the role, or in the case of new Executive factors when setting salaries, including (but not Directors who are positioned on a lower limited to): salary initially, as they gain experience over • Size and scope of individual’s responsibilities time. In these circumstances a base salary increase will not exceed the CEO’s previous • Skills and experience of the individual salary of $924,000 • 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 Operation Maximum Performance criteria • Executive Directors receive benefits which may • Benefits are positioned at an appropriate • N/A include (but are not limited to) medical care and market level for the nature and location of the insurance, permanent health insurance, life assurance role. Whilst the actual value of benefits may cover, critical illness cover, travel benefits, expatriate vary from year to year based on third party benefits, car benefits and relocation expenses costs, it is intended that the maximum annual value will not exceed $250,000 or £200,000, • Reasonable business related expenses will be per Directors’ base currency reimbursed (including any tax payable thereon) • In addition to the above cap, the Company may contribute to relocation expenses up to 100% of salary • Pension benefits are delivered through contributions • 15% of base salary per annum • N/A to the Company’s money purchase plan up to relevant plan limits and/or a cash supplement Operation Maximum Performance criteria | • Payments are based on performance in the relevant | | • 150% of base salary per annum, including | | • The annual bonus is based | | | --- | --- | --- | --- | --- | --- | | | financial year. | | cash and deferred components at the | | on individual and corporate | | | | | discretion of the Committee. | | performance during the year. | • At the beginning of the year, the Committee sets objectives which it considers are critical to the delivery • Corporate goals are set annually of the business strategy. and may include monitored measures for particular projects; • Performance against these key strategic objectives is portfolio objectives; corporate assessed by the Committee at the end of the year. strategic goals; safety, social • The Committee retains the discretion to amend the and environmental measures; bonus pay-out (negatively or positively) to ensure it financial measures; and other reflects the performance of either the individual or the measures as may be deemed Company. appropriate and relevant to the period for delivery of the • One-third of any bonus pay-out is subject to deferral business strategy. into Pharos shares under the Deferred Share Bonus Plan. • 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. 115 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report Operation Maximum Performance criteria • Typically a conditional award of shares or a nil price • Usually 200% of base salary per annum • Awards vest based on option is made annually, normally in December, in the performance against financial, • In circumstances which the Committee course of the annual review cycle operational and/or share determines to be exceptional, annual awards price measures, as set by the • Vesting of the awards is dependent on the of up to 400% of base salary per annum may Committee, which are aligned achievement of performance targets, which are be made with the long-term strategic typically measured over a three-year performance objectives of Pharos period • No less than 50% of the award • Awards (post of tax) will also be subject to a two-year will be based on share price post-vesting holding period during which they cannot measures. The remainder be sold (except in exceptional circumstances and will be based on financial, with the Committee’s prior approval) operational measures • For ‘threshold’ levels of performance, 25% of the award vests. 100% of the award will vest for maximum performance. Pro-rating applies between these points and between ranking positions • The Committee may reduce LTIP vesting outcomes (including to zero), based on the result of testing the performance condition, if it considers the potential outcome to be inconsistent with the performance of the Company, business or individual during the performance period. Any use of such discretion would be detailed in the Annual Report on Remuneration Operation Maximum Performance criteria • The Board has a policy of requiring Executive Directors to build a minimum shareholding in Pharos shares equivalent to 200% of salary • A post cessation shareholding guideline will operate from the approval of this Policy. Executive Directors will be expected to retain the lower of actual shares held and shares equal to 200% of salary for one • N/A • N/A year post-cessation and 100% of salary for up to two years post-cessation (unless the Committee exceptionally determines that it is appropriate to release this requirement). Pharos shares which vest from future deferred bonus and LTIP awards will be retained until a sufficient holding has been built up This report was approved by the Board of Directors and signed on its behalf by: GEOFFREY GREEN Remuneration Committee Chair 15 March 2022 Pharos Energy Annual Report and Accounts 2021 116 DIRECTORS' REPORT # Directors' report ## Annual Report of the Directors The Directors present their annual report, along with the audited Financial Statements of the Group for the year ended 31 December 2021. The following sections of this report are incorporated herein by reference and form part of this Directors' report. | Strategic report | pages 2 to 78 | | --- | --- | | Board of Directors | page 83 to 85 | | Corporate Governance report | pages 86 to 91 | | ESG Committee report | pages 92 to 94 | | Nominations Committee report | pages 95 to 96 | | Audit and Risk Committee report | pages 97 to 101 | | Directors' Remuneration report | pages 102 to 116 | | Financial Statements | pages 123 to 162 | | Additional Information | pages 163 to 171 | ## Developments following the 2021 reporting period An indication of the likely future developments in the business of the Group is included in the Strategic Report on pages 2-78. On 13 January 2022, the Company announced Directorate Changes as mentioned in Chairman's Introduction to Governance on page 80. On 19 January 2022, the Third Amendment to the El Fayum Concession Agreement was signed by His Excellency Eng. Tarek El Molla (Minister of Petroleum & Mineral Resources of the Arab Republic of Egypt), EGPC and the Company. Signature of the Third Amendment was a key Condition Precedent for the transfer of a 55% participating interest (and operatorship) in the El Fayum and North Beni Suef Concessions to IPR Lake Qarun. The net assets of El Fayum and North Beni Suef associated with the 55% participating interest have been reclassified as assets held for sale at 31 December 2021. Under the terms, the cost recovery percentage will be increased from 30% to 40% allowing Pharos a significantly faster recovery of all its past and future investments. In return, Pharos has agreed to waive its rights to recover a portion of the past costs pool ($115 million) and reduce its share of Excess Cost Recovery Petroleum from 15% to 7.5%. While in full cost recovery mode, Contractor's share of revenue increases from 42.6% to 50.8% as from November 2020 (corresponding to additional net revenues to Contractor of $7.0m to the date of signature). Assuming conditions at 31 December 2021, the discounted cash flows from the remaining 45% share held and calculated for impairment purposes would increase from $49.2m to $77.4m Pharos and EGPC have finalised all necessary documents to be presented to the Minister of Petroleum and Natural Resources to approve the transaction with IPR and this approval is expected shortly. The transaction is expected to strengthen the Group's balance sheet and enable a more comprehensive and quicker development of the El Fayum Concession, as well as testing of the low risk North Beni Suef Concession at low cost to Pharos through a sustained drilling programme. ## Results and dividends The audited Financial Statements for the year ended 31 December 2021 are set out on pages 123 to 162. In 2021, the Board had to make a difficult decision to continue to suspend dividend payments for the second year, given the continued uncertainty in the macro environment driven by COVID-19 and the pressure on oil price against this backdrop. The Board will continue to use the well-documented capital allocation criteria to assess where and how to apportion any free cash flow generated. The key goals are to preserve balance sheet strength, to invest in growth opportunities in excess of the cost of capital and to generate sustainable returns to shareholders, as we have done since 2006. 117 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report Directors In accordance with the provisions of a qualifying indemnity provision for the the UK Corporate Governance Code, purpose of section 233 of the Companies The business of the Company is managed all Directors will retire at the 2022 AGM Act 2006 (“2006 Act”). The Company has by the Directors who may exercise all and, being eligible, offer themselves for made such provisions for the benefit of its powers of the Company subject to the reappointment. As announced on 13 Directors in relation to certain losses and articles of association of the Company January 2022, Rob Gray confirmed his liabilities that they may incur in the course (“Articles”) and applicable law. The intention not to stand for reappointment at of acting as Directors of the Company, its Directors who held office during the the 2022 AGM. Sue Rivett was appointed subsidiaries or associates, which remain year, and up to the date of signing this to as a Director on 1 July 2021 Relevant in force at the date of this report. Annual Report, and the dates of their details of the Directors, which include their current service contracts or letters of No member of the Board had a material Committee memberships, are set out in appointment, which are available for interest in any contract of significance with the section headed ‘Board of Directors’ inspection, are listed in Table A of this the Company or any of its subsidiaries at on pages 83 to 85. | report. All Directors held office throughout | | any time during the year, except for their | | --- | --- | --- | | the year except as noted in the table. The | Pharos provides liability insurance for its | interests in shares and in share awards | | NEDs’ appointments are terminable at | Directors and Officers. The annual cost of | and under their service agreements | | the will of the parties. Executive Directors’ | the cover is not material to the Group. The | and letters of appointment disclosed | | contracts are terminable by either party on | Articles allow it to provide an indemnity | in the Directors’ Remuneration report | | giving one year’s notice. | for the benefit of its Directors, which is | commencing on page 102. | TABLE A: DIRECTORS HOLDING OFFICE DURING 2021 AND UP TO THE DATE OF SIGNING OF THIS REPORT Director Date of contract John Martin - Chair* 23 August 2021 Edward Story - President and Chief Executive Officer (to step down from the Board upon completion of the transaction with IPR) 14 May 1997 Jann Brown - Managing Director (from 1 July 2021) and Chief Executive Officer (upon completion of the transaction with IPR) 6 December 2017 Mike Watts (to step down upon completion of transaction with IPR) 6 December 2017 Managing Director 6 December 2017 Rob Gray* Deputy Chair and Senior Independent Director 9 December 2013 Sue Rivett, Chief Financial Officer (appointed 1 July 2021) 21 September 2021 Marianne Daryabegui * 15 March 2019 Geoffrey Green* 16 April 2020 Lisa Mitchell* 10 March 2020 * Denotes those determined by the Board to be Independent Non-Executive Directors as described in the Corporate Governance report on page 81. Contributions Share capital No shareholder, unless the Board decides otherwise, is entitled to attend or to vote The Group’s policies prohibit political Details of changes to share capital in either personally or by proxy at a general donations. the period are set out in Note 27 to the meeting or to exercise any other right Financial Statements. The Company conferred by being a shareholder if he currently has one class of shares in issue, AGM or she or any person with an interest in ordinary shares of £0.05 each, all of which An explanation of the resolutions to be ordinary shares has been sent a notice are fully paid. Each ordinary share in issue proposed at the 2022 AGM, and the under section 793 of the 2006 Act (which carries equal rights including one vote recommendation of Directors in relation confers upon public companies the power per share on a poll at general meetings to these, is included in the circular to to require information with respect to of the Company, subject to the terms shareholders which is available on the interests in their voting shares) and he of the Articles and law. Shares held in Company’s website (www.pharos.energy). or she or any interested person failed to treasury carry no such rights for so long Resolutions regarding the authority to supply the Company with the information as they are held in treasury. Votes may issue shares are commented upon in this requested within 14 days after delivery of be exercised by shareholders attending report under share capital. that notice. or otherwise duly represented at general | A separate communication will be | meetings. Deadlines for the exercise | The Board may also decide that no | | --- | --- | --- | | sent to shareholders and published on | of voting rights by proxy on a poll at a | dividend is payable in respect of those | | the Company’s website regarding the | general meeting are detailed in the notice | default shares and that no transfer of | | Company’s AGM. | of meeting and proxy cards issued in | any default shares shall be registered. | | | connection with the relevant meeting. | These restrictions end seven days after | | | Voting rights relating to the ordinary | receipt by the Company of a notice of | | | shares held by the EBT are not exercised. | an approved transfer of the shares or all | | | The Articles may only be amended by a | the information required by the relevant | | | special resolution of the shareholders. | section 793 notice, whichever is earlier. | Pharos Energy Annual Report and Accounts 2021 118 DIRECTORS’ REPORT - CONTINUED | The Directors may refuse to register | to approximately 10% of the Company’s | Greenhouse gas emissions | | --- | --- | --- | | any transfer of any share which is not a | issued Ordinary Share capital. Shares | reporting | | fully-paid share, although such discretion | purchased under this authority may either | | Reporting on emission sources, as may not be exercised in a way which the be cancelled or held as treasury shares. required under the Companies Act Financial Conduct Authority regards as 2006 (Strategic and Directors’ Reports) preventing dealings in shares of that class Auditor Regulations 2013 and the Energy and from taking place on an open or proper A resolution to reappoint Deloitte LLP as Carbon Report Regulations 2018, is basis. The Directors may likewise refuse the Company’s auditor will be proposed included in the Corporate Responsibility any transfer of a share in favour of more by the Directors at the 2022 AGM. report on pages 69 to 75 and 78. than four persons jointly. Deloitte also provide non-audit services The Company is not aware of any other to the Group, and details of the non- Tax governance restrictions on the transfer of ordinary audit services provided in the year to 31 The Company is committed to high shares in the Company other than certain December 2021 are set out in Note 10 standards of tax governance and restrictions that may from time to time to the Financial Statements. All non- strives to meet its tax obligations. Tax be imposed by laws and regulations audit services are approved by the Audit contributions benefit the communities (for example, insider trading laws); and and Risk Committee. The Directors are in which we operate by providing a pursuant to the Listing Rules whereby currently satisfied, and will continue to framework within which the Company can certain employees of the Company require ensure, that this range of services is grow. Pharos’ Tax Strategy Statement, approval of the Company to deal in the delivered in compliance with the relevant which the Board has approved, defines Company’s shares. ethical guidance of the accountancy the key tax objectives of the Group and profession and does not impair the The Company is not aware of any is available on the Company’s website judgement or independence of the auditor. agreements between shareholders that (www.pharos.energy). Further details of the Group policy on non- may result in restrictions on the transfer audit services are set out in the Audit and of securities or voting rights. Resolutions Risk management Risk Committee Report on pages 97 will be proposed at the 2022 AGM, as to 101. The Directors carried out a robust review is customary, to authorise the Directors of the principal and emerging risks to exercise all powers to allot shares The Directors at the date of approval of facing the Group that could threaten and approve a limited disapplication of this report confirm that, so far as they the Company’s business model, future pre-emption rights. This authority will be are each aware, there is no relevant audit performance, solvency and liquidity. sought in line with institutional shareholder information, being information needed by The Risk Management and Risk report guidance, and in particular with the the auditor in connection with preparing its on pages 43 to 57 details how we Pre-Emption Group’s Statement of report, of which the auditor are unaware. manage and mitigate these risks. Principles (the “Pre-Emption Principles”), Each Director has taken all steps that they the authority sought for disapplication ought to have taken as a Director, having Substantial shareholdings | of pre-emption rights will be 10% on the | made such enquiries of fellow Directors | | | --- | --- | --- | | basis that 5% of this is only intended to be | and the auditor and taken such other | As at the date of this report, the Company | | used in accordance with the Pre-Emption | steps as are required under their duties | had been notified, in accordance | | Principles. Further information regarding | as a Director, to make themselves aware | with Chapter 5 of the Disclosure and | | these resolutions, which are based on | of any relevant audit information and to | Transparency Rules, of the voting rights as | | template resolutions published by the Pre- | establish that the auditor is aware of that | a shareholder of the Company shown in | | Emption Group, is set out in the circular | information. This confirmation is given and | Table B of this report. | | to shareholders. A resolution will also be | should be interpreted in accordance with | | | proposed at the 2022 AGM, as is also | the provisions of section 418 of the 2006 | | | customary, to renew the Directors’ existing | Act. | | authority to make market purchases of the Company’s Ordinary Share capital, and to limit such authority to purchases of up 119 Pharos Energy Annual Report and Accounts 2021 Strategic Report Governance Report Financial Statements Additional Information **TABLE B: SUBSTANTIAL SHAREHOLDINGS IN THE COMPANY** | | No of Ordinary Shares held as % of voting rights^{1} | | Nature of holding | | --- | --- | --- | --- | | Lombard Odier Asset Management (Europe) Limited^{4} | 44,557,978 | 10.070 | Direct | | Ettore Contini^{2} | 32,613,577 | 7.369 | Direct and indirect | | Blue Albacore Business Ltd | 31,617,359 | 7.144 | Direct | | Globe Deals Ltd | 27,444,382 | 6.201 | Direct | | Aberforth Partners LLP | 25,883,843 | 5.849 | Direct | | Chermsa Ltd | 24,426,925 | 5.519 | Direct | | Yorktown Energy Partners VII, LP | 22,982,393 | 5.193 | Direct | | Ed Story^{3} | 16,087,407 | 3.635 | Direct and indirect | 1. As at 15 March 2022, the total voting rights attached to the issued share capital of the Company comprised 442,562,601 ordinary shares each of £0.05 nominal value, being 451,684,869 ordinary shares in issue less 9,122,268 ordinary shares currently held in treasury. 2. The Company has been notified that, of these shares 28,780,000 shares are held through Liquid Business Ltd, a closely associated person to Ettore Contini. 3. Of these shares, 1,675,000 Shares are held through The Story Family Trust, a closely associated person to Ed Story, and the balance are held by Mr Story personally. 4. As at 31 December 2021: Lombard Odier Asset Management (Europe) Limited held 22,117,521 Shares representing 4.998% of the voting rights in the Company at that time. During the period between 31 December 2021 and 15 March 2022, the Company did not receive any notifications under chapter 5 of the Disclosure and Transparency Rules indicating a different whole percentage holding at 31 December 2021 other than as shown in the footnotes to the substantial shareholder table above. For further information on Directors' interests, please see page 108. ### Requirements of the UK Listing Rules Table C of this report provides references to where the information required by Listing Rule 9.8.4R is disclosed within this Annual Report: **TABLE C: LISTING RULES REQUIREMENTS** | Listing Rule requirement | | | --- | --- | | Details of any long term incentive schemes as required by Listing Rule 9.4.3 R. | Directors' Remuneration Report pages 102-116 | | Details of any arrangements under which a director of the company has waived or agreed to waive any emoluments from the company or any subsidiary undertaking. Where a director has agreed to waive future emoluments, details of such waiver together with those relating to emoluments which were waived during the period under review. | No such waivers | | Details required in the case of any allotment for cash of equity securities made during the period under review otherwise than to the holders of the company's equity shares in proportion to their holdings of such equity shares and which has not been specifically authorised by the company's shareholders. | No such share allotments | | Details of any contract of significance subsisting during the period under review: (a) to which the listed company, or one of its subsidiary undertakings, is a party and in which a director of the listed company is or was materially interested; and (b) between the listed company, or one of its subsidiary undertakings, and a controlling shareholder. | Note 35 page 160 | | Details of any arrangement under which a shareholder has waived or agreed to waive any dividends, where a shareholder has agreed to waive future dividends, details of such waiver together with those relating to dividends which are payable during the period under review. | Note 29 page 156 | ### Whistleblowing procedure The Board has reviewed, and is satisfied with, the Group's Whistleblowing Policy and associated procedures, enabling employees to raise issues in confidence concerning improprieties which would be addressed with appropriate follow-up action. The Group has in place an Ethics Hotline using a dedicated, confidential and anonymous telephone service available to staff to report a suspected breach of the Group's Code of Business Conduct and Ethics. ### Business Relationships In order to foster relationships with suppliers and customers, Pharos ensures a robust engagement process before contracts are awarded. Every vendor is required to complete due diligence so that the Company may ensure all corporate and banking details are recorded and checked before invoices are issued; this allows for prompt and accurate payment. Where possible, payment terms are 30 days from date of receipt of a validly submitted invoice. A comprehensive contracts register is maintained to ensure that post award contract management is addressed to consider delivery of appropriate notices of renewal of termination. We strive to work constructively with all our suppliers, customers and other business partners to build and maintain productive relationships. Pharos Energy Annual Report and Accounts 2021 120 DIRECTORS' REPORT - CONTINUED # Going concern It should be recognised that any consideration of the foreseeable future involves making a judgement, at a particular point in time, about future events which are inherently uncertain. Nevertheless, at the time of preparation of these accounts and after making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue operating for the foreseeable future. For this reason, and taking into consideration the additional factors in the Strategic Report on pages 2 to 78 including the Going Concern section of the CFO's statement on pages 38 to 42, they continue to adopt the going concern basis in preparing the accounts. # Directors' responsibilities for the Financial Statements The Directors are responsible for preparing the annual report and the Financial Statements in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. The Financial Statements have also been prepared in accordance with International Financial Reporting Standards as issued by the IASB. The Directors are required to prepare Financial Statements for each financial year that give a true and fair view of the financial position of the Company and of the Group and the financial performance and cash flows of the Group for that period. In preparing those accounts the Directors are required to select suitable accounting policies and then apply them consistently; present information and accounting policies in a manner that provides relevant, reliable and comparable information; and state that the Company and the Group have complied with applicable accounting standards, subject to any material departures disclosed and explained in the accounts. The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the accounts comply with relevant legislation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Information published on the internet is accessible in many countries with different legal requirements. Legislation in the United Kingdom governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions. # Directors' responsibility statement The Directors confirm that, to the best of each person's knowledge: a) the Financial Statements set out on pages 123 to 162, which have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union and in accordance with International Financial Reporting Standards as issued by the IASB, give a true and fair view of the assets, liabilities, financial position and loss of the Company and the Group taken as a whole; b) this Directors' Report along with the Strategic Report, including each of the management reports forming part of these reports, includes a fair review of the development and performance of the business and the position of the Company and the Group taken as a whole, together with a description of the principal risks and uncertainties that they face and how these are being managed and mitigated as set out in the Risk Management and Risk Report on pages 43 to 57; and c) the annual report and the Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for the shareholders to assess the Group's position, performance, business model and strategy. Approved by the Board and signed on its behalf. SUE RIVETT Chief Financial Officer 15 March 2022 121 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report ## Financial ## Statements ## Independent Auditor’s Report 123 ## Consolidated Income Statement 132 ## Consolidated Statement of Comprehensive Income 132 ## Balance Sheets 133 ## Statements of Changes in Equity 134 ## Cash Flow Statements 135 ## Notes to the Consolidated Financial Statements 136 Pharos Energy Annual Report and Accounts 2021 122 INDEPENDENT AUDITOR’S REPORT ### INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PHAROS ENERGY PLC Report on the audit of the financial statements ### 1. Opinion In our opinion: • the financial statements of Pharos Energy plc (the ‘parent company’) and its subsidiaries (the ‘group’) give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 December 2021 and of the group’s loss for the year then ended; • the group financial statements have been properly prepared in accordance with United Kingdom adopted international accounting standards and International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB); • the parent company financial statements have been properly prepared in accordance with United Kingdom adopted international accounting standards and as applied in accordance with the provisions of the Companies Act 2006; and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. We have audited the financial statements which comprise: • the consolidated income statement; • the consolidated statement of comprehensive income; • the consolidated and parent company balance sheets; • the consolidated and parent company statements of changes in equity; • the consolidated cash flow statement; and • the related notes 1 to 38. The financial reporting framework that has been applied in their preparation is applicable law, United Kingdom adopted international accounting standards and IFRSs as issued by the IASB. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and United Kingdom adopted international accounting standards and as applied in accordance with the provisions of the Companies Act 2006. ### 2. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. The non-audit services provided to the group and parent company for the year are disclosed in note 10 to the financial statements. We confirm that we have not provided any non-audit services prohibited by the FRC’s Ethical Standard to the group or the parent company. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. 123 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report ### 3. Summary of our audit approach Key audit matters The key audit matters that we identified in the current year were: • Impairment of producing oil & gas assets Within this report, key audit matters are identified as follows: Newly identified Increased level of risk Similar level of risk Decreased level of risk The materiality that we used for the group financial statements was $3.2 million which was determined on the basis of the 3-year average of earnings from continuing activities before interest, tax, DD&A, Materiality impairment of PP&E and intangibles, exploration other/expenditure and Other/restructuring expense “EBITDAX”. Management’s calculation of EBITDAX is provided on page 164 to the financial statements. We focused primarily on the group’s key business units, being Vietnam and Egypt, as well as the parent company which is based in London. These locations were all subject to full scope audit and account for 98% of the group’s total assets, 83% of the group’s revenue and 100% of the group’s loss before tax Scoping from loss making entities. Specified audit procedures were then performed on the remaining 2% of the group’s total assets, 17% of the group’s revenue and 100% of the group’s profit before tax from profit making entities. The Going concern basis of accounting was included as a key audit matter in the prior year. As the business performance working capital and commodity prices have improved, this is not considered a key audit matter in the current year. Significant changes in We have changed the materiality benchmark from Net assets and EBITDAX in 2020 to a 3-year average our approach of EBITDAX in 2021. See section 6.1 below for details. No other changes were noted to the key audit matters or our overall audit approach as compared to the prior year. ### 4. Conclusions relating to going concern In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors’ assessment of the group’s and parent company’s ability to continue to adopt the going concern basis of accounting included: • assessed that the forecasts incorporated in the base case model are consistent with the budget • approved by the Board; • compared the key assumptions in the base case forecast to those used in the impairment models for • oil & gas producing assets and understood the basis for any differences; • assessed the historical accuracy of budgets prepared by Management; • compared the oil prices in the aggregated downside scenario with both the spot oil price and publicly available forward curves as of the date of approval of the financial statements; • assessed and recalculated the impact of the aggregated downside scenario on the financial covenants included in the reserve based lending (RBL) during the going concern period; • assessed the ability of management to execute the mitigating actions in its aggregated downside scenario, including the extent to which the adjustments made to capital expenditure are uncommitted as of the date of this report; • assessed the results of the oil price reverse stress test, by comparing to currently prevailing prices; • tested the going concern model for mechanical accuracy; and • assessed whether the disclosures relating to going concern are appropriate. Pharos Energy Annual Report and Accounts 2021 124 INDEPENDENT AUDITOR'S REPORT - CONTINUED Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group's and parent company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue. In relation to the reporting on how the group has applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the directors' statement in the financial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. ## 5. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. ### 5.1. Impairment of producing oil & gas assets #### Key audit matter description The value of property, plant and equipment relating to the group's producing oil and gas assets as at 31 December 2021 was $399.7 million (2020: $434.6 million). Impairment of producing oil & gas assets is considered a key audit matter due to the significant judgements and estimates involved in assessing whether any impairment charges or reversals have arisen at year-end, and in quantifying any such impairment charges or reversals. In addition, we considered that there was a risk of impairment due to the potential impact of climate change on long term oil prices. Given the importance of producing oil & gas assets to the group and the judgemental nature of the inputs used in determining the recoverable amounts, we also considered there to be a potential for fraud in this area. We have assessed an increased risk in 2021 as compared to 2020 as a result of the increasing risk of reserves estimates coupled with the significant change in oil prices in 2022. Management reviewed its two producing assets in Vietnam, being Te Giac Trang ('TGT') and Ca Ngu Vang ('CNV'), and its one producing asset in Egypt, being El Fayum, for indicators of impairment. As a result of the steady growth of the oil prices in 2021 compared to the volatility in 2021, Management revised their oil price assumptions upwards during 2021 compared to the prior year assumptions, as set out in note 16 of the financial statements. Given the significance of the revision, together with changes to estimates of oil & gas reserves, Management concluded that there was an indicator of impairment reversals for all three of those fields. Management have estimated the recoverable amount of each field, being its Value-in-Use 'VIU', and compared this to its balance sheet carrying amount. Management recorded pre-tax impairment reversal of $3.8 million on CNV (2020: pre-tax impairment charges of $23.3 million), pre-tax impairment reversal of $49.1 million on TGT (2020: pre-tax impairment charges of $81.8 million) and pre-tax impairment reversal of $1.2 million on El Fayum (2020: pre-tax impairment charges of $105.4 million). Management's recoverable amount estimates were based on key assumptions which included: - oil price forecasts, being $73.9/bbl in 2022, $70.2/bbl in 2023, $67.8/bbl in 2024, $68/bbl in 2025 plus inflation of 2% thereafter; - reserves estimates and production profiles; and, - pre-tax nominal discount rates of 11.4% for TGT and CNV, and 14% for El Fayum In relation to reserves estimates and production profiles, Management have engaged third party reservoir engineering experts to provide an independent report on the group's reserves estimates using standard industry reserve estimation methods and definitions for each of the CNV, TGT and El Fayum fields. Management have explained the scope of work of the third party experts and their findings in the operations review, as well as highlighting oil and gas reserves as a key source of estimation uncertainty in note 4(b) to the financial statements. As referenced in note 4(b) of the financial statements, the impairment of producing oil & gas assets is considered by management as a key source of estimation uncertainty. Further details of the key assumptions used by management in their impairment evaluation are provided in note 16 of the financial statements and in the Report of the Audit & Risk Committee on pages 97-101. The disclosures in note 16 include the sensitivity of the impairment reversals to changes in key assumptions, including the impact of adopting an oil price from a third party forecaster described as being compliant with achieving the Paris agreement goal to limit temperature rises to well below 2°C ('Paris 2°C Goal'). 128 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report How the scope of our For the TGT, CNV and El Fayum impairment assessments, we obtained an understanding of the audit responded to the management’s relevant key controls related to the valuation of each producing oil & gas asset. We evaluated management’s assessment of whether or not impairment reversals or charges indicators key audit matter were present in respect of each producing oil & gas asset, and thus the completeness of management’s impairment tests. Where indicators were identified, we assessed the methods and models used for consistency with the requirements of IAS 36 “Impairment of Assets”. We evaluated the key assumptions made by management in the measurement of recoverable amounts by performing the following substantive procedures: Oil prices: We assessed group’s forecast oil price assumptions by: • Independently developing a reasonable range of forecasts based on a variety of reputable external forecasts, peer information and market data, against which we compared the group’s future oil price assumptions in order to challenge whether they are reasonable; • In developing our range we also considered a certain scenario that was described as meeting the Paris goals which aligns with the goals to limit temperature rises to well below 2°C. We also considered the impact of COVID on energy supply and demand and whether that had been appropriately taken into account. • We assessed management’s current ‘best estimate’ of future oil prices including consideration of third party forecasts under scenarios that we interpreted to be consistent with this measurement objective. Reserves estimates and production profiles: Through working with our internal oil and gas reserve specialists, we: • Understood the process used by management to derive their reserves estimates and associated production profiles and how they provide information to, and interact with, the external third party reserve experts; • Assessed the competence, capability and objectivity of the company’s internal and external third party reserve experts, through obtaining their relevant professional qualifications and experience; • Reviewed the external third party experts’ reports on Pharos’ reserves estimates as summarised in the operations review and evaluated whether these estimates were used consistently throughout the accounting calculations reflected in the financial statements; • Communicated directly with the external third party reserves experts to discuss their scope of work and assess their methodologies used and outputs; • Compared the production forecasts used in the impairment tests with management’s approved reserves and resources estimates; • Assessed the cash flow forecasts to determine the significant assumptions to which the impairment outcome was most sensitive; • Substantively tested the hydrocarbon production and cost forecasts used in the impairment tests, including challenging the significant assumptions; • Compared the production and cost forecasts with similar forecasts from the prior year and challenged significant changes; • Assessed the reasonableness of the production and cost forecasts relative to each other; • Performed a retrospective review to check for indications of estimation bias over time; and • Where relevant, assessed the company’s historical forecasting accuracy and whether the estimates had been determined and applied on a consistent basis. Discount rates: • We assessed the Group’s discount rates by working with our internal valuation specialists to develop independent estimates using independent third party information for TGT, CNV and El-Fayum and comparing those assumptions to management’s assumptions. Other procedures: • We assessed management’s other assumptions by reference to third party information, our knowledge of the group and industry and also budgeted and forecast performance. • We assessed whether the Group’s impairment methodology was acceptable under IFRS and tested the integrity and mechanical accuracy of the impairment models. • We assessed whether management’s presentation and disclosures relating to impairment and associated estimation uncertainty were adequate. Pharos Energy Annual Report and Accounts 2021 126 INDEPENDENT AUDITOR'S REPORT - CONTINUED # **Key observations** # **Oil prices:** For the purpose of impairment of producing oil & gas assets, management is required under IAS 36 to apply its current "best estimate" of future oil prices. We observed that in the short-term, the Group's oil price assumptions sit comfortably within our range, albeit towards the lower end. For the long-term, the Group's oil price assumptions sit comfortably within our range albeit towards the higher end. Accordingly, we found the Group's oil price assumptions to be within our range, and therefore we determined that the Group's "best estimate" oil price assumptions are reasonable. We also observe that the forecast oil price assumptions aligned with the Paris goals to be generally lower than the Group's oil price assumptions. The disclosures in note 16 to the financial statements includes the impact of adopting an oil price described as being compliant with achieving the Paris agreement goal to limit temperature rises to well below 2°C ("Paris 2°C Goal"). # **Discount rates:** The Group's discount rate used for impairment testing, was within our independent range and therefore considered reasonable. # **Reserves estimates and production profiles:** We found that the reserves estimates and production profiles used in the impairment tests to have been appropriately prepared, and found the underlying assumptions we tested to be reasonable. # **Other procedures:** We concluded that the impairment reversals recorded by management are appropriate. We are also satisfied that appropriate disclosures relating to Management's impairment assessment and sensitivities have been provided in note 16. # **6. Our application of materiality** # **6.1. Materiality** We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results of our work. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: | | Group financial statements | Parent company financial statements | | --- | --- | --- | | **Materiality** | $3.2 million (2020: $3.0 million) | $2.3 million (2020: $2.7 million) | | **Basis for determining materiality** | 4% of the 3-year average of EBITDAX (2020: 1% of net assets and 4.4% of EBITDAX) Management's calculation of EBITDAX is provided on page 164 to the financial statements. | Parent company materiality equates to 1.5% of net assets, which is capped at 90% of group materiality. (2020: 0.8% of net assets) | | **Rationale for the benchmark applied** | In the prior year, materiality was based on net assets and EBITDAX. However, in the current year we concluded that a 3-year average of EBITDAX is the most relevant benchmark given the volatility in oil prices, the majority of the group's oil & gas assets are now at the producing stage and the group is in its second full year of operations in Egypt. This reflects the group's performance, noting that EBITDAX is also an input to one of the covenants under the group's RBL facility. The net assets metric is still considered relevant as it is reflective of the long term value of the group through its portfolio of producing and exploration assets (in the current year, our determined materiality represents 1% of net assets). | Consistent with prior year, as the primary nature of this holding company is to hold investments in subsidiaries, we have concluded that net assets represents the most appropriate benchmark. | 127 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report ### Group materiality $3m | 3-year average | | | Component materiality | | --- | --- | --- | --- | | | $78m | $3m | | | EBITDAX $78m | | | range $1m to $2m | Audit Committee r threshold $0.16m 6.2. Performance materiality We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected misstatements exceed the materiality for the financial statements as a whole. Group financial statements Parent company financial statements Performance 70% (2020: 70%) of group materiality 70% (2020: 70%) of parent company materiality materiality In determining performance materiality, we considered the following factors: Basis and a) the controls environment within which the group operates, including that related to IT, is not considered to be complex; rationale for determining b) the responsibility for all key accounting judgements and critical sources of estimation uncertainty is centralised performance and conducted in the head office in London; materiality c) the limited number of changes to the business during the year; and d) the history of a low number of corrected and uncorrected misstatements identified in previous periods. 6.3. Error reporting threshold We agreed with the Audit & Risk Committee that we would report to the Committee all audit differences in excess of $0.16 million (2020: $0.15 million), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit & Risk Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements. ### 7. An overview of the scope of our audit 7.1. Identification and scoping of 98%) of the group’s total assets, 88% In both the current and the prior year, all of (2020: 83%) of the group’s revenue and the key audit matters that had the greatest components 100% (2020: 100%) of the group’s loss effect on our audit strategy, as described Our group audit was scoped by obtaining before tax from loss making entities. above, were audited directly by the group an understanding of the group and Specified audit procedures were then audit team in London. its environment, including group-wide performed on the remaining 2% (2020: controls, and assessing the risks of At the group level, we also tested the 2%) of the group’s total assets, 12% material misstatement at the group level. consolidation process, impairment (2020: 17%) of the group’s revenue and Based on that assessment, we scoped in of producing oil & gas assets, going 100% (2020: 100%) of the group’s profit the group’s key business units, Vietnam concern, accounting for leases, before tax from profit making entities. | and Egypt, which are accounted for partly | | borrowings and intercompany. We also | | --- | --- | --- | | in the local country of operation and | The Vietnamese component materiality | carried out analytical procedures to | | partly in London, together with the parent | was $2.016 million (2020: $1.575 million) | support our conclusion that there were no | | company which is also accounted for in | and the Egyptian component materiality | significant risks of material misstatement | | London. The Vietnamese component, | was $1.120 million (2020: $1.155 million). | of the aggregated financial information of | | the Egyptian component and the parent | We also audited the consolidation of the | the remaining components not subject | | company, which are all subject to full | group’s business units. | to audit or audit of specified account | | scope audits, accounted for 98% (2020: | | balances. | eporting Pharos Energy Annual Report and Accounts 2021 128 INDEPENDENT AUDITOR’S REPORT - CONTINUED 7.2. Our consideration of climate- In order to address the risk identified, If we identify such material inconsistencies we performed the following procedures or apparent material misstatements, we related risks through working with our climate are required to determine whether this Climate change is considered a principal specialist: gives rise to a material misstatement in risk to the Group and its business over the financial statements themselves. If, the medium and long term. Further details • We read the climate change related based on the work we have performed, are disclosed in the Strategic report of the disclosures presented in the Strategic we conclude that there is a material 2021 Annual Report pages 2 to 78. Report to consider whether they are misstatement of this other information, we materially consistent with the financial Through working with our internal climate are required to report that fact. statements and our knowledge specialists, we: obtained in the audit; We have nothing to report in this regard. • Obtained an understanding of • We challenged management’s forecast management’s process for considering ### oil price assumptions to assess 9. Responsibilities of directors the impact of climate-related risks and whether they are reasonable and As explained more fully in the directors’ relevant controls through enquiries present management’s current ‘best responsibilities statement, the directors performed with the Audit & Risk estimate’ in accordance with IAS 36 are responsible for the preparation of committee, enquiries and observations (see the key audit matter in section the financial statements and for being of relevant documentation with the ESG ‘5.1 Impairment of producing oil & gas satisfied that they give a true and fair committee as well as regular meetings assets’ above); and view, and for such internal control as the with management; • We evaluated the accuracy and directors determine is necessary to enable • To ensure the completeness and the preparation of financial statements appropriateness of the disclosures consistency of climate related risks that are free from material misstatement, addressing the impact of climate identified by management with our whether due to fraud or error. and energy transition on the financial understanding of the entity and risk statements in note 4(b) and the key In preparing the financial statements, the assessment, we obtained and reviewed assumptions and calculated sensitivities directors are responsible for assessing the management’s assessment of climate showing the impact on impairment of group’s and the parent company’s ability related risks, read the minutes of producing oil & gas assets included in to continue as a going concern, disclosing meeting of the ESG committee and note 16 of the financial statements. as applicable, matters related to going specifically inquired management of concern and using the going concern any climate-related litigations or claims 7.3. Working with other auditors basis of accounting unless the directors involving the group. The group audit team assesses each either intend to liquidate the group or the As disclosed in note 4(b) to the financial year how best to be appropriately parent company or to cease operations, statements, Management identified involved in the audit work undertaken in or have no realistic alternative but to do that the group’s producing oil & gas Vietnam and Egypt. In the current year, so. properties are short-term in nature and as a result of travel restrictions due to the none are being depleted over a period Covid-19 pandemic, this was achieved ### 10. Auditor’s responsibilities that extends beyond 2036. Therefore, by regular interaction and review through ### due to the relatively short-time frame, for the audit of the financial correspondence, telephone and other Management concluded that the impact ### electronic media as well as performing a statements of climate change on the group’s oil & remote review of the underlying work of Our objectives are to obtain reasonable gas properties depletion, economic useful the component auditors in selected key assurance about whether the financial lives and decommissioning not to be areas by a senior member of the audit statements as a whole are free from material. Management further identified team. material misstatement, whether due to that the impact of climate change on the fraud or error, and to issue an auditor’s group’s Exploration & Evaluation assets is In addition to our direct interactions, report that includes our opinion. similar to the group’s producing oil & gas we sent detailed instructions to our Reasonable assurance is a high level properties, but the potential longevity of component audit teams, and reviewed of assurance, but is not a guarantee those assets has not yet been determined their audit working papers. that an audit conducted in accordance for further consideration. Accordingly, with ISAs (UK) will always detect a the related principal risks that we have ### 8. Other information material misstatement when it exists. identified for our audit is the forecast The other information comprises the Misstatements can arise from fraud or oil assumptions used in the fair value information included in the annual report, error and are considered material if, estimates of group’s producing oil & gas other than the financial statements and individually or in the aggregate, they could properties may not appropriately reflect our auditor’s report thereon. The directors reasonably be expected to influence the changes in supply and demand due to are responsible for the other information economic decisions of users taken on the climate change and the energy transition contained within the annual report. basis of these financial statements. (see the key audit matter in section ‘5.1 Impairment of producing oil & gas assets’ Our opinion on the financial statements A further description of our responsibilities above). does not cover the other information and, for the audit of the financial statements is except to the extent otherwise explicitly located on the FRC’s website at: www. stated in our report, we do not express frc.org.uk/auditorsresponsibilities. This any form of assurance conclusion thereon. description forms part of our auditor’s report. 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. 129 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report ### 11. Extent to which the audit As a result of these procedures, we entries and other adjustments; considered the opportunities and assessing whether the judgements ### was considered capable incentives that may exist within the made in making accounting estimates ### of detecting irregularities, organisation for fraud and identified are indicative of a potential bias; and ### including fraud the greatest potential for fraud in evaluating the business rationale of management’s assessment of the any significant transactions that are Irregularities, including fraud, are instances impairment of producing oil & gas assets. unusual or outside the normal course of of non-compliance with laws and In common with all audits under ISAs business. regulations. We design procedures in line (UK), we are also required to perform with our responsibilities, outlined above, to We also communicated relevant identified specific procedures to respond to the risk detect material misstatements in respect laws and regulations and potential of management override. of irregularities, including fraud. The extent fraud risks to all engagement team to which our procedures are capable of We also obtained an understanding of the members including internal specialists detecting irregularities, including fraud is legal and regulatory frameworks that the and significant component audit teams, detailed below. group operates in, focusing on provisions and remained alert to any indications of of those laws and regulations that had fraud or non-compliance with laws and a direct effect on the determination of regulations throughout the audit. 11.1. Identifying and assessing material amounts and disclosures in the potential risks related to financial statements. The key laws and irregularities regulations we considered in this context ### Report on other legal and In identifying and assessing risks of included the UK Companies Act, the ### material misstatement in respect of regulatory requirements Listing Rules, tax legislation in the UK, irregularities, including fraud and non- Vietnam and Egypt. compliance with laws and regulations, we ### 12. Opinions on other considered the following: In addition, we considered provisions ### of other laws and regulations that do matters prescribed by the • the nature of the industry and sector, ### not have a direct effect on the financial Companies Act 2006 control environment and business statements but compliance with which In our opinion the part of the directors’ performance including the design of may be fundamental to the group’s ability remuneration report to be audited has the group’s remuneration policies, key to operate or to avoid a material penalty. been properly prepared in accordance drivers for directors’ remuneration, These included the group’s operating with the Companies Act 2006. bonus levels and performance targets; licences and environmental regulations. • results of our enquiries of management In our opinion, based on the work and the audit committee about their 11.2. Audit response to risks undertaken in the course of the audit: own identification and assessment of identified the risks of irregularities; • the information given in the As a result of performing the above, strategic report and the directors’ • any matters we identified having we identified impairment of producing report for the financial year for obtained and reviewed the group’s oil & gas assets as a key audit matter which the financial statements are documentation of their policies and related to the potential risk of fraud. The prepared is consistent with the procedures relating to: key audit matter section of our report financial statements; and | - identifying, evaluating and complying | (‘5.1 Impairment of producing oil & gas | | | | --- | --- | --- | --- | | with laws and regulations and whether | assets’ above) explains the matter in more | • the strategic report and the | | | they were aware of any instances of | detail and also describes the specific | | directors’ report have been | | non-compliance; | procedures we performed in response to | | prepared in accordance with | | | that key audit matter. | | applicable legal requirements. | - detecting and responding to the risks of fraud and whether they have In the light of the knowledge and In addition to the above, our procedures knowledge of any actual, suspected or to respond to risks identified included the understanding of the group and alleged fraud following: the parent company and their - the internal controls established environment obtained in the course to mitigate risks of fraud or non- • reviewing the financial statement of the audit, we have not identified compliance with laws and regulations disclosures and testing to supporting any material misstatements in the documentation to assess compliance • the matters discussed among the strategic report or the directors’ with provisions of relevant laws and audit engagement team including report. regulations described as having a direct significant component audit teams and effect on the financial statements; relevant internal specialists, including tax, valuations and reserves specialists • enquiring of management, the audit regarding how and where fraud might & risk committee and in-house and occur in the financial statements and external legal counsel concerning actual any potential indicators of fraud. 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 Pharos Energy Annual Report and Accounts 2021 130 INDEPENDENT AUDITOR'S REPORT - 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 (as set out on page 89); - the directors' explanation as to its assessment of the group's prospects, the period this assessment covers and why the period is appropriate (as set out on page 89); - the directors' statement on fair, balanced and understandable (set out on page 121); - the board's confirmation that it has carried out a robust assessment of the emerging and principal risks (set out on page 89); - the section of the annual report that describes the review of effectiveness of risk management and internal control systems (set out on page 89); and - the section describing the work of the audit committee (set out on page 89). ### 14. Matters on which we are required to report by exception #### 14.1. Adequacy of explanations received and accounting records Under the Companies Act 2006 we are required to report to you if, in our opinion: - we have not received all the information and explanations we require for our audit; or - adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or - the parent company financial statements are not in agreement with the accounting records and returns. We have nothing to report in respect of these matters. #### 14.2. Directors' remuneration Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors' remuneration have not been made or the part of the directors' remuneration report to be audited is not in agreement with the accounting records and returns. We have nothing to report in respect of these matters. ### 15. Other matters which we are required to address #### 15.1. Auditor tenure Following the recommendation of the audit committee, we were appointed by the directors on 1 August 2002 to audit the financial statements for the year ending 31 December 2002 and subsequent financial periods. The period of total uninterrupted engagement including previous renewals and reappointments of the firm is 20 years, covering the years ending 31 December 2002 to 31 December 2021. #### 15.2. Consistency of the audit report with the additional report to the audit committee Our audit opinion is consistent with the additional report to the audit committee we are required to provide in accordance with ISAs (UK). ### 16. Use of our report This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed. As required by the Financial Conduct Authority (FCA) Disclosure Guidance and Transparency Rule (DTR) 4.1.14R, these financial statements form part of the European Single Electronic Format (ESEF) prepared Annual Financial Report filed on the National Storage Mechanism of the UK FCA in accordance with the ESEF Regulatory Technical Standard ('ESEF RTS'). This auditor's report provides no assurance over whether the annual financial report has been prepared using the single electronic format specified in the ESEF RTS. **ANTHONY MATTHEWS, FCA** **(SENIOR STATUTORY AUDITOR)** For and on behalf of Deloitte LLP Statutory Auditor London, United Kingdom 16 March 2022 131 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report CONSOLIDATED FINANCIAL STATEMENTS ### Consolidated Income Statement for the year to 31 December 2021 2021 2020 Notes $ million $ million Continuing operations | Revenue 5, 6 | | 134.1 | | 142.0 | | | --- | --- | --- | --- | --- | --- | | Cost of sales 7 | | (114.6) | | (123.8) | | | Gross profit 19.5 | | | | 18.2 | | | Administrative expenses | | (13.2) | | (14.7) | | | Impairment charge – Intangible assets 6, 15 | | (2.2) | | (24.3) | | | Impairment reversal/(charge) – Property, plant and equipment 6, 16 | | 54.6 | | (210.5) | | | Impairment charge – Assets classified as held for sale 6, 37 | | (10.4) | | | – | | Operating profit/(loss) 48.3 | | | | (231.3) | | | Other/restructuring expense 8 | | (3.3) | | (5.8) | | | Investment revenue 5 | | | - | | 0.1 | | Finance costs 9 | | (6.4) | | (4.2) | | | Profit/(Loss) before tax | 6 | 38.6 | | (241.2) | | | Income tax (charge)/credit 6, 12 | | (43.3) | | 25.6 | | | Loss for the year from continuing operations (4.7) | | | | (215.6) | | Discontinued operations | Loss post-tax for the year from discontinued operations | 6 | – (0.2) | | | | --- | --- | --- | --- | --- | | Loss for the year | 30 | | (4.7) (215.8) | | | Loss per share from continuing operations (cents) | 14 | | | | | Basic | | (1.1) | | (54.6) | | Diluted | | | (1.1) | (54.6) | Loss per share from continuing and discontinued operations (cents) Basic (1.1) (54.6) Diluted (1.1) (54.6) ### Consolidated Statement of Comprehensive Income for the year to 31 December 2021 2021 2020 Notes $ million $ million Loss for the year 30 (4.7) (215.8) Items that may be subsequently reclassified to profit or loss: Fair value (loss)/gain arising on hedging instruments during the year 25 (27.7) 20.0 Less: Loss/(gain) arising on hedging Instruments reclassified to profit or loss 25 29.7 (23.7) Total comprehensive loss for the year (2.7) (219.5) The above consolidated income statement and consolidated statement of comprehensive income should be read in conjunction with the accompanying notes. Pharos Energy Annual Report and Accounts 2021 132 CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED # **Balance Sheets as at 31 December 2021** | | Notes | Group | | Company | | | --- | --- | --- | --- | --- | --- | | | | 2021 $ million | 2020 $ million | 2021 $ million | 2020 $ million | | **Non-current assets** | | | | | | | Intangible assets | 15 | 12.4 | 1.5 | – | – | | Property, plant and equipment | 16 | 399.8 | 435.7 | – | – | | Right-of-use assets | 16, 33 | – | 0.1 | – | – | | Investments | 17 | – | – | 278.7 | 268.1 | | Loan to subsidiaries | | – | – | 27.4 | 21.1 | | Other assets | 18 | 48.1 | 45.9 | – | – | | | | **460.3** | **483.2** | **306.1** | **289.2** | | **Current assets** | | | | | | | Inventories | 19 | 10.7 | 17.7 | – | – | | Trade and other receivables | 20 | 28.1 | 22.9 | 1.4 | 1.6 | | Tax receivables | | 1.5 | 0.6 | 0.4 | 0.6 | | Cash and cash equivalents | 21 | 27.1 | 24.6 | 5.3 | 3.5 | | Assets classified as held for sale | 37 | 62.0 | – | – | – | | | | **129.4** | **65.8** | **7.1** | **5.7** | | **Total assets** | | **589.7** | **549.0** | **313.2** | **294.9** | | **Current liabilities** | | | | | | | Trade and other payables | 22 | (30.6) | (35.6) | (4.3) | (2.7) | | Borrowings | 24 | (33.3) | (12.7) | – | – | | Lease liabilities | 33 | – | (0.4) | – | – | | Tax payable | | (5.4) | (6.7) | (1.0) | (0.4) | | Liabilities directly associated with assets classified as held for sale | 37 | (8.5) | – | – | – | | | | **(77.8)** | **(55.4)** | **(5.3)** | **(3.1)** | | **Non-current liabilities** | | | | | | | Deferred tax liabilities | 23 | (91.2) | (85.5) | – | – | | Borrowings | 24 | (47.2) | (41.0) | – | – | | Long term provisions | 26 | (69.1) | (73.4) | – | – | | | | **(207.5)** | **(199.9)** | **–** | **–** | | **Total liabilities** | | **(285.3)** | **(255.3)** | **(5.3)** | **(3.1)** | | **Net assets** | | **304.4** | **293.7** | **307.9** | **291.8** | | **Equity** | | | | | | | Share capital | 27 | 34.9 | 31.9 | 34.9 | 31.9 | | Share premium | 27 | 58.0 | 55.4 | 58.0 | 55.4 | | Other reserves | 28 | 250.5 | 243.0 | 202.4 | 197.6 | | Retained (deficit)/earnings | 30 | (39.0) | (36.6) | 12.6 | 6.9 | | **Total equity** | | **304.4** | **293.7** | **307.9** | **291.8** | The above consolidated balance sheets should be read in conjunction with the accompanying notes. The profit for the financial year in the accounts of the Company (Co number 3300821) was $1.9m inclusive of dividends from subsidiary undertakings (2020: $264.5 loss). As provided by section 408 of the Companies Act 2006, no income statement or statement of comprehensive income is presented in respect of the Company. The financial statements were approved by the Board of Directors on 15 March 2022 and signed on its behalf by: **JOHN MARTIN** Chair **SUE RIVETT** Chief Financial Officer 133 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report ### Statements of Changes in Equity for the year to 31 December 2021 Group | | | Called up | | | Share | | | | | Retained | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | share capital | | | premium | | Other 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 2020 31.9 55.4 246.6 176.2 510.1 Loss for the year 30 – – – (215.8) (215.8) Other comprehensive loss 28 – – (3.7) – (3.7) Currency exchange translation differences 28 – – 0.8 – 0.8 Share-based payments 28 – – 2.3 – 2.3 Transfer relating to share-based payments 28, 30 – – (3.0) 3.0 – As at 1 January 2021 31.9 55.4 243.0 (36.6) 293.7 Loss for the year 30 – – – (4.7) (4.7) Other comprehensive income 28 – – 2.0 – 2.0 Shares issued 27, 28 3.0 2.6 5.3 – 10.9 Share-based payments 28 – – 2.5 – 2.5 Transfer relating to share-based payments 28, 30 – – (2.3) 2.3 – As at 31 December 2021 34.9 58.0 250.5 (39.0) 304.4 Company | | | Called up | | | Share | | | | | Retained | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | share capital | | | premium | | Other 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 2020 31.9 55.4 199.3 268.4 555.0 Loss for the year 13, 30 – – – (264.5) (264.5) Currency exchange translation differences 28 – – 0.8 – 0.8 Share-based payments 28 – – 2.3 – 2.3 Transfer relating to share-based payments 28, 30 – – (4.8) 3.0 (1.8) As at 1 January 2021 31.9 55.4 197.6 6.9 291.8 Profit for the year 13, 30 – – – 1.9 1.9 Shares issued 27, 28 3.0 2.6 5.3 – 10.9 Currency exchange translation differences 28, 30 – – 0.1 1.5 1.6 Share-based payments 28 – – 2.5 – 2.5 Transfer relating to share-based payments 28, 30 – – (3.1) 2.3 (0.8) As at 31 December 2021 34.9 58.0 202.4 12.6 307.9 The above consolidated statements of changes in equity should be read in conjunction with the accompanying notes. Pharos Energy Annual Report and Accounts 2021 134 CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED # Cash Flow Statements for the year to 31 December 2021 | | Notes | Group | | Company | | | --- | --- | --- | --- | --- | --- | | | | 2021 $ million | 2020 $ million | 2021 $ million | 2020 $ million | | **Net cash from (used in) operating activities** | 32 | **10.8** | 56.4 | **(7.1)** | (16.9) | | **Investing activities** | | | | | | | Purchase of intangible assets | | **(15.2)** | (3.5) | - | - | | Purchase of property, plant and equipment | | **(24.4)** | (35.5) | - | - | | Payment to abandonment fund | 18 | **(2.2)** | (2.3) | - | - | | Advance consideration on farm out of Egyptian assets | | **2.0** | - | - | - | | Other investment in subsidiary undertakings | | - | - | **(8.4)** | (5.4) | | Dividends received from subsidiary undertakings | | - | - | **6.1** | 21.8 | | **Net cash (used in) from investing activities** | | **(39.8)** | (41.3) | **(2.3)** | 16.4 | | **Financing activities** | | | | | | | Repayment of borrowings | 24 | **(12.5)** | (42.8) | - | - | | Proceeds from borrowings | 24 | **39.9** | - | - | - | | Interest paid on borrowings | 24 | **(6.8)** | (4.6) | - | - | | Lease payments | 33 | **(0.4)** | (1.1) | - | (0.5) | | Net proceeds from issue of share capital | 27 | **10.9** | - | **10.9** | - | | Net cash from (used in) financing activities | | **31.1** | (48.5) | **10.9** | (0.5) | | **Net increase (decrease) in cash and cash equivalents** | | **2.1** | (33.4) | **1.5** | (1.0) | | **Cash and cash equivalents at beginning of year** | | **24.6** | 58.5 | **3.5** | 4.5 | | **Effect of foreign exchange rate changes** | | **0.4** | (0.5) | **0.3** | - | | **Cash and cash equivalents at end of year** | 21 | **27.1** | 24.6 | **5.3** | 3.5 | The above consolidated cash flow statements should be read in conjunction with the accompanying notes. 135 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report ### NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS c) New standards and interpretations Once classified as held for sale, intangible ### 1. General information not yet adopted assets and property, plant and equipment Pharos Energy plc is a company limited by are no longer amortised or depreciated. | shares and incorporated in England and | Certain new accounting standards and | | | --- | --- | --- | | Wales under the Companies Act. The | interpretations have been published that | | | | are not mandatory for 31 December 2021 | f) Investments | address of the registered office is given on | the inside back cover. The nature of the | year end and have not been early adopted | Non-current investments in subsidiaries | | --- | --- | --- | | Group’s operations and its principal | by the Group. These standards are not | of the Company are shown at cost less | | activities are set out in Note 6, in the | expected to have a material impact on the | provision for impairment. An impairment | | Operations Review and CFO’s statement | Group in the current or future reporting | loss is recognised for the amount by | | on pages 26 to 37 and 38 to 42, | periods nor on foreseeable future | which the asset’s carrying amount | | respectively. Pharos Energy plc is the | transactions. | exceeds its recoverable amount. The | | ultimate parent company of the Group and | | recoverable amount is the higher of an | | except where otherwise indicated the | d) Basis of consolidation | asset’s fair value less costs of disposal | | following accounting policies apply to both | | and value in use. Liquid investments | The Group Financial Statements the Group and the Company. comprise short-term liquid investments of consolidate the accounts of Pharos between three to six months maturity. Energy plc and entities controlled by the ### 2. Significant accounting Company (its subsidiary undertakings) drawn up to the balance sheet date. g) Interests in joint arrangements ### policies Control is achieved where the investor is A joint arrangement is an arrangement exposed or has rights to variable returns where two or more parties have joint a) Basis of preparation from its involvement with the investee control. Joint control is the contractually The financial statements have been and has the ability to affect those returns agreed sharing of control of an prepared in accordance with international through its power over the investee. arrangement, which exists only when accounting standards in conformity with The Company reassesses whether or decisions about the relevant activities the requirements of the Companies Act not it controls an investee if facts and require the unanimous consent of 2006 and International Financial Reporting circumstances indicate that there are the parties sharing control. Joint Standards as issued by the International changes to one or more of the elements arrangements where the Group has Accounting Standard Board (IASB). | | of control. The results of subsidiaries | the rights to assets and obligations for | | --- | --- | --- | | The Financial Statements have also been | acquired or sold are consolidated for | liabilities of the arrangement are classified | | prepared on a going concern basis of | the periods from or to the date on which | as joint operations and are accounted | | accounting for the reasons set out in the | control passed. | for by recognising the Group’s share of | | Directors’ Report on page 121 and in the | | assets, liabilities, income and expenses. | Where necessary, adjustments are made CFO’s statement on page 42. at the Group level to align the accounting Joint arrangements where the Group The Financial Statements have been policies of the subsidiaries to the Group’s has the rights to the net assets of the prepared under the historical cost basis, accounting policies. arrangement are classified as joint except for the valuation of hydrocarbon ventures and are accounted for using the All intragroup assets and liabilities, equity, inventories and the revaluation of certain equity method of accounting. income, expenses and cash flows relating financial instruments. The Financial to transactions between the members of Statements are presented in US dollars as h) Revenue the Group are eliminated on consolidation it is the functional currency of each of the Revenue represents the fair value of Company’s subsidiary undertakings and is e) Assets held for sale the Group’s share of oil and gas sold generally accepted practice in the oil and during the year on a liftings basis and is gas sector. Non-current assets are classified as recognised when the Group satisfies a held-for-sale if it is highly probable that The principal accounting policies adopted performance obligation by transferring they will be recovered primarily through are set out below. oil and gas to a customer. In accordance sale rather than through continuing use. with the Group’s sales agreements for oil This condition is regarded as met only and gas, the title to oil and gas typically b) New and amended standards when the sale is highly probable and the transfers to a customer at the same adopted by the Group asset is available for immediate sale in its time as the customer takes physical A number of new or amended standards present condition subject only to terms possession of the oil or gas. Typically, became applicable for the current that are usual and customary for sales at this point in time, the performance reporting period. The group did not have of such assets. Management must be obligations of the Group are fully satisfied. to change its accounting policies or make committed to the sale, which should be retrospective adjustments as a result of expected to qualify for recognition as a Investment revenue is accrued on a adopting these standards. completed sale within one year from the time basis, by reference to the principal date of classification as held for sale, and outstanding and at the effective interest • COVID-19-Related Rent Concessions – actions required to complete the plan of rate applicable. amendments to IFRS 16, and sale should indicate that it is unlikely that • Interest Rate Benchmark Reform – significant changes to the plan will be Phase 2 – amendments to IFRS 9, IAS made or that the plan will be withdrawn. 39, IFRS 7, IFRS 4 and IFRS 16. Such assets are measured at the lower of their carrying amount and fair value less costs to sell. Impairment losses on initial classification as held for sale and subsequent gains or losses on re- measurement are recognised in profit and loss. Pharos Energy Annual Report and Accounts 2021 136 CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED i) Other/restructuring items is identified. k) Changes in estimates Other/restructuring items represent The effects of changes in estimates on Intangible non-current assets are income and expenses that arise from the unit of production calculations are considered for impairment at least events or transactions that are clearly accounted for prospectively, from the annually by reference to the indicators distinct from the ordinary activities of the date of adoption of the revised estimates, specified in paragraphs 18 to 20 of IFRS Group and, therefore, are not expected to over the estimated remaining proven and 6. The impairment indicators in IFRS 6 for recur frequently or regularly. Refer to Note probable reserves. each exploration asset are: 8 for further details. • The period for which the entity has the l) Inventories right to explore in the specific area has j) Intangible and tangible non- Inventories, except for inventories of expired during the period or will expire current assets hydrocarbons, are valued at the lower in the near future, and is not expected Oil and gas exploration, evaluation and of cost and net realisable value. Cost is to be renewed; development expenditure determined on a weighted average cost • Substantive expenditure on further basis and comprises direct purchase The Group adopts the successful efforts exploration for and evaluation of mineral costs. Net realisable value is determined method of accounting for exploration resources in the specific area is neither by reference to prices existing at the and evaluation costs. Pre-licence costs budgeted nor planned; balance sheet date. are expensed in the period in which • Exploration for and evaluation of they are incurred. All licence acquisition, Physical inventories of hydrocarbons mineral resources in the specific exploration and evaluation costs and are valued at net realisable value in line area have not led to the discovery direct administration costs are initially with well-established industry practice. of commercially viable quantities of capitalised as intangible non-current Underlifts and overlifts are valued at mineral resources and the entity has assets in cost centres by well (most market value and are included in accrued decided to discontinue such activities in typically), field or exploration area, income and prepayments, and accruals the specific area; and as appropriate. Interest payable is and deferred income, respectively. capitalised insofar as it relates to specific • Sufficient data exist to indicate Changes in hydrocarbon inventories, development activities. that, although a development in the underlifts and overlifts are adjusted specific area is likely to proceed, the through cost of sales. These costs are then written off as carrying amount of the exploration exploration costs in the income statement and evaluation asset is unlikely to m) Leases unless commercial reserves have been be recovered in full from successful established or the determination process On inception of a contract, the Group development or by sale. has not been completed and there are no assesses whether the contract is, or indicators of impairment. contains, a lease. The contract is, or Other tangible non-current assets contains, a lease if it conveys the right All field development costs are capitalised to control the use of an identified asset Other tangible non-current assets are as property, plant and equipment. for a period of time in exchange for stated at historical cost less accumulated Property, plant and equipment related consideration. To determine whether depreciation. Depreciation is provided on to production activities is amortised in the contract conveys the right to control a straight-line basis at rates calculated accordance with the Group’s depreciation, the use of an identified asset, the Group to write off the cost of those assets, less depletion and amortisation accounting assesses whether the contract involves residual value, over their expected useful policy. the use of an identified asset, the Group lives of three to seven years. has the right to obtain substantially all of Depreciation, depletion and amortisation the economic benefits from the use of the Decommissioning asset throughout the period of use, and Depletion is provided on oil and gas the Group has the right to direct the use The decommissioning provision is assets in production using the unit of of the asset. calculated as the net present value of the production method, based on proven and Group’s share of the expenditure which is For short-term leases (lease term less probable reserves, applied to the sum of expected to be incurred at the end of the than 12 months) and leases for which the the total capitalised exploration, evaluation producing life of each field in the removal underlying asset is of low value assets, and development costs, together with and decommissioning of the production, the Group has opted to recognise a lease estimated future development costs storage and transportation facilities expense on a straight-line basis. at current prices. Oil and gas assets currently in place. The cost of recognising which have a similar economic life are Right-of-use assets are measured at the the decommissioning provision is aggregated for depreciation purposes. amount of the corresponding lease liability included as part of the cost of the relevant on the date of initial adoption (adjusted for property, plant and equipment and is thus Impairment of value any prepaid or accrued lease expenses). charged to the income statement on a unit of production basis in accordance Where there has been a change in Lease liabilities are measured at the with the Group’s policy for depletion economic conditions or in the expected present value of the remaining lease and depreciation of tangible non-current use of a tangible non-current asset payments, discounted using the interest assets. Period charges for changes in the that indicates a possible impairment rate implicit in the lease (if available), or net present value of the decommissioning of an asset, management tests the the incremental borrowing rate at start of provision arising from discounting are recoverability of the net book value of the the lease. included in finance costs. 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 137 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report n) Share-based payments equity, in which case the deferred tax is Pharos entered into different commodity also dealt with in equity. (swap) hedges to protect the Brent Equity-settled awards under share- component of forecast oil sales and based incentive plans are measured at p) Financial instruments to ensure future compliance with its fair value at the date of grant. The fair obligations under the RBL. Pharos has value determined at the grant date of the Financial assets and financial liabilities are designated the swaps as cash flow equity-settled share-based payments recognised on the Group’s balance sheet hedges. For cash flow hedges, the is expensed on a straight- line basis when the Group becomes a party to the portion of the gains and losses on the over the vesting period, based on the contractual provisions of the instrument. hedging instrument that is determined Group’s estimate of the number of equity There are no material financial assets and to be an effective hedge is taken to instruments that will eventually vest. At liabilities for which differences between other comprehensive income and the each reporting date, the Group revises carrying amounts and fair values are ineffective portion is recognised in the its estimate of the number of equity required to be disclosed. The classification income statement. The gains and losses instruments expected to vest as a result of financial instruments as required by taken to other comprehensive income are of the effect of non-market-based vesting IFRS 7 is disclosed in Notes 20, 21, 22, subsequently transferred to the income conditions. The impact of the revision of 24, 33 and 36. statement during the period in which the the original estimates, if any, is recognised hedged transaction affects the income in profit or loss such that the cumulative Financial asset at fair value through statement. expense reflects the revised estimate, with a corresponding adjustment to reserves. profit or loss Borrowings | For cash-settled share-based payments, a | Where a financial instrument is classified | | | --- | --- | --- | | liability is recognised measured initially at | as a financial asset at fair value through | Interest-bearing bank loans are recorded | | fair value. At each balance sheet date until | profit or loss it is initially recognised at | at the proceeds received, net of direct | | the liability is settled, and at the date of | fair value. At each balance sheet date | issue costs. Finance charges, including | | settlement, the fair value of the liability is | the fair value is reviewed and any gain or | any direct issue costs, are accounted | | measured, with any changes in fair value | loss arising is recognised in the income | for on an accrual basis in the income | | recognised in profit or loss for the year. | statement. Changes in the net present | statement using the effective interest | | | value of the financial asset arising from | method and are added to the carrying | | o) Taxation | discounting are included in other income | amount of the instrument to the extent | | | and expense. As at 31 December 2021 | that they are not settled in the year in | The tax expense represents the sum of and 2020 no financial assets were which they arise. the tax currently payable and deferred tax. classified at fair value through profit or The effective interest method is a method The tax currently payable is based on loss. of calculating the amortised cost of a taxable profit for the year. Taxable profit financial liability and of allocating interest differs from net profit as reported in profit Trade receivables expense over the relevant period. The or loss because it excludes items of effective interest rate is the rate that income or expense that are taxable or Trade receivables are recognised initially exactly discounts estimated future deductible in other years and it further at fair value and subsequently measured cash payments (including all fees and excludes items that are never taxable or at amortised cost, less expected credit transaction costs) through the expected deductible. The Group’s liability for current losses provision, when required. life of the financial liability to the amortised tax is calculated using tax rates that have cost of a financial liability. been enacted or substantively enacted by Trade payables the balance sheet date. The Group derecognises financial liabilities Trade payables are generally stated at when, and only when, the Group’s Deferred tax is the tax expected to be amortised cost using the effective interest obligations are discharged, cancelled or payable or recoverable on differences rate. have expired. The difference between the between the carrying amounts of assets carrying amount of the financial liability and liabilities in the financial statements Derivative and hedging instruments derecognised and the consideration paid and the corresponding tax bases, and is and payable is recognised in profit or loss. accounted for using the balance sheet Derivatives are initially recognised at liability method. Deferred tax liabilities When the Group exchanges with the fair value on the date that a derivative are generally recognised for all taxable existing lender one debt instrument into contract is entered into, and they are temporary differences and deferred tax another one with substantially different subsequently re-measured to their fair assets are recognised to the extent terms, such exchange is accounted value at the end of each reporting period. that it is probable that sufficient taxable for as an extinguishment of the original The accounting for subsequent changes profits will be available to recover the financial liability and the recognition of a in fair value depends on whether the asset. Deferred tax is not recognised new financial liability. Similarly, the Group derivative is designated as a hedging where an asset or liability is acquired in accounts for substantial modification instrument and, if so, the nature of the a transaction which is not a business of terms of an existing liability or part of item being hedged. combination for an amount which differs it as an extinguishment of the original from its tax value. At inception of the hedge relationship, financial liability and the recognition of a the Group documents the economic new liability. It is assumed that the terms Deferred tax is calculated at the tax relationship between hedging instruments are substantially different if the discounted rates that are expected to be applied in and hedged items, including whether present value of the cash flows under the period when the liability is settled or changes in the cash flows of the hedging the new terms, including any fees paid the asset is realised based on tax rates instruments are expected to offset net of any fees received and discounted that have been enacted or substantively changes in the cash flows of hedged using the original effective interest rate enacted by the balance sheet date. items. The Group documents its risk is at least 10 per cent different from Deferred tax is charged or credited in the management objective and strategy for the discounted present value of the income statement, except when it relates undertaking its hedge transactions. remaining cash flows of the original to items charged or credited directly to Pharos Energy Annual Report and Accounts 2021 138 CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED financial liability. If the modification is not Decommissioning provisions: ### 3. Financial risk management substantial, the difference between: (1) The Board reviews and agrees policies for the carrying amount of the liability before Provisions for the costs to decommission managing financial risks that may affect the modification; and (2) the present oil & gas properties are recognised when the Group. In certain cases the Board value of the cash flows after modification the Group has an obligation required delegates responsibility for such reviews is recognised in profit or loss as the by the terms and conditions of the and policy setting to the Audit and Risk modification gain or loss within other gains agreements and when a reliable estimate Committee. The principal financial risks and losses. can be made. The provision for the costs affecting the Group are discussed in the of decommissioning oil & gas properties Risk Management and Risk Report on at the end of their economic lives is Equity instruments pages 43 to 57. estimated using existing technology, at | Equity instruments issued by the | future prices, depending on the expected | | | --- | --- | --- | | Company are recorded at the proceeds | timing of the activity, and discounted | 4. Critical judgements and | | received, net of direct issue costs. Equity | using the nominal discount rate. Estimates | | ### accounting estimates instruments repurchased are deducted are regularly reviewed and adjusted as from equity at cost. appropriate for new circumstances. a) Critical judgements in applying the Group’s accounting policies q) Provisions r) Foreign currencies In the process of applying the Group’s | A contingent liability is disclosed unless | The individual financial statements of each | accounting policies described in Note | | --- | --- | --- | | the possibility of an outflow of resources | Group company are stated in the currency | 2, management has made judgements | | embodying economic benefits is remote | of the primary economic environment | that may have a significant effect on | | or the amount of the liability cannot be | in which it operates (its functional | the amounts recognised in the financial | | measured with sufficient reliability. | currency). Transactions in currencies | statements. These are discussed below: | other than the entity’s functional currency Contingent liabilities may develop in a way (foreign currency) are recorded at the Oil and gas assets not initially expected. Therefore, they are rate of exchange at the date of the assessed continually to determine whether transaction. Monetary assets and liabilities Note 2(j) describes the judgements an outflow of resources embodying denominated in foreign currencies at the necessary to implement the Group’s economic benefits has become probable. balance sheet date are recorded at the policy with respect to the carrying value If it becomes probable that an outflow rates of exchange prevailing at that date, of intangible exploration and evaluation of future economic benefits will be or if appropriate, at the forward contract assets. required for an item previously dealt with rate. Any resulting gains and losses are as a contingent liability, a provision is Management considers these assets included in net profit or loss for the period. | recognised in the financial statements | | for impairment at least annually with | | --- | --- | --- | | of the period in which the change in | For the purpose of presenting | reference to indicators in IFRS 6. Note 15 | | probability occurs. | consolidated financial statements | discloses the carrying value of intangible | | | the results of entities denominated in | exploration and evaluation assets along | Provisions are recognised when the currencies other than US dollars are with details of impairment charges that Group has a present obligation (legal or translated at the daily rate of exchange arose during the year. Further, Note 2(j) constructive) as a result of a past event, it and their balance sheets at the rates describes the Group’s policy regarding is probable that the Group will be required ruling at the balance sheet date. Any reclassification of intangible assets to to settle that obligation and a reliable resulting gains or losses are taken to other tangible assets. Management considers estimate can be made of the amount of comprehensive income. the appropriateness of asset classification the obligation. at least annually. The amount recognised as a provision s) Pension costs is the best estimate of the consideration Going concern The contributions payable in the year required to settle the present obligation in respect of pension costs for defined at the reporting date, taking into account The Financial Statements have been contribution schemes and other post- the risks and uncertainties surrounding the prepared on the going concern basis of retirement benefits are charged to the obligation. Where a provision is measured accounting. A number of judgements income statement. Differences between using the cash flows estimated to settle were taken in concluding that this basis contributions payable in the year and the present obligation, its carrying amount of preparation was appropriate and that contributions actually paid are shown is the present value of those cash flows there were no material uncertainties in either as accruals or prepayments in the (when the effect of the time value of this regard. These included applying balance sheet. money is material). appropriate estimates of future production and oil price together with ensuring that When some or all of the economic the forecasts included all expenditure benefits required to settle a provision that was either committed or expected are expected to be recovered from a to be incurred in relation to estimated third party, a receivable is recognised production volumes. Consideration as an asset if it is virtually certain that was also given to the potential ongoing reimbursement will be received and impact of the COVID-19 pandemic. the amount of the receivable can be During 2020, the pandemic did not measured reliably. cause any interruptions to the group’s producing assets in Vietnam and Egypt and accordingly the primary impact to the group’s cash generating ability due to the pandemic in the next 12 months is considered to be the risk of further oil price reductions due to global supply 139 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report and demand dislocations. This risk has b) Key sources of estimation Further information relating to the specific been taken into consideration through uncertainty assumptions and uncertainties relevant to downside oil price sensitivities, including impairment tests performed in the year are The key assumptions concerning the application of a reverse stress test. discussed in Note 17. the future, and other key sources of Further details in this area are provided in estimation uncertainty at the balance the Directors’ Report on page 121 and Climate change and the energy transition sheet date, other than those mentioned in the CFO’s Statement on pages 38 to above, that may have a significant risk 42. Climate change and the transition to a of causing a material adjustment to the low carbon economy were considered carrying amounts of assets and liabilities Asset held for sale in preparing the consolidated financial within the next financial year are discussed statements. In particular, the energy below: There are certain criteria that should be transition is likely to impact future oil actively considered in assessing whether and gas prices which in turn may affect Oil and gas reserves and DD&A that for the farm-down and sale of a the recoverable amount of the group’s 55% working interest and operatorship in property, plant and equipment (PP&E). Note 2(j) sets out the Group’s accounting the Egyptian concessions to IPR should Management’s best estimate of future oil policy on DD&A. Proven and probable be treated as an Asset held for sale. In prices was revised down significantly in reserves are estimated using standard particular that it should be highly probable 2020 but upwards in 2021, in part due to recognised evaluation techniques and are and available for sale in its present expectations of the impact of the energy disclosed on page 166. The estimate condition subject to terms that are usual transition. In developing these price is reviewed at least twice a year and is and customary for sales of such assets. assumptions, consideration was given to audited by third party reservoir engineers a range of third party forecasts, including The sale was considered highly probable at year end. Future development costs a number that were described as being given the commitment to sell in place from are estimated taking into account the consistent with achieving the goal to the Board of Directors and that a buyer level of development required to produce reach net zero by 2050 and align with and price had been agreed with IPR. the reserves by reference to operators, COP26 (the “Net Zero price scenario”). Shareholder approval had been obtained where applicable, and internal engineers. Management’s best estimate of oil prices, and the process of negotiation in obtaining As discussed in the Operations Review although higher, was within $5/bbl of the regulatory approvals for the disposal were on pages 32 to 34, the Vietnam average of the Net Zero price scenario. well advanced. Accordingly the key criteria fields, TGT and CNV proved and probable Further details of the key assumptions were considered met in December 2021 reserves estimates have been revised in this area have been provided in Note and the relevant assets and liabilities were based on ongoing work of ERCE and 16, including sensitivity analysis outlining treated as held for sale. audited by our Reserves Auditors, RISC the impact on the impairment charges of Advisory Pty Ltd. Egypt proved and using the average of the Paris compliant probable reserves estimates have been Treatment of the Third Amendment to scenarios. In addition to impairment, revised based on ongoing work of ERCE the El Fayum Concession Agreement climate change pressures could curtail and audited by McDaniels. Reserves the expected useful lives of the group’s At 31 December 2021 it was not certain estimates are inherently uncertain, oil and gas PP&E, thereby accelerating that the Third Amendment to the El Fayum especially in the early stages of a field’s depreciation charges. However, the Concession Agreement would be agreed. life, and are routinely revised over the group’s producing fields are likely to be Whilst some preliminary approvals producing lives of oil and gas fields as fully depreciated within 15 years, during occurred in December 2020 the final new information becomes available and which timeframe it is expected that approvals had not been received. Until as economic conditions evolve. Such global demand for oil will remain robust. these had arisen it was not considered revisions may impact the Group’s future Accordingly, the impact of climate change appropriate to recognise these revised financial position and results, in particular, on expected useful lives is not considered terms until these final approvals had been in relation to DD&A and impairment to be a significant judgement or estimate. | obtained reflecting the risks of political | testing of oil and gas property, plant and | | | --- | --- | --- | | change or potential for subsequent | equipment. | In addition to PP&E, climate change | | change and renegotiation. | | could: (1) adversely impact the future | | | Impairment of producing oil and gas | development or viability of exploration | The agreement post year end of the Third assets and evaluation (E&E) prospects. However, Amendment to the El Fayum Concession the impact of the climate change will Agreement, with retroactive application of If impairment indicators are identified in be taken into consideration when the the improved fiscal terms from November relation to a producing oil and gas field, field is transferred from exploration to 2020 and a three and a half year management is required to compare development stage; (2) bring forward the extension to the exploration period, was the net carrying value of the assets date of decommissioning of the group’s accordingly treated as a non-adjusting and liabilities which represent the field producing oil and gas assets in Vietnam, post balance sheet event. An impairment cash generating unit (CGU) with the thereby increasing the net present value reversal of $28.2m utilising the changed estimated recoverable amount of the of the associated provision. However, circumstances of 31 December 2021 field. Management generally determines decommissioning is currently forecast to as the basis has been calculated on the the recoverable amount of the field occur within the next 10-11 years and, remaining 45% share held and will be by estimating its value in use, using a due to the relatively short timeframe, it factored into the impairment reviews going discounted cash flow method. Calculating is not considered that any reasonably forward. the net present value of the discounted possible acceleration in the timing of cash flows involves key assumptions decommissioning will have a material which include commodity prices, 2P impact on the provision, assuming reserves estimates and discount rates. the underlying cost estimates remain Other assumptions include production unchanged. profiles, future operating and capital expenditures and the relevant fiscal terms. Pharos Energy Annual Report and Accounts 2021 140 CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ## 5. Total revenue An analysis of the Group's revenue is as follows: | | 2021 $ million | 2020/4596 $ million | | --- | --- | --- | | Oil and gas sales (see Note 6) | 163.8 | 118.3 | | Realised (losses)/gains on commodity hedges (see Note 6 and Note 25) | (29.7) | 23.7 | | Investment revenue | – | 0.1 | | | **134.1** | **142.1** | ## 6. Segment information 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). Africa has been classified as a discontinued operation for all years shown, as the Group disposed of all of its interests in that geographical area in previous years. There are no inter-segment sales. South East Asia and Egypt form the basis on which the Group reports its segment information. | | SE Asia $ million | Egypt $ million | Africa^{2} $ million | Unallocated $ million | Group $ million | | --- | --- | --- | --- | --- | --- | | Oil and gas sales (see Note 5) | 131.0 | 32.8 | – | – | 163.8 | | Realised loss on commodity hedges (see Note 5 and Note 25) | – | – | – | (29.7) | (29.7) | | Total revenue | 131.0 | 32.8 | – | (29.7) | 134.1 | | Depreciation, depletion and amortisation - Oil and gas (see Note 7 and Note 16) | (43.0) | (8.0) | – | – | (51.0) | | Depreciation, depletion and amortisation - Other (see Note 16) | – | (0.4) | – | – | (0.4) | | Impairment charge – Intangibles (see Note 15)^{3} | – | – | – | (2.2) | (2.2) | | Impairment reversal – PP&E (see Note 16) | 52.9 | 1.7 | – | – | 54.6 | | Impairment charge – Assets classified as held for sale (see Note 37) | – | (10.4) | – | – | (10.4) | | Profit/(loss) before tax from continuing operations^{1} | 98.8 | (10.1) | – | (50.1) | 38.6 | | Loss (post-tax) from discontinued operations | – | – | – | – | – | | Tax charge on operations (see Note 12) | (24.8) | – | – | – | (24.8) | | Tax charge on impairment reversal (see Note 12) | (18.5) | – | – | – | (18.5) | | | SE Asia $ million | Egypt $ million | Africa^{2} $ million | Unallocated $ million | Group $ million | | --- | --- | --- | --- | --- | --- | | Oil and gas sales (see Note 5) | 87.7 | 30.6 | – | – | 118.3 | | Realised gain on commodity hedges (see Note 5 and Note 25) | – | – | – | 23.7 | 23.7 | | Total revenue | 87.7 | 30.6 | – | 23.7 | 142.0 | | Depreciation, depletion and amortisation - Oil and gas (see Note 7 and Note 16) | (47.8) | (15.5) | – | – | (63.3) | | Depreciation, depletion and amortisation - Other (see Note 16) | – | (0.5) | – | (0.7) | (1.2) | | Impairment charge – Intangibles (see Note 15)^{4} | (19.0) | (5.3) | – | – | (24.3) | | Impairment charge – PP&E (see Note 16) | (105.1) | (105.4) | – | – | (210.5) | | (Loss)/profit before tax from continuing operations^{1} | (121.8) | (124.6) | – | 5.2 | (241.2) | | Loss (post-tax) from discontinued operations | – | – | (0.2) | – | (0.2) | | Tax charge on operations (see Note 12) | (11.1) | – | – | – | (11.1) | | Tax credit on impairment charge (see Note 12) | 36.7 | – | – | – | 36.7 | 1) Unallocated amounts included in profit/(loss) before tax comprise corporate costs not attributable to an operating segment, investment revenue, other gains and losses and finance costs. 2) Africa operations in Congo and Angola were disposed of on 24 June 2018 and 5 October 2018 respectively. 3) Includes $2.2m write-off of seismic costs relating to Israel exploration Zones A and C. 4) Includes $1.1m write off of Block 125&126 tax receivable (other receivable - current) which was dependent on the E&E being developed. 141 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report The accounting policies of the reportable segments are the same as the Group’s accounting policies as described in Note 2. Included in revenues arising from South East Asia and Egypt are revenues of $128.3m and $32.8m which arose from the Group’s two largest customers, who contributed more than 10% to the Group’s oil and gas revenue (2020: $61.3m and $30.6m in South East Asia and Egypt from the Group’s two largest customers). Geographical information The Group’s oil and gas revenue and non-current assets (excluding other receivables) by geographical location are separately detailed below where they exceed 10% of total revenue or non-current assets, respectively: Revenue All of the Group’s oil and gas revenue is derived from foreign countries. The Group’s oil and gas revenue by geographical location is determined by reference to the final destination of oil or gas sold. 2021 2020 $ million $ million Vietnam 131.0 64.4 Egypt 32.8 30.6 China – 9.4 Malaysia – 9.2 Other – 4.7 163.8 118.3 Non-current assets 2021 2020 $ million $ million Vietnam 360.8 330.5 Egypt 51.4 105.3 Israel (see Note 15) – 1.5 412.2 437.3 Excludes other assets. ### 7. Cost of sales | | | 2021 | | 2020 | | --- | --- | --- | --- | --- | | | $ million | | $ million | | | Depreciation, depletion and amortisation (see Note 16) | | 51.0 | | 63.3 | | Production based taxes | | 10.1 | | 7.0 | | Production operating costs | | 53.6 | | 51.2 | | Inventories | (0.1) | | | 2.3 | | | | 114.6 | | 123.8 | ### 8. Other/exceptional expense | | | 2021 | | | 2020 | | --- | --- | --- | --- | --- | --- | | | $ million | | | $ million | | | Egypt acquisition cost – royalty | | | – | | 4.9 | | Redundancy loss/(gain) | | | 3.0 | | (0.1) | | Premium – lease transfer (see Note 33) | | | 0.3 | | 1.0 | | | | | 3.3 | | 5.8 | Pharos Energy Annual Report and Accounts 2021 142 CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ### 9. Finance costs | | | 2021 | | | 2020 | | --- | --- | --- | --- | --- | --- | | | $ million | | | $ million | | | Unwinding of discount on provisions (see Note 26) | | 0.8 | | | 0.8 | | Interest expense payable and similar fees (see Note 24) | | 3.8 | | | 4.5 | | Interest on lease liabilities (see Note 33) | | | - | | 0.3 | | Amortisation of capitalised borrowing costs (see Note 24) | | 2.4 | | | (1.5) | | Net foreign exchange (gains)/losses | | (0.6) | | | 0.1 | | | | 6.4 | | | 4.2 | In 2021 $0.8m relates to the unwinding of discount on the provisions for decommissioning (2020: $0.8m). The provisions are based on the net present value of the Group’s share of the expenditure which may be incurred at the end of the producing life of TGT and CNV (currently estimated to be 9-10 years) in the removal and decommissioning of the facilities currently in place (see Note 26). Following the June and December 2021 redeterminations, together with refinancing completed in July 2021 in relation to the Group’s reserve based lending facility, there was a change in estimated future cash flows, as a result a one off gain of $0.5m and amortised cost of $2.9m have been recognised in profit or loss. ### 10. Auditor’s remuneration The analysis of the auditor’s remuneration is as follows: | | 2021 | 2020 | | --- | --- | --- | | | $000s | $000s | | Fees payable to the Company’s auditor and their associates for the audit of the Company’s annual accounts | 385 | 317 | Fees payable to the Company’s auditor and their associates for other services to the Group: | Audit of the Company’s subsidiaries | 101 | 107 | | | --- | --- | --- | --- | | Audit of the Company’s subsidiaries relating to 2020 year end | 63 | | - | | Total audit fees 549 | | 424 | | | Audit related assurance services – half year review | 130 | 129 | | | Other assurance services | 134 | 16 | | | Total non-audit fees 264 | | 145 | | The other assurance services for 2021 are associated primarily with the reporting accountant work in relation to the farm-out of the Egypt concessions (of which $27,400 are required by UK law or regulation) and the agreed upon procedures relating to the Vietnam region (2020: associated primarily with agreed upon procedures relating to the Vietnam region). The non-audit fees during 2021 included the half year review and other assurance services associated primarily with agreed upon procedures relating to the Farm-out of the Egypt concession and Vietnam region (2020: associated primarily with agreed upon procedures relating to Vietnam region). All non-audit fees were fully approved by the Audit and Risk Committee, having concluded such services were compatible with auditor independence and were consistent with relevant ethical guidance in place. Details of the Company’s policy on the use of auditors for non-audit services are set out in the Audit and Risk Committee Report on pages 97 to 101. Fees payable to Deloitte LLP for non-audit services to the Company are not required to be disclosed separately because the consolidated financial statements disclose such fees on a consolidated basis. 143 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report ### 11. Staff costs The average monthly number of employees of the Group including Executive Directors was 74 (2020: 71), of which 69 (2020: 66) were administrative personnel and 5 (2020: 5) were operations personnel. Their aggregate remuneration comprised: Group | | | 2021 | | 2020 | | --- | --- | --- | --- | --- | | | $ million | | $ million | | | Wages and salaries | | 9.1 | | 6.9 | | Social security costs | | 0.8 | | 0.6 | | Share-based payment expense (see Note 31) | | 2.7 | | 2.2 | | Other pension costs under money purchase schemes | | 0.9 | | 0.8 | | Other benefits | | 0.7 | | 0.3 | | | | 14.2 | | 10.8 | In accordance with the Group’s accounting policy $1.2m (2020: $1.3m) of the Group’s staff costs above have been capitalised, of which $1.0m (2020: $0.9m) relates to our Vietnam assets and $0.2m (2020: $0.4m) relates to our Egypt assets. In 2021, total staff costs were $14.2m (2020: $10.8m) and includes the costs of head office and Pharos’ subsidiary employees. Excluding the impact of IFRS 2 share-based payment expense and bonuses paid to staff, the underlying costs have remained consistent year on year - $8.5m (2020: $8.3m). Restructuring costs of $3.0m for both the head office in London and the Egypt office in Cairo are disclosed in other/restructuring expense in the Income Statement. ### 12. Tax | | | 2021 | | 2020 | | --- | --- | --- | --- | --- | | | $ million | | $ million | | | Current tax charge | | 37.6 | | 26.7 | | Deferred tax credit on operations (see Note 23) | | (12.8) | | (15.6) | | Deferred tax charge/(credit) on impairment (see Note 16 and 23) | | 18.5 | | (36.7) | | Total tax charge/(credit) 43.3 | | | | (25.6) | The Group’s corporation tax is calculated at 50% (2020: 50%) of the estimated assessable profit for the year in Vietnam. In Egypt, under the terms of the concession, any local taxes arising are settled by EGPC. During 2021 and 2020 both current and deferred taxation have arisen in overseas jurisdictions only. The charge for the year can be reconciled to the profit / (loss) per the income statement as follows: | | | 2021 | | 2020 | | --- | --- | --- | --- | --- | | | $ million | | $ million | | | Profit / (Loss) before tax (including discontinued operations) | | 38.6 | (241.4) | | | Profit / (Loss) before tax at 50% (2020: 50%) | | 19.3 | (120.7) | | Effects of: | Non-taxable income | (8.0) | | | – | | --- | --- | --- | --- | --- | | Non-deductible expenses | 4.5 | | 24.8 | | | Tax losses not recognised | 28.7 | | 57.7 | | | Non-deductible exploration costs written off | | – | 9.5 | | | Adjustments to tax charge in respect of previous periods | (1.2) | | 3.1 | | | Tax charge/(credit) for the year | 43.3 | | (25.6) | | Pharos Energy Annual Report and Accounts 2021 144 ## CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED The prevailing tax rate in Vietnam, where the Group produces oil and gas, is 50%. The tax charge in future periods may also be affected by the factors in the reconciliation above. The effect of non-deductible exploration costs written off of $9.5m in 2020 related to the impairment of exploration assets in Vietnam. Non-taxable income principally relates to Vietnam impairment reversal of $(8.0)m (2020: $nil). Non-deductible expenses primarily relate to Vietnam DD&A charges for costs previously capitalised, which are non-deductible for Vietnamese tax purposes of $1.8m (2020: $6.1m) and Vietnam net impairment charge of $nil (2020: $15.9m). A further $2.7m (2020: $2.0m) relates to non-deductible corporate costs including share scheme incentives. The Egypt concessions are subject to corporate income tax at the standard rate of 40.55%, however responsibility for payment of corporate income taxes falls upon EGPC on behalf of our local subsidiary Pharos El Fayum (PEF). The Group records a tax charge, with a corresponding increase in revenues, for the tax paid by EGPC on its behalf. However, this is only valid if PEF is in a profit making position and no such tax has been recorded this year. The effect from tax losses not recognised relates to costs, primarily of the Company, deductible for tax in the UK but not expected to be utilised in the foreseeable future. It also includes losses arising in Egypt for which no future benefit can be obtained under the terms of the concession agreement. ### 13. Profit/(loss) attributable to Pharos Energy Plc The profit for the financial year in the accounts of the Company was $1.9m inclusive of dividends from subsidiary undertakings (2020: loss of $264.5m). As provided by section 408 of the Companies Act 2006, no income statement or statement of comprehensive income is presented in respect of the Company. ### 14. Earnings per share The calculation of the basic and diluted earnings per share is based on the following data: | | Group | | | --- | --- | --- | | | 2021 $ million | 2020 $ million | | Loss from continuing and discontinued operations for the purposes of basic loss per share | (4.7) | (215.8) | | Effect of dilutive potential ordinary shares – Cash settled share awards and options | – | – | | Loss from continuing and discontinued operations for the purposes of diluted loss per share | (4.7) | (215.8) | | | Group | | | --- | --- | --- | | | 2021 $ million | 2020 $ million | | Loss from continuing operations for the purposes of basic loss per share | (4.7) | (215.6) | | Effect of dilutive potential ordinary shares – Cash settled share awards and options | – | – | | Loss from continuing operations for the purposes of diluted loss profit per share | (4.7) | (215.6) | | | Number of shares (million) | | | --- | --- | --- | | | 2021 | 2020 | | Weighted average number of ordinary shares | 437.8 | 395.1 | | Effect of dilutive potential ordinary shares – Share awards and options | – | – | | Weighted average number of ordinary shares for the purpose of diluted loss per share | 452.0 | 395.1 | In accordance with IAS 33 "Earnings per Share", the effects of $14.2m (2020: $1.3m) antidilutive potential shares have not been included when calculating dilutive earnings per share for the year ended 31 December 2021 and 2020, as the Group was loss making. 145 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report ### 15. Intangible assets Group Company 2021 2020 2021 2020 $ million $ million $ million $ million Exploration and evaluation expenditure As at 1 January 1.5 20.4 – 0.3 Additions 15.2 4.3 – – 1 | Impairment – Intangibles | (2.2) | | (23.2) | | – | | – | | --- | --- | --- | --- | --- | --- | --- | --- | | Reclassified as assets held for sale (see Note 37) | (2.1) | | | – | – | | – | | Transfer to subsidiary | | – | | – | – | (0.3) | | | As at 31 December | 12.4 | | | 1.5 | – | | – | 1) 2020 excludes $1.1m write-off of Block 125&126 tax receivable (other receivable – current) which was dependent on the E&E being developed. Intangible assets at 2021 year-end comprise the Group’s exploration and evaluation projects which are pending determination. Included in the additions is Blocks 125 & 126 in Vietnam $10.6m (2020: $2.0m), Egypt $3.9m (2020: $1.1m) of which $0.6m (2020: $0.3m) relates to North Beni Suef, and $0.7m (2020: $1.2m) for Israel. During 2021, $0.7m was spent in Israel on geoscience and geophysical studies (2020: $1.2m). Pharos continues to hold $2.7m (2020: $2.7m) cash in relation to bank guarantees for the Israeli offshore exploration licenses. At 31 December 2021, the Group has decided to write off the $2.2m in Israel as no substantive expenditure has been identified as indicated in IFRS 6. At June 2020 and December 2020 an impairment indicator of IFRS 6 was triggered following the Group’s decision to defer all non- essential investment in Vietnam and Egypt at this point. No substantive expenditure for its exploration areas in Vietnam and Egypt was either budgeted or planned in the near future. Exploration costs including costs associated with Blocks 125 & 126 in Vietnam of $17.9m and costs associated with Egypt projects in the amount of $5.3m were written off in the income statement in accordance with the Group’s accounting policy on oil and gas exploration and evaluation expenditure. At 31 December 2021, interpretation of the seismic data in relation to Blocks 125 & 126 in Vietnam is still ongoing and the carrying value of the Egypt exploration and evaluation expenditure will be reviewed following the completion of the farm out of the Egypt concessions. Whilst ongoing costs for exploration are forecast and funds available for future exploration, there is not sufficient certainty of recovery to justify the reversal of the past impairment made. This will be kept under review as the exploration activity continues. Pharos Energy Annual Report and Accounts 2021 146 CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED # 16. Property, plant and equipment and right of use assets | | Group | | | Company | | --- | --- | --- | --- | --- | | | Oil and gas properties $ million | Other $ million | Total $ million | Other $ million | | **Cost** | | | | | | As at 1 January 2020 | 1,169.2 | 10.7 | 1,179.9 | 9.5 | | Additions | 32.8 | 0.7 | 33.5 | – | | Revision in decommissioning asset | 6.6 | – | 6.6 | – | | Disposal of other assets | – | (2.5) | (2.5) | (2.5) | | De-recognition of right-of-use asset (see Note 33) | – | (7.0) | (7.0) | (7.0) | | **As at 1 January 2021** | **1,208.6** | **1.9** | **1,210.5** | **–** | | **Additions** | **24.6** | **0.1** | **24.7** | **–** | | Revision in decommissioning asset | (1.9) | – | (1.9) | – | | Disposal of other assets | – | – | – | – | | De-recognition of right-of-use asset (see Note 33) | – | – | – | – | | Reclassified as assets held for sale (see Note 37) | (139.4) | (1.1) | (140.5) | – | | **As at 31 December 2021** | **1,091.9** | **0.9** | **1,092.8** | **–** | | **Depreciation** | | | | | | As at 1 January 2020 | 500.1 | 2.9 | 503.0 | 2.6 | | Charge for the year | 63.3 | 1.2 | 64.5 | 0.7 | | Impairment charge | 210.5 | – | 210.5 | – | | Disposal of other assets | – | (2.0) | (2.0) | (2.0) | | De-recognition of right-of-use asset (see Note 33) | – | (1.3) | (1.3) | (1.3) | | **As at 1 January 2021** | **773.9** | **0.8** | **774.7** | **–** | | **Charge for the year** | **51.0** | **0.4** | **51.4** | **–** | | Impairment (reversal) | (54.6) | – | (54.6) | – | | Reclassified as assets held for sale (see Note 37) | (77.8) | (0.7) | (78.5) | – | | **As at 31 December 2021** | **692.5** | **0.5** | **693.0** | **–** | | **Carrying amount** | | | | | | As at 31 December 2021 | 399.4 | 0.4 | 399.8 | – | | As at 31 December 2020 | 434.7 | 1.1 | 435.8 | – | | **Property, plant and equipment** | **399.4** | **0.4** | **399.8** | **–** | | Right of use assets (see Note 33) | – | – | – | – | | **As at 31 December 2021** | **399.4** | **0.4** | **399.8** | **–** | | Property, plant and equipment | 434.6 | 1.1 | 435.7 | – | | Right of use assets (see Note 33) | 0.1 | – | 0.1 | – | | **As at 31 December 2020** | **434.7** | **1.1** | **435.8** | **–** | 147 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report As a result of the oil price volatility and movements in 2P reserves, we have tested each of our oil and gas producing properties for impairment. The results of these impairment tests are summarised below. For each producing property, the recoverable amount has been determined using the value in use method which constitutes a level 3 valuation within the fair value hierarchy. The recoverable amount is supported by the fair value derived from a discounted cash flow valuation of the 2P production profile. Vietnam The key assumptions to which the fair value measurement is most sensitive are oil price, discount rate and 2P reserves (2020: oil price, discount rate, capital spend and 2P reserves). As at 31 December 2021, the fair value of the assets are estimated based on a post-tax nominal discount rate of 11.4% (2020: 11%) and a Brent oil price of $73.9/bbl in 2022, $70.2/bbl in 2023, $67.8/bbl in 2024, $68.0/bbl in 2025 plus inflation of 2.0% thereafter (2020: an oil price of $57.0/bbl in 2022, $59.0/bbl in 2023, $61.0/bbl in 2024 plus inflation of 2.0% thereafter). For CNV, a pre-tax impairment reversal in the amount of $3.8m has been reflected in the income statement with an associated deferred tax charge of $1.4m. As at 31 December 2021, the carrying amount of the CNV oil and gas producing property, after additions ($0.9m decrease in decommissioning asset offset by $0.3m in additions), DD&A ($10.2m) and impairment reversal ($3.8m), is $84.2m. For TGT, a pre-tax impairment reversal in the amount of $49.1m has been reflected in the income statement with an associated deferred tax charge of $17.1m. As at 31 December 2021, the carrying amount of the TGT oil and gas producing property, after additions ($1.0m decrease in decommissioning asset offset by $11.4m in additions), DD&A ($32.8m) and after impairment reversal ($49.1m), is $266.0m. Testing of sensitivity cases indicated that a $5/bbl reduction in long-term oil price used when determining the value in use method would result in post-tax impairments charge (compare to new NBV) of $23.8m on TGT and a $4.5m on CNV. A 1% increase in discount rate would result in post-tax impairments of $4.5m on TGT and $1.5m on CNV. We have also run sensitivities utilising the IEA (International Energy Agency) scenarios described as being consistent with achieving the COP26 agreement goal to reach net zero by 2050 (the “Net Zero price scenario”). The nominal Brent prices used in this scenario were as follows; $73.9/bbl in 2022, $70.2/bbl in 2023, $67.8/bbl in 2024, $68.0/bbl in 2025, $64.0/bbl in 2026, $59.0/bbl in 2027, $54.0/ bbl in 2028, $49.0/bbl in 2029 and $44.0/bbl in 2030. Using these prices and an 11.4% discount rate would result in additional post-tax impairments of $16.9m on TGT and $5.6m on CNV. The impairment tests for TGT and CNV assume that production ceases in 2029 and 2030 respectively. Egypt The key assumptions to which the fair value measurement is most sensitive are oil price, discount rate, capital spend and 2P reserves (2020: oil price, discount rate, capital spend and 2P reserves). As at 31 December 2021, the fair value of the assets are estimated based on a post-tax nominal discount rate of 14% (2020: 14%) and a Brent oil price of $73.9/bbl in 2022, $70.2/bbl in 2023, $67.8/bbl in 2024, $68.0/bbl in 2025 plus inflation of 2.0% thereafter (2020: an oil price of $57.0/bbl in 2022, $59.0/bbl in 2023, $61.0/bbl in 2024 plus inflation of 2.0% thereafter). An impairment reversal (pre and post-tax) of $1.7m arose on El Fayum as a result of the above impairment test. As at 31 December 2021, the carrying amount of the Egypt oil and gas producing property, after additions ($12.9m offset by $1.4m reclassified 100% to assets held for sale), DD&A ($8.0m) and the impairment reversal, is $109.3m, pre-reclassification to Assets held for sale. After the reclassification to assets held for sale, the Egypt oil and gas producing property amounts to $49.2m. Testing of sensitivity cases indicated that a $5/bbl reduction in long term oil price used would result in an impairment of $18.1m (compare to new NBV). A 1% increase in discount rate would result in an impairment charge of $3.1m. We have also run a sensitivity using a 14% discount rate and the Net Zero price scenario which would result in an additional impairment of $24.1m. Other considerations It is not considered possible to provide meaningful sensitivities in relation to 2P reserves for any of the Group’s oil and gas producing properties, as the impact of any changes in 2P reserves on recoverable amount would depend on a variety of factors, including the timing of changes in production profile and the consequential effect on the expenditure required to both develop and extract the reserves. Other fixed assets comprise office fixtures and fittings and computer equipment. Pharos Energy Annual Report and Accounts 2021 148 CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ### 17. Fixed asset investments and joint arrangements The Company and the Group had investments in the following subsidiary undertakings as at 31 December 2021. Country Country Percentage Registered of incorporation of operation Principal activity holding Footnotes address Oil and gas development and OPECO Vietnam Limited Cook Islands Vietnam 100 2,5 e production Oil and gas development and SOCO Vietnam Ltd Cayman Islands Vietnam 100 2,4 d production Pharos Exploration Limited Jersey – Investment holding 100 1 a Pharos SEA Limited Jersey – Investment holding 100 1 a SOCO Exploration (Vietnam) Limited Cayman Islands Vietnam Oil and gas exploration 100 2,6 d OPECO, Inc USA – Investment holding 100 2,5 c Oil and gas development and Pharos El Fayum Cayman Islands Egypt 100 1 d 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 Pharos Energy NBS Limited UK – Extraction of crude petroleum 100 1,3 b Footnotes: Group investments 1) Investments held directly by Pharos Energy Plc. 2) Investments held indirectly by Pharos Energy Plc. 3) Dormant Joint operations 4) SOCO Vietnam Ltd holds a 28.5% working interest in Block 16-1, TGT Field. The Field operational base is development/production and is operated by Hoang Long Joint Operating Company which is registered in Vietnam. SOCO Vietnam Ltd holds a 25% working interest in Block 9-2, CNV Field. The Field operational base is development/production and is operated by Hoan Vu Joint Operating Company which is registered in Vietnam. 5) OPECO Vietnam Limited holds a 2% working interest in Block 16-1, TGT Field. The Field operational base is development/production and is operated by Hoang Long Joint Operating Company which is registered in Vietnam. 6) SOCO Exploration (Vietnam) Limited holds a 70% working interest in Blocks 125 & 126 and is the Operator. The operating office is registered in Vietnam. The main activity is exploration. Registered addresses a) 47 Esplanade, St Helier, Jersey, JE1 0BD, Channel Islands b) Eastcastle House, 27/28 Eastcastle Street, London W1W 8DH, United Kingdom c) Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801, USA d) c/o The offices of Trident Trust Company (Cayman) Limited, One Capital Place, P.O. Box 847, Grand Cayman, KY1-1103, Cayman Islands e) c/o Portcullis (Cook Islands) Ltd, Portcullis Chambers, Tutakimoa Road, Avarua, Rarotonga, Cook Islands Divestments: The following subsidiary undertakings were dissolved during the year: • Pharos Finance (Jersey) Limited • Pharos Oil and Gas Limited • The Company’s investments in subsidiary undertakings include contributions to the Pharos Employee Benefit Trust (see Note 28) and are otherwise held in the form of share capital. • In 2021, the increase in investment value of $10.6m was due mainly to $2.1m funding of operating activities for Pharos Exploration Limited group and funding flows and an impairment reversal in relation to Pharos SEA Limited of $13.1m, partially offset by $(0.9)m exercise and disposal of shares in Pharos Employee Benefit Trust and $(5.2)m impairment of Pharos El Fayum. 149 Pharos Energy Annual Report and Accounts 2021 Strategic Report Governance Report Financial Statements Additional Information ### Audit exemptions for subsidiary company The Group has elected to take advantage of the exemption from audit available under section 479A of the Companies Act 2006 in respect of its wholly owned subsidiary, Pharos Energy Israel Limited (incorporated in England and Wales with company number 12645819), for the year ended 31 December 2021. The exemption is available for qualifying subsidiaries that fulfil a set of conditions. As a result, statutory financial statements will not be audited for Pharos Energy Israel Limited. In accordance with section 479C of the Companies Act 2006, the Company will guarantee the liabilities and commitments of Pharos Energy Israel Limited. As at 31 December 2021, the total sum of these liabilities and commitments is $0.8m (2020: $2.6m). ### 18. Other non-current assets Other non-current assets comprise the Group's share of contributions made into two abandonment security funds which were established to ensure that sufficient funds exist to meet future abandonment obligations on TGT and CNV fields. The funds are operated by PetroVietnam and the JOC partners retain the legal rights to the funds pending commencement of abandonment operations. The Group doesn't expect to receive cash or another financial asset from PetroVietnam. During 2021, the Group has contributed $2.2m (2020: $2.3m). As at 31 December 2021, the Group's total contribution to the funds was $48.1m (2020: $45.9m). ### 19. Inventories | | Group | | Company | | | --- | --- | --- | --- | --- | | | 2021 $ million | 2020 $ million | 2021 $ million | 2020 $ million | | Crude oil and condensate | 5.9 | 5.6 | – | – | | Warehouse stocks and materials | 11.1 | 12.1 | – | – | | Reclassified as assets held for sale (see Note 37) | (6.3) | – | – | – | | | 10.7 | 17.7 | – | – | Crude oil and condensate are valued at net realisable value in line with well-established industry practice with changes in hydrocarbon inventories adjusted through cost of sales (see Note 7). The warehouse stock and materials inventory of $11.1m (2020: $12.1m) all relates to Egypt. ### 20. Trade and other receivables | | Group | | Company | | | --- | --- | --- | --- | --- | | | 2021 $ million | 2020 $ million | 2021 $ million | 2020 $ million | | Amounts falling due within one year | | | | | | Trade receivables | 23.8 | 14.8 | – | – | | Other receivables | 1.0 | 1.6 | 0.9 | – | | Prepayments and accrued income | 5.3 | 6.5 | 0.5 | 1.6 | | Reclassified as assets held for sale (see Note 37) | (2.0) | – | – | – | | | 28.1 | 22.9 | 1.4 | 1.6 | There is no material difference between the carrying amount of trade and other receivables and their fair value. Included in trade and other receivables arising from South East Asia and Egypt at 31 December 2021 are trade receivables of $16.3m and $7.1m respectively, which arose from the Group's two largest customers (2020: $5.9m and $6.5m from the Group's two largest customers in South East Asia and Egypt respectively). In Vietnam, there are no amounts overdue or allowances for doubtful debts in respect of trade or other receivables (2020: nil). In Egypt, the average credit period on sales is 78 days (2020: 126 days). No interest is charged on outstanding trade receivables. Trade and other receivables are financial assets and measured at amortised cost. The Group applies the IFRS 9 simplified approach to measuring expected credit losses ('ECL') which uses a lifetime expected loss allowance for all trade receivables. As mentioned above, 98% (2020: 84%) of our trade receivables are concentrated with two largest customers, one of them being a subsidiary of a government regulated entity and the other being a major global oil & gas company. As of 31 December 2021 and 2020, we have concluded that the ECL related to our trade receivables is immaterial. Included in prepayments is $0.9m (2020: $1.2m) held by Sheppard & Wedderburn LLP on a 'quasi escrow' basis to be released to the new London office tenant over the next 12 months as the tenant makes payments to the landlord (see Note 33). Pharos Energy Annual Report and Accounts 2021 150 CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ### 21. Cash and cash equivalents As at 31 December 2021, cash and cash equivalents was $27.1m (2020: $24.6m). Of this balance, $0.7m (2020: $0.1m) were in Money Market Funds that are valued at quoted prices of the funds in the active markets for the financial instruments. The Money Market Funds were recorded at fair value at the year end. The cash and cash equivalents in the Group and the Company include $2.7m (2020: $2.7m) of restricted cash, which is related to the bank guarantees in place for the Israeli offshore exploration licences. ### 22. Trade and other payables Group Company | | | 2021 | | 2020 | | | 2021 | | | 2020 | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | $ million | | $ million | | | $ million | | | $ million | | | | Trade payables | | 7.9 | | 18.4 | | | | – | | | – | | Other payables | | 8.0 | | 2.2 | | | | 1.2 | | 1.1 | | | Derivative financial instruments (see Note 25) | | 6.5 | | 6.8 | | | | – | | | – | | Accruals and deferred income | | 16.7 | | 8.2 | | | | 3.1 | | 1.6 | | | Reclassified as liabilities associated with assets held for sale (see Note 37) | | (8.5) | | | – | | | – | | | – | | | | 30.6 | | 35.6 | | | | 4.3 | | 2.7 | | There is no material difference between the carrying value of trade payables and their fair value. The above trade and other payables are held at amortised cost and are not discounted as the impact would not be material. Trade and other payables are financial liabilities and are therefore measured at amortised cost. In Vietnam, the average credit period for settlement of trade payables is standard 30 days or later if this falls within the agreed terms. In Egypt, the average credit period for settlement of trade payables as at 31 December 2021 is 218 days (2020: 223 days). The Group does not utilise any supplier financing (reverse factoring) arrangements. The Group has financial risk management policies in place to ensure that all payables are paid within the pre-agreed credit terms. Further information relating to financial risks and how the Group mitigate these risks are discussed in the Risk Management and Risk Report on pages 43 to 57. Accruals and deferred income include $3.4m (2020: $nil) in respect of a royalty provision for Egypt and reflects the amount payable in the next year. For further details, please refer to Note 26: Long-term provisions. ### 23. Deferred tax The following are the major deferred tax liabilities recognised by the Group and movements thereon during the current and prior reporting period: Accelerated tax Other temporary depreciation differences Group $ million $ million $ million As at 1 January 2020 133.8 4.0 137.8 (Credit)/charge to income (see Note 12) (51.2) (1.1) (52.3) As at 1 January 2021 82.6 2.9 85.5 Charge to income (see Note 12) 5.7 – 5.7 As at 31 December 2021 88.3 2.9 91.2 The charge to income includes a deferred tax charge of $18.5m (2020: $36.7m credit) that arises from the impairment of the TGT and CNV producing assets as discussed in Note 16. There are no unrecognised deferred taxation balances at either balance sheet date except in relation to gross losses that are not expected to be utilised in the amount of $129.0m (2020: $181.5m). The gross losses have no expiry date. A UK entity in the Group has entered into commodity swaps designated as cash flow hedges. In accordance with IAS 12, a deferred tax asset has not been recognised in relation to the hedging losses of $29.7m recorded in the year as it is unlikely that the UK tax group will generate sufficient taxable profit in the future, against which the deductible temporary differences can be utilised. 151 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report ### 24. Borrowings Group 2021 2020 $ million $ million Borrowings: | Uncommitted Revolving credit facility | 6.5 | | – | | --- | --- | --- | --- | | Reserve Based Lending Facility | 78.1 | 57.2 | | | Less unamortised issue costs and debt arrangement fees | (4.1) | (3.5) | | | Carrying value of total debt 80.5 | | 53.7 | | | Current | 33.3 | 12.7 | | | Non-current | 47.2 | 41.0 | | | Carrying value of total debt 80.5 | | 53.7 | | less than 1 year 1-2 years 2-5 years G r o u p $ million $ million $ million $ million Maturity - borrowings: Uncommitted Revolving credit facility 6.5 - - 6.5 Reserve Based Lending Facility 26.8 24.2 27.1 78.1 The maturity analysis for borrowings details the Group’s remaining contractual maturity for its borrowings with agreed repayment periods. The tables have been drawn up based on the undiscounted cash flows of borrowings based on the earliest date on which the Group can be required to pay. The reserve based lending facility is based on December 2021 redetermination. Changes in liabilities arising from financing activities: 2021 2021 2021 2020 $ million $ million $ million $ million Total | | Credit facility* RBL | | | Borrowings Total Borrowings | | | | --- | --- | --- | --- | --- | --- | --- | | Carrying value as of 1 January | | | – 53.7 53.7 | | 98.1 | | | Proceeds from Uncommitted Revolving credit facility | | 18.1 – 18.1 | | | | – | | Proceeds from RBL | | | – 21.8 21.8 | | | – | | Repayments of borrowings | | (11.6) (0.9) (12.5) | | | (42.8) | | | Amortisation of capitalised borrowing costs (see Note 9) | | | – 2.4 2.4 | | (1.5) | | | Interest payable and similar fees (see Note 9) | | 0.3 3.5 3.8 | | | 4.5 | | | Interest paid during the year | | (0.3) (6.5) (6.8) | | | (4.6) | | | Carrying value as of 31 December 6.5 74.0 80.5 | | | | | 53.7 | | *The Group drew down on a new facility with the National Bank of Egypt in April 2021. See Note 33 for movements in lease liabilities which, together with borrowings, represent the Group’s financing related liabilities. Pharos Energy Annual Report and Accounts 2021 152 CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Reserve Based Lending facility (RBL) In September 2018, the Group signed a $125m Reserve Based Lending facility (RBL) secured against the Group’s producing assets in Vietnam. The RBL had a five-year term and was due to mature in September 2023. In July 2021, the Group completed the refinancing of its RBL. The new RBL provides access to up to a committed US$100m with a further US$50m available on an uncommitted “accordion” basis, has a four-year term that matures in July 2025 and bears a per annum interest rate of 4.75% plus USD LIBOR until July 2023 and then 5.25% plus LIBOR until the final maturity date. Extending the tenor of the facility by 22 months, allows for a re-phasing of the repayment schedule and the provision of additional funds available for general corporate purposes. Immediately prior to the refinancing the outstanding loan balance on the original RBL stood at $56.3m, following the refinancing this was increased to $78.1m. As the terms of the refinanced RBL do not result in a substantially different discounted present value of cash flows from the original facility (less than 10%), the refinancing of the RBL is considered as a modification rather than an extinguishment of the original facility. Accordingly, the refinancing of the RBL is accounted for as a non-substantial modification and the fees paid to the lenders together with legal fees, totalling $2.9m, related to the refinancing will be amortised over the remaining term of the modified liability along with the remaining unamortised costs associated with the original facility. The maximum borrowing base available under the RBL is revised every six months via a redetermination process by the relevant banks, based on an estimate of the value of the Group’s reserves from its producing interests in Vietnam. The significant decrease in the oil price in H1 2020 led to a much reduced borrowing base amount in the 30 June 2020 redetermination, resulting in principal repayments during the year totalling $42.8m. For the year 2021, the only principal repayment made was for $0.9m in January 2021. The $26.8m, categorised as current, is based on the outcome of the December 2021 RBL redetermination criteria and will likely change following the June 2022 redetermination. Discussions are ongoing with the RBL banking group to amend the reference benchmark interest rate of USD LIBOR to the Secured Overnight Financing Rate (SOFR). The Group anticipates finalising this amendment in the first half of 2022. The RBL is subject to a number of financial covenants, all of which have been complied with during the 2021 and 2020 reporting periods. Uncommitted revolving credit facility - National Bank of Egypt In March 2021, Pharos El Fayum signed an uncommitted revolving credit facility for discounting (with recourse) of up to $20m with the National Bank of Egypt (UK). This facility has been put in place to mitigate the risk of late payment of our debtors. Under this arrangement, Pharos is able to access cash from the facility, of up to 60% of the value of each El Fayum oil sales invoice, presenting the invoices as evidence to support its ability to repay the facility. The oil sales invoices remain due to Pharos and it retains the credit risk. The Group therefore continues to recognise the receivables in their entirety in its balance sheet. Loans are available for up to one year from the date of utilisation and bear a per annum interest rate of USD LIBOR plus 3.00% for initial advances and 3.50% for any extensions beyond 180 days from the date of the utilisation. The amount repayable under the facility at 31 December 2021 was $6.5m and it is presented as borrowings under current liabilities. The amount repayable under the agreement at 31 December 2021 was $6.5m and it is presented as borrowing under current liabilities. Performance under the facility agreement is subject to a parent company guarantee from Pharos Energy plc. ### 25. Hedge transactions During 2021, Pharos entered into different commodity (swap and zero collar) hedges to protect the Brent component of forecast oil sales and to ensure future compliance with its obligations under the RBL over the producing assets in Vietnam. The commodity hedges run until December 2022 and are settled monthly. The hedging positions in place at the balance sheet date cover 23% of the Group’s forecast production until December 2022, securing a minimum price for this hedged volume of $68.2 per barrel (2020: cover was 42% of the Group’s forecast production until December 2021 securing an average price for this hedged volume of $44.7 per barrel). Pharos has designated the swaps as cash flow hedges. This means that the effective portion of unrealised gains or losses on open positions will be reflected in other comprehensive income. Every month, the realised gain or loss will be reflected in the revenue line of the income statement. For the year end 31 December 2021 a loss of $29.7m was realised (2020: gain of $23.7m). The outstanding unrealised loss on open position as at 31 December 2021 amounts to $4.3m (2020: loss of $6.3m). The carrying amount of the swaps is based on the fair value determined by a financial institution. As all material inputs are observable, they are categorised within Level 2 in the fair value hierarchy. It is presented in “Trade and other receivables” or “Trade and other payables” in the consolidated statement of financial position. The liability position as of December 2021 was $6.5m (2020: liability position $6.8m). ### 26. Long-term provisions Group Company | | | 2021 | | 2020 | 20210 | | | 2020 | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | $ million | | $ million | | $ million | | $ million | | | | Decommissioning provision | | 66.9 | | 68.0 | | – | | | – | | Royalty provision | | 2.2 | | 5.4 | | – | | | – | | | | 69.1 | | 73.4 | | – | | | – | 153 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report Movement in decommissioning Group | | | 2021 | | 2020 | | --- | --- | --- | --- | --- | | | $ million | | $ million | | | As at 1 January | | 68.0 | | 60.5 | | New provisions and changes in estimates | | (1.9) | | 6.7 | | Unwinding of discount (see Note 9) | | 0.8 | | 0.8 | | As at 31 December | | 66.9 | | 68.0 | The provision for decommissioning is based on the net present value of the Group’s share of the expenditure which may be incurred at the end of the producing life of the TGT and CNV fields in Vietnam (currently estimated to be 9-10 years) in the removal and decommissioning of the facilities currently in place. The provision is calculated using an inflation rate of 2.0% (2020: 2.0%) and a discount rate of 1.5% (2020: 0.9%). The $1.9m decrease in provision in 2021 was driven by the increase in discount rate compared to prior year, partially offset by the increase in abandonment costs relating to the TGT infill wells drilling programme completed during the year. The $6.7m increase in provision in 2020 primarily resulted from the reduction in the discount rate in 2020 offset by the change in JOC parties’ interest from 98.8822% to 97.2127%. No decommissioning obligations exist in Egypt under the terms of the concession agreement. The royalty provision relates to a historical arrangement granting a 3% royalty on Pharos’s share of profit oil and excess cost recovery from El Fayum in Egypt. At both the date of acquisition of the Egypt assets (April 2019) and 31 December 2019 the risk of a material outflow in relation to this arrangement was, based on legal advice, considered remote and therefore no provision was recorded. As a result of additional legal advice obtained during 2020, it was considered probable that amounts are due under this arrangement and accordingly a provision of $5.4m was recognised, which was anticipated to be settled in 1 to 3 years. During 2021, a further increase in the provision of $0.2m was recognised, giving a total provision at the end of the year of $5.6m, $3.4m of which falls due for payment in 2022 and has been disclosed in current trade and other payables in Note 22. ### 27. Share capital and Share premium ### Share capital Ordinary Shares of £0.05 each Group and Company | | | 2021 | | 2020 | | 2021 | | 2020 | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | Shares | | Shares | $ million | | $ million | | | | Issued and fully paid | 406,637,952 | | 406,637,952 | | | 31.9 | | 31.9 | | | Share premium | | | | | | Group and Company | | | | | | | | | | | 2021 | | 2020 | | | | | | | | $ million | | $ million | | | | As at 1 January | | | | | | 55.4 | | 55.4 | | | Premium arising on issue of equity shares | | | | | | 3.4 | | | – | | Share issue costs | | | | | | (0.8) | | | – | | As at 31 December 58.0 | | | | | | | | 55.4 | | As at 31 December 2021 authorised share capital comprised 600 million (2020: 600 million) ordinary shares of £0.05 each with a total nominal value of £30m (2020: £30m). In January 2021, the Company announced the successful completion of an equity Placing, Subscription and Retail Offering (‘Placing’) to fund Phase 1B of the waterflood programme in Egypt. Pursuant to the Placing, which was significantly oversubscribed, a total of 30,733,682 Placing Shares have been placed with new and existing investors at the Placing Price raising gross proceeds of approximately $8.1m (£5.9m). Concurrently with the Placing, certain directors and existing shareholders have entered into subscription agreements with the Company to subscribe for 9,017,886 Subscription Shares at the Placing Price raising gross proceeds of approximately $2.3m (£1.7m). In addition, retail investors have subscribed in the Retail Offer via PrimaryBid for 4,909,922 Retail Shares at the Placing Price raising gross proceeds of approximately $1.3m (£0.9m). Equity instruments issued by the Company are recorded at the proceeds received $11.7m, net of direct issue costs ($0.8m). The Placing shares were issued for non-cash consideration by way of a ‘cash box’ structure involving a newly incorporated Jersey subsidiary of the Company (Pharos Energy (Jersey) Limited - ‘JerseyCo’). Pharos Energy Annual Report and Accounts 2021 154 ## CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED This structure involved the issue of ordinary and preference shares by JerseyCo to one of the investment banks advising the Company in respect of the Placing. The Company subscribed for 89% of the ordinary shares and the Settlement Bank subscribed for 11% of the ordinary shares in JerseyCo. These preference and ordinary shares were subsequently acquired by the Company and the preference shares were redeemed by JerseyCo. The acquisition by the Company of the ordinary shares in JerseyCo held by the investment bank resulted in the Company securing over 90% of the equity share capital of JerseyCo. The Company was therefore able to rely on Section 612 of the Companies Act 2006, which provides relief from the requirements under Section 610 of the Companies Act 2006 to create a share premium account. Therefore, no share premium was recorded in relation to the Placing shares. The premium over the nominal value of the Placing shares was credited to a merger reserve ($5.3m). Pharos Energy (Jersey) Limited was dissolved on 5 February 2021. ### 28. Other reserves | | Group | | | | | | | --- | --- | --- | --- | --- | --- | --- | | | Capital redemption reserve $ million | Merger reserve $ million | Own shares $ million | Hedging reserve $ million | Share-based payments $ million | Total $ million | | As at 1 January 2020 | 100.3 | 188.7 | (47.1) | (2.6) | 7.3 | 246.6 | | Currency exchange translation differences | – | – | – | – | 0.8 | 0.8 | | Other comprehensive loss | – | – | – | (3.7) | – | (3.7) | | Share-based payments | – | – | – | – | 2.3 | 2.3 | | Transfer relating to share-based payments | – | – | 1.8 | – | (4.8) | (3.0) | | **As at 1 January 2021** | **100.3** | **188.7** | **(45.3)** | **(6.3)** | **5.6** | **243.0** | | Other comprehensive income | – | – | – | 2.0 | – | 2.0 | | Shares issued | – | 5.3 | – | – | – | 5.3 | | Share-based payments | – | – | – | – | 2.5 | 2.5 | | Transfer relating to share-based payments | – | – | 1.0 | – | (3.3) | (2.3) | | **As at 31 December 2021** | **100.3** | **194.0** | **(44.3)** | **(4.3)** | **4.8** | **250.5** | | | Company | | | | | | --- | --- | --- | --- | --- | --- | | | Capital redemption reserve $ million | Merger reserve $ million | Own shares $ million | Share-based payments $ million | Total $ million | | As at 1 January 2020 | 100.3 | 131.8 | (40.3) | 7.5 | 199.3 | | Currency exchange translation differences | – | – | – | 0.8 | 0.8 | | Share-based payments | – | – | – | 2.3 | 2.3 | | Transfer relating to share-based payments | – | – | – | (4.8) | (4.8) | | **As at 1 January 2021** | **100.3** | **131.8** | **(40.3)** | **5.8** | **197.6** | | Currency exchange translation differences | – | – | – | 0.1 | 0.1 | | Shares issued | – | 5.3 | – | – | 5.3 | | Share-based payments | – | – | – | 2.5 | 2.5 | | Transfer relating to share-based payments | – | – | – | (3.1) | (3.1) | | **As at 31 December 2021** | **100.3** | **137.1** | **(40.3)** | **5.3** | **202.4** | 158 Pharos Energy Annual Report and Accounts 2021 Strategic Report Governance Report Financial Statements Additional Information The Group's other reserves comprise reserves arising in respect of merger relief, upon the purchase of the Company's own shares held in treasury and held by the Trust, as well as hedging and share-based payments. The number of treasury shares held by the Group and the number of shares held by the Trust at 31 December 2021 was 9,122,268 (2020: 9,122,268) and 1,764,757 (2020: 2,181,655) respectively. The market price of the shares at 31 December 2021 was £0.2600 (2020: £0.1800). The Trust, a discretionary trust, holds shares for the purpose of satisfying employee share schemes, details of which are set out in Note 31 and in the Directors' Remuneration Report on pages 102 to 116. The trustees purchase shares in the open market which are recognised by the Company within investments and classified as other reserves by the Group as described above. When award conditions are met, an unconditional transfer of shares is made out of the Trust to Plan participants. The Group has an obligation to make regular contributions to the Trust to enable it to meet its financing costs. Rights to dividends on the shares held by the Trust have been waived by the trustees. ## 29. Distribution to shareholders The Company is focused on preserving balance sheet strength and has therefore decided to withdraw dividend payments during 2021 and 2020, given the continued uncertainty in the macro environment. ## 30. Retained (deficit) / earnings | | Group | | | | --- | --- | --- | --- | | | Retained (loss)/profit $ million | Unrealised currency translation differences $ million | Total $ million | | As at 1 January 2020 | 171.1 | 5.1 | 176.2 | | Loss for the year | (215.8) | – | (215.8) | | Distributions (see Note 29) | – | – | – | | Transfer relating to share-based payments | 3.0 | – | 3.0 | | **As at 1 January 2021** | **(41.7)** | **5.1** | **(36.6)** | | **Loss for the year** | **(4.7)** | **–** | **(4.7)** | | **Transfer relating to share-based payments** | **2.3** | **–** | **2.3** | | **As at 31 December 2021** | **(44.1)** | **5.1** | **(39.0)** | | | Company | | | | --- | --- | --- | --- | | | Retained (loss)/profit $ million | Unrealised currency translation differences $ million | Total $ million | | As at 1 January 2020 | 492.0 | (223.6) | 268.4 | | Loss for the year | (264.5) | – | (264.5) | | Transfer relating to share-based payments | 3.0 | – | 3.0 | | **As at 1 January 2021** | **230.5** | **(223.6)** | **6.9** | | **Profit for the year** | **1.9** | **–** | **1.9** | | **Transfer relating to share-based payments** | **2.3** | **–** | **2.3** | | **Currency exchange translation differences** | **–** | **1.5** | **1.5** | | **As at 31 December 2021** | **234.7** | **(222.1)** | **12.6** | Pharos Energy Annual Report and Accounts 2021 156 CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ### 31. Incentive plans Details of the Group’s employee incentive schemes are set out below. Additional information regarding the schemes is included in the Directors’ Remuneration Report on pages 102 to 116. The Group recognised total expenses of $2.7m (2020: $2.2m) in respect of the schemes during the year, a proportion of which was capitalised in accordance with the Group’s accounting policies. Long Term Incentive Plan The Company operates a LTIP for employees of the Group. Awards vest over a period of three years, subject to criteria based on their individual performance. Awards are normally forfeited if the employee leaves the Group before the award vests. Awards normally expire at the end of 10 years following the date of grant, subject to the requirement to exercise certain awards prior to 15 March of the year following vesting. Awards would normally be part cash and part equity-settled through a transfer at nil consideration of the Company’s ordinary shares. 385,427 awards were exercised during 2021. The Company has no legal or constructive obligation to repurchase or settle awards in cash. Details of awards outstanding during the year are as follows: | | | | 2021 | | | 2020 | | | --- | --- | --- | --- | --- | --- | --- | --- | | | No. of share | | | | No. of share | | | | | | awards | | | | awards | | | As at 1 January | | 17,996,007 | | | 18,680,757 | | | | Adjustments | | | | – | | | – | | Granted | | 6,220,882 | | | 6,349,803 | | | | Exercised | | (385,427) | | | | | – | | Forfeited during the year | | (4,845,708) | | | (7,034,553) | | | | As at 31 December | | 18,985,754 | | | 17,996,007 | | | | Exercisable as at 31 December | | | | – | | | – | Awards outstanding at the end of the year have a weighted average remaining contractual life of 1.4 (2020: 1.4) years. The weighted average market price and estimated fair value of the 2021 grants (at grant date) were £0.20 and £0.13, respectively. The fair value of the LTIPs granted during 2021 and 2020 have been estimated using a Black Scholes model, based on the market price at date of grant and a nil exercise price. The future vesting proportion in 2021 was 64% (2020: 68%). The main assumptions for the calculation are as follows: 2021 2020 | Volatility | 34.46% | | 49.07% | | | --- | --- | --- | --- | --- | | Risk free rate of interest | 1.30% | | 1.10% | | | Correlation with comparator group | | n/a | | n/a | ### Other Share Schemes The Company operates a discretionary share option scheme for employees of the Group. Awards vest over a three-year period, and are normally forfeited if the employee leaves the Group before the option vests. Vested options are exercisable at a price equal to the average quoted market price of the Company’s shares on the date of grant and are expected to be equity-settled. The Company has no legal or constructive obligation to repurchase or settle options in cash. Unexercised options expire at the end of a 10-year period. Other than to Directors, the Company can also grant options with a zero exercise price or with an exercise price which is set below the market price of the Company’s shares on the date of grant. Such options, which are included in the table below, are granted by reference to the rules of the discretionary share option scheme and are expected to be equity-settled. The Company can additionally grant awards under the Deferred Share Bonus Plan with a zero exercise price or with an exercise price which is set below the market price of the Company’s shares on the date of grant. Awards vest over a two-year period, and are normally forfeited if the employee leaves the Group before the option vests. Such awards, which are also included in the table below, are expected to be cash-settled. 157 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report 2021 2020 | | | | Weighted average | | | | | | Weighted average | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | No. of share | | | exercise price | | No. of share | | | | exercise price | | | | | awards | | | £ | | awards | | | | £ | | As at 1 January | 3,176,395 0.46 | | | | | 3,785,789 0.47 | | | | | | | Adjustments | | | – – | | | | | – – | | | | | Granted | | | – – | | | | 963,105 – | | | | | | Forfeited during the year | | | – – | | | | (250,386) 4.85 | | | | | | Expired | | | – – | | | | | – – | | | | | Exercised | | (558,213) – | | | | (1,322,113) – | | | | | | | As at 31 December | 2,618,182 0.43 | | | | | 3,176,395 0.46 | | | | | | | Exercisable as at 31 December | 1,245,077 0.67 | | | | | 2,151,638 1.10 | | | | | | The weighted average market price at the date of exercise during 2021 was £0.21 (2020: £0.17). Awards outstanding at the end of the year have a weighted average remaining contractual life of 6.4 (2020: 7.5) years. The fair value of the awards granted during 2021 and 2020 have been estimated using a Black Scholes model, based on the market price at date of grant and a nil exercise price. The main assumptions for the calculation are as follows: 2021 2020 Volatility n/a n/a As no options were granted during 2021 and 2020, no volatility assumptions were disclosed. ### 32. Reconciliation of operating profit/(loss) to operating cash flows Group Company | | | 2021 | | 2020 | | 2021 | | | 2020 | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | $ million | | $ million | | $ million | | | $ million | | | | Operating profit/(loss) | | 47.7 | (231.3) | | | (11.5) | | | (14.3) | | | Share-based payments | | 2.4 | | 2.8 | | 2.4 | | | | 2.8 | | Depletion, depreciation and amortisation | | 51.4 | | 64.5 | | | – | | | 0.7 | | Impairment (reversal)/charge | | (41.4) | | 234.8 | | | – | | | – | | Operating cash flows before movements in working capital 60.1 | | | | 70.8 | | (9.1) | | | (10.8) | | | Decrease/(increase) in inventories | | 0.8 | | (1.5) | | | – | | | – | | (Increase)/decrease in receivables | | (7.2) | | 19.6 | | 0.4 | | | (0.1) | | | Decrease in payables | | (2.2) | | (3.4) | | 2.2 | | | (3.3) | | | Cash generated by (used in) operations 51.5 | | | | 85.5 | | (6.5) | | | (14.2) | | | Interest (paid)/received | | (0.1) | | 0.1 | | | – | | | – | | Other/restructuring expense outflow | | (0.7) | | (2.7) | | (0.6) | | | (2.7) | | | Income taxes paid | | (39.9) | | (26.5) | | | – | | | – | | Net cash from (used in) operating activities 10.8 | | | | 56.4 | | (7.1) | | | (16.9) | | During the year, a total of $8.3m (2020: $10.2m) of trade receivables due from EGPC in Egypt were settled by way of non-cash offset against trade payables. Pharos Energy Annual Report and Accounts 2021 158 CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ### 33. Lease arrangements For short-term leases (lease term less than 12 months) and leases for which the underlying asset is of low value, the Group has opted to recognise a lease expense on a straight-line basis as permitted under IFRS 16. $ million Lease liability recognised as at 1 January 2021 0.4 Interest expense (see Note 9) – Principal repayments (0.4) Lease liability recognised as at 31 December 2021 – Of which are: Current lease liabilities – Non-current lease liabilities – Right of use assets recognised as at 1 January 2021 0.1 Depreciation (0.1) Right of use assets recognised as at 31 December 2021 Oil & Gas properties – Other assets – Lease liability recognised as at 1 January 2020 7.2 Derecognition of lease during 2020 (6.0) Interest expense (see Note 9) 0.3 Principal repayments (1.1) Lease liability recognised as at 31 December 2020 0.4 Of which are: Current lease liabilities 0.4 Non-current lease liabilities – Right of use assets recognised as at 1 January 2020 7.3 Depreciation (1.0) Net derecognition of lease during 2021 (5.7) Impairment of right of use asset (0.5) Right of use assets recognised as at 31 December 2020 Oil & Gas properties 0.1 Other assets On 4 December 2020 Pharos signed the transfer of the London office lease to a third party. Accordingly we derecognised the right of use asset of $5.7m and the associated lease liability of $6.0m. The assets held for office furniture and fixture and fittings were also fully depreciated, with a resulting charge of $0.4m. Pharos also paid a premium to the new tenant of $0.9m as an incentive for them to take on the lease. The overall income statement charge of $0.3m (2020: $1.0m) has been recorded within Other/restructuring expense. In 2020, $1.2m was transferred to an escrow account held by a third party (recorded within prepayments) and will be paid to the new tenant (and expensed to the income statement) over the next 21 months on the condition the new tenant pays the rent to the landlord. In 2021, $0.3 was released from the escrow account and paid to the new tenant. ### 34. Capital commitments At 31 December 2021 the Group had exploration licence commitments not accrued of approximately $36.2m (2020: $40.9m). 159 Pharos Energy Annual Report and Accounts 2021 Strategic Report Governance Report Financial Statements Additional Information ## 35. Related party transactions During the year, the Company recorded a net cost of $0.01m (2020: net cost of $0.01m) in respect of services rendered between Group companies. ### Remuneration of key management personnel The remuneration of the Directors of the Company, who are considered to be its key management personnel, is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures. Further information about the remuneration of individual Directors is provided in the audited part of the Directors' Remuneration Report on pages 102 to 116. | | 2021 $ million | 2020 $ million | | --- | --- | --- | | Short-term employee benefits | 4.5 | 2.7 | | Post-employment benefits | 0.2 | 0.3 | | Share-based payments | 3.1 | 1.8 | | | 7.8 | 4.8 | ### Directors' transactions Pursuant to a lease dated 20 April 1997, Comfort Storyville (a company wholly owned by Mr Ed Story) has leased to the Group, office and storage space in Comfort, Texas, USA. The lease, which was negotiated on an arm's length basis, has a fixed monthly rent of $1,000. ## 36. Financial instruments ### Financial Risk Management: Objectives and Policies The main risks arising from the Group's financial instruments are commodity price risk, liquidity risk, credit risk, foreign currency risk and interest rate risk. The Board of Pharos regularly reviews and agrees policies for managing financial risks that may affect the Group. In certain cases, the Board delegates responsibility for such reviews and policy setting to the Audit Risk Committee. The management of these risks is carried out by monitoring of cash flows, investment and funding requirements using a variety of techniques. These potential exposures are managed while ensuring that the Company and the Group have adequate liquidity at all times in order to meet their immediate cash requirements. There are no significant concentrations of risks unless otherwise stated. The Group does not enter into or trade financial instruments, including derivatives, for speculative purposes. The primary financial assets and liabilities comprise cash, short- and medium-term deposits, money market liquidity funds, intra group loans, trade receivables and other receivables and financial liabilities held at amortised cost. The Group's strategy has been to finance its operations through a mixture of retained profits and bank borrowings. Other alternatives such as equity issues are reviewed by the Board, when appropriate. ### Commodity Price Risk Commodity price risk arises principally from the Group's Vietnam and Egypt production, which could adversely affect revenue and debt availability due to changes in commodity prices. The Group measures commodity price risk through an analysis of the potential impact of changing commodity prices. Based on this analysis and considering materiality and the potential business impact, the Group may choose to hedge. During 2021, Pharos entered into different commodity (swap and zero collar) hedges to protect the Brent component of forecast oil sales and to ensure future compliance with its obligations under the RBL over the producing assets in Vietnam. The commodity hedges run until December 2022 and are settled monthly. Details of current hedging arrangements and the categorisation of the swaps in the fair value hierarchy can be found in Note 25. Transacted derivatives are designated as cash flow hedge relationships to minimise accounting income statement volatility. The Group is required to assess the likely effectiveness of any proposed cash flow hedging relationship and demonstrate that the hedging relationship is expected to be highly effective prior to entering into a hedging instrument and at subsequent reporting dates. ### Liquidity Risk Pharos closely monitors and manages its liquidity risk using both short- and long-term cash flow projections, supplemented by debt and equity financing plans and active portfolio management. Cash forecasts are regularly produced and sensitivities run for different scenarios including, but not limited to, changes in asset production profiles and cost schedules. The backdrop of the global COVID-19 pandemic persisted throughout 2021 and the ongoing climate of uncertainty remains the dominant challenge in planning, forecasting and managing capital. The Group runs various sensitivities on its liquidity position throughout the year. The refinancing of the RBL over the assets in Vietnam and the new uncommitted revolving credit facility with the National Bank of Egypt raised additional liquidity for the Group, combined with the successful and oversubscribed equity placing during the year. This has enabled Pharos to continue with a discretionary capital expenditure programme during 2021. Details of the Group's borrowings and debt facilities can be found in note 24. The Group is subject to half-yearly forecast liquidity tests as part of the redetermination process for the RBL facility agreement. The Group has complied with the liquidity requirements of this test at all times during the year. Pharos Energy Annual Report and Accounts 2021 160 CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED The Group invests cash in a combination of money market liquidity funds and term deposits with a number of international and UK financial institutions, ensuring sufficient liquidity to enable the Group to meet its short and medium-term expenditure requirements. Credit Risk Credit risk arises from cash and cash equivalents, investments with banks and financial institutions, trade and other receivables and joint operation receivables. Customers and joint operation partners are subject to a risk assessment using publicly available information and credit reference agencies, with follow-up due diligence and monitoring if required. Investment credit risk for investments with banks and other financial institutions is managed by the Group Treasury function in accordance with the Board-approved policies of the Group. These policies limit counterparty exposure, maturity, collateral and take account of published ratings, market measures and other market information. The Company’s policy is to invest with banks or other financial institutions that, firstly, offer the greatest degree of security in the view of the Group and, secondly, the most competitive interest rates. The Board continually re-assesses the Group’s policy and updates as required. The maximum credit risk exposure relating to financial assets is represented by the carrying value as at the balance sheet date. The Group’s trade receivables in Note 20, although 98% (2020: 84%) concentrated with two customers across both Vietnam and Egypt producing assets, are predominantly with a major oil & gas company and the subsidiary of a government regulated entity. The credit risk is therefore deemed to be negligible. Foreign Currency Risk Pharos manages exposures that arise from non-functional currency receipts and payments by matching receipts and payments in the same currency and actively managing the residual net position. The Group does not hedge any foreign exchange exposure. The Group also aims where possible to hold surplus cash, debt and working capital balances in the functional currency of the subsidiary, thereby matching the reporting currency and functional currency of most companies in the Group. This minimises the impact of foreign exchange movements on the Group’s Balance Sheet. Oil and gas sales in Vietnam are raised and settled through a combination of Vietnamese Dong (VND) and US Dollars (USD), along with associated tax and royalty payments. The Group holds a number of VND and USD bank accounts that provide a natural hedge against foreign exchange movements. The Group’s UK head office contributes the majority of administrative costs which are denominated in GBP. The level of monetary working capital balances denominated in GBP is relatively low and therefore the Group’s exposure to foreign currency changes for all currencies is not considered to be material. Interest Rate Risk The replacement of benchmark interest rates such as LIBOR and other IBORs has been a priority for global regulators. The Group has closely monitored the market and the output from the various industry working groups managing the transition to new benchmark interest rates. This includes announcements made by LIBOR regulators (including the Financial Conduct Authority (FCA) and the US Commodity Futures Trading Commission) regarding the transition away from LIBOR (including GBP LIBOR and USD LIBOR). In addition, the current global high-inflationary economic environment means that interest rates could potentially rise in the short to medium-term, thus increasing the cost of borrowing. As at 31 December 2021, Pharos had total borrowings of $80.5m (2020: $53.7m) as described in Note 24. If interest rates increased by 100 basis points, assuming the principal loans stayed constant, the annualised interest payable by the company would increase by $0.8m which would translate through to profits and net assets. The Group’s interest received on cash and cash equivalents is immaterial. 161 Pharos Energy Annual Report and Accounts 2021 Strategic Report Governance Report Financial Statements Additional Information ### 37. Assets held for sale In December 2021, the Company announced that shareholders had approved the farm-out of 55% of the Group's operated interest in each of our Egyptian Concessions, El Fayum and North Beni Suef, to IPR, a group that has extensive experience in Egypt. As part of the transaction, IPR will fund Pharos's share of the costs to a maximum of $33.425m (to be adjusted for working capital and interim period adjustments from the effective economic date of 1 July 2020). This is in addition to the deposit at signing of the farm-out agreements of US$2 million and a further US$3 million payable on completion. In addition, the Group will be entitled to contingent consideration depending on the average Brent Price each year from 2022 to the end of 2025, capped at a maximum total payment of US$20 million. We have calculated the contingent consideration using our Brent oil price curve as at 31 December 2021 (not recognised the full $20m). An impairment of $10.4m was recognised to bring the value of the net assets classified as held for sale down to the fair value less costs to sell calculated as at 31 December 2021. | | 2021 $ million | | --- | --- | | Intangible assets | 2.1 | | Property, plant and equipment – oil and gas properties - NBV | 61.6 | | Impairment charge – Assets classified as held for sale | (10.4) | | Property, plant and equipment – oil and gas properties – after impairment | 51.2 | | Property, plant and equipment – other - NBV | 0.4 | | Inventories | 6.3 | | Trade and other receivables | 2.0 | | **Assets classified as held for sale** | **62.0** | | Trade and other payables | (8.5) | | **Liabilities directly associated with assets classified as held for sale** | **(8.5)** | | **Net assets classified as held for sale** | **53.5** | ### 38. Subsequent events #### El Fayum Farm-out Pharos and EGPC have finalised all necessary documents to be presented to the Minister of Petroleum and Natural Resources to approve the transaction with IPR and this approval is expected shortly. #### Concession Agreement Amendment El Fayum area On 19 January 2022, the Third Amendment to the El Fayum Concession Agreement was signed by His Excellency Eng. Tarek El Molla (Minister of Petroleum & Mineral Resources of the Arab Republic of Egypt), EGPC and the Company. Signature of the Third Amendment was a key Condition Precedent for the transfer of a 55% participating interest (and operatorship) in the El Fayum and North Beni Suef Concessions to IPR Lake Qarun. Under the terms, the cost recovery percentage will be increased from 30% to 40% allowing Pharos a significantly faster recovery of all its past and future investments. In return, Pharos has agreed to waive its rights to recover a portion of the past costs pool ($115 million) and reduce its share of Excess Cost Recovery Petroleum from 15% to 7.5%. While in full cost recovery mode, Contractor's share of revenue increases from 42.6% to 50.8% as from November 2020 (corresponding to additional net revenues to Contractor of $7.0m to the date of signature). The relevant final approvals from the Egyptian Government had not been obtained at 31 December 2021 and so this has been accounted as a non-adjusting balance sheet event. Assuming conditions at 31 December 2021, the discounted cash flows from the remaining 45% share held and calculated for impairment purposes would increase from $49.2m to $77.4m Pharos Energy Annual Report and Accounts 2021 162 NON-IFRS MEASURES ### Non-IFRS measures The Group uses certain measures of performance that are not specifically defined under IFRS or other generally accepted accounting principles. These non-IFRS measures include cash operating costs per barrel, DD&A per barrel, gearing and operating cash per share. For the RBL covenant compliance, three Non-IFRS measures are included: Net debt, EBITDAX and Net debt/EBITDAX. ### Cash operating costs per barrel Cash operating costs are defined as cost of sales less DD&A, production based taxes, movement in inventories and certain other immaterial cost of sales. Cash operating costs for the period is then divided by barrels of oil equivalent produced. This is a useful indicator of cash operating costs incurred to produce oil and gas from the Group’s producing assets. 2021 2020 $ million $ million Cost of sales 114.6 123.8 Less: Depreciation, depletion and amortisation (51.0) (63.3) Production based taxes (10.1) (7.0) Inventories 0.1 (2.3) Other cost of sales (1.6) (2.9) Cash operating costs 52.0 48.3 Production (BOEPD) 8,878 11,373 Cash operating cost per BOE ($) 16.05 11.60 ### Cash operating costs per barrel Vietnam Egypt Total $ million $ million $ million Cost of sales 84.3 30.3 114.6 Depreciation, depletion and amortisation (43.0) (8.0) (51.0) Production based taxes (9.8) (0.3) (10.1) Inventories 0.1 – 0.1 Other cost of sales (0.6) (1.0) (1.6) Cash operating costs 31.0 21.0 52.0 Production (BOEPD) 5,560 3,318 8,878 Cash operating cost per BOE ($) 15.28 17.34 16.05 ### DD&A per barrel DD&A per barrel is calculated as net book value of oil and gas assets in production, together with estimated future development costs over the remaining 2P reserves. This is a useful indicator of ongoing rates of depreciation and amortisation of the Group’s producing assets. | | | 2021 | | 2020 | | --- | --- | --- | --- | --- | | | $ million | | $ million | | | Depreciation, depletion and amortisation | | (51.0) | | (63.3) | | Production (BOEPD) | | 8,878 | 11,373 | | | DD&A per BOE ($) | | 15.74 | | 15.21 | 163 Pharos Energy Annual Report and Accounts 2021 Strategic Report Governance Report Financial Statements Additional Information ## DD&A per barrel by segment (2021) | | Vietnam $ million | Egypt $ million | Total $ million | | --- | --- | --- | --- | | Depreciation, depletion and amortisation | (43.0) | (8.0) | (51.0) | | Production (BOEPD) | 5,560 | 3,318 | 8,878 | | DD&A per BOE ($) | 21.19 | 6.61 | 15.74 | ## Net debt Net debt comprises interest-bearing bank loans, less cash and cash equivalents. | | 2021 $ million | 2020 $ million | | --- | --- | --- | | Cash and cash equivalents | 27.1 | 24.6 | | Borrowings * | (84.6) | (57.2) | | **Net Debt** | **(57.5)** | **(32.6)** | * Exclude unamortised capitalised set up costs ## EBITDAX EBITDAX is earnings from continuing activities before interest, tax, DD&A, impairment of PP&E and intangibles, exploration other/ expenditure and Other/restructuring expense items in the current year. | | 2021 $ million | 2020 $ million | | --- | --- | --- | | Operating profit/(loss) | 48.3 | (231.3) | | Depreciation, depletion and amortisation | 51.4 | 64.5 | | Impairment (reversal)/charge | (42.0) | 234.8 | | **EBITDAX** | **57.7** | **68.0** | ## Net debt/EBITDAX Net Debt/EBITDAX ratio expresses how many years it would take to repay the debt, if net debt and EBITDAX stay constant. | | 2021 $ million | 2020 $ million | | --- | --- | --- | | Net Debt | (57.5) | (32.6) | | EBITDAX | 57.7 | 68.0 | | **Net Debt/EBITDAX** | **1.0** | **0.48** | ## Gearing Debt to equity ratio is calculated by dividing interest-bearing bank loans by stockholder equity. The debt to equity ratio expresses the relationship between external equity (liabilities) and internal equity (stockholder equity). | | 2021 $ million | 2020 $ million | | --- | --- | --- | | Total Debt * | 84.6 | 57.2 | | Total Equity | 304.4 | 293.7 | | **Debt to Equity** | **0.28** | **0.20** | * Exclude unamortised capitalised set up costs ## Operating cash per share Operating cash per share is calculated by dividing net cash from (used in) continuing operations by number of shares in the year. | | 2021 $ million | 2020 $ million | | --- | --- | --- | | Net cash from operating activities | 10.8 | 56.4 | | Weighted number of shares in the year | 437,512,648 | 397,515,684 | | Operating cash per share | 0.02 | 0.14 | Pharos Energy Annual Report and Accounts 2021 164 FIVE YEAR SUMMARY (UNAUDITED) ### Five Year Summary (unaudited) (Restated) | | Year to | | Year to | | Year to | | Year to | | Year to | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 31 Dec 2021 | | 31 Dec 2020 | | 31 Dec 2019 | | 31 Dec 2018 | | 31 Dec 2017 | | | | $ million | | $ million | | $ million | | $ million | | $ million | Consolidated income statement Oil and gas revenues 134.1 118.3 189.9 175.1 156.2 Commodity hedge (losses)/gains (29.7) 23.7 (0.2) – – Gross profit 19.5 18.2 61.1 70.5 41.2 Operating profit/(loss) 48.3 (231.3) 38.0 79.9 22.9 (Loss)/profit for the year (4.7) (215.8) (24.5) 27.7 (157.3) (Restated) 2021 2020 2019 2018 2017 $ million $ million $ million $ million $ million Consolidated balance sheet Non-current assets 460.3 483.2 740.9 553.6 546.6 Net current assets 51.6 10.4 45.6 236.3 133.3 Non-current liabilities (207.5) (199.9) (276.4) (289.1) (185.3) Net assets 304.4 293.7 510.1 500.8 494.6 Share capital 92.9 87.3 87.3 27.6 27.6 Other reserves 250.5 243.0 246.6 246.6 245.9 Retained earnings (39.0) (36.6) 176.2 226.6 221.1 Total equity 304.4 293.7 510.1 500.8 496.6 (Restated) | | Year to | | Year to | | Year to | | Year to | | Year to | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 31 Dec 2021 | | 31 Dec 2020 | | 31 Dec 2019 | | 31 Dec 2018 | | 31 Dec 2017 | | | | $ million | | $ million | | $ million | | $ million | | $ million | Consolidated cash flow statement Net cash from operating activities 10.8 56.4 72.3 54.2 45.0 Capital expenditure 41.8 41.3 63.4 22.4 26.2 Distributions – – 27.4 23.3 21.0 * Restated in 2017 when adopted the successful efforts method. 165 Pharos Energy Annual Report and Accounts 2021 Strategic Report Governance Report Financial Statements Additional Information # RESERVES STATISTICS (UNAUDITED) # Reserves Statistics (unaudited) Net working interest, MMBOE | | TGT | CNV | Vietnam^{3} | Egypt^{4} | Group | | --- | --- | --- | --- | --- | --- | | **Oil and Gas 2P Commercial Reserves^{1,2}** | | | | | | | As at 1 January 2021 | 13.0 | 4.9 | 17.9 | 40.8 | 58.7 | | Production | (1.5) | (0.5) | (2.0) | (1.2) | (3.2) | | Revision | (0.6) | (0.1) | (0.7) | (1.8) | (2.5) | | **2P Commercial Reserves as at 31 December 2021** | **10.9** | **4.3** | **15.2** | **37.8** | **53.0** | | **Oil and Gas 2C Contingent Resources^{1,2}** | | | | | | | As at 1 January 2021 | 8.3 | 3.9 | 12.2 | 19.0 | 31.2 | | Revision^{5} | (0.7) | (0.1) | (0.8) | (0.4) | (1.2) | | **2C Contingent Resources as at 31 December 2021** | **7.6** | **3.8** | **11.4** | **18.6** | **30.0** | | **Total of 2P Reserves and 2C Contingent Resources as at 31 December 2021** | **18.5** | **8.1** | **26.6** | **56.4** | **83.0** | 1) Reserves and Contingent Resources are categorised in line with 2018 SPE/WPC/AAPG/SPEE /SWLA Petroleum Resource Management System. 2) Assumes oil equivalent conversion factor of 6,000 scf/boe. 3) Reserves and Contingent Resources have been independently audited by Risc Advisory Pty Ltd. 4) Reserves and Contingent Resources have been independently audited by McDaniels. 5) Revisions to the assets come from the approach taken by the reserves auditor. 6) Risks associated with reserves evaluation and estimation uncertainty are discussed in Note 4(b) to the Financial Statements. Pharos Energy Annual Report and Accounts 2021 166 REPORT ON PAYMENTS TO GOVERNMENTS (UNAUDITED) ### Report on Payments to Governments (unaudited) Production entitlements in barrels Infrastructure improvement payments ### Disclosure These are the host government’s total This represents payments made in In accordance with the Financial Conduct share of production in the reporting period respect of infrastructure improvements Authority’s Disclosure and Transparency derived from projects operated by Pharos. for projects that are not directly related Rule 4.3A in respect of payments made This includes the government’s non-cash to oil and gas activities during the year. by the Company to governments for royalties as a sovereign entity or through This can be a contractually obligated the year ended 31 December 2021 its participation as an equity or interest payment in a Production Sharing Contract and in compliance with The Reports on holder in projects within its home country. or a discretionary payment for building/ Payments to Governments Regulations The figures produced are on a paid lifting improving local infrastructure such as 2014 (SI 2014/3209), Pharos presents basis valued at realised sale prices. roads, bridges, ports, schools and its disclosure for the year ending 31 hospitals. December 2021. Income Taxes Payroll Taxes This represents cash tax calculated on the ### Basis for preparation basis of profits including income or capital This represents payroll and employer Legislation gains. Income taxes are usually reflected taxes including PAYE and national in corporate income tax returns. The cash insurance paid by Pharos as a direct This report is prepared in accordance with payment of income taxes occurs in the employer. the Reports on Payments to Governments year in which the tax has arisen or up to Regulations 2014 as enacted in the UK one year later. Income taxes also include Export Duty in December 2014 and as amended in any cash tax rebates received from the This represents payments made to December 2015. | | government or revenue authority during | governments during the year in relation to | | --- | --- | --- | | The Reports on Payments to Government | the year. Income taxes do not include | the exportation of petroleum products. | | Regulations (UK Regulations) were | fines and penalties. Consumption taxes | | | enacted on 1 December 2014 and require | including value added taxes, personal | Withholding Tax | | UK companies in extractive industries | income taxes, sales taxes and property | | This represents the amount of tax to publicly disclose payments they taxes are excluded. deducted at source from third party have made to Governments where they service providers during the year and paid undertake extractive operations. The Royalties to respective governments. aim of the regulations is to enhance the These represent royalties during the year transparency of the payments made by to governments for the right to extract Other Taxes companies in the extractive sector to oil or gas. The terms of these royalties This represents business rates paid during host governments in the form of taxes, are set within the individual Production the year on non-domestic properties. | bonuses, royalties, fees and support for | Sharing Contracts & Agreements and | | --- | --- | | infrastructure improvements. The UK | can vary from project to project within a | | Regulations came into effect on 1 January | country. The cash payment of royalties | | 2015. | occurs in the year in which the tax has | arisen. The payments disclosed for 2021 are in line with the EU Directive and UK Dividends Regulations and we have provided additional voluntary disclosures on payroll These are dividend payments, other than taxes, export duty, withholding tax and dividends paid to a government as an other taxes. ordinary shareholder of an entity, in lieu of production entitlements or royalties. For In line with the UK Regulations, a payment the year ending 31 December 2021, there of a series of related payments which do were no reportable dividend payments to not exceed $112,780 (£86,000) has not governments. been disclosed. Where the aggregate payments made in the period for a project Bonuses or country are less than $112,780, This represents any bonus paid to payments are not disclosed for the project governments during the year on or country. achievement of commercial milestones All of the payments disclosed in such as signing of a petroleum agreement accordance with the EU Directive have or contract, achieving commercial been made to National Governments, discovery, or after first production. either directly or through a Ministry or Licence Fees Department, or to a national oil company, who have a working interest in a particular This represents licence fees, rental fees, licence. entry fees and other consideration for licences and/or concessions paid for Payment access to an area during the year (with The information is reported under the the exception of signature bonuses which following payment types: are captured within bonus payments). 167 Pharos Energy Annual Report and Accounts 2021 Strategic Report Governance Report Financial Statements Additional Information # TRANSPARENCY DISCLOSURE 2021 (UNAUDITED) # Transparency disclosure 2021 (unaudited) | | UK Regulations | Voluntary Disclosure | | --- | --- | --- | | Production entitlements | Production entitlements | Income Taxes | Royalties | Dividends | Bonus Payments | Licence fees | Infrastructure improvement payments | Total EU Transparency Directive | Payroll Taxes | Export Duty | With-holding Tax | Other Taxes | Total | | Licence/ Corporate/ Area | bbls (000) | $ 000's | $ 000's | $ 000's | $ 000's | $ 000's | $ 000's | $ 000's | $ 000's | $ 000's | $ 000's | $ 000's | $ 000's | | **Vietnam*** | | | | | | | | | | | | | | | Block 16-1 | 1,047 | 67,846 | 28,629 | 7,949 | - | - | 78 | - | 104,502 | - | - | - | - | | Block 9.2 | 550 | 34,731 | 11,065 | 1,484 | - | - | 75 | - | 47,355 | - | - | - | - | | **Total Vietnam** | **1,597** | **102,577** | **39,695** | **9,433** | **-** | **-** | **153** | **-** | **151,858** | **-** | **-** | **-** | **-** | | **Egypt** | | | | | | | | | | | | | | | El Fayum | 678 | 44,139 | - | - | - | - | - | - | 44,139 | 382 | - | 140 | 522 | | North Beni Suef | - | - | - | - | - | - | - | - | - | 34 | - | - | 34 | | **Total Egypt** | **678** | **44,139** | **-** | **-** | **-** | **-** | **-** | **-** | **44,139** | **416** | **-** | **140** | **556** | | **United Kingdom (UK)** | | | | | | | | | | | | | | | Corporate | - | - | - | - | - | - | - | - | - | 1,365 | - | - | 1,365 | | **Total UK** | **-** | **-** | **-** | **-** | **-** | **-** | **-** | **-** | **-** | **1,365** | **-** | **-** | **1,365** | | **United States of America (US)** | | | | | | | | | | | | | | | Corporate | - | - | - | - | - | - | - | - | - | 265 | - | - | 265 | | **Total US** | **-** | **-** | **-** | **-** | **-** | **-** | **-** | **-** | **-** | **265** | **-** | **-** | **265** | | **Pharos Total** | **2,275** | **146,716** | **39,695** | **9,433** | **-** | **-** | **153** | **-** | **195,997** | **2,046** | **-** | **140** | **2,186** | # Transparency disclosure 2021 (unaudited) | | UK Regulations | Voluntary Disclosure | | --- | --- | --- | | Production entitlements | Production entitlements | Income Taxes | Royalties | Dividends | Bonus Payments | Licence fees | Infrastructure improvement payments | Total | Payroll Taxes | Export Duty | With-holding Tax | Other Taxes | Total | | Country/ Government | bbls (000) | $ 000's | $ 000's | $ 000's | $ 000's | $ 000's | $ 000's | $ 000's | $ 000's | $ 000's | $ 000's | $ 000's | $ 000's | | **Vietnam*** | | | | | | | | | | | | | | | Ho Chi Minh City Tax Dept | - | - | 39,695 | 9,433 | - | - | - | - | 49,128 | - | - | - | - | | Customs Office | - | - | - | - | - | - | - | - | - | - | - | - | - | | PetroVietnam ESP Corp (PVEP) | 1,597 | 102,577 | - | - | - | - | 153 | - | 102,730 | - | - | - | - | | **Total Vietnam** | **1,597** | **102,577** | **39,695** | **9,433** | **-** | **-** | **153** | **-** | **151,858** | **-** | **-** | **-** | **-** | | **Egypt** | | | | | | | | | | | | | | | Egyptian General Petroleum Corporation (EGPC) | 678 | 44,139 | - | - | - | - | - | - | 44,139 | - | - | - | - | | Tax department | - | - | - | - | - | - | - | - | - | 416 | - | 140 | 556 | | **Total Egypt** | **678** | **44,139** | **-** | **-** | **-** | **-** | **-** | **-** | **44,139** | **416** | **-** | **140** | **556** | | **United Kingdom (UK)** | | | | | | | | | | | | | | | United Kingdom (UK) | - | - | - | - | - | - | - | - | - | 1,365 | - | - | 1,365 | | Inland Revenue | - | - | - | - | - | - | - | - | - | 1,365 | - | - | 1,365 | | **Total UK** | **-** | **-** | **-** | **-** | **-** | **-** | **-** | **-** | **-** | **1,365** | **-** | **-** | **1,365** | | **United States of America (US)** | | | | | | | | | | | | | | | Internal Revenue Service | - | - | - | - | - | - | - | - | - | 265 | - | - | 265 | | **Total US** | **-** | **-** | **-** | **-** | **-** | **-** | **-** | **-** | **-** | **265** | **-** | **-** | **265** | | **Pharos Total** | **2,275** | **146,716** | **39,695** | **9,433** | **-** | **-** | **153** | **-** | **195,997** | **2,046** | **-** | **140** | **2,186** | * Joint Operating Company Project's tax payments reported on Pharos Net Working Interest Basis Pharos Energy Annual Report and Accounts 2021 168 GLOSSARY OF TERMS Contractor ### A H The party or parties identified as being, or ABC forming part of, the “CONTRACTOR” as H&S Anti-Bribery and Corruption defined in the El Fayum Concession or, Health and Safety as the case may be, the North Beni Suef AGM HLHVJOC Concession Annual General Meeting Hoang Long and Hoan Vu Joint Operating CR Companies Corporate Responsibility HLJOC ### B Hoang Long Joint Operating Company bbl ### D HSES Barrel Health, Safety, Environmental and Security blpd DD&A Depreciation, depletion and amortisation HVJOC Barrels of liquids per day Hoan Vu Joint Operating Company BMS ### Business Management System E ### I Bn E&P Billion Exploration & Production IASB International Accounting Standards Board boe EBITDAX Barrels of oil equivalent Earnings before interest, tax, DD&A, IFRS impairment of PP&E and intangibles, International Financial Reporting BHCPP exploration expenditure and other/ Standards Bach Ho Central Processing Platform exceptional items in the current year IMF boepd EBT International Monetary Fund Barrels of oil equivalent per day Employee benefit trust IOGP bopd E&E The International Association of Oil & Gas Barrels of oil per day Exploration and Evaluation Producers bwpd EGP IPIECA Barrels of water per day Egyptian Pound The global oil and gas industry association for environmental and social issues EGPC Egyptian General Petroleum Corporation IPR or IPR Energy Group ### C The IPR Energy group of companies, CASH or cash El Fayum or the El Fayum Concession including IPR Lake Qarun and IPR Energy Cash, cash equivalent and liquid The concession agreement for petroleum AG, or such of them as the context may investments exploration and exploitation entered require into on 15 July 2004 between the Arab CAPEX or capex IPR Lake Qarun Republic of Egypt, EGPC and Pharos El Capital expenditure IPR Lake Qarun Petroleum Co, an Fayum in respect of the El Fayum area, Western Desert, as amended from time exempted company with limited liability CDP to time organised and existing under the laws of Formerly the Carbon Disclosure Project the Cayman Islands (registration number EU CEO 379306), a wholly owned subsidiary of European Union Chief Executive Officer IPR Energy AG CFO Chief Financial Officer ### F J CNV FFDP JOC Ca Ngu Vang field located in Block 9-2 Full Field Development Plan Joint Operating Company CO 2 FPSO JV Carbon Dioxide Floating, Production, Storage and Joint venture Offloading Vessel CO e 2 Carbon Dioxide Equivalent ### FY K Full year Company k Pharos Energy plc G&A thousands General and administration Contingent Resources kbopd Those quantities of petroleum to be GHG Thousand barrels of oil per day potentially recoverable from known Greenhouse gas accumulations by application of Km development projects but which are not Group Kilometre currently considered to be commercially Pharos and its direct and indirect 2 km recoverable due to one or more subsidiary undertakings Square kilometre contingencies 169 Pharos Energy Annual Report and Accounts 2021 Additional InformationGovernance Report Financial StatementsStrategic Report ### L P T Listing Rules PEF TOR The Listing Rules of the UK Financial Pharos El Fayum, (formerly named Merlon Terms of Reference Conduct Authority Petroleum El Fayum Company), an TCFD exempted company with limited liability LTI organised and existing under the laws of the Task-Force for Climate-related Financial Lost Time Injury Cayman Islands (registration number 78257), Disclosures a member of the Group LTIF TGT Lost Time Injury Frequency Petrosilah Te Giac Trang field located in Block 16-1 An Egyptian joint stock company held 50/50 LTIP TSR between the Contractor parties (being the Long Term Incentive Plan Total shareholder return Pharos Group and IPR Lake Qarun following completion of the farm-out of the El Fayum TIA concession) and the Egyptian General Tie-in Agreement ### M Petroleum Corporation m PSC ### million Production sharing contract or production U sharing agreement M&A UK Mergers and Acquisitions Petrovietnam United Kingdom Vietnam Oil and Gas Group MENA US Middle East and North Africa region PTTEP United States of America PTT Exploration and Production Public mmbbl Company Limited Million barrels ### W mmboe WHP Million barrels of oil equivalent ### R Wellhead Platform Reserves United States of America Reserves are those quantities of ### N petroleum anticipated to be commercially ### NBS, North Beni Suef or the North Beni Y recoverable by application of development Suef Concession projects to known accumulations from YTD The concession agreement for petroleum a given date forward under defined Year-to-date exploration and exploitation entered into conditions. Reserves must further satisfy on 24 December 2019 between the Arab four criteria: they must be discovered, Republic of Egypt, EGPC and Pharos El recoverable, commercial and remaining Fayum in respect of the North Beni Suef $ based on the development projects area, Nile Valley applied United States Dollar NBV RBL £ Net Book Value Reserve Based Lending facility UK Pound Sterling NED RISC 1C Non-Executive Director RISC Advisory Pty Ltd Low estimate scenario of Contingent NPV Resources Net Present Value 1H ### S First half Shares 1P Ordinary Shares ### O Equivalent to Proved Reserves; denotes STOIIP low estimate scenario of Reserves OOIP Stock Tank Oil Initially In Place Original Oil in Place 2018 Code | OPECO Vietnam | The 2018 UK Corporate Governance | | --- | --- | | OPECO Vietnam Limited | Code of the Financial Reporting Council | | Opex | 2C | | Operational expenditure | Best estimate scenario of Contingent | Resources 2C Contingent Resources Best estimate scenario of Contingent Resources 2P Reserves Equivalent to the sum of Proved plus Probable Reserves; denotes best estimate scenario of Reserves. Also referred to as 2P Commercial Reserves Pharos Energy Annual Report and Accounts 2021 170 COMPANY INFORMATION ### Registered office: Financial Adviser and ### Corporate Brokers: Pharos Energy 27/28 Eastcastle Street, London W1W Jefferies 8DH, United Kingdom Registered in 100 Bishopsgate London, EC2N 4JL England T +44 (0)20 7747 2000 F +44 United Kingdom (0)20 7747 2001 Company No. 3300821 www.pharos.energy Peel Hunt 120 London Wall, London EC2Y 5ET Company Secretary United Kingdom Tony Hunter ### Financial Calendar Capital Markets Advisor: Group results for the year to 31 December Auctus Advisors are announced in March. The Annual Robsacks, Long Barn Road, Weald, General Meeting is held during the second Sevenoaks, Kent TN14 6NJ United quarter. Interim Results to 30 June are Kingdom announced in September. ### Registrar: ### Advisers Auditor: RD:IR Limited Deloitte LLP 9 Bridewell Place, London EC4V 6AW London, United Kingdom United Kingdom | Bankers: | Solicitors: | | --- | --- | | J.P. Morgan | Shepherd and Wedderburn LLP | | 125 London Wall London, EC2Y 5AY | 1 Exchange Crescent, Conference | | United Kingdom | Square, Edinburgh EH3 8UL United | Kingdom HSBC UK Bank plc 60 Queen Victoria Street London EC4N 4TR United Kingdom BNP Paribas – Singapore Branch 10 Collyer Quay #33-01 Ocean Financial Center 049315 Singapore Designed and Produced by Presentation Graphics Design Ltd 171 Pharos Energy Annual Report and Accounts 2021 Pharos Energy Annual Report and Accounts 2021 172 Pharos Energy (Head Office) Eastcastle House 27/28 Eastcastle Street London W1W 8DH United Kingdom Registered in England Company No. 3300821 T +44 (0)20 7747 2000 F +44 (0)20 7747 2001 www.pharos.energy