Last checked at 17 Apr 2020 15:30
Pharos Energy plc
("Pharos" or the "Company" or, together with its subsidiaries, the "Group")
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Annual Report & Accounts and Notice of Meeting
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The Annual Report & Accounts of the Company for the year ended 31 December 2019 and a Shareholder Circular, which includes Notice of the 2020 Annual General Meeting, are now available on the Company's website and can be accessed via www.pharos.energy.
Paper 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 above two documents, together with a Form of Proxy, 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 2019 made on 11 March 2020 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 2020 Annual General Meeting will be held on 20 May 2020 at 11.00 a.m.
In light of public health advice and following the compulsory measures imposed by the UK Government on 23 March 2020 in response to the COVID-19 pandemic, prohibiting, among other things, all non-essential travel and public gatherings of more than two people (the 'Stay at Home Measures'), the Board will be implementing the following changes to the usual AGM arrangements:
- The Company expects only one Director and another Pharos designated shareholder representative to be in attendance at the venue for quorum purposes to conduct the business of the meeting.
- No other Directors will be present in person.
- In line with the Stay at Home Measures, shareholders will not be permitted to attend the Company's AGM in person and, if they attempt to do so, will be refused entry to the meeting under the Company's Articles of Association.
- There will be no update on trading or other management statements given at the AGM although a trading and operations update will be published on the Company's website around one week before the AGM.
- The Company encourages shareholders to submit questions about the business of the meeting in advance of the meeting by email to info@pharos.energy and 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.
- Voting at the AGM will be carried out by way of a poll so that the votes cast in advance and the votes of all shareholders appointing the Chair of the Meeting as their proxy to vote on their behalf can be taken into account.
- The results of the AGM will be announced as soon as practical after it has taken place.
Shareholders wishing to vote on any of the matters of business at the AGM are therefore strongly encouraged to:
- Submit their votes (as soon as possible) in advance of the meeting through the proxy and electronic voting facilities and to appoint the Chair of the meeting as their proxy for this purpose.
- Submit any questions in connection with the business of the meeting in advance.
- Look out for any updates in connection with the arrangements for the AGM via RNS and on the Company's website.
Enquiries
Pharos Energy plc Tel: 0207 603 1515
Tony Hunter ,Company Secretary
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Notes to editors
Pharos Energy is an independent oil and gas exploration and production company with a focus on sustainable growth and returns to stakeholders, headquartered in London and listed on the London Stock Exchange.
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Pharos has production, development and exploration interests in Egypt, Israel and Vietnam.
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In Egypt, Pharos holds a 100% working interest in the El Fayum oil concession in the low-cost and highly prolific Western Desert, one of Egypt's most established and prolific hydrocarbon basins. The concession produces from 10 fields and is located 80 km south west of Cairo and close to local energy infrastructure. It is operated by Petrosilah a 50/50 JV between Pharos and Egyptian General Petroleum Corporation (EGPC). Pharos is also an operator with 100% working interest in the North Beni Suef (NBS) Concession which is located immediately south of the El Fayum concession.
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In Israel, Pharos together with Cairn Energy plc and Israel's Ratio Oil Exploration, were successful in their bid for eight blocks in the second offshore bid round in Israel. Each party has an equal working interest and Cairn is the operator.
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In Vietnam, Pharos holds a 30.5% working interest in the Te Giac Trang (TGT) Field in Block 16-1, which is operated by the Hoang Long Joint Operating Company. Block 16-1 is located in the shallow water Cuu Long Basin, offshore southern Vietnam and a 25% working interest in the Ca Ngu Vang (CVN) Field in Block 9-2, which is operated by the Hoan Vu Joint Operating Company. Block 9-2 is 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.
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Appendix
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Following the release of the Company's Preliminary Results for the Year Ended 31 December 2019 made on 11 March 2020, additional information is set out below in accordance with DTR 6.3.5R.
1) The following is extracted from page 121 of the Company's Annual Report and Accounts 2019 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 122 to 155, which have been prepared in accordance with applicable United Kingdom law and IFRS as adopted by the European Union, 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 46 to 55; 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 performance, business model and strategy.
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Approved by the Board and signed on its behalf.
Jann Brown
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Managing Director and Chief Financial Officer
10 March 2020
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2) The following description of the principal risks and uncertainties is extracted from the Risk Management Report (pages 46 to 55) of the Annual Report and Accounts 2019 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
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Strategic
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á | 1 Lack of growth due to insufficient funds to meet work programmesInability to complete further acquisitions in line with growth strategy | |
 | Causes | Risk mitigation |
 | · Reduced capital in oil and gas sector as investors review their policy on investment · Lack of opportunities (sector downturns) · Fluctuating oil prices/economic conditions · Target governance · Industry competition (higher for "good" assets) · Issues exposed by due diligence including technical risks/uncertainties, disputes · Resourcing limitations · Geopolitical risks · Inability to access suitable funding | · Focused M&A (scale & materiality) · Regular review of funding options · Proactive dialogue with banks and other providers of capital · Quality and number of advisers · Intense opportunity screening · Strong relationships/industry intelligence · Effective project management and resourcing  |
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ßà | 2 Volatility in production levels Sub-optimal well performance | |
 | Causes | Risk mitigation |
 | · 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 |
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ßà | 3 Health, Safety, Environmental and Social Risk Reputational Operational outages leading to lower production | |
 | Causes | Risk mitigation |
 | · Health, safety and environmental risks of major explosions, leaks or spills · Facing oil and gas high-risk operating conditions and HSES risks · Climate change impacts on the sector - production faces increasing risks from the impacts of climate change from extreme weather, sea level rise and water availability and the sector will need to build resilience to adapt to changing conditions · Security of workforce supply and human rights violations of workers and communities - child labour, terrorism and sabotage, social conflict and unrest · Coastal and marine ecology - impact on corals and marine biodiversity from offshore and coastal operations and tankers (spills) · Gas venting and flaring natural hazards and risks - well blow outs, localised land subsidence, land/water contamination · Non-alignment of new acquisitions' HSES practices with Pharos' corporate standards · Spread of COVID-19 virus | · Better understanding of our risks, implementing a bottom-up approach at managing risk registers and proactive mitigation plan · 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 Assessment forward-looking assessment of: o climate impacts and need to adapt to changing climate conditions over the life of the asset o regulatory developments · Emergency preparedness and spill prevention plan o Controlled venting o Control and management of pressurised oil and gas from boreholes o Use of low impact extraction chemicals where alternatives exist o Water management - securing of a sustainable water supply, recycling and reuse wastewater o Marine management plan - especially for offshore drilling · Implement early precautionary measures based on WHO guidance, restrict business travel and facilitate working from home where appropriate |
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ßà  | 4 Climate change risk Lack of capital Reputational Increased operating costs | |
 | Causes | Risk mitigation |
 | · Pressure on investors to divest/avoid fossil fuel companies/projects · Inability to find economically viable CO2e reduction solutions · Potential litigation and additional compliance obligations · Global transition to a lower carbon intensity economy which reduces oil prices and increases the risk of impairment · Increased climate regulation and disclosure · Increase in carbon taxes/decarbonisation charges · Eco-consumers are increasing, potentially causing radical/transformational shifts in consumption of fossil fuels · Climate activists pressing prominent institutions and investors to abandon fossil investments - "greening" the financial system | · Transparent reporting and participation in Carbon Disclosure Project (CDP) · Embracing the TCFD recommendations, prepare and align Pharos' growth strategy to tackle climate concerns · Embedded climate change scenarios and evaluate "strategic fit" of climate change decisions on key business operations/directions · Continuous improvement of GHG emissions management and trigger initiatives to help CO2e emissions reduction · "Making climate change risk visible" - factoring in climate hazards when investing in exploration/development projects so that corporate models embed resilience into projects |
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Financial
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á | 5 Commodity price risk Uncertainty on planning Inability to fund work programme/dividend | |
 | Causes | Risk mitigation |
 | · On-going oil market volatility · Geopolitical factors, including pressure on investors to divest/avoid fossil fuel companies/projects · Lower long-term prices tighten the margin of error for investments and increase the risk of impairment · Forecasting volatility swings are more complex as it is challenging to gauge what that means for the industry, affected communities and end users but is necessary for the future understanding of oil market dynamics · Negative cash flows & earnings degradation · Market speculation and trading in oil futures · Spread of COVID-19 virus impacting on oil prices | · Oil commodity hedging o Comply with RBL requirements o 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 risks analysis to ensure a level of robustness to downside price scenarios · Capital discipline with focus on controlling and managing costs · Discretionary spend actively managed |
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ßà  | 6 Financial discipline and governance risk Insufficient funds to finance growth plans and maintain dividends | |
 | Causes | Risk mitigation |
 | · RBL redetermination · Restrictions imposed in RBL facility limit flexibility · Equity and/or debt markets reducing investment in oil and gas activities · Financial fraud | · Strong financial discipline · Maintain robust systems, processes and application of Group's Delegation of Authority · Discretionary spend actively managed · Continued engagement with lenders · Forecasting · Extension of licence terms in Vietnam |
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Operational
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ßà  | 7 Reserves risk Future cash flows and value depend on producing our reserves | |
 | Causes | Risk mitigation |
 | · Inaccurate reserves estimates · Pharos bears the responsibility of developing these reserve estimates, but subcontracts some of this work out to independent reserve engineers · Earlier impairment triggers due to low commodity price and/or capital constraints jeopardise planned exploration/development initiatives · Inherent uncertainties in the evaluation techniques to estimate the 2P reserves | · Improve reserves reporting by adhering to three key considerations: consistency, transparency and utility · Disclose movements in reserves on a country-by-country basis · Subjective judgements are moderated · Material projects disclosed · Ongoing evaluation of projects in existing and potential new areas of interest and pursue development opportunities · Ensuring continuing adherence to industry best practice regarding technical estimates and judgements · Ensuring peer and independent verification of future production profiles and reserve recovery · RBL compliance - Vietnam reserves are audited independently by reserves consultants approved by lenders |
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á | 8 Partner alignment risk Misalignment at JV/JOC level can delay investment Adverse impact on production and cash flow | |
 | Causes | Risk mitigation |
 | · Co-venturers having divergent views on drilling and upgrade programme 2020/21 · Floating production, storage, and offloading vessel (FPSO) Tie-in Agreement ("TIA") from other party · Delay in the Full Field Development Plan | · Active participation in JOC management · Direct secondment · Agree on more equitable alignment of interest with Thang Long JOC regarding FPSO TIA · Application of internal control best practice under a procedural framework · 2020 TGT work programme agreed in principle and preliminary preparation of bid packages |
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á | 9 Cyber risk Major cyber security breach may result in loss of key confidential data Unavailability of key systems | |
 | Causes | Risk mitigation |
 | · Sophistication and frequency of cyber attacks increasing · Heavy reliance on and disruption to critical business systems · Infiltration of spam emails corrupting our systems | · Offsite installation of back-up system and Business Recovery Plan in place · Cloud back-up solutions · Prevention and detection of cyber threats via a programme of effective continuous monitoring · Plan for staged integration (new acquisition) and upgrade of IT systems |
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ßà  | 10 Human resource risk Good skilled people are essential to ensure success | |
 | Causes | Risk mitigation |
 | · Failure to recruit and retain high calibre · personnel to deliver on and implement growth strategy · Challenges in the recruitment & integration of additional technical expertise for the new acquisition · High costs for recruiting experienced workforce | · Remuneration Committee retains independent advisers to test the competitiveness of compensation packages for key employees · Ongoing succession planning · Maintain a competitive remuneration mix regarding incorporating bonus, long-term incentive and share option plans · Build and use people networks in each country and advertise vacancies in these networks |
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Reputational
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á | 11 Sub-optimal capital allocation Adverse reaction from current / future stakeholders Investment decisions based on realistic/achievable economic assumptions | |
 | Causes | Risk mitigation |
 | · Scarcity of capital for investment projects · Investment decisions are guided by economic analyses based on key assumptions which may differ significantly in a volatile macroeconomic environment · Pressure to invest and produce growth and returns in the short term to maintain dividend payments · Relentless focus on better returns · Inability to "switch-off" drilling / investment commitments if economic assumptions change rapidly | · Carry out robust economic analyses based on opportunities high-grading to support capital allocation · Key KPIs such as NPV, IRR and payback used to compare across many project scenarios · Rig count investment scenarios are stress-tested against a range of Brent oil price · Non-operated ventures - Pharos always seeks to maximise its influence to promote best practice · Obtaining the views of its stakeholders through direct and indirect engagement · Maintain a balanced investment portfolio which allows a degree of resilience in adjusting short-term investment commitments |
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á | 12 Political and regional risk Energy sector exposed to a wide range of political developments which may impact adversely on operating costs, compliance and taxation | |
 | Causes | Risk mitigation |
 | · Operations in challenging regulatory and political environments · Fiscal regimes can be subject to sudden change · Approval processes can be protracted causing delays · Government reform, political instability, civil unrest | · Canvass support in risk management by using both international and in-country professional advisers · 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 · Buy political risk insurance · All operations are located outside of the EU and USD is the main currency of our business |
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ßà  | 13 Business conduct and bribery Reputational damage and exposure to criminal charges | |
 | Causes | Risk mitigation |
 | · Present in countries with below average score on the Transparency International Corruption Index · Lack of transparent procurement and investment policies · Compliance with Criminal Crime Offences (CCO) and UK Bribery Act · Corruption, human rights issues | · Ensure adequate due diligence prior to on-boarding with a risk based approach, including independent "Red Flags" checks · Annual training and compliance certifications by all associated persons · Increase awareness of Pharos' Anti-Bribery and Corruption ("ABC") policies for all employees and associated persons · Gifts and Hospitality declaration · Whistleblowing facility in place · CCO risk assessment and ongoing implementation of adequate procedures to prevent facilitation of tax evasion across all operations · Adhere to the principles of the Extractive Industries Transparency Initiative |
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3) The following is extracted from Note 35 to the Financial Statements (page 154) of the Annual Report and Accounts 2019 at www.pharos.energy.Â
RELATED PARTY TRANSACTIONS
During the year, the Company recorded a net cost of $0.2m (2018: net cost of $0.6m) 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 96 to 117.
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 | 2019 $ million | 2018 $ million |
Short-term employee benefits | 4.8 | 5.9 |
Post-employment benefits | 0.3 | 0.3 |
Share-based payments | 2.8 | 1.5 |
 | 7.9 | 7.7 |
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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.
Under the terms of an acquisition approved by shareholders in 1999, the Company and its Investor Group, including Quantic group of companies, of which Mr Rui de Sousa is a 50% beneficial interest holder, jointly participated in certain regions in which the Investor Group utilised its long established industry and government relationships to negotiate and secure commercial rights in oil and gas projects. In the 2004 Annual Report and Accounts the form of participation to be utilised was set out to be through equity shareholdings in which the Investor Group holds a non-controlling interest in special purpose entities created to hold such projects. The shareholding terms were modelled after the Vietnam arrangement which was negotiated with third parties. The non-controlling holdings by Quantic group of companies in the subsidiary undertakings, which principally affected the profits or net assets of the Group, are shown in Note 17. The Group has entered into a consulting agreement, which is terminable by either party on 30 days' written notice, wherein Quantic Limited, which is part of the Quantic group companies, is entitled to a consulting fee in the amount of $50,000 per month in respect of such services as are required to review, assess and progress the realisation of oil and gas exploration and production opportunities in certain areas. As of February 2019, the consulting agreement with Pharos and Quantic has been terminated and no further consulting fees will be paid.
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END
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