REG - Pharos Energy PLC - 2023 Annual Report and Accounts and Notice of AGM
25/04/2024 16:30
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RNS Number : 8921L Pharos Energy PLC 25 April 2024
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
(http://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 (http://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 · Reallocation of capital away from oil and gas · Regular review of funding options
ßà · Huge swings in oil and other commodity prices · Stress testing forecast
· Inability to invest in line with growth strategy · Assets bubble bursts · Proactive dialogue with banks and other providers of capital
· Global debt crises emerging · Opportunity screening
· Inadequate cost control · Effective project management and resourcing
· Poor technical data to support allocations · Thorough capital allocation process
· High inflation
2. Production levels below expectation ßà · Inadequate waterflood responses · Develop a clear wells strategy, focusing on performance
improvement, regulatory compliance and increased activity
· Incorrect well placements
· Increase drilling activity / plan-drill additional injection
· Sub-Optimal well performance · Development wells uncommercial wells / frac injection zone
· Reduced drilling · Poor reservoir models · Reduce cost of well construction
· Lack of financing for drilling programme · 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 · Health and safety and environmental risks of major explosions, · Improve structural and Asset Integrity through strong operational
leaks or spills and maintenance processes which are critical to preserving a safer environment
ßà
· High risk operating conditions and HSES risks · Comply with all legislative / regulatory frameworks and
· Reputational
transitioning to a goal-based approach focused on improving safety
· Climate change impacts on the sector, such as extreme weather,
· Operational outages leading to lower production sea level rise and water availability affecting production · Promote a positive health and safety culture where workers are
given proper training and incentives to work "safe" with a zero tolerance for
· Gas venting and flaring hazards and risks - well blow outs, land non-compliance
/ water contamination
· Environmental and Social Impact Assessments relating to, for
· Non-alignment of HSES practices with Pharos Corporate standards example:
with JVs and JOCs
- climate impacts and need to adapt to changing climate conditions
· Increased disparities and societal risks in health, technology or over the life of the asset
workforce opportunities
- 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 á · Pressure on investors to divest/ avoid fossil fuel companies / · Net Zero commitment on all assets by 2050, detailed roadmap
projects published in December 2023
· Inability to find economically viable CO2 reduction solutions · Emission Management Fund, under which we set aside $0.25 for each
· Commodity price volatility
barrel sold at an oil price above $75/bbl to support emissions management
· Lack of alignment between our key stakeholders' priorities and projects
· Restrictions of use of carbon intensive assets climate change concerns
· Transparent reporting and participation in Carbon Disclosure
· Lack of portfolio diversification · Global transition to a lower carbon intensity economy Project (CDP)
· Accelerating · Increased climate regulation and disclosure · Continue alignment with TCFD recommendations
electrification · Increase in carbon taxes / decarbonisation charges · Further integrate climate risk management within Pharos Risk
Management Framework
· Carbon pricing · Transformational shifts leading to reduced demand for fossil
fuels · Stress test our going concerns under a Net Zero Emissions price
· Reduced water availability
scenario and carbon tax scenario
· Climate activists pressing prominent institutions and investors
· Increased temperature and heat stress to abandon fossil investments - "greening" the financial system · Embed climate change scenarios and evaluate decisions on key
business operations / directions
· Storm frequency · Increased frequency of extreme weather events
· Continuous improvement of GHG emissions management and get JOCs
· Supply chain disruptions causing delay / shutdowns to operations to support CO2 emissions reduction initiatives
· Lack of partner alignment on · Annually review, update and renew Group Climate Change Policy to
keep it fit for purpose and in line with evolving decarbonisation developments
decarbonisation initiatives
· Comprehensive insurance cover for Physical Damage to oil and gas
· Reduced access to insurance market 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
· Oil commodity Hedging
5. Commodity Price risk ßà · Geo-political factors and - Comply with RBL requirements
international conflicts - Maintain robust processes around treasury, governance,
forecasting, credit and risk
· Uncertainty on planning · Pressure on investors to divest/ avoid fossil fuel companies /
projects · Close monitoring of business activities, financial position cash
· Inability to fund work programme / dividend
flows
· Lower long-term prices tighten the margin of error for
investments · Control over procurement costs / effective management of supply
chains derived from third parties - suppliers, joint venture partners,
· Forecasting volatility swings are more complex as it is investors, and contractors
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 · Stress test scenarios and sensitivities via principal compound
risk analysis to ensure a level of robustness to downside price scenarios
· Negative cash flows and
· Capital discipline with focus on controlling and managing costs
earnings degradation
· Discretionary spend actively managed
· Market speculation and trading in oil futures
· Maintain and cultivate good relationships with lenders
· Repercussions of the Russian invasion of Ukraine and Middle East
conflict
6. Rising Operational Costs ßà · Global inflation · Regular updates to yearly budgets and forecasts
· Turmoil in the energy markets causing sharp price hikes · Focus in discretionary spend
· Reduced profits · Sudden unplanned rate increases for oil and gas services · Secure long-term contracts where appropriate without lock-ins
· Strain on cash flows · Explore applying new technological advances, focus on prevention
and early detection
· Shortages in skilled labour
7. Egyptian economy ßà · Inability to repatriate cash earned from Egypt · Pharos have opted not to accept the payment of our receivables
balance in EGP unless required for operations
· Further devaluation of the Egyptian pound
· Revolving credit facility with the National Bank of Egypt (UK)
· The impact of the war in Ukraine on Egypt's economy is especially (NBE), which allows us to draw down 60% of the value of each oil sales invoice
significant
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 ßà · Inaccurate reserves estimate · Monitor and maintain standards of reserves reporting by
adhering to three key considerations: consistency, transparency
· Earlier impairment triggers due to low commodity price
and utility, including disclosure of movements in reserves on a
· Future cash flows and value depend on producing our reserves · Capital constraints jeopardise planned exploration / development country-by-country basis, disclosure of material projects and moderation of
initiatives subjective judgements
· Inherent uncertainties in the evaluation techniques to estimate · On-going evaluation of projects in existing and potential new
the 2P reserves areas of interest and pursue development opportunities
· Increased DD&A costs · Regular reviews of reserves estimates by independent consultants
· Lower than expected well performances and drilling results · Ensure continuing adherence to industry best practice regarding
technical estimates and judgements
· Slower drilling programmes
· 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 á · FPSO Tie-in Agreement from other Operator · Active Participation in JOC management
· Delay in the Field Development Plans · Direct secondment
Vietnam · Technical disagreement caused by quality of JV staff, work ethic, · Build Senior Management level relationship with local partners
low productivity, competency issues
• Technical misalignment at JV/ JOC level can delay investment
· Continue good relationship with other Foreign Partner
· Geological Modelling differences resulting in sub-optimal well
• Adverse impact on Production and Cash flow locations · Close collaboration with JOCs partners
Egypt · JOC partner (IPR and EGPC) divergent views on investments, and · Support JV training initiatives
difference in value-drivers
• Technical misalignment at JV/ JOC level can delay investment · Engage with JV Exploration Manager
• Adverse impact on Production and Cash flow · Achieve technical buy-in to ERCE model
· Waterflood analogue success education
10. Cyber risk ßà · Sophistication and frequency of cyber-attacks increasing · Update Service level agreement with IT providers, including
regular meetings and other interfaces to raise any issues and review
· Heavy reliance on and disruption to critical business systems performance
· Major cyber security breach may result · Infiltration of spam emails corrupting our systems · Offsite Installation of back-up system and Business Recovery /
Continuity Plan in place
in loss of key · Critical reliance on remote working in light of demand for
longer-term hybrid and flexible working practices, originally · Enhance our Cloud back-up data and solutions
confidential data
· in response to the COVID-19 · Prevention and detection of cyber threats via a programme of
· Unavailability of key systems
effective continuous monitoring
· pandemic
· Plan for upgrade of IT systems
· IT provider acquired during 2023
- changing provider / individuals
11. Human Resource Risk ßà · Failure to recruit and retain high calibre personnel to deliver · Remuneration Committee retains independent advisors to test the
on and implement growth strategy competitiveness of compensation packages for key employees
· Challenges in the recruitment and integration of additional · On-going succession planning
· Good skilled people are essential to ensure success technical expertise for any new acquisition
· Maintain a competitive remuneration mix re bonus, long-term
· Negative view of the oil and gas industry amongst younger incentive and share option plans
professionals, particularly in light of climate change impacts, resulting in
fewer entrants to the industry to replace retiring professionals · Build and use people networks in each country and advertise
vacancies in these networks
· High costs of recruiting experienced workforce
· Maintain a programme for staff wellbeing
· Weakened corporate culture and collegiate responsibility due to
remote working · Facilitate and encourage workforce communication via Group-wide
offsite events and quarterly video conferences, employee surveys and shared
· Restructuring workforce feedback
· Board re-composition and retirements
REPUTATION
Principal risks Change in likelihood Causes Risk Mitigation
12. Sub-optimal capital allocation ßà · Scarcity of capital for investment projects · Carry out robust economic analyses based on opportunities
high-grading to support capital allocation
· A volatile macroeconomic environment resulting in significant
differences to key assumptions underpinning investment decisions · Key KPIs such as NPV, IRR and payback used to compare across many
· Adverse reaction from current / future stakeholders
project scenarios
· Pressure to invest and produce growth and returns in the short
· Investment decisions based on realistic term to maintain dividend payments · Rig count investment scenarios are stress-tested against a range
of Brent oil prices
/ achievable economic assumptions · Shareholder focus on increasing returns in conflict with wider
strategic considerations · Seeking to maximise influence to promote best
· Inability to "switch-off" drilling/ investment commitments if practice in non-operated ventures
economic assumptions change rapidly
· Seek the views of stakeholders through direct and indirect
· Lack of partner / stakeholder alignment on decarbonisation engagement
initiatives
· 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 á · Operations in challenging regulatory and political environments · Canvass support in risk management by using both international
and in-country professional advisors
· Changes to fiscal regimes without robust stabilisation
protections · Engage directly with the relevant authorities on a regular basis
· Energy sector exposed to a wide range of political developments
which may impact adversely on operating costs, compliance and taxation · Protracted approval processes causing delays · Assess country risk profiles, trend analyses and on-
· Government reform, political instability and/or civil unrest the-ground reports by journalists / academics
· Impact of financial sanctions, export controls and other trading · Thoroughly evaluate the risks of operating in specific
restrictions on industry counterparties and sectors (in particular, sanctions
on entities or individuals arising from the continuing conflict in Ukraine and areas and assess commercial acceptability
other international conflicts)
· 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 ßà · Present in countries with below average score on the · Ensure adequate due diligence prior to on-boarding with a risk
Transparency International Corruption Index based approach, including independent "Red flags" checks
· Lack of transparent procurement and investment policies · Annual training, testing and compliance certifications
§ Reputational damage and exposure to criminal charges
· Non-compliance with Criminal Crime Offences (CCO) and/or UK by all associated persons
Bribery Act
· Increase awareness of, and ensure regular training in, the
· Corruption and human rights issues 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
(http://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 2022
$ million $ million
Short-term employee benefits 2.7 3.0
Post-employment benefits 0.1 0.1
Share-based payments 1.8 1.0
4.6 4.1
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