Pharos
Energy plc
("Pharos"
or the "Company" or, together with its subsidiaries, the
"Group")
2023 Annual Report and
Accounts and 2024 Notice of Annual General Meeting
("AGM")
The Annual Report & Accounts of
the Company for the year ended 31 December 2023 ("Report and
Accounts") in pdf and ESEF compliant format, and a Shareholder
Circular, which includes Notice of the 2024 AGM, are now available
on the Company's website and can be accessed via
www.pharos.energy.
Hard copies of the above two
documents, together with a Form of Proxy, have been mailed to those
shareholders having elected to receive paper copies.
In accordance with LR 9.6.1, copies
of the Report and Accounts and Shareholder Circular have also been
submitted to the FCA's National Storage Mechanism and will shortly
be available for inspection on the National Storage Mechanism's
website, https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
This dissemination announcement is
based upon the Company's announcement of Preliminary Results for
the Year Ended 31 December 2023 made on 27 March 2024 with the
addition of information required by Disclosure and Transparency
Rule (DTR) 6.3.5R set out below in the Appendix.
Annual
General Meeting
The 2024 AGM will be held at Storey
Club, 100 Liverpool Street, London, EC2M 2AT on 23 May 2024 at 2.00
p.m.
The Board recognises that the AGM is
an important event for shareholders in the corporate calendar, and
we are committed to ensuring that shareholders can exercise their
right to vote and ask questions in connection with this meeting.
Accordingly, for those shareholders that do not wish to attend, or
those that wish to attend and are unable to do so, questions in
connection with the business of the AGM can be submitted on
reasonable notice in advance of the meeting by email to
info@pharos.energy. In so far as relevant to the business of the
meeting questions will be responded to by email and taken into
account as appropriate at the meeting itself.
Shareholders wishing to vote on any
of the matters of business at the AGM are encouraged to submit
their votes as soon as possible, and in any event no later than the
relevant deadline, 2.00 p.m. on 21 May 2024, through the proxy and
electronic voting facilities. Voting at the AGM will be carried out
by way of a poll so that the votes cast in advance by all
shareholders appointing the Chair of the Meeting as their proxy can
be taken into account. As is usual, the results of the AGM will be
announced as soon as practical after it has taken place.
Enquiries
Pharos Energy plc
Tel: 0207 603 1515
Tony Hunter, Company
Secretary
Camarco
Tel: 020 3757 4980
Billy Clegg |Rebecca Waterworth
|Kirsty Duff |Andrew Turner
Notes to editors
Pharos Energy plc is an independent
oil and gas exploration and production company with a focus on
sustainable growth and returns to stakeholders, which is listed on
the London Stock Exchange. Pharos has production, development
and/or exploration interests in Egypt and Vietnam. In Egypt, Pharos
holds a 45% working interest share in the El Fayum Concession in
the Western Desert, with IPR Lake Qarun, part of the international
integrated energy business IPR Energy Group, holding the remaining
55% working interest. The El Fayum Concession produces oil from 10
fields and is located 80 km southwest of Cairo. It is operated by
Petrosilah, a 50/50 joint stock company between the contractor
parties (being IPR Lake Qarun and Pharos) and the Egyptian General
Petroleum Corporation (EGPC). Pharos also holds a 45% working
interest share in the North Beni Suef (NBS) Concession in Egypt,
which is located immediately south of the El Fayum Concession. IPR
Lake Qarun operates and holds the remaining 55% working interest in
the NBS Concession. In Vietnam, 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. Pharos'
unitised interest in the TGT field is 29.7%. Pharos also has a 25%
working interest in the Ca Ngu Vang (CNV) field located in Block
9-2, which is operated by the Hoan Vu Joint Operating Company.
Blocks 16-1 and 9-2 are located in the shallow water Cuu Long
Basin, offshore southern Vietnam. Pharos also holds a 70% interest
in, and is designated operator of, Blocks 125 & 126, located in
the moderate to deep water Phu Khanh Basin, north east of the Cuu
Long Basin, offshore central Vietnam.
Appendix
Following the release of the
Company's Preliminary Results for the Year Ended 31 December 2023
made on 27 March 2024, additional information is set out below in
accordance with DTR 6.3.5R.
1) The following is
extracted from page 147 of the Company's Annual Report and Accounts
2023 at www.pharos.energy.
Directors' Responsibility
Statement
The Directors confirm that, to the
best of each person's knowledge:
(a) the Financial Statements set out on pages 158 to 189, which
have been prepared in accordance with international accounting
standards in conformity with the requirements of the Companies Act
2006 and International Financial Reporting Standards as adopted by
the UK and in accordance with International Financial Reporting
Standards as issued by the IASB, give a true and fair view of the
assets, liabilities, financial position and loss of the Company and
the Group taken as a whole;
(b) this Directors' Report
along with the Strategic Report, including each of the management
reports forming part of these reports, includes a fair review of
the development and performance of the business and the position of
the Company and the Group taken as a whole, together with a
description of the principal risks and uncertainties that they face
and how these are being managed and mitigated as set out in the
Risk Management Report on pages 48 to 61; and
(c) the Annual Report and the
Financial Statements, taken as a whole, are fair, balanced and
understandable and provide the information necessary for the
shareholders to assess the Group's position, performance, business
model and strategy.
Approved by the Board and signed on
its behalf.
Sue Rivett
Chief Financial Officer
27 March 2024
2) The following
description of the principal risks and uncertainties is extracted
from the Risk Management Report (pages 48 to 61) of the Annual
Report and Accounts 2023 at www.pharos.energy.
Principal Risks and Uncertainties
A summary of the key risks affecting
Pharos and how these risks are mitigated to enable the Company to
achieve its strategic objectives is as follows.
Key
to change in likelihood: á Increase ßà No Change â Decrease
N New Risk
STRATEGIC
|
Principal
risks
|
Change in
likelihood
|
Causes
|
Risk
Mitigation
|
1. Insufficient
funds to meet commitments
· Inability to invest in line with growth strategy
|
ßà
|
· Reallocation of capital away from oil and gas
· Huge
swings in oil and other commodity prices
· Assets
bubble bursts
· Global
debt crises emerging
· Inadequate cost control
· Poor
technical data to support allocations
· High
inflation
|
· Regular review of funding options
· Stress
testing forecast
· Proactive dialogue with banks and other providers of
capital
· Opportunity screening
· Effective project management and resourcing
· Thorough capital allocation process
|
2. Production
levels below expectation
· Sub-Optimal well performance
· Reduced drilling
|
ßà
|
· Inadequate waterflood responses
· Incorrect well placements
· Development wells uncommercial
· Poor
reservoir models
· Lack
of financing for drilling programme
|
· Develop a clear wells strategy, focusing on performance
improvement, regulatory compliance and increased
activity
· Increase drilling activity / plan-drill additional injection
wells / frac injection zone
· Reduce
cost of well construction
· Increase surveillance and intervention rates
· Perform Target workovers on producer / injection
wells
· De-risk best prospects / drill best prospects
· Improve Reservoir models
· Implement planned drilling programmes
· Active
participation in dialogue with JVs / JOCs
|
3. Health,
Safety, Environmental and Social Risk
· Reputational
· Operational outages leading to lower production
|
ßà
|
· Health
and safety and environmental risks of major explosions, leaks or
spills
· High
risk operating conditions and HSES risks
· Climate change impacts on the sector, such as extreme weather,
sea level rise and water availability affecting
production
· Gas
venting and flaring hazards and risks - well blow outs, land /
water contamination
· Non-alignment of HSES practices with Pharos Corporate
standards with JVs and JOCs
· Increased disparities and societal risks in health, technology
or workforce opportunities
|
· Improve structural and Asset Integrity through strong
operational and maintenance processes which are critical to
preserving a safer environment
· Comply
with all legislative / regulatory frameworks and transitioning to a
goal-based approach focused on improving safety
· Promote a positive health and safety culture where workers are
given proper training and incentives to work "safe" with a zero
tolerance for non-compliance
· Environmental and Social Impact Assessments relating to, for
example:
- climate impacts and need
to adapt to changing climate conditions over the life of the
asset
- regulatory
developments
· Enhance emergency preparedness and spill prevention
plan
- Controlled
venting
- Control and management
of pressurised oil and gas from boreholes
- Use of low impact
extraction chemicals where alternatives exist
- Water management -
securing of a sustainable water supply, recycling and reuse
wastewater
- Marine management plan -
especially for offshore drilling
- Carry out scenario
exercises to improve preparedness
- Active participation in
dialogue with JOC to influence them on best work
practices
· Maintaining adequate energy insurance for our assets and
operations
|
4.
Climate Change - transition and physical risks
· Commodity price volatility
· Restrictions of use of carbon intensive assets
· Lack
of portfolio diversification
· Accelerating
electrification
· Carbon
pricing
· Reduced water availability
· Increased temperature and heat stress
· Storm
frequency
|
á
|
· Pressure on investors to divest/ avoid fossil fuel companies /
projects
· Inability to find economically viable CO2 reduction
solutions
· Lack
of alignment between our key stakeholders' priorities and climate
change concerns
· Global
transition to a lower carbon intensity economy
· Increased climate regulation and disclosure
· Increase in carbon taxes / decarbonisation charges
· Transformational shifts leading to reduced demand for fossil
fuels
· Climate activists pressing prominent institutions and
investors to abandon fossil investments - "greening" the financial
system
· Increased frequency of extreme weather events
· Supply
chain disruptions causing delay / shutdowns to
operations
· Lack
of partner alignment on
decarbonisation initiatives
· Reduced access to insurance market
|
· Net
Zero commitment on all assets by 2050, detailed roadmap published
in December 2023
· Emission Management Fund, under which we set aside $0.25 for
each barrel sold at an oil price above $75/bbl to support emissions
management projects
· Transparent reporting and participation in Carbon Disclosure
Project (CDP)
· Continue alignment with TCFD recommendations
· Further integrate climate risk management within Pharos Risk
Management Framework
· Stress
test our going concerns under a Net Zero Emissions price scenario
and carbon tax scenario
· Embed
climate change scenarios and evaluate decisions on key business
operations / directions
· Continuous improvement of GHG emissions management and get
JOCs to support CO2 emissions reduction initiatives
· Annually review, update and renew Group Climate Change Policy
to keep it fit for purpose and in line with evolving
decarbonisation developments
· Comprehensive insurance cover for Physical Damage to oil and
gas assets and infrastructure
· Close
monitoring of regional extreme weather developments so that
evacuation or shut-down are activated in good time
· Regular and timely control of inventories to ensure essential
spares are sourced in advance
· Prepare business cases or studies to support decarbonisation
initiatives
|
FINANCIAL*
|
Principal
risks
|
Change in
likelihood
|
Causes
|
Risk
Mitigation
|
5. Commodity Price risk
· Uncertainty on planning
· Inability to fund work programme / dividend
|
ßà
|
· Geo-political factors and
international conflicts
· Pressure on investors to divest/ avoid fossil fuel companies /
projects
· Lower
long-term prices tighten the margin of error for
investments
· Forecasting volatility swings are more complex as it is
challenging to gauge what that means for the industry as
market dynamics are influenced by the speed of recovery from
COVID-19 and growing ESG pressures
· Negative cash flows and
earnings
degradation
· Market
speculation and trading in oil futures
· Repercussions of the Russian invasion of Ukraine and Middle
East conflict
|
· Oil
commodity Hedging
- Comply with RBL
requirements
- Maintain robust
processes around treasury, governance, forecasting, credit and
risk
· Close
monitoring of business activities, financial position cash
flows
· Control over procurement costs / effective management of
supply chains derived from third parties - suppliers, joint venture
partners, investors, and contractors
· Stress
test scenarios and sensitivities via principal compound risk
analysis to ensure a level of robustness to downside price
scenarios
· Capital discipline with focus on controlling and managing
costs
· Discretionary spend actively managed
· Maintain and cultivate good relationships with
lenders
|
6. Rising
Operational Costs
· Reduced profits
· Strain
on cash flows
· Shortages in skilled labour
|
ßà
|
· Global
inflation
· Turmoil in the energy markets causing sharp price
hikes
· Sudden
unplanned rate increases for oil and gas services
|
· Regular updates to yearly budgets and forecasts
· Focus
in discretionary spend
· Secure
long-term contracts where appropriate without lock-ins
· Explore applying new technological advances, focus on
prevention and early detection
|
7. Egyptian
economy
· The
impact of the war in Ukraine on Egypt's economy is especially
significant
|
ßà
|
· Inability to repatriate cash earned from Egypt
· Further devaluation of the Egyptian pound
|
· Pharos
have opted not to accept the payment of our receivables balance in
EGP unless required for operations
· Revolving credit facility with the National Bank of Egypt (UK)
(NBE), which allows us to draw down 60% of the value of each oil
sales invoice in USD ($18m facility until 30 May 2025, with further
renewals by agreement)
· Accepting payments in EGP, to be reinvested in field
operations as soon as the IPR carry comes to an end
|
OPERATIONAL
|
Principal risks
|
Change in
likelihood
|
Causes
|
Risk
Mitigation
|
8. Reserves
Risk
· Future
cash flows and value depend on producing our reserves
|
ßà
|
· Inaccurate reserves estimate
· Earlier impairment triggers due to low commodity
price
· Capital constraints jeopardise planned exploration /
development initiatives
· Inherent uncertainties in the evaluation techniques to
estimate the 2P reserves
· Increased DD&A costs
· Lower
than expected well performances and drilling results
· Slower
drilling programmes
|
· Monitor and maintain standards of reserves reporting by
adhering to three key considerations: consistency,
transparency
and
utility, including disclosure of movements in reserves on a
country-by-country basis, disclosure of material projects and
moderation of subjective judgements
· On-going evaluation of projects in existing and potential new
areas of interest and pursue development
opportunities
· Regular reviews of reserves estimates by independent
consultants
· Ensure
continuing adherence to industry best practice regarding technical
estimates and judgements
· Ensuring peer and independent verification of future
production profiles and reserve recovery
· RBL
facility compliance - Vietnam Reserves are audited independently by
reserves consultants approved by lenders
|
9. Partner
Alignment Risk
Vietnam
•
Technical misalignment at JV/ JOC level can delay
investment
•
Adverse impact on Production and Cash
flow
Egypt
•
Technical misalignment at JV/ JOC level can delay
investment
•
Adverse impact on Production and Cash
flow
|
á
|
· FPSO
Tie-in Agreement from other Operator
· Delay
in the Field Development Plans
· Technical disagreement caused by quality of JV staff, work
ethic, low productivity, competency issues
· Geological Modelling differences resulting in sub-optimal well
locations
· JOC
partner (IPR and EGPC) divergent views on investments, and
difference in value-drivers
|
· Active
Participation in JOC management
· Direct
secondment
· Build
Senior Management level relationship with local partners
· Continue good relationship with other Foreign
Partner
· Close
collaboration with JOCs partners
· Support JV training initiatives
· Engage
with JV Exploration Manager
· Achieve technical buy-in to ERCE model
· Waterflood analogue success education
|
10. Cyber risk
· Major
cyber security breach may result
in loss of
key
confidential data
· Unavailability of key systems
|
ßà
|
· Sophistication and frequency of cyber-attacks
increasing
· Heavy
reliance on and disruption to critical business systems
· Infiltration of spam emails corrupting our systems
· Critical reliance on remote working in light of demand for
longer-term hybrid and flexible working practices,
originally
· in
response to the COVID-19
· pandemic
· IT
provider acquired during 2023
- changing
provider / individuals
|
· Update
Service level agreement with IT providers, including regular
meetings and other interfaces to raise any issues and review
performance
· Offsite Installation of back-up system and Business Recovery /
Continuity Plan in place
· Enhance our Cloud back-up data and solutions
· Prevention and detection of cyber threats via a programme of
effective continuous monitoring
· Plan
for upgrade of IT systems
|
11. Human Resource Risk
· Good
skilled people are essential to ensure success
|
ßà
|
· Failure to recruit and retain high calibre personnel to
deliver on and implement growth strategy
· Challenges in the recruitment and integration of additional
technical expertise for any new acquisition
· Negative view of the oil and gas industry amongst
younger professionals, particularly in light of climate
change impacts, resulting in fewer entrants to the industry
to replace retiring professionals
· High
costs of recruiting experienced workforce
· Weakened corporate culture and collegiate responsibility due
to remote working
· Restructuring workforce
· Board
re-composition and retirements
|
· Remuneration Committee retains independent advisors to test
the competitiveness of compensation packages for key
employees
· On-going succession planning
· Maintain a competitive remuneration mix re bonus, long-term
incentive and share option plans
· Build
and use people networks in each country and advertise vacancies in
these networks
· Maintain a programme for staff wellbeing
· Facilitate and encourage workforce communication via
Group-wide offsite events and quarterly video conferences, employee
surveys and shared feedback
|
REPUTATION
|
|
|
|
Principal
risks
|
Change in
likelihood
|
Causes
|
Risk
Mitigation
|
12. Sub-optimal capital
allocation
· Adverse reaction from current / future stakeholders
· Investment decisions based on realistic
/
achievable economic assumptions
|
ßà
|
· Scarcity of capital for investment projects
· A
volatile macroeconomic environment resulting in significant
differences to key assumptions underpinning investment
decisions
· Pressure to invest and produce growth and returns in the short
term to maintain dividend payments
· Shareholder focus on increasing returns in conflict with wider
strategic considerations
· Inability to "switch-off" drilling/ investment commitments if
economic assumptions change rapidly
· Lack
of partner / stakeholder alignment on decarbonisation
initiatives
|
· Carry
out robust economic analyses based on opportunities high-grading to
support capital allocation
· Key
KPIs such as NPV, IRR and payback used to compare across many
project scenarios
· Rig
count investment scenarios are stress-tested against a range of
Brent oil prices
· Seeking to maximise influence to promote best
practice in
non-operated ventures
· Seek
the views of stakeholders through direct and indirect
engagement
· Maintain a balanced investment portfolio which allows a degree
of resilience in adjusting short-term investment
commitments
· Prepare business case or back pay study to support
decarbonisation initiatives
|
13. Political and
Regional risk
· Energy
sector exposed to a wide range of political developments which may
impact adversely on operating costs, compliance and
taxation
|
á
|
· Operations in challenging regulatory and political
environments
· Changes to fiscal regimes without robust stabilisation
protections
· Protracted approval processes causing delays
· Government reform, political instability and/or civil
unrest
· Impact
of financial sanctions, export controls and other trading
restrictions on industry counterparties and sectors (in particular,
sanctions on entities or individuals arising from the continuing
conflict in Ukraine and other international conflicts)
|
· Canvass support in risk management by using both international
and in-country professional advisors
· Engage
directly with the relevant authorities on a regular
basis
· Assess
country risk profiles, trend analyses and on-
the-ground
reports by journalists / academics
· Thoroughly evaluate the risks of operating in
specific
areas and
assess commercial acceptability
· Maintain political risk insurance at appropriate levels of
cover
· Maintain USD as the main currency of our business
· Active
working group monitoring sanctions arising from conflict in Ukraine
and assessing / managing associated risk to Group
· Annual
renewal of a standalone Group Sanctions Policy, to supplement
existing Group Code of Business Conduct and Ethics
· Develop and maintain mitigation planning in
relation to certain counterparties with potential to
come within the future scope of sanctions
|
14. Business Conduct
and Bribery
§ Reputational damage and
exposure to criminal charges
|
ßà
|
· Present in countries with below average score on the
Transparency International Corruption Index
· Lack
of transparent procurement and investment policies
· Non-compliance with Criminal Crime Offences (CCO) and/or UK
Bribery Act
· Corruption and human rights issues
|
· Ensure
adequate due diligence prior to on-boarding with a risk based
approach, including independent "Red flags" checks
· Annual
training, testing and compliance certifications
by all
associated persons
· Increase awareness of, and ensure regular training in, the
Group's Code of Business Conduct and Ethics and associated guidance
and other corporate policies for all employees and associated
persons
· Mandatory Gifts and Hospitality declaration and
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
|
3) The following is
extracted from Note 35 to the Financial Statements (page 187) of
the Annual Report and Accounts 2023 at
www.pharos.energy.
RELATED PARTY TRANSACTIONS
During 2022, the Company recorded a
net cost of $0.01m in respect of services rendered between Group
companies.
Remuneration of key management personnel
The remuneration of the Directors of
the Company, who are considered to be its key management personnel,
is set out below in aggregate for each of the categories specified
in IAS 24 Related Party Disclosures. Further information about the
remuneration of individual Directors is provided in the audited
part of the Directors' Remuneration Committee Report on pages 128
to 134.
|
2023
$ million
|
2022
$
million
|
Short-term employee
benefits
|
2.7
|
3.0
|
Post-employment benefits
|
0.1
|
0.1
|
Share-based payments
|
1.8
|
1.0
|
|
4.6
|
4.1
|