ENQUEST PLC
ANNUAL REPORT AND ACCOUNTS 2022
Providing creative
solutions through
the energy transition
ENQUEST PLC ANNUAL REPORT AND ACCOUNTS 2022
CO
2
storage
Green hydrogen
Electrification
Repurposing
Welcome
Upstream
Responsibly extracting existing oil and
gas resources through established
infrastructure while minimising
emissions remains our core business.
For more, see Page 12
Strategic Report
02 Highlights
03 Key performance indicators
04
Our purpose, strategy, Values and
business model
06 Chairman’s statement
08 Chief Executive’s report
12
Operational review
18
Oil and gas reserves and resources
19
Hydrocarbon assets
20 Financial review
27
Group non-financial information
statement
28
Environmental, Social and Governance
30 Environmental
34
Social: Health and safety
36 Social: Community
38 Social: Our people
40 Governance: Risks and uncertainties
52 Governance: Business conduct
53
Governance: Task Force on Climate-
related Financial Disclosures
62 Governance: Stakeholder
engagement
Corporate Governance
65 Executive Committee
66 Board of Directors
68 Chairman’s letter
70 Corporate governance statement
78 Audit Committee report
85 Directors’ Remuneration Report
103 Safety, Sustainability and
Risk Committee report
105 Technical and Reserves
Committee report
106 Directors’ report
Financial Statements
111
Statement of Directors’
Responsibilities for the
Group Financial Statements
112 Independent auditor’s report
to the members of EnQuest PLC
124 Group Income Statement
125 Group Balance Sheet
126 Group Statement of Changes in Equity
127 Group Statement of Cash Flows
128 Notes to the Group Financial Statements
168 Statement of Directors’ Responsibilities
for the Parent Company Financial
Statements
169 Company Balance Sheet
170 Company Statement of Changes
in Equity
171
Notes to the Financial Statements
175 Glossary - Non-GAAP Measures
179 Company information
Infrastructure
and New Energy
Maintaining high-quality services at the
lowest cost and transforming strategically
advantaged existing infrastructure into
a hub for renewable energy.
For more, see Page 14
01
Late-life
management
Post-cessation of
production operations
Project and well
P&A delivery
Minimising emissions
and maximising reuse
Cost control and
capital discipline
Production optimisation,
asset development
and growth
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2022
The
energy
transition
EnQuest is well positioned
to play an important role
in the energy transition.
It will do so by responsibly
optimising production,
repurposing existing
infrastructure, delivering
a strong decommissioning
performance and
progressing new energy and
decarbonisation opportunities.
Decommissioning
Managing end-of-life production and
delivering safe, cost-efficient and
low-carbon decommissioning
For more, see Page 16
02
Highlights
Strong free cash flow
generation driving
continued debt reduction.
Production in the year increased
by 6.4% versus 2021, reflecting a full
year’s contribution from Golden
Eagle following its acquisition in
October 2021, good uptime across
the portfolio and the successful
execution of well programmes
offsetting natural declines.
The Group’s adjusted EBITDA
increased 31.8% to $979.1 million,
primarily reflecting materially higher
revenue. Profit before tax decreased
by 42.3% to $203.2 million, primarily
driven by non-cash impacts
of impairments and fair value
changes in the Magnus contingent
consideration liability. The Group
reported a basic loss per share of
2.2 pence (2021: profit per share of
21.7 pence), primarily reflecting the
impact of the initial recognition of
a deferred tax liability associated
with the UK Energy Profits Levy (‘EPL’).
Strong production performance,
focused cost control and the
supportive commodity price
environment underpinned record
free cash flow generation, which
enabled the Group to lower debt
and undertake a comprehensive
refinancing, rebalancing its capital
structure between secured and
unsecured debt and extending
maturities until 2027. EnQuest net
debt was reduced in the year from
$1,222.0 million to $717.1 million.
The UK Energy Profits Levy impacts
cash flow generation and the
Group’s capital allocation strategy.
EnQuest remains focused on
deleveraging and intends to
prioritise organic investments
with quick paybacks and
accretive M&A opportunities
that allow it to leverage its
operating capability and tax loss
position, with shareholder returns
expected to follow in the future.
ALTERNATIVE PERFORMANCE MEASURES
1
Operating costs
($ million)
396.5
+23.5%
Adjusted EBITDA
($ million)
979.1
+31.8%
Free cash flow
($ million)
518.9
+30.8%
Read more in the Financial review
See Page 20
STATUTORY PERFORMANCE MEASURES
Revenue and other operating income
($ million)
1,853.6
+46.4%
2021: 1,265.8
Profit/(loss) before tax
($ million)
203.2
-42.3%
2021: 352.4
Basic earnings/(loss) per share
(cents)
(
2.2
)
n/a
2021: 21.7
Net cash flow from operating activities
($ million)
931.6
+38.2%
2021: 674.1
Net assets/(liabilities)
($ million)
456.6
-12.3%
2021: 520.8
Read more in the Financial review
See Page 20
Note above:
1
See reconciliation of alternative performance measures within the ‘Glossary – Non-GAAP measures’
starting on page 175.
Notes opposite:
1
Lost Time Incident frequency represents the number of incidents per million exposure hours worked
(based on 12 hours for offshore and eight hours for onshore)
2
EnQuest has updated its reporting of proven and probable reserves to be on an equity working interest
basis for alignment and consistency with its peer group, having previously reported on an entitlement
basis. Previously, 2021 was reported as 194 MMboe with 2020 reported as 189 MMboe
3
See reconciliation of alternative performance measures within the ‘Glossary – Non-GAAP measures’
starting on page 175
4
Prior periods have been restated to reflect alignment of reporting methodologies for independent
verification of 2022 data in Malaysia. Previously, 2021 was reported as 1,145.3 ktCO
2
e and 2020 as
1,342.8 ktCO
2
e
03
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2022
Key performance indicators
A: HSEA
Group Lost Time Incident frequency rate
1
+171.4
%
D: Cash generated by operations
$ million
+35.6
%
G: Net 2P reserves
2,
3
MMboe
-7.3
%
2021
0.21
2022
0.57
2020
0.22
2021
756.9
2022
1,026.1
2020
567.2
2021
205
2022
190
2020
200
In occupational safety, the Group’s
excellent track record with respect to Lost
Time Incident (‘LTI’) performance was
challenged but remained in the upper
quartile. The increase in 2022 primarily
occurred through routine activities and the
Group has taken steps to re-emphasise
the need for increased focus on situational
awareness and dynamic risk assessment.
Strong cash generated by operations
reflected higher adjusted EBITDA, driven by
the combination of increased production,
supportive commodity prices and
effective cost control.
During the year, the Group produced
c.17 MMboe of its year-end 2021 2P
reserves base. Other revisions and
transfers from 2C resources added
a net c.2 MMboe to 2P reserves.
B: Net production
Boepd
+6.4
%
E: Cash capital and abandonment expense
3
$ million
+48.6
%
H: Scope 1 and 2 emissions
4
tCO
2
e
-9.6%
2021
44,415
2022
47,259
2020
59,116
2021
117.6
2022
174.8
2020
173.0
2021
1,164.1
2022
1,051.9
2020
1,361.0
The increase in production was primarily
driven by the full-year contribution
from Golden Eagle and improved
performances at Magnus and PM8/Seligi,
reflecting successful well programmes,
while production at Kraken was at the
top end of its guidance range.
Increased cash capital and abandonment
expense reflected significant production
enhancing well programmes at Magnus,
PM8/Seligi and Golden Eagle, in addition
to well plug and abandonment
decommissioning activities at Heather/
Broom, and Thistle/Deveron.
Total CO
2
e emissions were lower, reflecting
lower emissions in Malaysia primarily as
a result of sustained periods of single
compressor operations.
C: Unit opex
3
$/Boe
+10.7
%
F: EnQuest net debt
3
$ million
-41.3
%
2021
20.5
2022
22.7
2020
15.2
2021
1,222.0
2022
717.1
2020
1,279.7
Average unit operating costs were
primarily impacted by the Golden Eagle
acquisition and higher fuel and emission
trading allowance costs due to higher
market prices, partially offset by increased
production and the weakening of Sterling
against the US Dollar.
Strong free cash flow generation was
utilised to deleverage the Group’s
balance sheet. During 2022, the Group
refinanced its debt, rebalancing its
capital structure between secured
and unsecured debt and extending
maturities until 2027.
04
Our purpose, strategy, Values and business model
An integrated
energy company
EnQuest is focused on delivering energy to meet
today’s and tomorrow’s needs while pursuing
decarbonisation opportunities.
1
Our purpose
Our purpose is to provide creative
solutions through the energy
transition.
We harness the creative energy
from all our people to focus on
SAFE Results and providing the
energy society needs while
reducing our environmental
impact as we all transition to
a cleaner world.
3
Our Values
SAFE Results
Working Collaboratively
Respect & Openness
Growth & Learning
Driving a Focused Business
2
Our strategic
vision
To be the partner of choice for the
responsible management of
existing energy assets, applying our
core capabilities to create value
through the transition.
05
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2022
5
Our strategic
focus
Deliver, De-Lever
and Grow
Managing assets to optimise
production while exercising
cost control and capital
discipline
Repurposing existing
infrastructure to deliver new
energy and decarbonisation
opportunities at scale
Safely and efficiently executing
decommissioning activities
Continuing to reduce debt
Pursuing selective,
capability-led and
value-accretive acquisitions
Shareholder returns
UPSTREAM
We responsibly extract
existing oil and gas resources
through established
infrastructure while
minimising emissions.
For more, see Page 14
For more, see Page 12
What we do
4
DECOMMISSIONING
We are committed to delivering
decommissioning programmes
responsibly, minimising emissions
and maximising the reuse of
recovered materials.
For more, see Page 16
INFRASTRUCTURE AND
NEW ENERGY
We are focused on safe and reliable
operations while repurposing
infrastructure to progress renewable
energy and decarbonisation
opportunities at scale.
06
Chairman’s statement
Well set
for a global,
just energy
transition
Gareth Penny
Chairman
Chairman Gareth Penny explains what
excites him about EnQuest’s future
Q: What attracted you to the role of
Chairman of EnQuest PLC?
A:
EnQuest has made great progress
over the last few years in delivering
on its strategic priorities. Strong
production performance and a
focus on cost control and capital
discipline, combined with creative
and timely acquisitions, have enabled
the Group to generate material
cash flows, even during the period
of extremely depressed oil prices as
the world navigated the COVID-19
pandemic. More recently, despite a
challenging macro backdrop fuelled
by a combination of the Russian
invasion of Ukraine, uncertainty over
global post-pandemic recovery,
rising global inflation and, in the UK
at least, changes in government
leadership and the fiscal regime
through the introduction of the
Energy Profits Levy (‘EPL’), the Group
successfully refinanced its debt
facilities and extended their maturities.
At the same time, the Group has
continued to enhance its strategy
and business model to meet society’s
energy needs of today and tomorrow.
While the Upstream business remains
a core focus given its cash generating
capability, the Group has made
considerable progress in a short
space of time in the Infrastructure
and New Energy business to deliver
credible and material opportunities
in new energy and decarbonisation,
primarily through the repurposing of
existing infrastructure. The Company
also continues to demonstrate its
capability in decommissioning.
This enhanced business model
is underpinned by several
complementary, transferable,
proven capabilities, and our drive
to support energy security, supply
and affordability, jobs and the
communities in which we operate
means we have the chance to
establish EnQuest as a true just
and sustainable energy transition
company. On behalf of the Board, I
would like to thank our teams for their
commitment and professionalism
in delivering the above outcomes. It
is the combination of a proven track
record of strong operational and
financial performance, resilience,
creativity and adaptability that
makes EnQuest a really attractive
company to be a part of.
07
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2022
“It is the combination of a proven track
record of strong operational and financial
performance, resilience, creativity and
adaptability that makes EnQuest a really
attractive company to be a part of.”
Q: What do you see as core strengths
of the Company?
A:
EnQuest is a proven operator of
maturing assets, safely and responsibly
managing natural resources and
extracting additional value that
others may have left behind. The
Group has long-life assets which have
opportunities to generate value for the
Company’s stakeholders that can be
matured using our distinct capabilities
in drilling and subsea tie-backs. These
are transferable skills that can be
used in the Group’s Decommissioning
business, where we are focused on
safe, efficient and environmentally
responsible operations.
The Group’s strong track record of
delivering accretive acquisitions
through innovative transaction
structures places the Company in
a good position as other industry
participants reconsider their
appetite for continued investment
in the UK North Sea following the
introduction of the EPL. EnQuest’s
business model is proven to capture
additional value through effective
late-life asset management across
Upstream and Decommissioning
and the utilisation of the Group’s
significant UK tax loss position.
Undoubtedly, the Group’s Infrastructure
and New Energy business provides the
Group with a bright future. Many of the
Group’s distinct capabilities that drive
its Upstream and Decommissioning
businesses can be equally applied to
renewable energy and decarbonisation
workstreams. The advantaged position
the Group has at the Sullom Voe Terminal
provides EnQuest with a differentiated
proposition that I am confident will
underpin success in the future.
Ultimately, people are any
company’s strongest asset and,
even though I have only been with
the Company a short time, I can see
our people have drive, commitment,
professionalism and creativity.
Q: 2022 saw a year of great challenge
and change, both globally and at
EnQuest. What are the key risks,
challenges and opportunities for
the organisation?
A:
Undoubtedly, 2022 was a
challenging year, but with challenge
comes opportunity and it is
companies like EnQuest that will find
ways to capitalise on them. For
example, the EPL will impact the
Group’s cash generating capability
and, consequently, its capital
allocation decisions. However, with
a significant tax loss position, the
value of assets in EnQuest’s hands
far outweighs that which could be
generated in the hands of other
organisations. As such, I am confident
there will be further opportunities
for the Company as majors and
other operators continue to shift
their focus from the UK. We will also
continue to assess appropriate
M&A opportunities in other
geographies and look at balancing
the portfolio with more gas assets.
Clearly, the oil price remains a core
risk to the business and it has proved
to be somewhat volatile in recent
years, reflecting the macroeconomic
backdrop. However, years of industry-
wide underinvestment, a robust and
improved post-pandemic demand
outlook, and increasing recognition of
the part the oil and gas industry will
play in a responsible transition to a
lower-carbon society, mean EnQuest is
well positioned to continue to generate
value over an extended period of time
from its integrated business model.
Environmental, social and governance
(‘ESG’) considerations, and climate
change in particular, have remained
high on our agenda. We are committed
to playing our part in the drive to
net zero and, if we are successful
in our carbon capture and storage
opportunity, we will go materially
beyond net zero. At a Board level,
we have agreed to rename the
Safety, Climate and Risk Committee
the Safety, Sustainability and Risk
Committee, reflecting the importance
we place on long-term safety and
sustainability, particularly as we play
our part in a just energy transition.
Q: What is your main focus for 2023?
A:
As part of my induction, I have
been meeting with many of our
management teams and employees
and have been impressed by those
I have met. I have also had the
opportunity to meet with several
of the Group’s major institutional
shareholders and thank them for
sharing their views on the Company.
I am excited to be working with
Amjad and Salman on charting
the path of new energy for EnQuest
and assisting in our strategic
goal of repurposing assets to
support the just energy transition.
I remain committed to supporting
management in its pursuit of this
transformative goal with continued
open and transparent engagement.
Q: What would success look like for
you in your time as Chairman?
A:
Clearly we need to continue to
operate in a safe, environmentally
friendly and sustainable manner. In the
near term, we must continue to focus
on the delivery of our financial and
operational targets as this will enable
further reductions in the Group’s debt.
Such delivery will provide the platform
for the Group to pursue further organic
and inorganic value-enhancing
opportunities. In the medium
term, I want to see the Company
capitalise on its proven capabilities
in Upstream and Decommissioning
and strategically-advantaged
position in respect of new energy
and decarbonisation ambitions.
The Company is led by a strong
and experienced management
team, supported by a diverse and
knowledgeable Board, and has
excellent people who, collectively,
are focused on delivering on
EnQuest’s energy transition strategy.
I am excited about our future.
08
Chief Executive’s report
Continuing
to deliver,
de-lever
and grow
Amjad Bseisu
Chief Executive
All figures quoted are in US Dollars and relate to
Business performance unless otherwise stated.
Overview
2022 saw the Group once again deliver
a strong operational and financial
performance. Production was up 6.4%,
free cash flows increased to a record
$518.9 million and EnQuest net debt
was reduced to $717.1 million, its lowest
level since 2014. We also undertook a
comprehensive refinancing of our debt
facilities, extending maturities until 2027.
These were significant achievements
given the backdrop of volatile
markets and several momentous
changes in the macro environment,
as set out later in this report.
Since we set our strategic priorities
of ‘deliver, de-lever and grow’ at the
end of 2018, we have progressed on
all fronts. We have delivered strong
production performance, controlled
costs and exercised capital discipline,
focusing on the most value-accretive
opportunities. This in turn has allowed
us to generate material free cash
flows, even when the oil price was
depressed during the COVID-19
pandemic, reduce EnQuest net debt
by more than $1.0 billion and deliver
an EnQuest net debt to EBITDA ratio
of just 0.7x at the end of 2022.
From a growth perspective, our
acquisition of the Golden Eagle
asset contributed significantly to our
cash generation in 2022, while the
low-cost acquisitions of material
resources at Bressay and Bentley
have provided us with future near-
field development opportunities
that can utilise our heavy oil
expertise and differential capability
in subsea drilling and tie-backs.
Having established our Infrastructure
and New Energy business in 2021,
we have now identified and are
maturing three discrete and scalable
decarbonisation opportunities of
carbon capture and storage (‘CCS’),
electrification, and green hydrogen
and derivative production. Our position
at the Sullom Voe Terminal (‘SVT’)
provides a strategically advantaged,
sustainable and tangible basis upon
which to further progress each of
these opportunities. At the same
time, we have materially reduced our
absolute Scope 1 and 2 emissions,
with UK Scope 1 and 2 emissions c.43%
lower than the 2018 benchmark. This
is significantly ahead of the UK’s
North Sea Transition Deal targets.
We have also cemented our position
as a leading decommissioning
partner, delivering one of the most
09
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2022
“Our business model spans the energy transition spectrum.
We will contribute to a just and sustainable transition by
responsibly managing existing resources, repurposing assets
and providing long-term opportunities for our people.”
productive campaigns seen in the
UK North Sea by decommissioning
a total of 24 wells at Heather
and Thistle last year and being
recognised by regulators in
both the UK and Malaysia for our
decommissioning performance.
Our enhanced business model spans
the energy transition spectrum,
ensuring the transition is managed
in a just and sustainable manner
over time. By responsibly managing
existing assets, we will continue to
provide the production the world
needs today while advancing our
new energy and decarbonisation
opportunity set to support a future
lower-carbon energy system, before
safely decommissioning those assets.
Our business model is underpinned by
several complementary, transferable,
proven capabilities and provides long-
term opportunities for our people.
Market conditions
Commodity prices
During 2022, global markets were
impacted by a variety of events. Towards
the end of 2021 and into early 2022, we
saw oil prices recover to pre-pandemic
levels as global markets began to reopen
and demand for oil products increased.
In the lead-up to and following Russia’s
invasion of Ukraine the oil price quickly
escalated, with spot prices peaking
at more than $130/bbl in early March.
Oil prices remained elevated for the
summer, driven in part by measured
increases in OPEC+ supply, uncertainty
over the impact of sanctions against
Russian oil supplies and continued
capital discipline across the industry.
However, prices began to decline later
in the year as several COVID-19 related
restrictions remained in place in China,
the impact of sanctions played through
and global inflation and recessionary
pressures mounted.
By the end of 2022, oil prices had reverted
back towards those seen at the start of
the year. Gas prices in Europe and the UK
saw significant spikes during the year.
Day-Ahead prices peaked at over £5/
therm in August, reflecting restricted
pipeline gas supplies from Russia and
strong competition for liquefied natural
gas to meet demand. Close to the
end of the year, gas prices reduced
significantly as demand softened with
milder weather across Europe resulting
in better-than-expected storage levels.
Fiscal uncertainty
In May 2022, the UK Government
introduced a windfall tax, the Energy
Profits Levy (‘EPL’), on oil and gas
producers. The tax was to take effect
immediately at a rate of 25% and
was accompanied by investment
incentives and a commitment to
remove the tax at the point in which
oil prices returned to more normal
levels or by December 2025, whichever
was earlier. Four months later, after
a change in prime minister, a mini-
budget was announced aiming
to protect UK citizens from the
‘cost-of-living crisis’ and stimulate
the UK economy. However, it was
widely criticised and led to financial
instability, with Sterling weakening
appreciably against the US Dollar. In
October, almost all of the mini-budget
policies were removed, providing
some stability to financial markets,
with a second change in leadership
following shortly afterwards. In the
November autumn statement, the
new leadership team announced the
EPL would be amended and extended,
with a higher rate of 35% from
1 January 2023, an end date of March
2028 and the removal of any price
floor, which consequently impacted
access to capital across the sector.
Inflation
The combination of increasing global
activity after lockdown restrictions
were eased, supply disruptions and
higher food and energy prices saw
increases in inflation rates to levels
not seen for decades. The Bank of
England and other central banks
sought to limit inflation by increasing
interest rates, with the rate in the
UK raised to its highest level in 14
years during December 2022.
Clearly, such volatility imposes
significant challenges on any
business. However, companies like
EnQuest that demonstrate resilience,
creativity and adaptability find
opportunities in such circumstances.
For example, the introduction of
the EPL has resulted in a number of
industry participants accelerating
their shift in focus away from the UK
North Sea. Our significant tax loss
position and the impact of the EPL on
marginal tax rates means if assets
were owned by EnQuest their relative
value could be a multiple of that in
the hands of existing owners. As such,
I am confident there will be further
M&A opportunities for us to pursue.
Operational performance
EnQuest’s average production
increased by 6.4% to 47,259 Boepd,
primarily driven by a full year’s
contribution from Golden Eagle
following completion of the acquisition
on 22 October 2021, along with improved
performances at Magnus and PM8/
Seligi reflecting the successful execution
of extensive well programmes during
the year. The well programme at
Magnus included the successful
completion of the North West Magnus
well, which allowed for additional gas
export capacity, low-cost perforation
work and three wells being returned to
service, with simultaneous workover
10
Chief Executive’s report
continued
“Our capabilities position us well to be the partner of
choice for the responsible management of assets.”
EnQuest operates the Sullom Voe
Terminal on Shetland, which will be the
focus of the Company’s decarbonisation
and new energy projects
Production
Boepd
47,259
Free cash flow
$ million
518.9
EnQuest net debt
$ million
717.1
and drilling activities undertaken. The
North West Magnus well, which is the
longest reservoir section drilled in the
North Sea this century at 1,914 metres
and represents the longest liner ever
run at Magnus, contributed strongly
to production of both oil and gas in
the fourth quarter. In Malaysia, the
infill drilling campaign included the
Group’s first three horizontal wells at
PM8/Seligi, while the four-well workover
programme was delivered on budget
and ahead of schedule. In addition, we
successfully executed a three-well plug
and abandonment (‘P&A’) campaign
at PM8/Seligi ahead of schedule and
below budget, for which the team
were deservedly recognised by the
regulator for commitment to safety
and the use of new technology. Kraken
continued to perform well, delivering
top-quartile production efficiency
(‘PE’) of 93% and production at the
top end of its guidance range. During
the fourth quarter of 2022, Kraken
passed the milestone of 60 MMbbls
(gross) of oil produced since start-up
in mid-2017, and has been one of the
Group’s best performing assets for a
number of years now. While production
and drilling performance of the non-
operated Golden Eagle asset were
below expectations, the asset still
contributed strongly to the Group’s
cash generation and by the end of
2022 had fully paid back the initial
cash acquisition costs. That represents
a payback period of c.14 months.
During 2022, we produced c.17 MMboe
of our year-end 2021 2P reserves
base. This reduction in 2P reserves
was partially offset by transfers from
2C resources, net of other technical
revisions. The Group also changed its
reporting of Malaysian 2P reserves to
an equity working interest basis to align
with peer reporting, having previously
adopted an entitlement interest basis.
This change added c.11 MMboe to the
year-end 2022 balance (see note 7 on
page 18). As such, 2P reserves at the end
of the year were around 190 MMboe,
down from c.194 MMboe reported at
the end of 2021 (c.205 MMboe on a
comparative working interest basis). We
continue to have material 2C resources
of around 393 MMboe, with Bressay
and Bentley each holding more than
100 MMboe of net 2C resources, while
Magnus and Kraken in the UK and PM8/
Seligi and PM409 offshore Malaysia
also hold material 2C resources.
Our Infrastructure and New Energy
business has moved forward at pace
this year. We have developed three
credible and scalable new energy and
decarbonisation opportunities, built
on the unique and tangible strategic
advantages of SVT, while continuing to
deliver top-quartile operational and HSE
performance at the terminal for existing
users of the site. Securing an exclusivity
agreement with the Shetland Islands
Council provides us with a platform
from which to connect potential
strategic partners and piece together
the component parts of each of the
opportunities we have. We are hopeful
of success in the next stage of the
process as we await the outcome of our
application for offshore CCS licences.
2022 was a year in which our UK team
demonstrated, and were recognised
for, decommissioning excellence.
Our extensive UK decommissioning
work programme saw the successful
execution of 24 well P&As across
the Heather and Thistle fields and
we remain on track for our targeted
disembarkation dates at both platforms,
with topside removal work planned for
around the middle of the decade. We
have awarded the heavy lift contract
for the Heather topsides and are at
an advanced stage on the Thistle
topside removal contract award.
11
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2022
Having only been established in
2020, it was pleasing to see the
decommissioning team recognised
for excellence by Offshore Energies
UK for its work, executed in 2021,
on the Northern Producer off-
station project at the Dons field.
Financial performance
The Group’s adjusted EBITDA and
statutory gross profit increased by 31.8%
to $979.1 million and 82.3% to $652.9
million, respectively, reflecting higher
realised oil prices and production.
Operating costs for the year of $396.5
million were higher than 2021, including
the full-year impact of Golden Eagle,
higher market price driven costs and
lower lease charter credits, reflecting
continued high uptime at Kraken. Unit
operating costs increased to $22.7/
Boe, primarily reflecting the impacts on
costs noted above. Cash generated by
operations increased to $1,026.1 million,
up by 35.6% compared to 2021, with free
cash flow generation of $518.9 million.
This strong financial and operating
performance during the year
underpinned delivery of our
comprehensive refinancing of each of
our three debt facilities in what were
extremely challenged financial markets.
With the introduction of the EPL
during the year, the Group assessed
the carrying value of its assets as at
31 December 2022. The net impact of
the EPL, changes in asset profiles and
higher forecast oil prices resulted in
the Group recording a pre-tax non-
cash impairment charge of $81.0
million. In January, the Group’s RBL
redetermination was undertaken
and included the increase in EPL rate
to 35%, its extension of duration until
2028 and removal of the windfall tax
price floor. This redetermination has
resulted in a reduction in the funds
available in the RBL facility from
$500.0 million to c.$339.0 million.
The Group has made repayments
totalling $118.0 million in the first
quarter of 2023, ensuring it stays
ahead of the revised capacity limits.
Environmental, Social and
Governance
The health, safety and wellbeing of our
employees remains our top priority. In
2022, we achieved an upper quartile
Lost Time Incident (‘LTI’) frequency
1
rate. However, there was an increase
in the number of LTIs from 2021 for
which intervention was undertaken,
emphasising increased focus on
situational awareness and dynamic
risk assessment. During 2022, our
team developed a fully integrated
HSEA Continuous Improvement Plan
(‘CIP’) to drive enhanced performance
in 2023 and beyond. This CIP is fully
aligned to the Group’s HSEA Policy and
has been implemented across the
North Sea and Malaysia operations.
As outlined earlier, we have made
excellent progress in reducing
absolute Scope 1 and 2 emissions
during the year with the Group’s
CO
2
equivalent emissions reduced
by c.23% since 2020 and the UK’s
emissions down by c.43% since 2018,
reflecting lower flaring and lower
fuel gas and diesel usage. This
progress is significantly ahead of
the Group’s targeted reductions and
those set by the UK Government’s
North Sea Transition Deal. At the
same time, we continue to optimise
sales of Kraken cargoes directly to
the shipping fuel market, avoiding
emissions related to refining and
helping reduce sulphur emissions.
This year saw a number of changes
to our Board, with Martin Houston,
Jonathan Swinney and Philip Holland
stepping down, to be succeeded by
Gareth Penny (Chairman), Salman
Malik (Chief Financial Officer) and
Rani Koya (Non-Executive Director),
respectively. I would like to thank
Martin, Jonathan and Philip for their
contributions, and I look forward to
working with Gareth, Salman and
Rani as we execute on our integrated
energy strategy. Following these
changes, the EnQuest Board has
33% female representation, which
shows good progress towards the
FTSE Women Leaders Review target
of 40% and remains ahead of the
Parker Review target with respect to
minority ethnic representation, with
four minority ethnic Board members.
1
Lost Time Incident frequency represents the
number of incidents per million exposure hours
worked (based on 12 hours for offshore and eight
hours for onshore)
2023 performance and outlook
Production performance to the end of
March was around 47,800 Boepd. Our
full-year net production guidance of
between 42,000 and 46,000 Boepd
includes the impacts from drilling
campaigns at Magnus and Golden
Eagle and required maintenance
activities at Kraken, Magnus and
the Greater Kittiwake Area.
Operating costs are expected
to be approximately $425.0
million, while capital expenditure
is expected to be around $160.0
million, with decommissioning
expenditure expected to total
approximately $60.0 million.
Longer-term development
Over the last few years, we have
enhanced our strategy and business
model with the aim of meeting society’s
energy needs of today and tomorrow.
The Upstream business is focused on
responsibly optimising production
to drive cash generation for further
deleveraging, selective organic and
inorganic investments and returns to
shareholders. Our Infrastructure and
New Energy business is assessing
repurposing opportunities which
leverage existing infrastructure to build
scalable businesses in each of CCS,
electrification and hydrogen production,
supporting decarbonisation at levels
which could take the Company beyond
net zero emissions. In Decommissioning,
we manage end of field life and post-
cessation of production operations to
deliver safe and efficient execution of
decommissioning work programmes
in a responsible manner.
This collective offering, alongside
our advantaged tax position in the
UK, enhances our M&A credentials
as a responsible owner and operator
of existing assets and infrastructure
as we transition to a lower-carbon
energy system, offering our people
long-term opportunities.
We look forward to delivering on our
strategic aims as we transition.
Production guidance
Boepd
42,000–
46,000
12
Operational review
Upstream operations
2022 Group performance summary
Production of 47,259 Boepd reflected
improved performances at Magnus
and at PM8/Seligi, continued strong
performance at Kraken and the
impact of a full year of contribution
from Golden Eagle; this was partially
offset by the expected natural
declines across the portfolio. The
Group executed significant well
programmes during 2022 following the
necessary pause in drilling during the
low commodity price environments
experienced during 2020 and 2021.
UK Upstream operations
1
Daily average net production
(Boepd)
40,801
+4%
(2021: 39,220)
1
Includes Magnus, Kraken, Golden Eagle, the
Greater Kittiwake Area including Scolty/Crathes
and Alba
Magnus
2022 performance summary
2022 production of 12,641 Boepd was
6.5% higher than the 2021 figure of
11,870 Boepd, with production efficiency
for the year at 66%. With simultaneous
workover and drilling activities
undertaken, a key success at Magnus
was the completion of the North West
Magnus well and its associated gas
production, while perforation work at
a second target well was successful
in adding incremental volumes at
significantly lower cost than infill
drilling. The North West Magnus well,
which is the longest reservoir section
drilled in the North Sea this century
at 1,914 metres and represents the
longest liner ever run at Magnus,
contributed strongly to production of
both oil and gas in the fourth quarter.
In remedying well integrity issues
encountered during the first half of
the year, the Group’s well intervention
programme returned two wells to
service in the first half of 2022, with
production from a third producer
reinstated during the fourth quarter.
The planned annual shutdown was
completed during the third quarter
and all major scopes were executed,
with the primary focus on compressor
maintenance activities. Following
generator refurbishment work, the
asset power generation unit has been
performing reliably since February 2022,
raising confidence that previous topside
issues have been largely mitigated
and enabling Magnus to facilitate
consistent gas supply to the UK.
2023 outlook
A shutdown of around three weeks is
planned in the third quarter to complete
scheduled safety-critical activities, while
further asset integrity maintenance
and plant improvement opportunities
will continue to be assessed and
implemented throughout the year in
order to reduce platform vulnerability. In
addition, the Group plans to implement
a variety of permanent solution repair
methods to wells impacted by the
P-seal design, which has caused
well integrity issues in recent years.
It is anticipated that three wells will
be drilled in 2023, including a water
injector to provide pressure support
to the North West Magnus well,
with the expectation that Magnus
production will be higher than 2022.
With 2C resources of c.35 MMboe,
Magnus offers the Group significant
low-cost, quick payback drilling
opportunities in the medium term.
Kraken
2022 performance summary
Average gross production was at the
top end of the Group’s guidance range
at 26,091 Boepd gross (18,394 Boepd
net). Overall subsurface and well
performance was good with aggregate
water cut evolution remaining in line with
expectations. The Floating, Production,
Storage and Offloading (‘FPSO’) vessel
continued to perform well throughout
the year, with top-quartile production
and water injection efficiency of 93%. The
planned shutdown saw all key scopes
completed ahead of schedule, having
been optimised to facilitate single train
processing train operations for one week
of the two-week programme of activities.
During the fourth quarter of 2022,
Kraken production reached the
milestone of over 60 million barrels
(gross) produced since inception.
The Group continues to optimise
Kraken cargo sales into the shipping
fuel market, with Kraken oil a key
component of IMO 2020 compliant
Richard Hall
Managing Director, Global
Operations and Developments
13
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2022
low-sulphur fuel oil. While the Group
has seen varied pricing within this
market, 2022 sales again delivered
a premium versus Brent pricing and
avoided refining-related emissions.
2023 outlook
No shutdown is planned during
2023 but it is expected that two
separate ten-day periods of single
processing train operations will
be undertaken in order to execute
safety-critical maintenance work.
Near-field drilling and subsea tie-back
opportunities continue to be assessed,
with interpretation of 3D seismic data
ongoing. In light of the direct impact
of the EPL on the Group’s available
cash flow and the indirect contribution
to underlying inflationary pressures
through incentivisation of industry-
wide investment within a defined
timeline, the Group has delayed its
plans to progress the Kraken drilling
programme. With c.33 MMboe of 2C
resources, there remains significant
opportunity in terms of main field side-
track drilling opportunities, along with
further drilling within the Pembroke
and Maureen sands, but the Group
has delayed the decision to sanction
investment until 2024 at the earliest. As
such, Kraken production will be subject
to natural decline in the coming years.
Golden Eagle
2022 performance summary
2022 net production was 6,323 Boepd.
Production efficiency remained strong
at around 95% although production
rates were lower than forecast. EnQuest
continues to work with the operator and
the joint venture partners to identify
opportunities to maximise rates.
The planned two-well infill drilling
campaign is ongoing, but delayed. The
first wellbore, having failed to locate
reservoir-quality sands, was plugged
and the well was side-tracked to
the second target. Adverse weather
conditions have resulted in expected
first production from this well being
deferred into the second quarter of 2023.
2023 outlook
Further to completion of the delayed
2022 drilling campaign, a platform
well programme is expected
to commence later in the year,
subject to joint venture approval.
The operator has scheduled a
shutdown of around two weeks in the
summer of 2023, with subsequent
major shutdowns expected to be
required every two to three years.
Other Upstream assets
2022 performance summary
Production in 2022 averaged 3,443
Boepd, largely in line with expectations
and reflecting strong uptime of 87%
at the Greater Kittiwake Area.
At Alba, performance continued largely
in line with the Group’s expectations.
In response to adverse changes to the
EPL, several operators have begun to
reconsider their capital programmes
in the UK. In late 2022, EnQuest
increased its equity interest in Bressay
to 100%, following the withdrawal
of Equinor and Harbour Energy.
2023 outlook
At GKA, a three-week shutdown
is planned during the second
quarter, as well as a short shutdown
of related infrastructure.
At Alba, the partners expect to execute
a well workover and a two infill well
drilling programme during 2023,
the first of which is due to deliver
first oil during the third quarter.
At Bressay, EnQuest is actively
exploring farm-down opportunities
while continuing to progress
development planning of the asset.
EnQuest aims to utilise its expertise
in heavy oil developments to access
hydrocarbons at Bressay and
Bentley, with each field having more
than 100 MMboe of 2C resources.
Malaysia operations
Daily average net production
(Boepd)
6,458
+28%
(2021: 5,028)
Daily average net entitlement
(Boepd)
4,237
(2021: 3,356)
2022 performance summary
Average production of 6,458 Boepd
was 28% higher than 2021. Production
was boosted by a successful four-well
workover campaign and the delivery
of the Group’s first three horizontal
wells at PM8/Seligi being brought
onstream, partially offset by natural
declines and compressor downtime.
A three-well plug and abandonment
(‘P&A’) campaign at PM8/Seligi was
executed ahead of schedule, with
costs delivered 30% below budget. In
recognition of the success of the 2022
well workover and P&A campaign,
EnQuest received three awards
from Petronas for commitment to
safety and use of new technology.
2023 outlook
A three-week shutdown at PM8/
Seligi to undertake asset integrity and
maintenance activities is planned for
the summer, which will help to improve
reliability and efficiency at the field. Well
P&A work will also continue, primarily
funded by a centralised investment fund
to which EnQuest contributes, with six
well abandonments planned for 2023.
EnQuest has significant 2P reserves
and 2C resources of c.31 MMboe
and c.80 MMboe, respectively, and
continues to assess a potential 2023
drilling programme in Malaysia,
with future multi-well annual
drilling programmes planned.
The Group continues to work with the
regulator to assess the opportunity
to develop the additional gas
resource at PM8/Seligi to meet
forecast Malaysian demand.
At PM409, the Group plans to drill
an exploration well in the middle
of the year, in line with the work
programme commitment.
“We aim to maintain strong production
performance across our portfolio through a
commitment to operational efficiency and
effective execution of drilling, workover and
production enhancement activities.”
Richard Hall
Managing Director, Global Operations and Developments
14
Operational review
continued
Infrastructure
Operational excellence
Throughout 2022, the Group continued
to deliver top-quartile operational
and HSE performance at the Sullom
Voe Terminal (‘SVT’). SVT delivered
100% continuous uptime for East
of Shetland and West of Shetland
operations, while executing a number
of operational risk reduction projects,
including major inspections and
replacing sections of pipeline.
Preparing for the future
The Group is now developing plans for
a multi-year programme of projects
which will right-size the terminal
facilities for expected future throughput
and prepare the way for the next
phase of SVT operations, including
new energy and decarbonisation
activities. This programme of work will
ensure EnQuest reduces the emissions
footprint of the site and provides
ongoing cost-effective and efficient
support to East of Shetland and West
of Shetland operators. The enhanced
investment allowance associated with
decarbonisation expenditure under
the UK EPL is expected to support the
delivery of these programmes.
New energy
Well positioned to deliver
decarbonisation
EnQuest’s new energy strategy is
anchored in its unique infrastructure
position and strong engineering and
subsurface capability. The terminal
site offers several unique competitive
advantages, including a 1,000-acre
industrial site with access to existing
oil and gas pipeline infrastructure,
a deep-water port and jetties,
the highest wind capacity factor
across Europe, and a highly skilled
workforce and local supply chain.
The Group aims to deliver on its
ambitions to deliver decarbonisation
opportunities at scale with strategic
partners in a capital-light manner.
The first step in the process requires
the existing site to be repurposed.
A key enabler in this regard was
the Group’s success in securing
exclusivity from the Shetland Islands
Council to progress its proposed
new energy opportunities on the
Sullom Voe site in March 2022.
This provides EnQuest with a strong
position from which to hold discussions
with other potential strategic partners
to piece together the component
parts of each of the three key
opportunities the Group has identified.
Key projects
Carbon Capture and Storage (‘CCS’)
The availability of a natural deep-
water port with four jetties, as well as
a pipeline network linked to several
well-understood offshore reservoirs,
presents an exceptional opportunity
to repurpose existing infrastructure
and enable the import and permanent
storage of material quantities of
CO
2
from isolated emitters in the
UK, Europe or further afield.
EnQuest has applied for two CCS
licences for East of Shetland reservoirs
as part of the North Sea Transition
Authority (‘NSTA’) licensing round
and has conducted initial phases of
feasibility and economic screening
work in respect of this carbon storage
concept. These studies indicate the
capability of the existing infrastructure,
including the EnQuest-operated East of
Shetland pipeline system, and storage
sites to support a project that could
store up to 10 million tonnes of CO
2
per
annum, with initial studies suggesting
the presence of total storage potential
in excess of 500 million tonnes.
This quantity of potential carbon
storage represents a multiple of the
Group’s existing direct emissions.
Electrification
EnQuest is assessing the potential
to leverage its existing infrastructure
and subsea projects expertise to
facilitate the electrification of nearby
offshore oil and gas assets and
planned developments by way of
a grid connection supplemented
Infrastructure and New Energy
Salman Malik
Managing Director, Infrastructure
and New Energy
15
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2022
“EnQuest’s new energy strategy is anchored
in its unique infrastructure position and strong
engineering and subsurface capability.”
Salman Malik
Managing Director, Infrastructure and New Energy
by renewable power. EnQuest
believes that this offers a robust
and economically viable option to
facilitate offshore electrification and
would lead to significant emission
reductions for platforms which are
expected to operate into the 2050s.
EnQuest remains in discussions with
West of Shetland field owners, some
of whom could take advantage of
the EPL decarbonisation allowance
available for this investment.
In addition, the Group is also currently
assessing onshore wind potential
and a new power solution for SVT,
which has the potential to significantly
reduce the Group’s carbon footprint.
Hydrogen
EnQuest is exploring the potential for
harnessing the advantaged natural
wind resource around Shetland for
the production of green hydrogen
and derivatives at export scale to
provide a low-carbon alternative fuel
which could help to decarbonise a
number of industries, with ambitions
to produce around one million
tonnes of green hydrogen annually.
CCS project storage
Up to (mtpa)
10
Total storage potential
In excess of (mtpa)
500
16
Operational review
continued
Performance summary
Within EnQuest’s decommissioning
directorate, 2022 was a year of
demonstrating capability and public
recognition of decommissioning
excellence as EnQuest delivered one of
the most productive decommissioning
campaigns seen in the UK North Sea.
Well decommissioning
At both the Heather and Thistle fields,
the extensive programme of well plug
and abandonment (‘P&A’) continued
apace. Thistle successfully abandoned
13 wells while Heather executed 11 wells,
with partial completion of a further
four wells by year end. In addition,
five wells have been plugged and
abandoned during the first quarter
of 2023. The Heather project team is
looking for further opportunities to
perform P&A activities without the
use of the main platform rig, which
will further underpin its expectation
that the target to disembark the
platform in the fourth quarter of 2024
will be met. At Thistle, the team aim
to complete disembarkation by the
end of the third quarter of 2025. Both
assets remain on track to meet their
post-cessation of production well
P&A targets of 39 wells at Heather by
mid-2024, and 41 wells at Thistle by
the end of the fourth quarter of 2024.
EnQuest is also planning the P&A of
33 subsea wells at the Alma/Galia,
Dons and Broom fields and aims
to be execution-ready during the
second quarter of 2024. The EnQuest
team is working on the basis that
subsea decommissioning activities
can be optimised by utilising a
portfolio approach across the fields.
Heavy Lift Awards
The Heather and Thistle project teams
successfully secured partnership
funding for the next phase of their
decommissioning programmes, with
both assets remaining focused on
preparing their respective topside
modules for removal. To this end,
Heather has secured the Allseas
Pioneering Spirit to execute the heavy
lift of the platform topsides, from 2025
onwards. Advanced preparatory work
is ongoing, with the project team
working closely with Allseas to ensure
full understanding and integration
of the necessary work-scopes in
advance of platform disembarkation.
In addition, EnQuest has awarded
the contract for the Heather jacket
removal to Saipem from 2026
onwards, with the early placing of
this contract securing favourable
market rates and allowing for the
interface with topsides and conductor
removal scopes to be optimised.
The process to award the contract for
Thistle topsides removal is nearing
completion and is expected to be
announced in the coming months.
The lift itself, which will take place from
2026 onwards, will see all 32 modules
of the Thistle platform moved onto the
heavy lift vessel and returned to shore
in four separate voyages. Throughout
2023 and 2024, the project team will be
focused on the engineering required
to prepare for the heavy lift as well
as opportunities to reduce schedule
and beat cost and delivery targets.
Given increased competition in
the heavy lift vessel market, with
the evolution of several large-
scale renewable projects being
sanctioned by the governments
of European countries, EnQuest
will manage the execution of the
heavy lift scopes within multi-year
windows in order to retain flexibility
and mitigate availability concern.
Decommissioning
John Allan
Decommissioning Director
17
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2022
“2022 was a year of
demonstrating
decommissioning
capability as EnQuest
delivered one of the
most productive
campaigns seen in
the UK North Sea.”
John Allan
Decommissioning Director
Thistle successfully abandoned
13
wells while Heather executed
11
wells, with partial completion of
a further four wells by year end
Decommissioning excellence
In recognition of the Group’s top-quartile
project delivery, EnQuest secured the
Offshore Energies UK (‘OEUK’) Award
for Excellence in Decommissioning
for its work on the Northern Producer
off-station project at the Dons fields.
The prompt and efficient removal and
decommissioning of the Northern
Producer Floating Production Facility
(‘FPF’) at the field enabled post-
cessation of production operating
expenditure to be minimised and,
with the field being gas deficient,
facilitated a significant reduction
in diesel consumption and
subsequent carbon emissions.
CASE STUDY:
Excellence in
decommissioning
EnQuest wins industry award
for Northern Producer
decommissioning project
EnQuest’s Northern Producer
decommissioning team were the
winners of the Offshore Energies
UK (‘OEUK’) Award for Excellence in
Decommissioning in November 2022,
at a ceremony held in St Andrews,
Scotland as part of the Offshore
Decommissioning conference.
Commitment to learning
EnQuest was praised for its
collaborative working approach
and commitment to learning on
this project at EnQuest’s Dons
fields, following on from the
decommissioning of EnQuest’s Alma/
Galia fields in 2021. The Northern
Producer Floating Production Facility
(‘FPF’) was returned to its owners
in just 45 days following cessation
of production and safely towed to
Kishorn on Scotland’s west coast.
18
Oil and gas reserves
and resources
UKCS
Other regions
Total
MMboe
MMboe
MMboe
MMboe
MMboe
Proven and probable reserves
1, 2, 3, 4, 11
At 31 December 2021
174
20
194
Revisions of previous estimates
(3)
(4)
Transfers from contingent resources
5
4
5
1
1
2
Production:
Export meter
(15)
(2)
Volume adjustments
6
0
–
(15)
(2)
(17)
Total proven and probable reserves at 31 December 2021
160
19
179
Change in reporting basis to working interest
7
–
11
11
Total proven and probable reserves at 31 December 2022
8
160
30
190
Contingent resources
2, 9, 11
At 31 December 2021
316
86
402
Promoted to reserves
10
(4)
(5)
(9)
Total contingent resources at 31 December 2022
312
81
393
Notes:
1
Opening reserves are quoted on a net entitlement basis
2
Proven and probable (‘2P’) reserves and contingent resources (‘2C’) have been assessed by the Group’s internal reservoir engineers, utilising geological,
geophysical, engineering and financial data
3
The Group’s 2P reserves have been audited by a recognised Competent Person in accordance with the definitions set out under the 2018 Petroleum Resources
Management System and supporting guidelines issued by the Society of Petroleum Engineers. These are based on a different set of forward price assumptions
to those the Group has used for impairment testing resulting in different economic reserves
4
All UKCS volumes are presented pre-Sullom Voe Terminal (‘SVT’) value adjustment. EnQuest reports export volumes and excludes the minor quality adjustment
made when those UKCS volumes are blended at SVT with oil from other fields
5
Transfers from 2C resources at Magnus, Golden Eagle and PM8/Seligi
6
Correction of export to sales volumes of 0.2 MMboe
7
EnQuest has changed its reporting of Malaysian 2P reserves to a working interest basis to align with peer reporting (from an entitlement interest basis)
8
The above 2P reserves include volumes that will be consumed as fuel gas, including c.6.7 MMboe at Magnus, c.0.6 MMboe at Kraken and c.0.4 MMboe at
Golden Eagle
9
Contingent resources are quoted on a working interest basis and relate to technically recoverable hydrocarbons for which commerciality has not yet been
determined and are stated on a best technical case or 2C basis
10 Magnus, Golden Eagle and PM8/Seligi opportunity maturation
11 Rounding may apply
ENQUEST OIL AND GAS RESERVES AND RESOURCES
19
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2022
Licence
Block(s)
Working interest (%)
Name
Decommissioning obligation (%)
UK North Sea Upstream production and development
P193
211/7a & 211/12a
100.0
1
Magnus
30.0
2
P1077
9/2b
70.5
Kraken & Kraken North
As per working interests
P1107/P1617
21/8a, 21/12c & 21/13a
50.0
Scolty/Crathes
As per working interests
P238
3
21/18a, 21/19a & 21/19b
50.0
Kittiwake
25.0
50.0
Mallard
30.9
50.0
Grouse & Gadwall
As per working interests
P073
21/12a
50.0
Goosander
As per working interests
P213
4
16/26a
8.0
Alba
As per working interests
P234/P493/P920/P977
3/28a, 3/28b, 3/27b, 9/2a, 9/3a
100.0
5
Bressay
n/a
P1078
9/3b
100.0
Bentley
n/a
P300/P928
4
14/26a, 20/1a
26.69
Golden Eagle
As per working interests
UK North Sea Decommissioning
P242
2/5a
n/a
Heather
37.5
P242/P902
2/5a & 2/4a
n/a
Broom
63.0
P475
211/19s
n/a
Thistle
6.1
6
P236
211/18a
n/a
Thistle/Deveron
6.1
6
P236
211/18c
n/a
Don SW & Conrie
60.0
P236/P1200
211/18b & 211/13b
n/a
West Don
78.6
P2137
211/18e & 211/19c
n/a
Ythan
60.0
P1765/P1825
30/24c & 30/25c, 30/24b
n/a
Alma/Galia
65.0
Other UK North Sea licences
P90
4
9/15a
33.3
n/a
P2531
7
21/18c
100.0
n/a
P2599
7
211/12b
100.0
n/a
Malaysia production and development
PM8/Seligi
8
PM8 Extension
50.0
Seligi, North & South
Raya, Lawang, Langat,
Yong & Serudon
50.0
PM409 PSC
PM409
85.0
Kecubung, Tinggi Timur,
Payung, NW Pinang, Tg.
Pulai, Ophir
n/a
Notes:
1
bp has a security over the Magnus asset (and related infrastructure assets) and is entitled to 37.5% of free cash flow from the assets subject to the terms of the
transaction documents between bp and EnQuest
2
bp has retained the decommissioning liability in respect of the existing Magnus wells and infrastructure. EnQuest will pay bp additional deferred consideration
by reference to 30% of bp’s actual decommissioning costs on an after-tax basis, which EnQuest estimates will result in a payment equivalent to approximately
9% of the gross estimated decommissioning costs. The additional consideration payable is capped at the amount of cumulative positive cash flows received
by EnQuest from Magnus, SVT and the associated infrastructure assets
3
Following an unsuccessful farm-down process and no immediate plans for development, EnQuest’s equity interest in the Eagle discovery was withdrawn by
the North Sea Transition Authority on 31 October 2022
4 Non-operated
5
Effective 16 December 2022, EnQuest assumed 100.0% operatorship following the withdrawal of Equinor and Harbour Energy. EnQuest is actively exploring
farm-down opportunities while continuing to progress development planning of the asset
6
EnQuest is liable for the decommissioning costs associated with investment since it assumed operatorship, with the balance remaining with the former
owners. Following the exercise of the Thistle decommissioning options in January and October 2018, EnQuest will undertake the management of the physical
decommissioning of Thistle and Deveron and is liable to make payments to bp by reference to 7.5% of bp’s decommissioning costs of Thistle and Deveron,
which equates to 6.1% of the gross decommissioning costs
7
These licences are expected to be relinquished by the end of the first quarter of 2023
8
The official reference is PM-8 Extension PSC, commonly referred to elsewhere as PM8/Seligi
ENQUEST’S ASSET BASE AS AT 31 DECEMBER 2022
Hydrocarbon
assets
20
Financial review
Free cash flow
$ million
1
518.9
EnQuest net debt
$ million
1
717.1
Record cash
generation
Salman Malik
Chief Financial Officer
All figures quoted are in US Dollars and relate to
Business performance unless otherwise stated.
Introduction
Shortly after becoming Chief Financial
Officer, I set out my financial priorities
for the Company and I am pleased
with the progress we made during
2022. Strong free cash flows of $518.9
million in 2022 enabled a 41.3%
reduction in EnQuest net debt, which
was reduced by $504.9 million to
$717.1 million (2021: $1,222.0 million).
This rapid deleveraging has helped
the Group make excellent progress
towards its EnQuest net debt to
adjusted EBITDA leverage target of
0.5x. The Group’s debt facilities have
also been comprehensively refinanced
during 2022, reducing the level of gross
borrowings and extending maturities
by five years to 2027. This was a
significant achievement given the
volatile backdrop in financial markets.
Lower than planned spend has been
driven by operational excellence,
strong financial discipline and a
focus on near-term value-accretive
activities, including extensive well
programmes at Magnus and PM8/
Seligi. During 2022, EnQuest delivered
one of the most productive well
decommissioning campaigns seen in
the UK North Sea and good progress
was made in advancing the Group’s
new energy and decarbonisation
opportunities in a capital-light manner.
The Group retains a significant tax
loss position which provides it with
a strategic advantage in the UK
North Sea, enhancing the relative
value of assets in EnQuest’s hands
when compared to other tax paying
participants. Following the introduction
and subsequent changes to the UK
Energy Profits Levy (‘EPL’), this relative
value advantage has increased,
and the Group is confident it will be
able to continue its track record of
value-accretive acquisitions as other
North Sea participants look to exit the
basin. The incentives associated with
decarbonisation expenditure could
also help underpin elements of the
Group’s plans to repurpose the Sullom
Voe Terminal into one of the largest
new energy hubs in Europe. However,
the EPL has resulted in a reduced
reserve based lending (‘RBL’) facility
resulting in the Group optimising
its capital programme, focussing
on quick-payback investments.
We continue to prioritise continued
deleveraging through 2023, with $118.0
million of the RBL facility repaid in the
first quarter, with shareholder returns
expected to follow in the future.
1
See reconciliation of alternative performance measures within the ‘Glossary - Non-GAAP measures’
starting on page 175
21
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2022
“I am pleased with the progress we made against our strategic
financial priorities, with significant debt reduction and the
refinancing of our capital structure during 2022.”
Performance overview
Production on a working interest basis increased by 6.4%
to 47,259 Boepd, compared to 44,415 Boepd in 2021 driven
by a full year’s contribution from Golden Eagle and improved
performances at Magnus and PM8/Seligi, reflecting successful
well programmes. Production at Kraken was lower year-on-
year but remained at the top end of market guidance.
Revenue for 2022 was $1,839.1 million, 39.3% higher than in
2021 ($1,320.3 million), primarily reflecting higher realised
prices and higher production. The Group’s commodity
hedge programme resulted in realised losses of $203.7
million in 2022 (2021: losses of $67.7 million), which reflected
the timing at which the hedges were entered into and the
increase in market prices during the year, particularly
following the Russian invasion of Ukraine. See note 27 for
further information on the Group’s hedging position.
The Group’s operating expenditures of $396.5 million were
23.5% higher than in 2021 ($321.0 million). This was primarily
due to higher production costs, including the full-year
impact of Golden Eagle, higher fuel and emission trading
allowance costs due to higher market prices and lower
lease charter credits, reflecting high uptime at Kraken
driven by the continued strong performance of the FPSO.
This was partially offset by a weakening of the Sterling to US
Dollar exchange rate, with c.70% of the Group’s costs
denominated in Sterling. Unit operating costs (excluding
hedging) increased to $22.7/Boe (2021: $20.5/Boe).
Other costs of operations of $487.8 million were significantly
higher than in 2021 ($211.5 million), predominantly as a result
of higher Magnus-related third-party gas purchases of
$452.8 million (2021: $199.6 million) due to the increase in
associated market prices.
With the Group reversing the previous year’s net overlift
position, a credit relating to the Group’s lifting position and
inventory of $15.6 million was recognised (2021: charge of
$62.3 million).
Adjusted EBITDA for 2022 was $979.1 million, up 31.8%
compared to 2021 ($742.9 million), primarily as a result of
higher revenue partially offset by higher costs. EnQuest net
debt to adjusted EBITDA ratio at 31 December 2022 was 0.7x,
down more than 50% from 1.6x at 31 December 2021.
2022
$ million
2021
$ million
Profit/(loss) from operations before
tax and finance income/(costs)
709.2
443.2
Depletion and depreciation
333.2
313.1
Change in provision
(42.8)
(13.1)
Change in well inventories
0.8
0.1
Net foreign exchange (gain)/loss
(21.3)
(0.4)
Adjusted EBITDA
979.1
742.9
EnQuest net debt decreased by $504.9 million to $717.1
million at 31 December 2022 (31 December 2021: $1,222.0
million). EnQuest net debt includes $25.1 million of payment
in kind (‘PIK’) interest that has been capitalised to the
principal of the bond facilities pursuant to the terms of
the Group’s November 2016 refinancing (31 December
2021: $225.0 million) (see note 18 for further details).
EnQuest net debt/(cash)
1
31 December
2022
$ million
31 December
2021
$ million
Bonds
600.7
1,083.8
RBL
400.0
415.0
SVT working capital facility
12.3
9.9
Vendor loan facility
5.7
–
Cash and cash equivalents
(301.6)
(286.7)
EnQuest net debt
717.1
1,222.0
Note:
1
See reconciliation of alternative performance measures within the ‘Glossary
– Non-GAAP measures’ starting on page 175
During 2022, strong free cash flows enabled the Group to
make early voluntary repayments on its previous RBL facility,
resulting in the balance being repaid in full. In October, the
facility was refinanced with commitments of $500.0 million.
In April 2022, the Group partially refinanced its 7% Sterling
retail bond (‘7.00% retail bond’) through an exchange
and open offer. The principal of the new 9% Sterling
retail bond (‘9.00% retail bond’) raised was £133.3 million,
made up of £79.3 million of exchanges from the 7.00%
retail bond and £54.0 million from new bond holders.
22
Financial review
continued
In July and August, the Group bought back and cancelled
$34.9 million of its 2023 7.00% high yield bond, leaving
$792.3 million outstanding. This was subsequently repaid in
full in October 2022, along with outstanding interest of $1.5
million due at the time of repayment, utilising $400.0 million
of drawdowns from the Group’s refinanced RBL, operating
cash flows of $97.5 million and the net proceeds from the
issue of a new US Dollar high yield bond (‘11.625% high yield
bond’) of $296.3 million.
See note 18 for further information on the Group’s loans and
borrowings.
In July 2022, the EPL was enacted in the UK which applied
an additional tax of 25% on the profits earned by oil and
gas companies from the production of oil and gas on the
United Kingdom Continental Shelf. In November 2022, the
EPL percentage was increased to 35% from 1 January 2023
and the end date was extended from 31 December 2025 to
31 March 2028. As such, the Group has estimated a current
tax charge of $72.1 million (2021: $nil) associated with the EPL
for 2022. The Group has also recognised a total net deferred
tax charge of $153.7 million at 31 December 2022
(31 December 2021: $nil), with a $25.2 million credit
recognised in Business performance and $178.9 million
charge in Remeasurements and exceptional items.
The Group has recognised UK North Sea corporate tax losses
at the end of 2022 of $2,497.7 million (2021: $3,011.0 million).
Unrecognised tax losses are disclosed in note 7(d) on page
142. In the current environment, no significant corporation tax
or supplementary charge is expected to be paid on UK
operational activities for the foreseeable future. The Group
paid its first instalment associated with the EPL in December
2022 and will continue to make EPL payments for the duration
of the levy. The Group also paid cash corporate income tax on
the Malaysian assets, which will continue throughout the life of
the Production Sharing Contract.
Income statement
Revenue
Market prices for crude oil and gas in 2022 were significantly
higher than in 2021 driven by increasing global demand as
COVID-19 restrictions began easing, combined with supply
concerns brought about by years of underinvestment and
amplified by the Russian invasion of Ukraine and the
associated subsequent sanctions imposed on Russia. The
Group’s average realised oil price excluding the impact of
hedging was $102.6/bbl, 40.5% higher than in 2021 ($73.0/
bbl). Revenue is predominantly derived from crude oil sales,
which totalled $1,517.7 million, 33.2% higher than in 2021
($1,139.2 million), reflecting the significantly higher oil prices
and the contribution from Golden Eagle. Revenue from the
sale of condensate and gas, primarily in relation to the
onward sale of third-party gas purchases not required for
injection activities at Magnus, was $514.2 million (2021:
$244.1 million), reflecting significantly higher prices. Tariffs
and other income generated $11.0 million (2021: $4.7 million).
The Group’s commodity hedges and other oil derivatives
contributed $203.7 million of realised losses (2021: losses of
$67.7 million) as a result of the timing of entering into the
hedges. The Group’s average realised oil price including the
impact of hedging was $88.9/bbl in 2022, 29.6% higher than
in 2021 ($68.6/bbl).
Cost of sales
1
2022
$ million
2021
$ million
Production costs
347.8
292.3
Tariff and transportation expenses
43.3
39.4
Realised loss/(gain) on derivatives
related to operating costs
5.4
(10.7)
Operating costs
396.5
321.0
(Credit)/charge relating to the
Group’s lifting position and inventory
(15.6)
62.3
Depletion of oil and gas assets
327.0
305.6
Other cost of operations
487.9
211.5
Cost of sales
1,195.8
900.4
Unit operating cost
2
$/Boe
$/Boe
– Production costs
20.2
18.1
– Tariff and transportation expenses
2.5
2.4
Average unit operating cost
22.7
20.5
Notes:
1
See reconciliation of alternative performance measures within the ‘Glossary
– Non-GAAP measures’ starting on page 175
2
Calculated on a working interest basis
Cost of sales were $1,195.8 million for the year ended
31 December 2022, 32.8% higher than in 2021 ($900.4 million).
Operating costs increased by $75.5 million, primarily
reflecting higher production costs, including the full-year
impact of Golden Eagle, higher fuel and emission trading
allowance costs due to higher market prices and lower
lease charter credits, reflecting high uptime at Kraken
driven by the continued strong performance of the FPSO.
This was partially offset by a weakening of the Sterling to
US Dollar exchange rate with c.70% of the Group’s costs
denominated in Sterling. Unit operating costs (excluding
hedging) increased by 10.7% to $22.7/Boe (2021: $20.5/Boe),
reflecting higher operating costs. Unit operating costs
including hedging were $23.0/Boe (2021: $19.8/Boe).
The credit relating to the Group’s lifting position and
inventory was $15.6 million (2021: charge of $62.3 million).
This primarily reflects the reversal of the net overlift position
of $18.0 million at 31 December 2021, resulting in a $0.8
million net underlift position at 31 December 2022. Depletion
expense of $327.0 million was 7% higher than in 2021 ($305.6
million), mainly reflecting the impact of Golden Eagle.
Other cost of operations of $487.9 million were materially
higher than in 2021 ($211.5 million), principally as a result of
higher Magnus-related third-party gas purchases of $452.8
million (2021: $199.6 million) following the increase in
associated market prices.
Other income and expenses
Net other income of $73.4 million (2021: net other income
of $23.7 million) is predominantly due to a net decrease in
the decommissioning provision of fully impaired non-
producing assets of $42.8 million (including the Thistle
decommissioning linked liability) due to higher discount
rates and a favourable movement in the Sterling to US
Dollar balance sheet exchange rate, which has also
resulted in further favourable foreign exchange credits
recognised of $21.3 million. Also included within other
expenses are costs associated with Infrastructure and
New Energy of $1.2 million.
Note: For the reconciliation of realised oil prices see ‘Glossary – Non-GAAP
measures’ starting on page 175
23
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2022
Finance costs
Finance costs of $176.2 million were 4.0% higher than in
2021 ($169.5 million). This increase was primarily driven by
fees associated with the retail bond transaction and the
amortisation of arrangement fees of $35.3 million associated
with the Group’s refinancing activities (2021: $13.6 million
associated with the 2021 RBL facility refinancing). This
increase has been partially offset by the reduction of $5.3
million in interest charges associated with the Group’s loans
(2022: $14.9 million; 2021: $20.2 million) and a $6.8 million
decrease in bond interest (2022: $63.3 million; 2021: $69.1
million). Other finance costs included lease liability interest of
$39.2 million (2021: $45.4 million), $17.8 million on unwinding
of discount on decommissioning and other provisions (2021:
$16.9 million), and other financial expenses of $6.8 million
(2021: $4.3 million), primarily being the cost for surety bonds
to provide security for decommissioning liabilities.
Taxation
The tax charge for 2022 of $322.4 million (2021: $53.7 million
tax charge), excluding remeasurements and exceptional
items, reflects the tax impact on the Group’s increased profit
before tax and the enactment of the UK EPL. Ring Fence
Expenditure Supplement (‘RFES’) on UK activities, which would
historically have provided an offset to the UK tax charge,
ceased to be available to claim from the end of 2021.
Remeasurements and exceptional items
Remeasurements and exceptional items resulting in a
post-tax net loss of $253.6 million have been disclosed
separately for the year ended 31 December 2022 (2021:
post-tax gain of $156.7 million).
Revenue included unrealised gains of $14.5 million in
respect of the mark-to-market movement on the Group’s
commodity contracts, primarily reflecting the recycling of
2021 unrealised hedge losses into Business performance
during 2022 (2021: unrealised losses of $54.5 million).
Cost of sales included unrealised losses of $4.9 million
relating to the mark-to-market movement on the Group’s
foreign exchange contracts (2021: unrealised gains of
$0.5 million).
A non-cash net impairment charge of $81.0 million (2021:
$39.7 million reversal) on the Group’s oil and gas assets
arose from the impact on future cash flows following the
introduction of the EPL, updated asset profiles and a higher
discount rate, partially offset by higher forecast oil prices.
Other income includes $6.6 million of insurance proceeds
received in respect of the Malaysia riser repairs (2021: $9.0
million). Other expense includes a $233.6 million charge in
relation to the fair value recalculation of the Magnus
contingent consideration, reflecting a forecast increase in
Magnus future cash flows due to higher forecast oil prices
and asset profile and cost assumption changes (2021: $140.1
million gain).
Other finance costs mainly relate to the unwinding of
discount on contingent consideration from the acquisition
of Magnus and associated infrastructure of $36.4 million
(2021: $58.4 million). Other finance income reflects the gain
recognised on buy back and cancellation of $34.9 million
of the Group’s 7.00% high yield bond.
A net tax credit of $78.0 million (2021: credit of $78.2 million)
has been presented as exceptional, representing the tax
effect on the items above and the non-cash recognition
of undiscounted deferred tax assets of $127.0 million given
the net effect of the Group’s higher long-term oil price
assumptions and changes in asset profiles, partially
offset by the initial recognition of the deferred tax liability
associated with the EPL of $178.3 million. EnQuest has
recognised UK North Sea corporate tax losses of $2,497.7
million at 31 December 2022, with unrecognised tax losses
disclosed in note 7(d) on page 142.
IFRS results
The Group’s results on an IFRS basis are shown on the Group
income statement as ‘Reported in the year’, being the sum
of its Business performance results and Remeasurements
and exceptional items, both of which are explained above.
IFRS revenue reflects the Group’s Business performance
revenue, but it is adjusted for the impact of unrealised
movements on derivative commodity contracts. Business
performance cost of sales is similarly adjusted for the
impact of unrealised movements on derivative contracts.
Taking account of these items, and the other exceptional
items included within the Group income statement, which
are principally related to impairment charges and the
change in fair value of contingent consideration payable,
the Group’s IFRS profit from operations before tax and
finance costs was $411.9 million (2021: profit of $580.0
million), IFRS profit before tax was $203.2 million (2021: profit
of $352.4 million), and IFRS loss after tax was $41.2 million
(2021: profit of $377.0 million). This IFRS loss after tax was
primarily driven by the initial recognition of deferred tax
liability following the introduction of the EPL.
Earnings per share
The Group’s Business performance basic earnings per
share was 11.4 cents (2021: 12.7 cents) and diluted earnings
per share was 11.2 cents (2021: 12.5 cents).
The Group’s reported basic loss per share was 2.2 cents
(2021: earnings of 21.7 cents) and reported diluted loss per
share was 2.2 cents (2021: diluted earnings of 21.4 cents).
Cash flow and liquidity
EnQuest net debt at 31 December 2022 amounted to $717.1
million, including PIK of $25.1 million, compared with EnQuest
net debt of $1,222.0 million at 31 December 2021, including
PIK of $225.5 million. The movement in EnQuest net debt
was as follows:
$ million
EnQuest net debt 1 January 2022
(1,222.0)
Net cash flows from operating activities
931.6
Cash capital expenditure
(115.8)
Magnus profit share payments
(46.0)
Finance lease payments
(148.0)
Net interest and finance costs paid
(101.6)
Other movements, primarily net foreign
exchange on cash and debt
(15.3)
EnQuest net debt 31 December 2022
1
(717.1)
Note:
1
See reconciliation of alternative performance measures within the ‘Glossary
– Non-GAAP measures’ starting on page 175
The Group’s reported net cash flows from operating
activities for the year ended 31 December 2022 were
$931.6 million, up 38.2% compared to 2021 ($674.1 million),
primarily driven by materially higher revenue.
24
Financial review
continued
Cash outflow on capital expenditure is set out in the table
below:
Year ended
31 December
2022
$ million
Year ended
31 December
2021
$ million
North Sea
85.5
35.9
Malaysia
26.5
14.8
Exploration and evaluation
3.8
1.1
115.8
51.8
Cash capital expenditure in 2022 primarily related
to Magnus and PM8/Seligi well campaigns.
Balance sheet
The Group’s total asset value has decreased by $341.3
million to $4,024.3 million at 31 December 2022 (2021:
$4,365.6 million), predominantly due to depletion and
impairment charges on the oil and gas assets. Net current
liabilities have increased to $435.3 million as at
31 December 2022 (2021: $333.1 million).
Property, plant and equipment (‘PP&E’)
PP&E has decreased by $345.0 million to $2,477.0 million
at 31 December 2022 from $2,822.0 million at 31 December
2021 (see note 10). This decrease includes depletion and
depreciation charges of $333.2 million, non-cash net
impairment charges of $81.0 million and a net decrease of
$75.9 million for changes in estimates for decommissioning
and other provisions, partially offset by other capital
additions to PP&E of $146.7 million.
The PP&E capital additions during the year are set out in the
table below:
$ million
North Sea
107.7
Malaysia
39.0
146.7
Trade and other receivables
Trade and other receivables decreased by $19.7 million to
$276.4 million at 31 December 2022 (2021: $296.1 million). The
decrease is driven by the timing of cargoes and associated
receipts lifted in December each year.
Cash and EnQuest net debt
The Group had $301.6 million of cash and cash equivalents
at 31 December 2022 and $717.1 million of EnQuest net debt
(2021: $286.7 million and $1,222.0 million, respectively).
EnQuest net debt comprises the following liabilities:
• $134.5 million principal outstanding on the 7.00% retail
bond, including PIK of $25.1 million (2021: $256.2 million
and $47.9 million, respectively);
•
$161.2 million principal outstanding on the 9.00% retail bond;
•
$nil principal outstanding on the 7.00% high yield bond
(2021: principal $827.2 million including PIK of $177.2 million);
• $305.0 million principal outstanding on the 11.625% high
yield bond;
•
$400.0 million drawn down on the refinanced RBL
(2021: $415.0 million);
• $12.3 million relating to the SVT Working Capital Facility
(2021: $9.9 million); and
• $5.7 million relating to a Vendor Loan Facility (2021: $nil).
Provisions
The Group’s decommissioning provision decreased by
$144.1 million to $691.6 million at 31 December 2022 (2021:
$835.7 million). The movement is due to a reduction in
estimates of $115.5 million, reflecting an increase in discount
rate (see notes 2 and 23) and a favourable movement in the
Sterling to US Dollar balance sheet exchange rate, utilisation
of $48.5 million for decommissioning carried out in the year,
partially offset by $17.0 million unwinding of discount and
additions of $2.8 million.
Other provisions, including the Thistle decommissioning
provision, decreased by $13.1 million in 2022 to $46.1 million
(2021: $59.2 million). The Thistle decommissioning provision
of $32.7 million (2021: $43.9 million) is in relation to EnQuest’s
obligation to make payments to bp by reference to 7.5% of
bp’s decommissioning costs of the Thistle and Deveron fields.
Contingent consideration
The contingent consideration related to the Magnus
acquisition increased by $222.1 million. In 2022, EnQuest
paid $46.0 million to bp under the profit sharing mechanism
(2021: $74.7 million, including $73.7 million of accelerated
vendor loan repayment and $1.0 million under the profit
sharing mechanism). A change in fair value estimate
charge of $233.6 million (2021: $140.1 million credit) and
finance costs of $34.5 million (2021: $58.4 million) were
recognised in the year.
The contingent consideration related to the Golden Eagle
acquisition in 2021 increased by $3.2 million to $48.3 million
(2021: $45.2 million). The increase represents unwind of
discount and is disclosed in finance costs.
Income tax
The Group had a net income tax payable of $37.7 million
(2021: $3.6 million payable) primarily related to the
remaining EPL payment due in relation to the 2022 charge.
Deferred tax
The Group’s net deferred tax asset has decreased from
$699.6 million at 31 December 2021 to $539.5 million at
31 December 2022. This is primarily driven by the initial
recognition of the net deferred tax liability of $178.3 million
associated with the EPL and utilisation of tax losses, partially
offset by the non-cash recognition of $127.0 million of
undiscounted deferred tax assets given the Group’s higher
long-term oil price assumptions and changes in asset
profiles. EnQuest has recognised UK corporate tax losses
carried forward at 31 December 2022 amounting to
$2,497.7 million (31 December 2021: $3,011.0 million), with
unrecognised tax losses disclosed in note 7(d) on page 142.
Trade and other payables
Trade and other payables of $426.6 million at 31 December
2022 are $7.4 million higher than at 31 December 2021
($420.5 million). The full balance of $426.6 million is payable
within one year.
25
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2022
Financial risk management
The Group’s activities expose it to various financial risks
particularly associated with fluctuations in oil price, foreign
currency risk, liquidity risk and credit risk. The disclosures
in relation to financial risk management objectives and
policies, including the policy for hedging, and the disclosures
in relation to exposure to oil price, foreign currency and credit
and liquidity risk, are included in note 27 of the financial
statements.
Going concern disclosure
The Group closely monitors and manages its funding
position and liquidity risk throughout the year, including
monitoring forecast covenant results, to ensure that it
has access to sufficient funds to meet forecast cash
requirements. Cash forecasts are regularly produced and
sensitivities considered for, but not limited to, changes in
crude oil prices (adjusted for hedging undertaken by the
Group), production rates and costs. These forecasts and
sensitivity analyses allow management to mitigate liquidity
or covenant compliance risks in a timely manner.
During 2022, the Group successfully completed a
refinancing of its debt facilities, securing a $500.0 million
amended and restated reserve based lending facility
(‘RBL’) with a $300.0 million accordion maturing in April
2027 and $305.0 million 11.625% high yield bond maturing
in November 2027. The net proceeds from the issue of the
high yield bond, along with drawings of $400.0 million
under the RBL and cash on hand, were used for the
redemption of the $792.3 million aggregate principal
amount of the Company’s 7.00% high yield bond due 2023.
This refinancing was in addition to the 9.00% retail bond
exchange and issuance in April 2022 which resulted in a
principal issue of £133.3 million. £111.3 million of the October
2023 7.00% retail bond remains in issue.
The RBL requires completion of a semi-annual review and
redetermination on 30 June and 31 December each year.
The amount available to draw under the RBL is based on an
amortisation schedule and the borrowing base availability
derived from the semi-annual review.
The RBL review and redetermination for the first half of 2023
was updated to include the increase in the EPL rate to 35%,
extension of duration until March 2028 and removal of the
windfall tax price floor introduced in the Autumn Statement
2022. This has resulted in a reduction of the available RBL
capacity, and therefore liquidity available to the Group. In
the first quarter of 2023, EnQuest repaid $118.0 million of the
RBL facility, bringing the cash drawn balance down to
$282.0 million, ensuring the Group remains ahead of the
amended amortisation profile. The amended RBL
repayment profile includes a further c.$100.0 million RBL
deleveraging during the going concern period.
The Group’s latest approved business plan, which includes
the aforementioned RBL redetermination, underpins
management’s base case (‘Base Case’) and is in line
with the Group’s production guidance and uses oil price
assumptions of $78.5/bbl for 2023 and 2024, adjusted for
hedging activity undertaken.
The Base Case indicates that the Group is able to operate
as a going concern and remain covenant compliant for 12
months from the date of publication of its full-year results.
The Base Case reflects rapid deleveraging during the
period, with redemption of the £111.3 million 7% retail bond
in October 2023 and further RBL amortisations totalling
c.$100.0 million, in addition to a $50.0 million contingent
consideration payment in relation to the Golden Eagle
acquisition in July 2023.
A reverse stress test has been performed on the Base Case.
Given the rapid deleveraging required under the amended
amortisation profile within the going concern period, an oil
price of c.$77.0/bbl maintains covenant compliance.
The Base Case has also been subjected to further testing
through (i) a $5.00/bbl reduction in the average price from
the Base case; and (ii) a scenario reflecting the impact of the
following plausible downside risks (the ‘Downside Case’):
• 10.0% discount to Base Case prices resulting in Downside
Case prices of $70.7/bbl for 2023 and 2024;
• Production risking of 5.0% for 2023 and 2024; and
• 2.5% increase in operating costs.
The case with $5.00/bbl reduction in the average price
from the Base Case and the Downside Case indicates that
mitigants would be required. Should circumstances arise
that differ from the Group’s Base Case projections, the
Directors believe that several mitigating actions, including
cargo prepayment or other funding options, can be
executed successfully in the necessary timeframe to meet
debt repayment obligations as they become due and
maintain liquidity.
After making appropriate enquiries and assessing the
progress against the forecast, projections and the status of
the mitigating actions referred to above, the Directors have
a reasonable expectation that the Group will continue in
operation and meet its commitments as they fall due over
the going concern period. Accordingly, the Directors
continue to adopt the going concern basis in preparing
these financial statements.
Viability statement
The Directors have assessed the viability of the Group
over a three-year period to March 2026. The viability
assumptions are consistent with the going concern
assessment, with the additional inclusion of an oil price of
$75.0/bbl for 2025 and a longer-term price of $70.0/bbl from
2026 in the Base Case and consistent plausible downside
risks applied in a Downside Case. This assessment has
taken into account the Group’s financial position as at
4 April 2023, its future projections and the Group’s principal
risks and uncertainties. The Directors’ approach to risk
management, their assessment of the Group’s principal
risks and uncertainties, which includes potential impacts
from climate change concerns and related regulatory
developments, and the actions management are taking to
mitigate these risks are outlined on pages 40 to 51. The
period of three years is deemed appropriate as it is the time
horizon across which management constructs a detailed
plan against which business performance is measured.
Based on the Group’s projections the Directors have a
reasonable expectation that the Group can continue in
operation and meet its liabilities as they fall due over the
period to April 2026.
26
Financial review
continued
The Base Case has further been stress tested to understand
the impact on the Group’s liquidity and financial position of
reasonably possible changes in these risks and/or
assumptions. For the current assessment, the Directors also
draw attention to the specific principal risks and uncertainties
(and mitigants) identified below, which, individually or
collectively, could have a material impact on the Group’s
viability during the period of review. In forming this view, it is
recognised that such future assessments are subject to a
level of uncertainty that increases with time and, therefore,
future outcomes cannot be guaranteed or predicted with
certainty. The impact of these risks and uncertainties has
been reviewed on both an individual and combined basis
by the Directors, while considering the effectiveness and
achievability of potential mitigating actions.
Oil price volatility
A decline in oil prices would adversely affect the Group’s
operations and financial condition. To mitigate oil price
volatility, the Directors have hedged a total of 7.9 MMbbls for
2023, using costless collars and puts. The costless collars
have an average floor price of c.$58.0/bbl and an average
ceiling price associated with 3.3 MMbbls of costless collars
is c.$75.50/bbl. For 2024, the Group has hedged a total of 3.2
MMbbls through puts, with an average floor price of c.$60.0/
bbl. The Directors, in line with Group policy and the terms of
its RBL facility, will continue to pursue hedging at the
appropriate time and price.
Fiscal risk and government take
Unanticipated changes in the regulatory or fiscal
environment can affect the Group’s ability to access
funding and liquidity. The change to the UK EPL introduced
in the Autumn Statement 2022 materially impacted the RBL
borrowing base and associated amortisation schedule.
The amended amortisation schedule is assumed in the
Base Case.
Access to funding
Prolonged low oil prices, cost increases, production delays
or outages and changes to the fiscal environment could
threaten the Group’s liquidity and access to funding.
The Directors recognise the importance of ensuring medium
term liquidity. The maturity date of the $305.0 million high
yield bond and the £133.3 million 9.00% retail bonds is
November 2027, providing a material level of funding beyond
the viability period. As stated above, the amendments to EPL
impacted the RBL amortisation schedule, which is reflected
in the Base Case. The Group will continue to prioritise debt
reduction from free cash flows to ensure it remains ahead
of this amended amortisation profile.
In assessing viability, the Directors recognise that in a
Downside Case additional liquidity would be required,
which may necessitate asset sales or other financing or
funding options. Given the extended duration of the viability
period, the Directors believe such measures can be
executed successfully in the necessary timeframe to meet
debt repayment obligations as they become due and
maintain liquidity.
Notwithstanding the principal risks and uncertainties
described above, after making enquiries and assessing the
progress against the forecast, projections and the status of
the mitigating actions referred to above, the Directors have
a reasonable expectation that the Group can continue in
operation and meet its commitments as they fall due over
the viability period ending April 2026. Accordingly, the
Directors therefore support this viability statement.
27
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2022
Group non-financial information statement
The following information is prepared in accordance with Section 414CB(1) of the Companies Act 2006. Further information
on each of the areas set out below, including the Group’s policies where relevant, can be found in the following pages of
this section of the report. The Group’s key performance indicators can be found on page 03.
Environmental (see pages 30 to 33, and 53 to 60)
• At the core of EnQuest’s Values is SAFE Results with no
harm to people and respect for the environment
•
EnQuest’s Environmental Management System (‘EMS’)
ensures the Group’s activities are undertaken in such
a way that it manages and mitigates its impact on
the environment. The EMS meets both the requirements
of OSPAR and the International Organization for
Standardization’s environmental management system
standard – ISO 14001. Independent verification was
completed in 2022 with no gaps identified
• The Group is committed to playing its part in the
achievement of national emission reduction targets
and the drive to ‘net zero’
• The Infrastructure and New Energy business has
advanced the Group’s new energy and decarbonisation
ambitions, identifying and maturing three discrete and
scalable decarbonisation opportunities of carbon
capture and storage (‘CCS’), electrification, and green
hydrogen and derivative production
• The Group continues to make good progress in reducing
its absolute Scope 1 and 2 emissions during the year.
Since 2018, UK emissions have reduced by c.43%, which
is significantly ahead of the UK Government’s North Sea
Transition Deal target of achieving a 10% reduction in
Scope 1 and 2 CO
2
equivalent emissions by 2025
• EnQuest has reported on all the emission sources
within its operational control required under the
Companies Act 2006 (Strategic Report and Directors’
Reports) Regulations 2013
• The Group continues to evolve its disclosures in
accordance with the recommendations of the Task Force
on Climate-related Financial Disclosures
Our people (see pages 38 to 39)
• EnQuest is committed to ensuring that EnQuest is a great
place to work and providing an inclusive culture that
recognises and celebrates difference and sees a diverse
culture as an enabler of creativity and performance
improvement
• Established in 2021, the Group-wide diversity and
inclusion (‘D&I’) strategy, is firmly embedded in the
overall strategy of the business. ’Diversity, Equity and
Inclusion Culture’ training has been provided for all
UK-based managers and supervisors during 2022
• The mental and physical welfare of all employees
continues to be a major focus across the business. The
Group continues to promote a platform that provides
tools and techniques to support wellbeing and delivered
targeted awareness initiatives on mental health and a
number of initiatives focused on physical health
Community (see pages 36 to 37)
• EnQuest is fully committed to active community
engagement programmes and encourages and
supports charitable donations in the areas of improving
health, education and welfare within the communities in
which it works
• Throughout 2022, the Group continued to provide support
to a wide range of local organisations and communities
in the UK and Malaysia
•
In Aberdeen, EnQuest engaged with its new core corporate
charity, The Archie Foundation, and maintained its
commitment to CLAN Cancer Support
• In Malaysia, EnQuest continued its support of the Sungai
Pergam Orang Asli Primary School in Terengganu, by
contributing to student bursaries for 61 students through
the MyKasih ‘Love My School’ programme
Business conduct (see page 52)
• The Group has a Code of Conduct that sets out the
behaviour which the organisation expects of its Directors,
managers and employees, and of our suppliers,
contractors, agents and partners
• This code addresses the Group’s requirements in various
areas, including the importance of health and safety and
environmental protection, compliance with applicable
law, anti-corruption, anti-facilitation of tax evasion,
anti-slavery, addressing conflicts of interest, ensuring
equal opportunities, combatting bullying and
harassment and the protection of privacy
A view across Sullom Voe to the port of Sella Ness showing the
four deep-water jetties at SVT
28
Environmental, Social and Governance
A forward-thinking
approach
At EnQuest, we have reviewed the ESG landscape,
and identified those factors that are applicable to
our purpose and business model and relevant for
our stakeholders.
Environmental, Social and Governance (‘ESG’) factors continue
to grow in importance for companies, reflecting the focus
on company purpose, widespread concerns about climate
change, the importance of stakeholder considerations
and the emphasis on long-term value enhancement.
Committed to contributing
positively towards the drive
to net zero
Focused on absolute Scope 1
and 2 emission reductions in
existing and acquired assets;
three-year Group targets
linked to reward
Incorporates carbon costs into
investment evaluations
Environmental
Managing emissions from existing
operations and advancing new
energy opportunities.
For more, see Page 30
29
Committed to operating
with high standards of integrity
in line with the Group’s Code
of Conduct
Apply the Group’s established
Risk Management Framework
and operate within the
Board-approved statement
of risk appetite
Reward is linked to ESG
performance
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2022
Our sustainability highlights for 2022
Reduction
in Group
Scope 1 and 2 emissions
vs 2020 baseline
23%
Reduction
in UK
Scope 1 and 2 emissions
vs 2018 NSTD baseline
43%
Top-quartile
LTIF
1
performance
0.57
Female representation
at Board level
33%
Committed to operating with
a strong culture and Values, in
line with the Group’s purpose,
alongside delivering SAFE Results
with no harm to our people
Committed to improving
workforce diversity and inclusion
Aim to impact positively the
communities in which we
operate, and prioritising
respect for the environment
Social
Our culture defines how we approach
safety and ensures that our people, our
most important asset, go home safe
and well.
For more, see Page 34
Governance
Robust Risk Management
Framework.
For more, see Page 40
1
Lost Time Incident frequency represents the number of incidents per million exposure hours worked (based on 12 hours for offshore and eight hours for onshore)
30
Environmental, Social and Governance
continued
A responsible operator with a strong
culture and management framework
At the core of EnQuest’s Values is
SAFE Results with no harm to people
and respect for the environment.
As an oil and gas company, safely
improving the operating, financial
and environmental performance of
mature and late-life assets remains
a key focus. EnQuest recognises the
importance of good governance
and transparency in relation to
climate change, and the Group’s
reporting against the Task Force on
Climate-related Financial Disclosure
recommendations can be found
on pages 53 to 60. In addition, the
Group outlines its assessment of
associated potential risks to the
execution of its strategy within the
Risks and uncertainties section
of this report (see page 40).
EnQuest’s Environmental Management
System (‘EMS’) ensures the Group’s
activities are undertaken in such a
way that it manages and mitigates
its impact on the environment. The
EMS meets the requirements of the
OSPAR Recommendation 2003/5,
is aligned with the requirements of
the International Organization for
Standardization’s environmental
management system standard
– ISO 14001 – and independent
Reduction in Group
Scope 1 and 2 emissions
23%
vs 2020 baseline
Reduction in UK
Scope 1 and 2 emissions
43%
vs 2018 NSTD
1
baseline
Note above:
1
North Sea Transition Deal
Notes opposite:
1
kgCO
2
e/bbl = kilograms of CO
2
equivalent
per produced barrel
2
Based on the University of Calgary Petroleum
Refinery Life Cycle Model (‘PRELIM’) recognised
by California Air Resources Board, US Energy
Technologies Laboratory, US DOE Office of Energy
Efficiency and Renewable Energy, Carnegie
Endowment for International Peace and the
US Environmental Protection Agency
verification was completed in 2022
with no gaps identified. In the UK,
the Group publishes its annual
Environmental Statement in line
with the regulatory environmental
management system requirement
under the OSPAR Recommendation
2003/5 (see the Environmental, Social
and Governance section on the
Group’s website, www.enquest.com).
These statements, which include
information on emissions, waste,
discharges and spills, are an open
and transparent representation of
EnQuest’s environmental performance
across all its UK offshore operations.
In Malaysia, environmental
management and reporting are
undertaken through PETRONAS
Malaysia Petroleum Management
(‘MPM’) and addressed as part of
the EnQuest Malaysia Management
System and in line with ISO 14001.
The Group has been a member of
Oil Spill Response Limited and the
Petroleum Industry of Malaysia Mutual
Aid Group for several years and
remains a supporter of Shetland Oil
Terminal Environmental Advisory Group.
Environmental
Managing emissions
from existing operations
and advancing new
energy opportunities.
31
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2022
Lowering CO
2
e emissions through
the energy transition
EnQuest recognises that industry,
alongside other key stakeholders
such as governments, regulators
and consumers, must contribute
to reducing the impact on climate
change of carbon-related emissions.
The Group is committed to playing its
part in the achievement of national
emission reduction targets and the
drive to net zero, with the Infrastructure
and New Energy business having
overall responsibility for delivering the
Group’s decarbonisation ambitions and
specific emission reduction objectives.
Within EnQuest’s core Upstream
and Decommissioning businesses,
the Board is focused on a strategy
that recognises that hydrocarbons
will remain a key element of the
global energy mix for many years
and through which the Group can
pursue a business model which
helps to fulfil energy demand as part
of the transition to a sustainable
lower-carbon world while reducing
Scope 1 and 2 emissions from its
own business operations where
practicable. At present, EnQuest does
not record Scope 3 emissions given
the complexity and scope of EnQuest’s
value chain; however, this is being
considered as part of the Group’s
Continuous Improvement Plan (‘CIP’)
with alignment to the United Nations-
adopted Sustainable Development
Goal (‘SDG’) 12, Responsible
Consumption & Production. For the
longer term, the Infrastructure and
New Energy business is evaluating and
progressing opportunities to utilise
existing infrastructure, including the
Sullom Voe Terminal (‘SVT’), pipelines,
and underground reservoirs, to
facilitate potential wind-powered
electrification of offshore oil and gas
infrastructure, green hydrogen and
derivative production, and carbon
capture and storage (‘CCS’) initiatives.
Its CCS ambitions, which aim to
permanently store CO
2
shipped to
site from isolated emitters in the UK,
Europe and further afield, provide the
potential to remove CO
2
in multiples of
the Group’s own emissions footprint.
The Group’s electrification plans could
lower emissions associated with
offshore production in the West of
Shetland at assets that could produce
into the 2050s. The production of
green hydrogen and derivatives
through harnessing the advantaged
natural wind resource around
Shetland could provide a low-carbon
alternative fuel which would help
decarbonise a number of industries.
(see page 14 for more information).
A clear target for the existing
portfolio linked to reward
In 2021, the Group set a target of
reducing its absolute Scope 1 and
2 CO
2
equivalent emissions by 10%
by 2023 against a 2020 baseline.
Further 10% targets over three years
have been set in 2022 and 2023 (see
pages 96 and 101 of the Directors’
Remuneration Report). These targets
are key performance metrics in
the Group’s long-term incentive
scheme for Executive Directors and
applicable employees and are linked
to appropriate targets within the
Group’s short-term incentive plan.
Improving the Group’s environmental
performance is an ongoing process
and, as such, workforce engagement
and development of technological
improvements will continue to
ensure economically viable emission
reduction initiatives across the Group
are identified and implemented. In
2022, EnQuest further strengthened
its Climate Change oversight
through the introduction of an Energy
(Emission) Management System -
Structure & Governance procedure.
The purpose of this is to outline the
structure and governance in relation
to the Energy Management System
within EnQuest, including how it
approaches the measurement and
reporting of emissions and how
the Group will assess and select
emission reduction opportunities. The
procedure itself is structured to align
with the internationally recognised
structure for an energy management
system in relation to ISO 50001.
Significant reductions achieved
The Group continued to make good
progress in reducing its absolute
Scope 1 and 2 emissions during the
year, with CO
2
equivalent emissions
now reduced by 22.7% versus the
2020 baseline, reflecting operational
improvements and lower flaring and
diesel usage. Since 2018, UK emissions
have reduced by 43.1%, driven by the
decisions to cease production at a
number of the Group’s assets and
the further reductions achieved in
2022, which is significantly ahead
of the UK Government’s North Sea
Transition Deal target of achieving a
10% reduction in Scope 1 and 2 CO
2
equivalent emissions by 2025.
In addition to reducing upstream-
related emissions, the Group has
continued to optimise sales of Kraken
cargoes directly to the shipping
fuel market, thereby avoiding the
significant emissions related to
refining – estimated to be c.32–36
kgCO
2
e/bbl
1,2
for typical North
Sea crude and helping to reduce
sulphur emissions in accordance
with the International Maritime
Organization (‘IMO’) 2020 regulations.
Looking to the future
As majors and other operators
continue to shift their focus from
mature basins within various
geographies, particularly the UK
given the introduction of the Energy
Profits Levy in 2022, it is expected there
will be further opportunities for the
Group to access additional oil and
gas resources. However, time and
careful consideration will be taken
to find the right opportunities where
EnQuest can deliver incremental
emission reductions relative to the
carbon footprint in the hands of the
seller. The Group can make a positive
contribution towards the future of
North Sea oil and gas through doing
its part in ensuring that each asset
is in the right hands. In Malaysia, the
Group continues to limit voluntarily
emissions below the regulatory limit.
“The Group’s carbon capture and storage
opportunity has the potential to deliver CO
2
removal at volumes representing several
multiples of the Group’s existing carbon
footprint.”
Salman Malik
Managing Director,
Infrastructure and New Energy
32
Environmental, Social and Governance
continued
Emissions management is an important
feature during the decommissioning
phase of an asset’s life-cycle. During
this phase, wells will need to be
plugged and abandoned, while the
production and processing facilities
and any relevant infrastructure will
need to be removed. Given the extent
of this work, it will take place over an
extended period and require careful
project management. EnQuest’s
UK Decommissioning directorate
will oversee the safe and efficient
execution of these work programmes
and is committed to delivering them
in a responsible manner. This includes
minimising emissions and maximising
the recycle and reuse of recovered
materials. A specific example would be
implementing a fit for purpose power
generation solution on the Thistle asset
which reduced emission levels such that
the thermal capacity of the combustion
equipment on the asset has fallen
below the regulatory limits to remain
within UK ETS. The UK Decommissioning
directorate continues to work with
a variety of stakeholders to identify
creative ways, such as modification to
the Heather asset power generation
equipment, in which emissions
associated with decommissioning
activities can be kept to a minimum.
EnQuest’s Infrastructure and New
Energy business continues to mature
renewable energy and decarbonisation
opportunities at SVT, including those
involving the repurposing of existing
site infrastructure. In particular, the
initiative focused on CCS could see
the Group’s carbon footprint move to
a position of negative net emissions.
In 2022, the Group applied for two CCS
licences for East of Shetland reservoirs
from the North Sea Transition Authority
(‘NSTA’). Initial studies suggest that
these available reservoirs have a
minimum 500 million tonnes CO
2
storage capacity. With EnQuest
estimating that c.10 million tonnes
per annum could be processed
through SVT infrastructure, this
amounts to a multi-decade project.
EnQuest continues to engage with
entities such as Offshore Energies
UK, the Net Zero Technology
Centre (‘NZTC’) and the NSTA, to
better understand how it can
contribute further to the industry
approach to achieving net zero,
while remaining aligned with
EnQuest’s strategy and Values.
Atmospheric emissions
The Group seeks to use energy
efficiently within its facilities
for extracting, processing and
exporting oil and gas, continually
looking to identify opportunities
that may reduce emissions from
its operations. As part of this work,
an Emissions Management Team,
was created that will develop and
drive a continual improvement
process focusing on Scope 1 and 2
emission reduction opportunities in
line with the Group’s overall target.
The primary responsibilities of the
Emissions Management Team are:
• Delivering a workable, low-
bureaucracy process for capturing
ideas and monitoring progress;
• Assessing emission reduction
opportunities arising from the
Group’s Energy Savings Opportunity
Scheme (‘ESOS’) audits and other
opportunities identified by EnQuest’s
staff and contractors in both the UK
and Malaysia; and
•
Maintaining an ‘Emissions Monitoring
Framework’ that allows regular
emissions monitoring and reporting to
Company leadership and the Board.
“The Group has enhanced its business model during 2022
to prioritise potential repurposing of infrastructure to
support new energy and decarbonisation opportunities
prior to executing a decommissioning plan.”
Salman Malik
Managing Director,
Infrastructure and New Energy
View of Central Avenue Sullom Voe
Terminal
33
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2022
Since 2020, there has been an
improvement in EnQuest’s flare
performance as demonstrated in
the graph below.
This improved performance has been
driven by improved levels of operational
efficiency. Examples of this include:
• Kittiwake achieving an 89% reduction
in flare (from 2020) after the
reinstatement of production from
Mallard (higher molecular weight
gas) and the re-mapping of the
compression system to maximise
utilisation of produced gas;
• Kraken achieving a 14% reduction in
flare due to better fuel management
and maximising utilisation of
produced gas within the installation’s
steam generation system; and
• PM8/Seligi achieving a 25% reduction
following improvements to the
compression system resulting in
better gas utilisation.
Future reductions in the short term
are expected from:
•
A reduction of flare purge
requirements on Magnus following
work completed during the recent
2022 turnaround which should
deliver a 10% reduction in Magnus
flaring; and
•
A planned trial in the first quarter of
2023 using fuel gas on one of the
engines on Kraken which should
maximise produced gas utilisation
and has potential to deliver non-
routine flaring capability.
EnQuest was awarded an improved
score of ‘C’ (from ‘D’) for its 2022
CDP Climate Change submission,
demonstrating that it continues to
integrate climate change impacts into
its business. The overall improvement
was driven by higher scores in the
Group’s climate-change ‘risk’ and
‘opportunity’ disclosures.
2018
2019
2020
2021
2022
350
200
250
300
150
100
50
0
SVT
Kittiwake
Magnus
PMB/Seligi
Kraken
EnQuest’s flare performance 2018–2022
In 2022, the NSTA requested companies operating in the UK North Sea to
consider disclosing certain quantitative metrics in their annual reports. The
following disclosure has been made in accordance with this request:
North Sea Transition Authority – UK short-term quantitative metrics
Scope 1 & 2 Emissions (MTCO
2
e)
739,277
Fugitive Emissions as % of Marketed Gas
0.019%
Carbon Intensity Total UK (MTCO
2
e/Boe)
0.039
Water Pollution Risks (million m
3
)
8.37
Waste Management & Disposal (MT)
4,691
Flaring & Venting (MTCO
2
e/Boe)
0.002
Regulatory Fines
1
Lost Time Injury Frequency Rate
0.62
Recordable Injury Frequency Rate
3.09
Restricted Workday Case
4
Medical Treatment Case
4
Lost Work Day Case
2
34
Environmental, Social and Governance
continued
Health and safety
Underpinning the Group’s licence
to operate is its health and safety
performance. The Group focuses on the
delivery of SAFE Results while realising
its business objectives. To achieve
this, the business is managed in
accordance with the Board-approved
Group-wide Health, Safety, Environment
and Assurance (‘HSEA’) Policy,
which can be found on the Group’s
website, www.enquest.com, under
Environmental, Social and Governance.
Culture
Safety is at the heart of EnQuest’s
Values. The Group undertakes
continuous improvement activities to
ensure that its health and safety culture
continues to develop. These have a
focus on the prevention of personal
injuries, dangerous occurrences and
hydrocarbon releases and, in support
of the delivery of SAFE Behaviours, are
aligned to four key pillars of:
•
Standards
– following rules and
procedures;
•
Awareness
– understanding the
hazards and controls;
•
Fairness
– adopting the correct
behaviours; and
•
Engagement
– communicating
effectively.
During 2022, the Group continued to
place emphasis on maintaining a
strong safety culture through the
presentation of two SAFE Results ‘Values
awards’ at Global Town Hall events.
EnQuest also implemented the
learnings from the Group-wide asset
integrity review undertaken in 2021.
Several improvements were made in
people, plant and process safety,
including:
• Shutdowns undertaken across
the Group’s operated asset base,
focused on driving improved asset
integrity;
• Risk-based approach applied
to global audit and assurance
plans and activities, including a
dashboard providing open visibility
of findings and trends to the
organisation; and
• Process safety dashboard
automation to improve data
integrity.
Independent review of asset integrity
activities was maintained throughout
2022 and reported at Board level.
This will continue into 2023, helping to
ensure asset integrity status and cost
allocation remain visible, which enables
improved risk-based decision making.
Social
Our culture defines how
we approach safety and
ensures that our people,
our most important asset,
go home safe and well.
Top-quartile LTI frequency
1
performance
0.57
Reportable hydrocarbon
releases across the Group
3
1
Lost Time Incident frequency represents the
number of incidents per million exposure
hours worked (based on 12 hours for offshore
and eight hours for onshore)
35
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2022
As the threat from COVID-19 reduced,
EnQuest continued to take a proactive
approach in providing practical
support and guidance to its offshore
and onshore workforce, following best
practice and government and industry
policy. The additional barriers put in
place to safely manage operations
during the pandemic were removed in
phases as the level of risk reduced and
improved practices became standard.
This was undertaken with no adverse
impact on the health and safety of
EnQuest’s people or operations, with
the threat now managed through
updated communicable disease
procedures.
In Malaysia, the successful completion
of a joint military security exercise
between the Navy, the Air Force
and the Army onboard a PM8/Seligi
installation enabled collaboration
with several government agencies
to address key issues. This activity
resulted in a ‘Focused Recognition’
award from PETRONAS MPM.
The Group’s health and safety
performance has continued to be
strong from a leading indicator
perspective, while lagging indicators
of Lost Time Incidents (‘LTIs’) and
hydrocarbon releases were more
challenged. There has been further
development of the continuous
improvement culture with several
activities undertaken in 2022,
including:
• Audit of the Group-wide process
safety management framework with
improvement actions implemented;
• Exceeding the target for site safety-
leadership visits, a leading safety
indicator of engagement;
• Reducing high-risk safety and
environmental critical element
repair orders, which has lowered the
risk profile across the Group; and
• Continuing to contribute positively to
the industry organisations Offshore
Energies UK and Step Change in
Safety initiatives and campaigns.
Health
EnQuest has adopted various
hybrid working practices and the
health and wellbeing of the EnQuest
workforce has continued to be a focus
area. The employee-led Wellbeing
Committee implemented a number
of activities such as Step Challenges
and Menopause Awareness, while
EnQuest also piloted Mental Health
Awareness training, which will be
further developed through 2023 (see
page 39 for more information).
Personal safety
Despite the challenges of managing
late-life assets through production
operations and decommissioning
activities, the Group’s LTI performance
remained in the upper quartile, with a
Group LTI frequency
1
of 0.57. Various
notable milestones were achieved
across the Group’s asset base:
• Three LTIs were reported across
the Group against a backdrop of
5,298,991 million hours worked; and
• The asset team at Kittiwake recorded
17 years LTI free.
There was an increase in the number
of LTIs from 2021, which primarily
occurred through routine activities,
including walking through the
installation. In response, management
emphasised the need for increased
focus on situational awareness and
dynamic risk assessment.
Process safety
Process safety continued to be a focus
in 2022. In conjunction with the asset
integrity review, there has been progress
achieved in risk review processes, such
as the automation of the major accident
hazard barrier model which enables the
extraction of real-time inspection and
maintenance data. This has been
further supported by a focus at the
monthly asset Process Safety Review
and Improvement Boards to generate
open and transparent discussions
about key threats and control
arrangements:
• For those assets in a
decommissioning phase and
not processing hydrocarbons,
asset integrity is being assured
to deliver safe decommissioning
activities, while the management
of safety-critical maintenance is
being tailored to reflect the specific
circumstances of each asset;
• HSEA systems have continued to be
reviewed and the use of data
visualisation tools is better informing
HSEA performance and ensuring that
any response to changing HSEA
processes is supported by reliable
data sources from automated
systems;
•
In both Malaysia and the UK, regulator
interaction continues in an open and
transparent manner, allowing for
collaboration on key issues; and
• Reportable hydrocarbon releases
across UK-operated assets increased
to three in 2022 (2021: one; 2020: four;
2019: 11), while Malaysia reached the
milestone of zero in 2022 (2021: one;
2020: two; 2019: five). Hydrocarbon
release prevention remains a focus
area for 2023.
All prior Health and Safety Executive
(‘HSE’) Improvement Notices
(‘INs’) have been complied with in
accordance with the action plans
and timelines agreed with the
HSE. Following an HSE inspection
in November, an IN was received
with regard to a previously applied
isolation scheme. While the HSE
recognised that EnQuest had made
a number of improvements in the
control of isolations, the issuance of
the IN was in line with the industry
strategy it is following. EnQuest is
working to close this IN ahead of the
agreed due date. The Group welcomes
continued engagement with the HSE
and INs provide the Group with the
opportunity to further improve process
safety arrangements, prevent future
hydrocarbon releases and increase
assurance across the Group.
1
Lost Time Incident frequency represents the
number of incidents per million exposure
hours worked (based on 12 hours for offshore
and eight hours for onshore)
“We will deliver SAFE Results by fostering a
culture of accountability and performance
where everyone understands what is
expected of them. It’s about having realistic
standards, governance and capabilities to
add value and to support the business.”
Peter Hepburn
HSEA Director
36
Environmental, Social and Governance
continued
Community
EnQuest maintained its strong
commitment to directly support the
local communities in which it operates.
UK
EnQuest made several contributions
to charitable causes in 2022:
• Offshore and at the SVT, charitable
donations are linked to strong health
and safety performance on our
assets. Through these schemes,
EnQuest was able to donate to a wide
variety of charities, including CLAN
Cancer Support, the Ardgowan and
St Andrew’s Hospices, as well as the
Zoë’s Place Baby Hospice and
AberNecessities, which provides
support to struggling families in
Aberdeen and surrounding areas;
• SVT also supported cultural and
sporting events in Shetland in 2022,
including sponsoring the
Masterclasses and International
stands at the A Taste of Shetland
Festival, the Shetland Folk Festival, the
Shetland junior golf annual event as
well as the Bergen to Lerwick Yacht
Race prize-giving event and the
Shetland Rugby Sevens events for
men, women and children;
• Ten educational awards for the
academic year 2022/2023 were
made by the Trustees of the Sullom
Voe Terminal Participants’ Tenth
Anniversary Education Trust. The
Trust, now in its 34th year of
operation, was established to
promote and encourage the
education of Shetland residents who
will be studying a discipline likely to
contribute to the social or economic
development of Shetland. As
operator, EnQuest also offered the
opportunity for the Partnership Award
recipient to spend time on-site
working on projects for the terminal,
providing them with necessary
experience to complement their
areas of study; and
• In Aberdeen, EnQuest engaged with
its new core corporate charity, The
Archie Foundation, in a number of
ways, including fundraising for the
4x4x48 running challenge, where two
EnQuest participants ran four miles
every four hours for 48 hours, and
a donation to support the charity’s
Christmas calendar for sick
children in Aberdeen. EnQuest also
maintained its commitment to CLAN
Cancer Support, getting involved in
a hiking challenge and a sponsored
sky dive, as well as helping to
sponsor the charity’s Big Hop Trail,
a nature walk featuring outsize
rabbits in Aberdeenshire and Moray.
Support was also provided to a wide
variety of other charitable causes,
including the Aberdeenshire North
Foodbank through a fundraising
stall providing support to vulnerable
families in the region over the
December festive season. EnQuest
also offered 15 internship placements
in the summer to a diverse group of
postgraduates, undergraduates and
one school leaver, working across the
business divisions from Upstream to
Decommissioning, Business Services
to HR, as well as its Infrastructure and
New Energy business. EnQuest is
planning to expand its support to
students with a programme of
undergraduate and postgraduate
sponsorship in the UK which will
begin in 2023.
Shetland Junior Golf Championship 2022
37
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2022
Malaysia
In Malaysia, EnQuest continued to
support a very active programme
of local community initiatives,
charitable donations and educational
sponsorship, including:
• EnQuest Malaysia continued to
support the Sungai Pergam Orang Asli
Primary School in Terengganu, by
contributing to student bursaries for
61 students through the MyKasih
‘Love My School’ programme.
EnQuest Malaysia has supported the
programme since June 2019, with the
school one of only two Orang Asli
primary schools in this province.
Having funded the refurbishment of
the school canteen in 2019, EnQuest
has committed to pay for upgrades to
classrooms and the school’s roof.
EnQuest has also sponsored ‘Back to
School’ sets, including school
uniforms for students at SK Sungai
Pergam for the start of the academic
year in March 2023;
• In 2022, 17 local university students
were selected for internship
placements in a variety of disciplines;
• EnQuest’s partnership with the
Institute of Chemical Engineers
(‘IChemE’) to offer accreditation
of the Universiti Kebangsaan
Malaysia Chemical and Process
Engineering Programme continued
into its second year. EnQuest
remains committed to this scheme
and is awaiting the outcome of the
IChemE progress assessment which
has been delayed due to the
COVID-19 pandemic;
• EnQuest continued its joint
sponsorship with The Amjad and
Suha Bseisu Foundation of six
undergraduate students in geology
as well as chemical, mechanical
and petroleum engineering from
the Universiti Malaya and Universiti
Teknologi Malaysia; and
• Having begun in 2021, the programme
to replant 380 mangrove trees
covering an approximate wetland
area of 900 m
2
within the Kuala
Selangor Nature Park in collaboration
with the Majlis Perbandaran Kuala
Selangor (Kuala Selangor Town Hall)
and Malaysian Nature Society was
concluded. The final tranche of 180
trees was planted successfully in early
August 2022.
Charitable donations in 2022
($000)
c.175
EQ interns visit the Sullom Voe Terminal
38
Environmental, Social and Governance
continued
Our people
At EnQuest, we recognise people
are critical to our success and we
are committed to ensuring EnQuest
remains a great place to work.
We have a strong set of Values
that underpin our way of working
and provide a rewarding work
environment, with opportunities for
growth and learning while contributing
to the delivery of our strategy.
An inclusive workforce
We remain committed to providing an
inclusive culture that recognises and
celebrates difference and sees a diverse
culture as an enabler of creativity and
performance improvement. Established
in 2021, the Group-wide diversity and
inclusion (‘D&I’) strategy, is firmly
embedded in the overall strategy of
the business, alongside the D&I Policy.
The policy, which can be found on the
Group’s website (www.enquest.com),
outlines seven key commitments to:
• Challenge our personal bias;
• Understand the diversity of our
workforce;
• Resource the organisation, ensuring
diversity matters;
• Engage and educate our workforce
on D&I;
• Learn from each other by providing
reverse mentoring;
• Consider suppliers who are diverse
and inclusive; and
• Learn and continuously improve.
’Diversity, Equity and Inclusion Culture’
training, which had a 70% take-up rate,
has been provided for all our UK-based
managers and supervisors during
2022. The training was split into two
sessions; the first built on the ‘Conscious
Inclusion’ training from 2021 that helped
to improve participants’ knowledge and
skills to create a more inclusive culture,
while the second session was aimed
at creating awareness of privilege
and microaggressions by engaging
in group discussions and ultimately
producing an improvement plan for
the Company to implement in 2023.
The UK’s EnQlusion workforce group
promoted a number of initiatives
during 2022, including continued
support for the Association for
Black and Minority Ethnic Engineers,
International Women in Engineering
Day and the UK’s AXIS Network.
An employee ‘pulse’ survey that
focused on diversity and inclusion was
conducted in the UK during September
2022. The survey provided a useful
narrative on employee perceptions
of the levels of diversity and inclusion
in the business. This has acted as a
signpost for improvement areas, such
as raising awareness of how a more
diverse and inclusive environment
can be a more motivating place to
work and lead to delivering improved
Business performance. During 2023
and beyond, we remain committed
to implementing several initiatives in
direct response to the survey’s findings.
Additionally, we will also revisit our
Diversity and Inclusion strategy to
ensure it remains relevant for the future
and further strengthen our three-
year road map to increase non-male
representation at senior management.
Recruitment
While recruitment processes are
being evolved to encourage a broad
spectrum of applicants, we remain
committed to fair treatment of people
with disabilities in relation to job
applications. Full consideration is
given to applications from disabled
persons where the candidate’s
particular aptitudes and abilities are
consistent with adequately meeting
the requirements of the job. As set
out in the Equal Opportunities &
Dignity at Work Policy, we encourage
individuals with a disability, or who
develop a disability at any time during
their employment, to speak to their
line manager about their condition.
This will enable the Group to provide
support and access to the necessary
training for the relevant individual.
Our people and organisational
strategy is to ensure that we have
the right people, in the right roles,
driving performance and delivering
efficiencies as we continue to pursue
our strategy. As such, we ensure that our
processes are open and transparent,
providing equal opportunities for all.
We will continue with this approach,
recruiting individuals based on merit
and their suitability for the role.
EnQuest was delighted to sponsor
the Student Room at the OEUK annual
decommissioning conference
in St Andrews in November 2022.
This demonstrated our ongoing
commitment to sharing knowledge in
the industry, as well as encouraging
future generations of engineers to
consider a career in decommissioning.
Ways of working and engagement
We have a strong set of Values
and high standards of business
conduct which we expect our
employees and everyone we work
with to demonstrate and adhere to.
Throughout 2022, we continued to
celebrate and recognise those who
had demonstrably lived our Values
through our Values awards presented
at our Global Town Hall events.
As the world emerges from the
COVID-19 pandemic and restrictions
are lifted, we have continued to
review our ways of working, adopting
hybrid and flexible working where
appropriate, while respecting
geographical and cultural differences.
To help us understand employee
engagement levels, a Group-wide
employee survey will be conducted
in 2023. Together with our Diversity
and Inclusion ‘pulse’ surveys, these
engagement steps remain an important
driver to identify areas requiring
management focus. The previous
Group-wide survey concluded in early
2022, with a participation rate of over
71%. The results were communicated
to teams and managers across the
business, with progress against existing
action plans reviewed and updates
made to those plans to address areas
where there is identified scope for
improvement. Group-wide areas of focus
included communicating and sharing
our Company purpose and strategy
within departments and teams, creating
open spaces for teams to engage with
their managers, simplify processes and
procedures and make improvements
to office working environments.
In addition to engagement surveys,
the EnQuest Global Employee Forum,
attended by two formally designated
Non-Executive Directors, met three
times throughout 2022. Areas
discussed and reviewed during the
year included:
• Hybrid working effectiveness;
• Employee reward and recognition; and
• Optimising organisational
effectiveness.
2025 targets
Women in leadership and
management roles
30%
Ethnic minority representation
in Executive leadership roles
15–20%
39
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2022
During 2022, our Non-Executive
Directors moved to a broader
approach for employee engagement,
such as through face-to-face
meetings in specifically arranged
breakfast and dinner meetings.
However, an internal Global Employee
Forum continues to function as a
useful interface between employees
and management for constructive
two-way dialogue. Further details
of how the Company engages
with its workforce can be found
in the Corporate governance
statement on page 70.
Our commitment to wellbeing
The mental and physical welfare
of all employees continues to be a
major focus across the business.
Mental health awareness has
remained an important aspect of
wellbeing, particularly considering
the changing landscape as we
emerge from COVID-19 restrictions,
the global impact of the war in
Ukraine and the cost-of-living crisis.
We have a well-established Wellbeing
Committee, consisting of an active
membership from across the business.
The Committee is pivotal in developing
initiatives covering all aspects of
individual wellbeing, as well as social
events such as our annual children’s
Christmas party. We continue to
promote a third-party digital platform
for employees offering tools and
techniques to support wellbeing and
have delivered targeted awareness
initiatives on mental health. We also
use our internal social media channel,
Yammer, to promote these initiatives
and those targeted at physical
health, including pilates, nutrition,
along with the annual ‘rig-run’,
Corporate Games and ‘step count’
challenges throughout the year.
Continued growth and learning
In line with UK legislation, EnQuest
contributes to the UK Apprenticeship
Levy each year. Contributions to the
levy can be reclaimed for specific
training initiatives and EnQuest has
partnered with FutureStart since 2021
to provide a Vocational Leadership
Programme. Over 100 employees
expressed an interest, and more than
60 employees have commenced
work on this 18-month programme
which, once completed, will deliver a
vocational qualification in leadership
to participating employees.
In Malaysia, the development of
offshore competencies has continued
at pace during 2022 with a broad
training programme implemented
with partner Institut Teknologi
Petroleum PETRONAS (INSTEP). At a
leadership level, further collaboration
within the industry has delivered
key skills through a leadership
and mentorship programme. The
e-Learning platform continues to
be a key tool in delivering training to
employees in Malaysia with greater
flexibility to meet their individual
training needs, with 69% of employees
actively participating in programmes
on the platform during 2022.
Identifying succession plans for our
business-critical roles continued in
2022 to ensure we retain and develop
high-potential employees. We
conduct regular reviews to ensure the
direction, focus and development of
employees identified remain relevant
and on track. Across the Group, we
supported a broad programme of
job-specific training to ensure high
levels of skill, competence and safety
are maintained across our operations.
Gender pay gap
Over the six years that EnQuest has
been reporting its gender pay gap
in the UK, there has been a marked
narrowing of the gap between male
and female employees’ pay, with
the gap related to the average rate
of total pay for women compared to
that of men reducing from 38.7% in
2017 to 17.8% in 2022. The reduction
in the pay gap is primarily driven
by a gradual rebalancing of more
female employees moving into
higher pay levels compared to the
wider population, although this
was impacted by the necessary
transformation programme
undertaken during 2020 following
the COVID-19 pandemic.
As a Group, we are pleased to see
the gender pay gap continue to
narrow and we remain committed to
providing equal pay for equal jobs.
However, there is further work required
to drive gender pay equity and this will
be achieved through an ongoing focus
on diversity and inclusion in all aspects
of our working lives. In addition to
a fair and balanced recruitment
and promotion process with regular
skills assessments, appropriate
action from the Global Employee
Forum and the results of our surveys
continue to be taken in line with our
Diversity and Inclusion Strategy.
Post COVID-19, EnQuest has continued to
adopt hybrid and flexible working
“At EnQuest, we pride ourselves in being
able to think differently and influence
across boundaries.”
Janice Doyle
Director of People, Culture & Diversity
40
Environmental, Social and Governance
continued
agreed key performance indicators
consistent with the strategic
objectives of enhancing net cash
flow, reducing leverage, reducing
emissions, managing costs,
diversifying its asset base and
pursuing new energy and
decarbonisation opportunities;
• The Group seeks to embed a culture
of risk management within the
organisation corresponding to the
risk appetite which is articulated for
each of its principal risks;
• The Group seeks to avoid
reputational risk by ensuring that its
operational and HSEA processes,
policies and practices reduce the
potential for error and harm to the
greatest extent practicable by
means of a variety of controls to
prevent or mitigate occurrence; and
• The Group sets clear tolerances for
all material operational risks to
minimise overall operational losses,
with zero tolerance for criminal
conduct.
The Board reviews the Group’s risk
appetite annually in light of changing
market conditions and the Group’s
performance and strategic focus.
The Executive Committee periodically
reviews and updates the Group Risk
Register based on the individual
risk registers of the business. The
Risks and uncertainties
Management of risks and
uncertainties
Consistent with the Group’s purpose,
the Board has articulated EnQuest’s
strategic vision to be the partner of
choice for responsible management of
existing energy assets, applying our
core capabilities to create value
through the transition.
EnQuest seeks to balance its risk
position between investing in activities
that can achieve its near-term targets,
including those associated with
reducing emissions, and those which
can drive future growth with the
appropriate returns, including any
appropriate market opportunities that
may present themselves, and the
continuing need to remain financially
disciplined. This combination drives cost
efficiency and cash flow generation,
facilitating the continued reduction in
the Group’s debt.
In pursuit of its strategy, EnQuest has to
manage a variety of risks. Accordingly,
the Board has established a Risk
Management Framework (‘RMF’) to
enhance effective risk management
within the following Board-approved
overarching statements of risk appetite:
• The Group makes investments and
manages the asset portfolio against
Group Risk Register; an assurance
mapping and controls review
exercise; a Risk Report (focused
on identifying and mitigating the
most critical and emerging risks
through a systematic analysis of the
Group’s business, its industry and
the global risk environment); and a
Continuous Improvement Plan (‘CIP’)
are periodically reviewed by the Board
(with senior management) to ensure
that key issues are being adequately
identified and actively managed. In
addition, the Group’s Audit Committee
oversees the effectiveness of the RMF
while the Safety, Sustainability and
Risk Committee provides a forum for
the Board to review selected individual
risk areas in greater depth (for further
information, please see the Audit
Committee report on pages 78 to 84
and the Safety, Sustainability and Risk
Committee report on pages 103 to 104).
As part of its strategic, business
planning and risk processes, the
Group considers how a number
of macroeconomic themes may
influence its principal risks. These
are factors which the Group should
be cognisant of when developing its
strategy. They include, for example,
long-term supply and demand
trends for oil and gas and renewable
energy, developments in technology,
Governance
Robust Risk
Management
Framework.
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Strategic Report
EnQuest PLC –
Annual Report and Accounts 2022
demographics, the financial, physical
and transition risks associated with
climate change and other ESG trends,
and how markets and the regulatory
environment may respond, and the
decommissioning of infrastructure in
the UK North Sea and other mature
basins. These themes are relevant to
the Group’s assessments across a
number of its principal risks. The Group
will continue to monitor these themes
and the relevant developing policy
environment at an international and
national level, adapting its strategy
accordingly. For example, the Group
has made further progress in the
development and execution of its
energy transition and decarbonisation
strategy through the Infrastructure
and New Energy business, which
was established in 2021. The Group is
also conscious that as an operator
of mature producing assets with
limited appetite for exploration, it
has limited exposure to investments
that do not deliver near-term returns
and is therefore in a position to
adapt and calibrate its exposure
to new investments according to
developments in relevant markets.
This flexibility also ensures the Group
has mitigation against the potential
impact of ‘stranded assets’.
Within the Group’s RMF, the Safety,
Sustainability and Risk Committee
has categorised all risk areas faced
by the Group into a ‘Risk Library’
of 19 overarching risks. For each
risk area, ‘Risk Bowties’ are used to
identify risk causes and impacts, with
these mapped against preventative
and containment controls used to
manage the risks to acceptable levels
(see diagram below). These Risk
Bowties are periodically reviewed to
ensure they remain fit for purpose.
The Board, supported by the
Audit Committee and the Safety,
Sustainability and Risk Committee,
has reviewed the Group’s system
of risk management and internal
control for the period from 1 January
2022 to the date of this report and
carried out a robust assessment of
the Group’s emerging and principal
risks and the procedures in place
to identify and mitigate these risks.
A Risk Management Framework
Performance report is produced
and reviewed at each Safety,
Sustainability and Risk Committee
meeting in support of this review.
“The Board confirms that the Group complies
with the Financial Reporting Council’s
‘Guidance on Risk Management, Internal
Control and Related Financial and Business
Reporting’.”
EnQuest Risk Bowtie
ENQUEST RISK MANAGEMENT FRAMEWORK
42
Environmental, Social and Governance
continued
WHAT WE MONITOR
Enterprise risk register
A summary of the Group’s key risks; prepared by combining
key risks identified from the asset and functional risk registers with
Group-level risks.
Risk landscape inputs/considerations
Comprises:
(a) long-term macro factors such as political risk; supply and
demand trends; climate change-related financial, physical
and transition risks; and the decommissioning of infrastructure;
and
(b) near-term, emerging and principal risks. These are considered
holistically on a backward and forward-looking basis, alongside
outputs from relevant strategic reviews, and summarised in an
annual Risk Report presented to the Safety, Sustainability and Risk
Committee.
Assessment
Risk causes; likelihood and impact; gross impact; mitigating controls
(preventative and containment); net impact; risk appetite;
improvement actions; and risk owner.
Identified risks
14 principal risks mapped from a ‘Risk Library’ of 19 overarching risks.
Asset and functional risk registers
A compilation of risks (including threats and opportunities) and
mitigating controls being managed at an operational/functional
level on a day-to-day basis.
Quarterly RMF performance report
Reviewed by leadership teams before being presented to the Safety,
Sustainability and Risk Committee and uploaded to the Board portal.
Continuous Improvement Plan
A summary of the key actions planned for continual improvement
of the RMF.
Board of Directors (pages 66 to 67)
Responsible for providing oversight of the Group’s control and risk management systems, reviewing key risks and mitigating controls
periodically. Approves the Group’s risk appetite annually and approves the Group’s going concern and viability statements.
Audit Committee (pages 78 to 84)
•
Reviews the effectiveness of the Group’s internal controls
and risk management systems;
•
Reviews the internal audit assurance map against
principal risks; and
•
Reviews and recommends for approval by the Board the
Group’s going concern and viability statements.
Supported by the Group’s Internal Audit function.
Safety, Sustainability and Risk Committee (pages 103 to 104)
•
Supports the implementation and progression of the
Group’s RMF;
•
Monitors the adequacy of containment and mitigating
controls, and progression of mitigation of risks;
•
Undertakes in-depth analysis of specific risks and considers
existing and potential new controls; and
•
Conducts detailed reviews of key non-financial risks not
reviewed within the Audit Committee.
Operations Committee
•
Regularly reviews the Group’s operating
performance against stretching targets
and agreed KPIs; and
•
Regularly reviews the Group’s asset risk
registers and considers the results of
assurance audits over operational
controls.
Executive Committee
•
Frequently reviews Group performance,
including financial, operating and HSE
performance; and
•
Periodically reviews the Group Risk
Register and RMF performance report.
HSEA Directorate
•
Regularly reviews the Group’s HSE
performance against stretching
targets, agreed KPIs and industry
benchmarks; and
•
Regularly reviews the HSE risk register
and considers the results of assurance
audits over HSE controls.
HOW WE MONITOR
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EnQuest PLC –
Annual Report and Accounts 2022
Near-term and emerging risks
As outlined previously, the Group’s RMF is embedded in all
levels of the organisation with asset risk registers, regional
and functional risk registers and ultimately an enterprise-
level ‘Risk Library’. This integration enables the Group to
identify quickly, escalate and appropriately manage
emerging risks.
During 2022, work continued to enhance the integration of
these risk registers and the associated processes to allow
management to understand better the various asset risks
and how these ultimately impact on the enterprise-level
risk and their associated ‘Risk Bowties’. A key area of
ongoing development is the integration of the Operational
Risk Assessment into the automated risk management
software, which is expected to be completed in 2023. In turn,
this ensures that the preventative and containment controls
in place for a given risk are reviewed and remain robust
based upon the identified risk profile. It also drives the
required prioritisation of in-depth reviews to be undertaken
by the Safety, Sustainability and Risk Committee, which are
now integrated into the Group’s internal audit programme
for review. During the year, nine Risk Bowties were reviewed,
ensuring that all 19 of the Group’s identified risks have been
reviewed within the targeted cycle.
With the threat from COVID-19 reduced and now being
managed through updated and effective communicable
disease procedures, the Group has removed it from its
emerging risk register.
While not considered an emerging risk, given the focus on
climate-related risks for energy companies, EnQuest has
provided further detail below on its assessment of this risk
within the Group’s risk library. Additional information can be
found in the Group’s Task Force on Climate-related
Financial Disclosures, starting on page 53.
CLIMATE CHANGE
The Group recognises that climate change concerns and
related regulatory developments could impact a number
of the Group’s principal risks, such as oil price, financial,
reputational and fiscal and government take risks, which
are disclosed later in this report.
Appetite
EnQuest recognises that the oil and gas industry, alongside
other key stakeholders such as governments, regulators
and consumers, must all play a part in reducing the impact
of carbon-related emissions on climate change, and is
committed to contributing positively towards the drive to
net zero through the energy transition and decarbonisation
strategy being pursued through the Infrastructure and New
Energy business.
The Group’s risk appetite for climate change risk is reported
against the Group’s impacted principal risks, while a
discrete disclosure against the Task Force on Climate-
related Financial Disclosures can be found on pages
53 to 60.
Mitigation
Mitigations against the Group’s principal risks potentially
impacted by climate change are reported later in this report.
The Group has an emissions management strategy and has
committed to a 10% reduction in Scope 1 and 2 emissions
over three years, from a year-end 2020 baseline, with the
achievement linked to reward. Progress is reported to the
Safety, Sustainability and Risk Committee of the Board. The
Group endeavours to reduce emissions through improving
operational performance, minimising flaring and venting
where possible, and applying appropriate and economic
improvement initiatives, noting that the ability to reduce
carbon emissions from its own operations will be constrained
by the original design of later-life assets. Following the
establishment of the Infrastructure and New Energy business
in 2021, the Group has further enhanced its business model
to include a focus on repurposing existing infrastructure to
support its renewable energy and decarbonisation ambitions,
centred around the Sullom Voe Terminal.
EnQuest has reported on all of the greenhouse gas
emission sources within its operational control required
under the Companies Act 2006 (Strategic Report and
Directors’ Reports) Regulations 2013 and The Companies
(Directors’ Report) and Limited Liability Partnerships
(Energy and Carbon Report) Regulations 2018 (see
pages 109 to 110 for more information).
The Group’s focus on short-cycle investments drives
an inherent mitigation against the potential impact
of ‘stranded assets’.
ONGOING GEOPOLITICAL
SITUATION
The Group has continued to assess its commercial and IT
security arrangements and does not consider it has a
material adverse exposure to the geopolitical situation
with respect to the sanctions imposed on Russia, although
recognises that the situation has caused oil price volatility.
The Group continues to monitor its position to ensure it
remains compliant with any sanctions in place.
FISCAL RISK AND GOVERNMENT
TAKE
The imposition of the UK Energy Profits Levy (‘EPL’) may
materially affect EnQuest’s free cash flow generation,
which in turn will impact the Group’s ability to finance
growth opportunities, presenting a further challenge for
future growth. The Group will continue to seek value-
accretive opportunities, both through the pursuit of
creative acquisition structures and continued focus on
new energy projects.
Note that EPL could also impact the principal risks of
Portfolio Concentration
and
Financial
.
Key Performance Indicators (‘KPIs’):
A
HSEA (LTI)
B
Production (Boepd)
C
Unit opex ($/Boe)
D
Cash generated by operations ($ million)
E
Cash capital and abandonment expense ($ million)
F
EnQuest net debt ($ million)
G
Net 2P reserves (MMboe)
H
Emissions (tCO
2
e)
Other near-term risks being monitored
44
Environmental, Social and Governance
continued
Key business risks
The Group’s principal risks (identified from the ‘Risk Library’)
are those which could prevent the business from executing
its strategy and creating value for shareholders or lead to a
significant loss of reputation. The Board has carried out a
robust assessment of the principal risks facing the Group at
the February meeting, including those that would threaten its
business model, future performance, solvency or liquidity.
Cognisant of the Group’s purpose and strategy, the Board is
satisfied that the Group’s risk management system works
effectively in assessing and managing the Group’s risk
appetite and has supported a robust assessment by the
Directors of the principal risks facing the Group.
Set out on the following pages are:
• The principal risks and mitigations;
• An estimate of the potential impact and likelihood of
occurrence after the mitigation actions, along with how
these have changed in the past year and which of the
Group’s KPIs could be impacted by this risk (see page 03)
for an explanation of the KPI symbols); and
• An articulation of the Group’s risk appetite for each of
these principal risks.
Among these, the key risks the Group currently faces are
materially lower oil prices for an extended period (see ‘Oil
and gas prices’ risk on page 45), and/or a materially lower
than expected production performance for a prolonged
period (see ‘Production’ risk on pages 45 to 46 and
‘Subsurface risk and reserves replacement’ on page 48),
and/or further changes in the fiscal environment (see
‘Financial’ risk on page 46 and ‘Fiscal risk and government
take’ on page 49), which could reduce the Group’s cash
generation and pace of deleveraging, which may in turn
impact the Company’s ability to comply with the
requirements of its debt facilities and/or execute growth
opportunities.
Risk
HEALTH, SAFETY AND ENVIRONMENT
(‘HSE’)
Oil and gas development, production and exploration
activities are by their very nature complex, with HSE risks
covering many areas, including major accident hazards,
personal health and safety, compliance with regulatory
requirements, asset integrity issues and potential
environmental impacts, including those associated
with climate change.
Potential impact
Medium (2021 Medium)
Likelihood
Medium (2021 Medium)
There has been no material change in the potential impact
or likelihood of this risk. The Group has a strong, open and
transparent reporting culture and monitors both leading and
lagging indicators and incurs substantial costs in complying
with HSE requirements. The Group’s overall record on HSE has
been strong, albeit impacted by regulatory challenges in
relation to the management of the annual flare consent on
Magnus and the receipt of improvement notices from the
Health and Safety Executive.
Related KPIs:
A
B
C
D
E
F
G
H
Appetite
The Group’s principal aim is SAFE Results with no harm to
people and respect for the environment. Should operational
results and safety ever come into conflict, employees
have a responsibility to choose safety over operational
results. Employees are empowered to stop operations for
safety-related reasons.
The Group’s desire is to maintain upper quartile HSE
performance measured against suitable industry metrics.
In 2022, EnQuest achieved an upper quartile Lost Time
Incident frequency rate
1
(‘LTIF’); however, the hydrocarbon
release frequency rate was challenged due to the three
releases reported on page 35. None of the releases had
common root causes and occurred at three different
locations and after thorough investigation no systemic
failure was identified within our systems. The incidents
occurred in the first half of the year and, since the corrective
and preventative actions have been implemented, no
further incidents occurred in the second half of 2022.
1
Lost Time Incident frequency represents the number of incidents per million
exposure hours worked (based on 12 hours for offshore and eight hours for
onshore)
Mitigation
The Group maintains, in conjunction with its core
contractors, a comprehensive programme of assurance
activities and has undertaken a series of in-depth reviews
into the Risk Bowties that have demonstrated the
robustness of the management process and identified
opportunities for improvement. A refreshed Group-aligned
HSE Continuous Improvement Plan was created in 2022,
promoting a culture of accountability and performance in
relation to HSE matters. The purpose of this plan is to ensure
that everyone understands what is expected of them by
having realistic standards, governance and capabilities to
add value and support the business. HSE performance is
discussed at each Board meeting and the mitigation of HSE
risk continues to be a core responsibility of the Safety,
Sustainability and Risk Committee. During 2022, the Group
continued to focus on the control of major accident hazards
and SAFE Behaviours.
In addition, the Group has positive and transparent
relationships with the UK Health and Safety Executive and
Department for Business, Energy & Industrial Strategy, and
the Malaysian regulator, PETRONAS Malaysia Petroleum
Management.
EnQuest’s HSE Policy is fully integrated across its operated
sites and this has enabled an increased focus on HSE.
There is a strong assurance programme in place to ensure
EnQuest complies with its policy and principles and
regulatory commitments.
45
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2022
Risk
OIL AND GAS PRICES
A material decline in oil and gas prices adversely affects
the Group’s operations and financial condition as the
Group’s revenue depends substantially on oil prices.
Potential impact
High (2021 High)
Likelihood
High (2021 High)
The potential impact and likelihood remain high, reflecting
the uncertain economic outlook, including possible impacts
from a global recession, geopolitical tensions and
associated sanctions, and the potential acceleration
of ‘peak oil’ demand.
The Group recognises that climate change concerns
and related regulatory developments are likely to reduce
demand for hydrocarbons over time. This may be mitigated
by correlated constraints on the development of new
supply. Further, oil and gas will remain an important part
of the energy mix, especially in developing regions.
Related KPIs:
B
D
E
F
G
Appetite
The Group recognises that considerable exposure to this
risk is inherent to its business but is committed to protecting
cash flows in line with the terms of its reserve based lending
facility.
Mitigation
This risk is being mitigated by a number of measures.
As an operator of mature producing assets with limited
appetite for exploration, the Group has limited exposure to
investments which do not deliver near-term returns and is
therefore in a position to adapt and calibrate its exposure
to new investments according to developments in relevant
markets.
The Group monitors oil price sensitivity relative to its capital
commitments and its assessment of the funds required to
support investment in the development of its resources.
The Group will therefore regularly review and implement
suitable programmes to hedge against the possible
negative impact of changes in oil prices within the terms
of its established policy (see page 161) and the terms of
the Group’s reserve based lending facility, which requires
hedging of EnQuest’s entitlement sales volumes (see page
161). As at 4 April 2023, the Group had hedged approximately
11.1 MMbbls for 2023 and 2024. This ensures that the Group
will receive a minimum oil price for some of its production.
The Group has an established in-house trading and
marketing function to enable it to enhance its ability to
mitigate the exposure to volatility in oil prices.
Further, the Group’s focus on production efficiency supports
mitigation of a low oil price environment.
Risk
PRODUCTION
The Group’s production is critical to its success and
is subject to a variety of risks, including: subsurface
uncertainties; operating in a mature field environment;
potential for significant unexpected shutdowns; and
unplanned expenditure (particularly where remediation
may be dependent on suitable weather conditions
offshore).
Lower than expected reservoir performance or insufficient
addition of new resources may have a material impact on
the Group’s future growth.
Longer-term production is threatened if low oil prices or
prolonged field shutdowns and/or underperformance
requiring high-cost remediation bring forward
decommissioning timelines.
Potential impact
High (2021 High)
Likelihood
Medium (2021 Medium)
There has been no material change in the potential impact
or likelihood. The Group met its 2022 production guidance
and continues to focus on key maintenance activities
during planned shutdowns and procuring a stock of critical
spares to support facility uptime.
Related KPIs:
B
C
D
E
F
G
H
Appetite
Since production efficiency and meeting production targets
are core to EnQuest’s business, the Group seeks to maintain
a high degree of operational control over production assets
in its portfolio. EnQuest has a very low tolerance for
operational risks to its production (or the support systems
that underpin production).
Mitigation
The Group’s programme of asset integrity and assurance
activities provide leading indicators of significant potential
issues, which may result in unplanned shutdowns, or which
may in other respects have the potential to undermine
asset availability and uptime. The Group continually
assesses the condition of its assets and operates extensive
maintenance and inspection programmes designed to
minimise the risk of unplanned shutdowns and expenditure.
The Group monitors both leading and lagging KPIs in
relation to its maintenance activities and liaises closely with
its downstream operators to minimise pipeline and terminal
production impacts.
Production efficiency is continually monitored, with losses
being identified and remedial and improvement opportunities
undertaken as required. A continual, rigorous cost focus is also
maintained.
Life of asset production profiles are audited by independent
reserves auditors. The Group also undertakes regular
internal reviews. The Group’s forecasts of production are
risked to reflect appropriate production uncertainties.
The Sullom Voe Terminal has a good safety record, and its
safety and operational performance levels are regularly
Key Performance Indicators (‘KPIs’):
A
HSEA (LTI)
B
Production (Boepd)
C
Unit opex ($/Boe)
D
Cash generated by operations ($ million)
E
Cash capital and abandonment expense ($ million)
F
EnQuest net debt ($ million)
G
Net 2P reserves (MMboe)
H
Emissions (tCO
2
e)
46
Environmental, Social and Governance
continued
monitored and challenged by the Group and other terminal
owners and users to ensure that operational integrity is
maintained. Further, EnQuest is committed to transforming
the Sullom Voe Terminal to ensure it remains competitive
and well placed to maximise its useful economic life and
support the future of the North Sea.
The Group actively continues to explore the potential of
alternative transport options and developing hubs that
may provide both risk mitigation and cost savings.
The Group also continues to consider new opportunities
for expanding production.
Risk
FINANCIAL
Inability to fund financial commitments or maintain
adequate cash flow and liquidity and/or reduce costs.
Significant reductions in the oil price, production and/or the
funds available under the Group’s reserve based lending
(‘RBL’) facility, and/or further changes in the UK’s fiscal
environment, will likely have a material impact on the
Group’s ability to repay or refinance its existing credit
facilities and invest in its asset base. Prolonged low oil
prices, cost increases, including those related to an
environmental incident, and production delays or outages,
could threaten the Group’s liquidity and/or ability to comply
with relevant covenants. Further information is contained in
the Financial review, particularly within the going concern
and viability disclosures on pages 25 and 26.
Potential impact
High (2021 High)
Likelihood
High (2021 High)
There is no change to the potential impact or likelihood.
While the Group has significantly reduced its debt and
successfully refinanced its debt facilities in 2022, which
extended maturities to 2027, the imposition of the Energy
Profits Levy (‘EPL’) in the UK has impacted the level of
available capital and associated amortisation schedule
under the Group’s RBL facility (see the going concern
disclosure on page 25).
Factors such as climate change, other environmental,
social and governance (‘ESG’) concerns, oil price volatility
and geopolitical risks have impacted investors’ and
insurers’ acceptable levels of oil and gas sector exposure,
with the availability of capital reducing while the cost of
capital has increased. In addition, the cost of emissions
trading allowances may continue to trend higher along with
the potential for insurers to be reluctant to provide surety
bonds for decommissioning, thereby requiring the Group to
fund decommissioning security through its balance sheet.
Related KPIs:
B
C
D
E
F
G
H
Appetite
The Group remains focused on further reducing its leverage
levels, targeting 0.5x EnQuest net debt to EBITDA ratio on a
mid-cycle oil price basis, maintaining liquidity, controlling
costs and complying with its obligations to finance providers
while delivering shareholder value, recognising that
reasonable assumptions relating to external risks need
to be made in transacting with finance providers.
Mitigation
Debt reduction remains a strategic priority. During 2022, the
Group’s strong free cash flow generation drove a $504.9
million reduction in EnQuest net debt to $717.1 million at
31 December 2022, with an EnQuest net debt to adjusted
EBITDA ratio of 0.7x. During the year, EnQuest also refinanced
its debt facilities, rebalancing the capital structure and
extending maturities to 2027. At 4 April 2023, the Group’s
new RBL facility was drawn to $282 million, with repayments
totalling $118 million in the first quarter of 2023 ensuring the
Group remains ahead of the amended facility amortisation
schedule and within its borrowing base limits.
Ongoing compliance with the financial covenants under
the Group’s reserve based lending facility is actively
monitored and reviewed. EnQuest generates operating
cash inflow from the Group’s producing assets and reviews
its cash flow requirements on an ongoing basis to ensure it
has adequate resources for its needs.
Where costs are incurred by external service providers, the
Group actively challenges operating costs. The Group also
maintains a framework of internal controls.
These steps, together with other mitigating actions
available to management, are expected to provide the
Group with sufficient liquidity to meet its obligations as
they fall due.
Risk
COMPETITION
The Group operates in a competitive environment across
many areas, including the acquisition of oil and gas assets,
the marketing of oil and gas, the procurement of oil and gas
services and access to human resources.
Potential impact
High (2021 High)
Likelihood
High (2021 High)
The potential impact and likelihood remain unchanged,
with the introduction of the UK EPL likely to impact industry
participants’ investment views of the UK North Sea, a
number of competitors assessing the acquisition of
available oil and gas assets and the rising potential for
consolidation (for example, through reverse mergers).
Operating in a competitive industry may result in higher
than anticipated prices for the acquisition of assets and
licences.
Related KPIs:
B
C
D
E
F
G
H
Appetite
The Group operates in a mature industry with well-
established competitors and aims to be the leading
operator in the sector.
Mitigation
The Group has strong technical, commercial and business
development capabilities to ensure that it is well positioned
to identify and execute potential acquisition opportunities,
utilising innovative structures, which may include the
Group’s competitive advantage of $2.5 billion of UK tax
losses, as may be appropriate. The Group maintains good
47
Strategic Report
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Annual Report and Accounts 2022
relations with oil and gas service providers and constantly
keeps the market under review. EnQuest has a dedicated
marketing and trading group of experienced professionals
responsible for maintaining relationships across relevant
energy markets, thereby ensuring the Group achieves the
highest possible value for its production.
Risk
IT SECURITY AND RESILIENCE
The Group is exposed to risks arising from interruption to,
or failure of, IT infrastructure. The risks of disruption to
normal operations range from loss in functionality of
generic systems (such as email and internet access) to the
compromising of more sophisticated systems that support
the Group’s operational activities. These risks could result
from malicious interventions such as cyber-attacks or
phishing exercises.
Potential impact
Medium (2021 Medium)
Likelihood
Medium (2021 Medium)
There has been no change to the potential impact or
likelihood, with the Group continuing to monitor and
enhance its IT security, having regard for the ongoing
geopolitical situation.
Related KPIs:
A
B
Appetite
The Group endeavours to provide a secure IT environment
that is able to resist and withstand any attacks or
unintentional disruption that may compromise sensitive
data, impact operations, or destabilise its financial systems;
it has a very low appetite for this risk.
Mitigation
The Group has established IT capabilities and endeavours
to be in a position to defend its systems against disruption
or attack.
A number of tools to strengthen employee awareness
continue to be utilised, including videos, presentations,
Yammer posts and poster campaigns.
During 2022, the Audit Committee agreed to update its
terms of reference to highlight its responsibilities more
explicitly with regard to the IT control environment, with the
IT controls to be regularly reviewed during meetings. The
Audit Committee also reviewed the Group’s cyber-security
measures and its IT resourcing model, noting the Group has
a dedicated cyber-security manager. Work on assessing
the cyber-security environment and implementing
improvements as necessary will continue during 2023.
Risk
PORTFOLIO CONCENTRATION
The Group’s assets are primarily concentrated in the UK
North Sea around a limited number of infrastructure hubs
and existing production (principally oil) is from mature
fields. This amplifies exposure to key infrastructure
(including ageing pipelines and terminals), political/fiscal
changes and oil price movements.
Potential impact
High (2021 High)
Likelihood
High (2021 High)
There has been no material change in the potential
impact or likelihood. The Group is currently focused on oil
production and does not have significant exposure to gas
or other sources of income. However, the Group continues
to assess acquisition growth opportunities with a view to
improving its asset diversity over time.
Related KPIs:
B
C
D
Appetite
Although the extent of portfolio concentration is moderated
by production generated in Malaysia, the majority of the
Group’s assets remain relatively concentrated in the UK
North Sea and therefore this risk remains intrinsic to the
Group.
Mitigation
This risk is mitigated in part through acquisitions. For
all acquisitions, the Group uses a number of business
development resources, both in the UK and internationally,
to liaise with vendors/governments and evaluate and
transact acquisitions. This includes performing extensive
due diligence (using in-house and external personnel) and
actively involving executive management in reviewing
commercial, technical and other business risks together
with mitigation measures.
The Group also constantly keeps its portfolio under rigorous
review and, accordingly, actively considers the potential for
making disposals and divesting, executing development
projects, making international acquisitions, expanding hubs
and potentially investing in gas assets, export capability or
renewable energy and decarbonisation projects where
such opportunities are consistent with the Group’s focus
on enhancing net revenues, generating cash flow and
strengthening the balance sheet.
The Group has made good progress with its decarbonisation
strategy, identifying three key focus areas of carbon capture
and storage, electrification and green hydrogen production
through its Infrastructure and New Energy business, which
could provide diversified revenue opportunities in the
long term.
Key Performance Indicators (‘KPIs’):
A
HSEA (LTI)
B
Production (Boepd)
C
Unit opex ($/Boe)
D
Cash generated by operations ($ million)
E
Cash capital and abandonment expense ($ million)
F
EnQuest net debt ($ million)
G
Net 2P reserves (MMboe)
H
Emissions (tCO
2
e)
48
Environmental, Social and Governance
continued
Risk
SUBSURFACE RISK AND RESERVES
REPLACEMENT
Failure to develop its contingent and prospective resources
or secure new licences and/or asset acquisitions and
realise their expected value.
Potential impact
High (2021 High)
Likelihood
Medium (2021 Medium)
There has been no material change in the potential impact
or likelihood.
Low oil prices, lack of available funds for investment (see
‘Financial’ risk) or prolonged field shutdowns requiring
high-cost remediation which accelerate cessation of
production can potentially affect development of
contingent and prospective resources and/or reserves
certifications.
Related KPIs:
B
C
E
F
G
Appetite
Reserves replacement is an element of the sustainability
of the Group and its ability to grow. The Group has some
tolerance for the assumption of risk in relation to the key
activities required to deliver reserves growth, such as
drilling and acquisitions.
Mitigation
The Group puts a strong emphasis on subsurface analysis
and employs industry-leading professionals. The Group
continues to recruit in a variety of technical positions which
enables it to manage existing assets and evaluate the
acquisition of new assets and licences.
All analysis is subject to internal and, where appropriate,
external review and relevant stage gate processes. All reserves
are currently externally reviewed by a Competent Person.
The Group has material reserves and resources at Magnus,
Kraken, Golden Eagle and PM8/Seligi that it believes can
primarily be accessed through low-cost workovers, subsea
drilling and tie-backs to existing infrastructure. During
2022, EnQuest successfully completed a number of well
programmes at its Magnus and PM8/Seligi assets. EnQuest
continues to evaluate the substantial 2C resources at
Bressay and Bentley to identify future drilling prospects and
plans to drill an exploration well at PM409 during 2023.
The Group continues to consider potential opportunities
to acquire new production resources that meet its
investment criteria.
Risk
PROJECT EXECUTION AND DELIVERY
The Group’s success will be partially dependent upon the
successful execution and delivery of potential future projects,
including decommissioning and Infrastructure and New
Energy opportunities in the UK, that are undertaken.
Potential impact
Medium (2021 Medium)
Likelihood
Low (2021 Low)
The potential impact and likelihood remain unchanged. As
the Group focuses on reducing its debt, its current appetite
is to pursue short-cycle development projects and to
manage its decommissioning and Infrastructure and
New Energy projects over an extended period of time.
Related KPIs:
A
B
D
E
F
G
H
Appetite
The efficient delivery of projects has been a key feature of
the Group’s long-term strategy. The Group’s appetite is to
identify and implement short-cycle development projects
such as infill drilling and near-field tie-backs in its Upstream
business, industrialise decommissioning projects to ensure
cost efficiency and unlock new energy and decarbonisation
opportunities through innovative commercial structures.
While the Group necessarily assumes significant risk when
it sanctions a new project (for example, by incurring costs
against oil price assumptions), or a decommissioning
programme, it requires that risks to efficient project delivery
are minimised.
Mitigation
The Group has teams which are responsible for the
planning and execution of new projects with a dedicated
team for each project. The Group has detailed controls,
systems and monitoring processes in place, notably the
Capital Projects Delivery Process and the Decommissioning
Projects Delivery Process, to ensure that deadlines are met,
costs are controlled and that design concepts and Field
Development/Decommissioning Plans are adhered to and
implemented. These are modified when circumstances
require and only through a controlled management of
change process and with the necessary internal and
external authorisation and communication. The Group’s
UK decommissioning programmes are managed by a
dedicated directorate with an experienced team who are
driven to deliver projects safely at the lowest possible cost
and associated emissions.
In Infrastructure and New Energy, the Group is working with
experienced third-party organisations and aims to utilise
innovative commercial structures to develop new energy
and decarbonisation opportunities.
The Group also engages third-party assurance experts
to review, challenge and, where appropriate, make
recommendations to improve the processes for project
management, cost control and governance of major
projects. EnQuest ensures that responsibility for delivering
time-critical supplier obligations and lead times are fully
understood, acknowledged and proactively managed by
the most senior levels within supplier organisations.
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Risk
FISCAL RISK AND
GOVERNMENT TAKE
Unanticipated changes in the regulatory or fiscal
environment can affect the Group’s ability to deliver its
strategy/business plan and potentially impact revenue
and future developments.
Potential impact
High (2021 High)
Likelihood
High (2021 Medium)
There has been no material change in the potential
impact; however, the likelihood has increased given the
implementation of, and subsequent change to, the UK EPL
which will negatively impact free cash flow generation
and therefore the Group’s ability to balance further
deleveraging and investment in its asset base.
Related KPIs:
D
E
F
Appetite
The Group faces an uncertain macroeconomic and
regulatory environment.
Due to the nature of such risks and their relative
unpredictability, it must be tolerant of certain inherent
exposure.
Mitigation
It is difficult for the Group to predict the timing or severity
of such changes. However, through Offshore Energies UK
and other industry associations, the Group engages with
government and other appropriate organisations in order
to keep abreast of expected and potential changes; the
Group also takes an active role in making appropriate
representations as it has done throughout the
implementation period of the UK EPL.
All business development or investment activities recognise
potential tax implications and the Group maintains relevant
internal tax expertise.
At an operational level, the Group has procedures to
identify impending changes in relevant regulations to
ensure legislative compliance.
Risk
INTERNATIONAL BUSINESS
While the majority of the Group’s activities and assets are
in the UK, the international business is still material. The
Group’s international business is subject to the same risks
as the UK business (for example, HSEA, production and
project execution); however, there are additional risks that
the Group faces, including security of staff and assets,
political, foreign exchange and currency control, taxation,
legal and regulatory, cultural and language barriers and
corruption.
Potential impact
Medium (2021 Medium)
Likelihood
Medium (2021 Medium)
There has been no material change in the impact or
likelihood.
Related KPIs:
A
B
D
E
F
G
H
Appetite
In light of its long-term growth strategy, the Group seeks
to expand and diversify its production (geographically
and in terms of quantum); as such, it is tolerant of assuming
certain commercial risks which may accompany the
opportunities it pursues.
However, such tolerance does not impair the Group’s
commitment to comply with legislative and regulatory
requirements in the jurisdictions in which it operates.
Opportunities should enhance net revenues and facilitate
strengthening of the balance sheet.
Mitigation
Prior to entering a new country, EnQuest evaluates the
host country to assess whether there is an adequate and
established legal and political framework in place to
protect and safeguard first its expatriate and local staff
and, second, any investment within the country in question.
When evaluating international business risks, executive
management reviews commercial, technical, ethical and
other business risks, together with mitigation and how risks
can be managed by the business on an ongoing basis.
EnQuest looks to employ suitably qualified host country
staff and work with good-quality local advisers to ensure
it complies with national legislation, business practices
and cultural norms, while at all times ensuring that staff,
contractors and advisers comply with EnQuest’s business
principles, including those on financial control, cost
management, fraud and corruption.
Where appropriate, the risks may be mitigated by entering
into a joint venture with partners with local knowledge and
experience.
After country entry, EnQuest maintains a dialogue with local
and regional government, particularly with those responsible
for oil, energy and fiscal matters, and may obtain support
from appropriate risk consultancies. When there is a
significant change in the risk to people or assets within a
country, the Group takes appropriate action to safeguard
people and assets.
Key Performance Indicators (‘KPIs’):
A
HSEA (LTI)
B
Production (Boepd)
C
Unit opex ($/Boe)
D
Cash generated by operations ($ million)
E
Cash capital and abandonment expense ($ million)
F
EnQuest net debt ($ million)
G
Net 2P reserves (MMboe)
H
Emissions (tCO
2
e)
50
Environmental, Social and Governance
continued
Risk
JOINT VENTURE PARTNERS
Failure by joint venture parties to fund their obligations.
Dependence on other parties where the Group is non-
operator.
Potential impact
Medium (2021 Medium)
Likelihood
Low (2021 Low)
There has been no material change in the potential
impact or likelihood.
Related KPIs:
B
C
E
F
G
Appetite
The Group requires partners of high integrity. It recognises that
it must accept a degree of exposure to the creditworthiness of
partners and evaluates this aspect carefully as part of every
investment decision.
Mitigation
The Group operates regular cash call and billing arrangements
with its co-venturers to mitigate the Group’s credit exposure at
any one point in time and keeps in regular dialogue with each
of these parties to ensure payment. Risk of default is mitigated
by joint operating agreements allowing the Group to take over
any defaulting party’s share in an operated asset and rigorous
and continual assessment of the financial situation of partners.
The Group generally prefers to be the operator. The Group
maintains regular dialogue with its partners to ensure
alignment of interests and to maximise the value of joint
venture assets, taking account of the impact of any wider
developments.
Risk
REPUTATION
The reputational and commercial exposures to a major
offshore incident, including those related to an environmental
incident, or non-compliance with applicable law and
regulation and/or related climate change disclosures, are
significant. Similarly, it is increasingly important that EnQuest
clearly articulates its approach to and benchmarks its
performance against relevant and material ESG factors.
Potential impact
High (2021 High)
Likelihood
Low (2021 Low)
There has been no material change in the potential impact
or likelihood.
Related KPIs:
A
B
D
E
F
G
H
Appetite
The Group has no tolerance for conduct which may
compromise its reputation for integrity and competence.
Mitigation
All activities are conducted in accordance with approved
policies, standards and procedures. Interface agreements
are agreed with all core contractors.
The Group requires adherence to its Code of Conduct and
runs compliance programmes to provide assurance on
conformity with relevant legal and ethical requirements.
The Group undertakes regular audit activities to provide
assurance on compliance with established policies,
standards and procedures.
All EnQuest personnel and contractors are required to
pass an annual anti-bribery and corruption course,
an anti-facilitation of tax evasion course and a data
privacy course.
All personnel are authorised to shut down production for
safety-related reasons.
The Group has a clear ESG strategy, with a focus on health
and safety (including asset integrity), emission reductions,
looking after its employees, positively impacting the
communities in which the Group operates, upholding a
robust RMF and acting with high standards of integrity.
The Group is successfully implementing this strategy.
51
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2022
Risk
HUMAN RESOURCES
The Group’s success continues to be dependent upon its
ability to attract and retain key personnel and develop
organisational capability to deliver strategic growth.
Industrial action across the sector, or the availability of
competent people, could also impact the operations of
the Group.
Potential impact
Medium (2021 Medium)
Likelihood
Medium (2021 Medium)
There has been no material change to potential impact
or likelihood.
Related KPIs:
A
B
C
D
E
F
G
H
Appetite
As a low-cost, lean organisation, the Group relies on
motivated and high-quality employees to achieve its
targets and manage its risks.
The Group recognises that the benefits of a lean, flexible
and diverse organisation require creativity and agility
to protect against the risk of skills shortages.
Mitigation
The Group has established an able and competent
employee base to execute its principal activities. In
addition, the Group seeks to maintain good relationships
with its employees and contractor companies and regularly
monitors the employment market to provide remuneration
packages, bonus plans and long-term share-based
incentive plans that incentivise performance and long-
term commitment from employees to the Group.
The Group recognises that its people are critical to its
success and so is continually evolving EnQuest’s end-to-end
people management processes, including recruitment
and selection, career development and performance
management. This ensures that EnQuest has the right
person for the job and that appropriate training, support and
development opportunities are provided, with feedback
collated to drive continuous improvement while delivering
SAFE Results. The culture of the Group is an area of ongoing
focus and employee surveys and forums have been
undertaken to understand employees’ views on areas,
including diversity and inclusion, in order to develop
appropriate action plans. EnQuest also recognises that fewer
young people may join the industry due to climate change-
related factors, although the Group’s decarbonisation
ambitions provide some mitigation to this dynamic. EnQuest
aims to attract the best talent, recognising the value and
importance of diversity. To ensure improved diversity in the
Group’s leadership, various targets have been implemented
during 2022. Further details on these are set out on page 38.
The Group recognises that there is a gender pay gap within
the organisation but that there is no issue with equal pay for
the same tasks.
EnQuest has reviewed the appropriate balance for its
onshore teams between site, office and home working to
promote strong productivity and Business performance
facilitated by an engaged workforce, adopting a hybrid
approach. The Group will continue to monitor such
practices, adapting as necessary. The Group also maintains
market-competitive contracts with key suppliers to support
the execution of work where the necessary skills do not exist
within the Group’s employee base.
Executive and senior management retention, succession
planning and development remain important priorities for
the Board. It is a Board-level priority that executive and
senior management possess the appropriate mix of skills
and experience to realise the Group’s strategy.
Following its introduction in 2019, the Group’s Global
Employee Forum (‘the Forum’) has continued to add to
EnQuest’s employee communication and engagement
strategy, improving interaction between the workforce and
the Board. During the year, the Board reviewed the purpose
of the Forum and determined that its purpose had changed
and its primary function was now for the raising of non-
strategic issues. As such, the Board agreed that the Forum
should continue under the direction of the Director of
People, Culture and Diversity. The Board, through its
designated Directors for employee engagement, now
undertake a wider programme of formal and informal
engagement with employees in line with the requirements
of the UK Corporate Governance Code to understand the
views of the workforce.
Key Performance Indicators (‘KPIs’):
A
HSEA (LTI)
B
Production (Boepd)
C
Unit opex ($/Boe)
D
Cash generated by operations ($ million)
E
Cash capital and abandonment expense ($ million)
F
EnQuest net debt ($ million)
G
Net 2P reserves (MMboe)
H
Emissions (tCO
2
e)
52
Business conduct
EnQuest has a Code of Conduct which it requires all
personnel to be familiar with. The EnQuest Code of Conduct
sets out the behaviour which the organisation expects of its
Directors, managers and employees and of our suppliers,
contractors, agents and partners. We are committed to
conducting ourselves ethically, with integrity and to
complying with all applicable legal requirements; we
routinely remind those who work with or for us of our
obligations in this respect.
Our employees and everyone we work with help to create
and support our reputation, which in turn underpins our
ability to succeed. This code addresses our requirements
in a number of areas, including the importance of health
and safety and environmental protection, compliance with
applicable law, anti-corruption, anti-facilitation of tax
evasion, anti-slavery, addressing conflicts of interest,
ensuring equal opportunities, combatting bullying and
harassment and the protection of privacy.
The Group’s induction procedures cover the Code of
Conduct and the Group runs both ad hoc and scheduled
periodic training for personnel to refresh their familiarity
with relevant aspects of the Code of Conduct and specific
policies and procedures which support it (such as the
Group’s anti-corruption programme).
As part of the Group’s Risk Management Framework, the Board
is supplied annually with an ‘assurance map’ that provides an
insight into the status of the main sources of controls and
assurance in respect of the Group’s key risk areas (see pages
40 to 51 for further information on how the Group manages its
key risk areas). While this provides some formal assurance as
to how the Group reinforces its requirements in respect of
business conduct, the Board also recognises the importance
of promoting the right culture within the Group and this
remains an area of focus for the Group.
The Code of Conduct also includes details of the
independent reporting line through which any concerns
related to the Group’s practices, or any suspected breaches
of the Group’s policies and procedures, can be raised
anonymously and encourages personnel to report any
concerns to the legal department and/or the General
Counsel. Where concerns are raised (whether through the
reporting line or otherwise), the General Counsel, reporting
for this purpose to the Chairman of the Audit Committee, is
required to look into the relevant concern, investigate and
take appropriate action. Concerns raised in relation to
potential conflicts of interest and safety practices, as well
as more routine interfaces with regulatory authorities, are
also reported to the Board and addressed appropriately.
The Code of Conduct includes a confirmation of EnQuest’s
commitments to adhere to applicable tax laws (including
the corporate offence of failure to prevent the criminal
facilitation of tax evasion) as well as the Group’s stance
against slavery and human trafficking. The Group has zero
tolerance for such practices and expects the same of all
with whom it has business dealings; for example, in relation
to procurement, by requiring suppliers to confirm their
commitment to anti-slavery before being qualified to
supply the Group. The Group has supplemented its
procedures to provide further assurance that it is able to
identify and manage human rights risks in its supply chain.
EnQuest publishes its modern slavery statement on its
website at www.enquest.com, under the Environmental,
Social and Governance section, where further detail on
EnQuest’s corporate responsibility policies and activities,
including the area of business conduct, is also available.
“We are committed to acting with high standards of integrity
in all that we do, conducting our business in accordance with
our Values and in compliance with applicable law.”
EnQuest’s Aberdeen office, Annan House
53
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2022
Task Force on Climate-related
Financial Disclosures
The Group welcomes initiatives for increased governance and transparency in general, and specifically in relation to
climate change. The Board recognises the societal and investor focus on climate change, and the desire to understand
potential impacts on the oil and gas industry through improved disclosure, such as those recommended by the Task Force
on Climate-related Financial Disclosures (‘TCFD’). EnQuest PLC has complied with the recommendations of LR 9.8.6R by
including climate-related financial disclosures consistent with the TCFD recommendations except in relation to the
disclosure of Scope 3 emissions within the metrics and targets section (items (a) and (b)) given the uncertainty and
impracticality in accurately measuring such emissions throughout the value chain. However, this is being considered as
part of our Continuous Improvement Plan (‘CIP’) with alignment to the United Nations-adopted Sustainable Development
Goal (‘SDG’) 12, Responsible Consumption & Production. Until such time as this work is complete, the Group will remain
non-compliant in this respect.
EnQuest disclosures
Additional/related
information
Governance
Disclose the
organisation’s
governance around
climate-related risks
and opportunities
EnQuest’s purpose is to provide creative solutions through the energy
transition. As such, climate-related risks and opportunities are a core part
of the organisation’s considerations, from Board level to its operational and
functional teams, with emission reductions an important part of both
management’s and the wider organisation’s variable remuneration. During
2022, the Board and Executive Committee approved the enhancement of the
Group business model to include a focus on repurposing existing infrastructure
to support its renewable energy and decarbonisation ambitions, including
targeting carbon capture and storage, electrification and green hydrogen
production.
An organogram outlining the Group’s Risk Management Framework can be
found on page 42.
See pages
30 to 33
(Environmental),
40 to 51 (Risks),
62 to 64 (s172), 78
to 84 (Audit
Committee
report), 85 to 102
(Directors’
Remuneration
Report), 103 to
104 (SSRC report)
and 106 to 110
(Directors’
report)
(a) Describe the Board’s oversight of climate-related risks and opportunities.
The Board takes full responsibility for the governance of climate-related risks and opportunities, building such considerations
into several of its processes, including reviewing and guiding strategy and major plans of action alongside setting budgets,
plans and objectives and monitoring performance accordingly. The Safety, Sustainability and Risk Committee, a dedicated
sub-Committee of the Board, has specific climate-related responsibilities incorporated into its terms of reference, with these
responsibilities including assessment of the Group’s exposure to managing risks from ‘climate change’ and reviewing actions
to mitigate these risks in line with its assessment of other risks; reviewing and monitoring the Group’s decarbonisation
activities, including reviewing the adequacy of the associated framework; and reviewing targets and milestones for the
achievement of decarbonisation objectives. In addition, a designated member of the Committee has responsibility for the
Company’s decarbonisation activities. The Safety, Sustainability and Risk Committee generally meets four times per year
and, at each meeting, reviews a report sponsored by a Board member of the Committee which includes a summary of
performance against short- and long-term emission reduction targets and outlines future opportunities and updates. The
Committee also reviews the Group’s Risk Management Framework (‘RMF’) performance report.
The Board receives a separate summarised version of the above update on climate-related issues as part of the health,
safety, environment and assurance (‘HSEA’) report that is delivered during each of the five scheduled Board meetings
by the HSEA Director.
The Board also receives reports covering the Group’s financial and operational performance, which include the progress
being made in developing the Group’s new energy and decarbonisation opportunities. Progress in developing these
growth opportunities is linked to reward as a component of the Company Performance Contract (see page 94 of the
Directors Remuneration Report).
Collectively, the Board and management also keep appraised of the evolving risk and opportunity landscape and its
potential impacts on the Company’s business by consulting as appropriate with the Group’s advisers and appropriate
third-party institutions, including fund managers, investors and industry associations such as Offshore Energies UK.
(b) Describe management’s role in assessing and managing climate-related risks and opportunities.
The Chief Executive Officer has ultimate responsibility for assessing and managing climate-related risks and opportunities
and is supported in this endeavour by the Group’s Chief Risk Officer and the HSEA Director.
Management, through a combination of the Executive Committee, Operations Committee and the HSEA Directorate,
regularly reviews Company performance and the Group’s risk registers. The Chief Financial Officer is responsible for
ensuring the Group also applies climate-related risks and opportunities appropriately in its financial statements, including
judgements and estimates and other relevant disclosures.
54
Task Force on Climate-related
Financial Disclosures
continued
The Group also has an energy management system governance document setting out how it approaches the
measurement and reporting of emissions and how the Group will assess and select emission reduction opportunities,
with a working group dedicated to the identification and implementation of economically-viable emissions savings
opportunities across the Group’s portfolio of assets. This working group reports to the Executive Committee regularly
and the Safety, Sustainability and Risk Committee at each scheduled meeting.
The Group’s legal, commercial, company secretariat, investor relations and communications teams monitor the
regulatory, legal, capital markets and competitive/commercial environments, providing reports to management (and
the Board) as required.
EnQuest disclosures
Additional/related
information
Strategy
Disclose the actual
and potential impacts
of climate-related risks
and opportunities
on the organisation’s
businesses, strategy,
and financial planning
where such
information is
material
EnQuest’s strategic vision is to be the partner of choice for responsible
management of existing energy assets, applying our core capabilities to create
value through the transition. Its business model covers the full energy transition
landscape: Upstream aims to responsibly optimise production to support today’s
energy needs; Infrastructure and New Energy aims to leverage existing
infrastructure through repurposing to deliver new energy and decarbonisation
opportunities; while Decommissioning aims to manage end of field life and
post-cessation of production operations to deliver safe and efficient execution of
decommissioning work programmes in a responsible manner.
This integrated business model, which incorporates the Group’s plans for
transitioning to a lower-carbon economy, provides mitigation against each of the
potential climate-related transition risks noted below, which have the potential to
have substantive financial or strategic impact unless stated to be ‘not material’.
The financial or strategic impact of a risk or opportunity is assessed and measured
based on the potential net present value (‘NPV’) negative impact of the particular
risk. Specifically, a substantive financial or strategic impact would be defined as a
risk or opportunity with a potential impact of greater than £50 million NPV, on a
post-mitigation basis. These assessments are made through the Group’s annual
planning and budgeting process, as well as on an ad hoc basis when assessing
specific risks or opportunities that may arise. The Group has an investment
committee that reviews investment decisions, with additional support and review
provided by the Technical and Reserves Committee (a sub-Committee of the
Board) if required.
See pages 3 to 11
(KPIs, Chairman
and CEO
statements), 14 to
15 (Infrastructure
and New Energy
review, 20 to 26
(Financial
review), 30 to 33
(Environmental),
40 to 51 (Risks)
and 124
(Financial
statements)
(a) Describe the climate-related risks and opportunities the organisation has identified over the short-, medium-, and
long-term.
EnQuest has offshore oil and gas assets in the UK and Malaysia and has assessed climate-related risks and opportunities
for this one sector and both geographies. Exceptions are detailed in the table on next page.
EnQuest considers within one year to be short-term (which aligns with the Group’s budgeting process), one to three years
to be medium-term (both of which are in line with the Group’s assessment of going concern and viability, respectively, and
the period over which the Group prepares detailed plans) and the longer-term to be beyond three years (for which
EnQuest tests its life of field estimates against its internal price assumptions and the International Energy Agency’s
Announced Pledges (‘APS’), and Net Zero Emissions by 2050 (‘NZE’) scenarios).
55
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2022
Risk
type Climate-related risk / opportunity
EnQuest action
Transition
Market (all timeframes unless otherwise stated)
• Demand for oil and gas and associated pricing
adversely affects the Group’s operations and financial
condition as the Group’s revenue depends
substantially on oil prices (long-term)
• Emissions trading allowances impact costs (UK only,
as Malaysia does not have the same regulatory
requirement)
• Access to capital (see Financial risk on page 46): The
Group has substantial existing credit facilities and
needs to invest in its asset base and aims to pursue
value-accretive M&A
• Supply-side constraints due to competing demand
for equipment and/or services as supply chain
migrates to support alternate sectors could increase
costs and/or result in delayed work programmes,
ultimately impacting revenue generation (long-term)
• M&A opportunities: Noting other industry participants
need to dispose of assets to meet their own targets
• Planning and investment decision process caters for low oil
price scenarios and includes a carbon cost associated with
forecast emissions
• The Group actively monitors current and future oil prices
(see Oil and gas price risk on page 45) through its Marketing
and Trading organisation, which is also responsible for
purchases of emissions trading allowances
• The Group closely monitors and manages its funding
position and liquidity risk throughout the year (see Financial
risk on page 46). EnQuest’s new energy and
decarbonisation opportunities were a significant factor in
attracting new investors in the Group’s 2022 refinancing
activities
• The Group maintains relationships with key stakeholders,
including governments, regulators, financial institutions,
advisers, industry participants and supply chain
counter-parties
Policy and legal (all geographies)
• Regulatory or legislative changes (including
emissions trading schemes and flaring allowances,
for example): Facility modifications, regulatory
sanctions/fines and litigation risk (medium-term)
• Country policies (including net zero targets): Facility
modification investment, regulatory sanctions/fines
and litigation risk (long-term)
• Increased direct and/or indirect taxes (long-term)
• Targeted emission reductions and assessing opportunities
to reduce flaring, for example (see page 109)
•
The introduction of the UK Energy Profits Levy includes
incentives for both oil and gas and decarbonisation
investments, which the Group aims to utilise
• Maintaining relationships with government and regulatory
bodies
• Engaging with a variety of external advisers and
appropriate third-party institutions to ensure awareness,
advance planning and integration to ensure ongoing
compliance
Reputation (all geographies)
• Negative perception of the oil and gas industry
• Lack of credible transition plan
• Failure to adhere to regulatory or legislative
requirements. The perception of the oil industry has
impacted access to and the cost of capital. In the
longer term, the above risks could impact the
willingness of counterparties to transact with EnQuest,
increasing costs, the availability of a skilled workforce,
leading to higher costs and/or lower revenues, or
regulatory or legal action
• Development of Infrastructure and New Energy business
linked to reward
•
Clear and credible emission reduction targets linked to reward
• Continued engagement with all stakeholders, including
participation in credible climate initiatives, such as the CDP
survey and submission of Emission Reduction Action Plans
(‘ERAP’) to the NSTA
• Formation of an Emissions Management Team that
develops and drives continual improvement on Scope 1 and
2 emission reduction opportunities in line with the Group’s
overall targets
• Regular asset-level emissions measurement, monitoring
and reporting with timely corrective action taken if
necessary
• High standards of business conduct (see page 52)
Technology (medium- to long-term)
• Alternative, lower-emission products and services
could accelerate the transition away from oil and gas,
impacting demand
• Costs of new technologies could limit the timing and
economics of existing oil and gas and
decarbonisation projects
•
Carbon capture and storage studies have identified the
potential to store up to 10mtpa of CO
2
from stranded
emitters in depleted North Sea reservoirs, while EnQuest’s
electrification and hydrogen ambitions could harness
renewable energy to help decarbonise offshore
developments and a number of other industries,
respectively
• Continued engagement with relevant new energy and
decarbonisation stakeholders, including potential strategic
and financial partners
• Continued engagement with suppliers, requiring provision
of services with a lower emissions footprint
Physical
Acute (short- and medium-term)
• Adverse and/or severe weather resulting in asset
downtime and impacting revenue
• Action and response plans, including effective supply
change management, to manage risks and extent of
downtime to as low as reasonably possible
Chronic (long-term)
•
Rising sea levels, tidal impacts and other extreme
weather causes extensive/irreparable damage to assets
• EnQuest considers these risks to be not material given
the Group’s focus on asset integrity and the expected
remaining life of its assets
56
With EnQuest’s business model spanning the entire energy transition spectrum, the Group is well positioned to assess and
pursue a number of climate-related opportunities.
Opportunity type
Climate-related opportunities
EnQuest action
Energy source
(long-term and
UK-only at present)
• Use of lower emission sources of
energy
• Shift toward decentralised energy
generation
• Use of supportive policy incentives
• Use of new technologies
•
Assessing the potential to facilitate the electrification of
nearby offshore oil and gas assets and planned
developments
• Assessing onshore wind potential and a new power solution
for SVT
• Modifying the Heather asset power generation equipment
to minimise emissions
Resilience
•
Resource substitutes/diversification
(UK-only at present)
• Participation in renewable energy
programmes and adoption of energy
efficiency measures
• Access to M&A opportunities
• Strengthened climate change oversight through the
introduction of an Energy (Emission) Management System
- Structure & Governance procedure. The procedure itself
is structured to align with the internationally recognised
structure for an energy management system in relation
to ISO 50001
•
Pursuing carbon capture and storage, electrification and
green hydrogen production opportunities at scale at SVT
(long-term)
•
New development opportunities to be assessed in terms of
low emission power generation (medium-term)
• The Group maintains relationships with key stakeholders,
including regulators, financial institutions, advisers and
industry participants (all timeframes)
Products and
services
• Development and/or expansion of
low emission goods and services
(long-term, with the exception of
supplier engagement which is all
timeframes)
• Ability to diversify business activities
(long-term)
• Pursuing carbon capture and storage which will store up
to 10mtpa of CO
2
from stranded emitters in depleted North
Sea reservoirs
•
Assessing the potential to facilitate the electrification of
nearby offshore oil and gas assets and planned
developments
•
Exploring the potential for harnessing the advantaged natural
wind resource around Shetland for the production of green
hydrogen and derivatives at export scale in order to provide a
low-carbon alternative fuel which could help to decarbonise a
number of industries
• Continued engagement with suppliers, requiring provision
of services with a lower emissions footprint to ultimately
improve efficiencies and reduce costs
Market
(long-term
and UK-only)
• Access to new markets
• Use of supportive policy incentives
•
Pursuing carbon capture and storage, electrification and
green hydrogen production opportunities at scale at SVT
Resource efficiency
(all timeframes)
•
Use of more efficient production
and distribution processes
• Use of recycling
• Focused on absolute emission reductions in all operations
• Assessment of options to repurpose existing infrastructure
prior to any decision to cease production and begin asset
decommissioning
• Decommissioning business seeks to maximise reuse and/or
recycling
Task Force on Climate-related
Financial Disclosures
continued
57
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2022
(b) Describe the impact of climate-related risks and opportunities on the organisation’s businesses, strategy, and
financial planning.
The Group considers as part of its strategic, business planning and risk processes how a number of macroeconomic themes
may influence its principal risks. The most material risk factor to EnQuest’s business model is the oil price, with climate change
representing one of many potential influencing factors on the oil price. In the short to medium term, EnQuest reviews the impact
of different oil prices in its going concern and viability assessments. The Group’s Marketing and Trading team is responsible for
optimising sales of the Group’s production, including developing and implementing the Group’s hedging programme. The
potential impact of a change in oil price on the Group’s carrying amount of oil and gas assets is outlined in note 2 of the
Financial Statements. The Group’s Marketing and Trading team is also responsible for purchasing emissions trading allowances
in the UK, with the costs of these allowances forecast to make up almost 10% of the Group’s operating costs in 2023.
The Group monitors its cash position, cash forecasts and liquidity on a regular basis and takes a conservative approach to
cash management, with variance analysis run to reflect different scenarios. This is done to identify risks to liquidity and
covenant compliance and enable management to formulate appropriate and timely mitigation strategies as necessary.
Specific financial risks of climate change considered include access to, and cost of, capital, insurance and decommissioning
surety bonds as investors’ and insurers’ appetite for exposure to the oil and gas sector reduces across all timeframes. It is
difficult to quantify the precise impact on access to and cost of capital given the number of other constituent factors in such
transactions, including the state of global financial markets at the time such a transaction takes place. The potential impact of
a change in the Group’s discount rate, which considers the Group’s cost of capital, is outlined in note 2 of the Financial
Statements.
The Group has a proven track record of executing value-accretive acquisitions, although the timing of such events
is uncertain. As majors and other operators continue to shift their focus from mature basins such as the North Sea and
Malaysia, there will be further opportunities for the Company to access additional oil and gas resources, with gas
resources offering product diversification into a necessary transition fuel. Where new assets are acquired, there will be a
clear emission reductions plan for any such asset for which EnQuest assumes operatorship, relative to the carbon footprint
in the hands of the seller, and the Group factors in an associated carbon price into the acquisition economics, even in
markets where no carbon trading or pricing mechanism exists.
As part of EnQuest’s plans for transitioning to a lower-carbon economy, the Group established an Infrastructure and New
Energy (‘I&NE’) business in 2021, with responsibility for delivering the Group’s short- and medium-term emission reduction
objectives and advancing longer-term renewable energy and decarbonisation opportunities. These opportunities are
centred around repurposing the strategically advantaged Sullom Voe Terminal, which the Group operates, positioning
EnQuest as a credible energy transition company. The Group considers emission-reducing facility modifications as part
of its operational budget and planning process. New energy and decarbonisation activities are currently being pursued
and the Group is engaging with potential strategic and financial partners.
EnQuest is also monitoring progress against the UK North Sea Transition Deal (‘NSTD’) goals which contribute to the UK
Government’s target of net zero by 2050. All milestones occur in the medium to long term.
(c) Describe the resilience of the organisation’s strategy, taking into consideration different climate-related scenarios,
including a 2°C or lower scenario.
The Group has measured the resilience of its existing portfolio and future development plans using the estimated oil price and
cost of emissions, with the oil price deemed to be the most influential risk to its business, that would prevail under the
International Energy Agency’s Announced Pledges (‘APS’), and Net Zero Emissions (‘NZE’) Scenarios. The APS includes all recent
major national announcements as of September 2022 for 2030 targets and longer-term net zero and other pledges and is
considered to be a scenario achieving an emissions trajectory consistent with keeping the temperature rise in 2100 below 2°c,
while the NZE shows an accelerated pathway for the global energy sector to achieve net zero CO
2
emissions by 2050. The Group
continues to generate positive free cash flow when using assumptions based on the SDS, although cash flow becomes
negative when using assumptions based on the NZE. As outlined in the Group’s going concern and viability statements on
pages 25 and 26, should oil prices be lower than assumed in its Base Case projections, the Group may be required to undertake
mitigating actions to meet its various financial obligations. EnQuest’s business model enables the Group to adapt to a
changing external environment, with short-cycle investments reducing the risk of ‘stranded assets’ in its upstream business,
while the Group is pivoting towards new energy and decarbonisation with the activities being pursued in its I&NE business.
58
EnQuest disclosures
Additional/related
information
Risk management
Disclose how the
organisation
identifies, assesses,
and manages
climate-related risks
The Group has robust risk management and business planning processes that
are overseen by the Board, the Safety, Sustainability and Risk Committee and the
Executive Committee in order to identify, assess and manage climate-related risks,
while the Audit Committee oversees the effectiveness of the Risk Management
Framework. The risk landscape inputs and considerations are outlined on page 42
and cover long-term macro factors and near-term and emerging risks.
See pages 40 to
51 (Risks) and 103
to 104 (Safety,
Sustainability
and Risk
Committee
report)
(a) Describe the organisation’s processes for identifying and assessing climate-related risks.
The Group’s RMF is embedded in all levels of the organisation with asset, regional and functional risk registers aggregating
to an enterprise risk register, as outlined below, identifying relevant threats and how they are mitigated, while the
adequacy and efficacy of controls in place are themselves also monitored. This integration enables the Group to quickly
identify, escalate and appropriately manage emerging risks, with a quarterly RMF report reviewed by leadership teams
and presented to the Safety, Sustainability and Risk Committee. All risks are assessed based on their estimated potential
impact and likelihood with respect to people, environment, asset/business and reputation (‘PEAR’) on a pre- and post-
mitigation basis, with judgements reviewed by peers and/or management as appropriate.
The Group seeks to contribute positively to net zero across the UK and the industry and seeks to ensure that suitable and
sufficient controls are in place to deliver against its environmental, social, governance (‘ESG’) strategy. EnQuest uses
Hurdle Risk as the risk management tool for identification, measurement and mitigation of risks. The Risk Management
Process takes place across four key areas: Group, Region, Asset and Functional:
•
Group level - An Enterprise Risk Register and Risk Report provides the Board and executive management with a single
view of risk across the Group to aid strategic decision making. This reflects the overall Risk Management Strategy and
responses to individual risks, including climate-related risks, with a focus on reporting risks that are critical from a
decision-making perspective. Critical risks are those that are assessed as having the greatest potential impact and
likelihood with respect to PEAR on a pre- and post-mitigation basis
•
Region level - Risk registers are available for the North Sea and Malaysia. These registers include details of all relevant
operational, execution, HSE, organisational, financial, legal and contractual risks facing each of the business units;
•
Asset level - Risk registers are developed for all operated assets. These registers include details of all relevant
operational, executional, HSEA, organisational, financial, legal and contractual risks facing each asset; and
•
Functional level - A risk register is developed for any improvement opportunities and deficiencies in the risk controls for
the legal, commercial, HSEA, organisational, financial and business services risk categories. The functional assessments
review the effectiveness of policy and management systems in place and identify critical gaps and/or areas of non-
compliance within the Group.
Through EnQuest’s Environmental Management System, all environmental aspects and risks are identified using EnQuest’s
Environmental Aspects and Impacts Identification Procedure and are recorded in an Environmental Aspects and Impacts Register.
Similarly, the process of developing an asset or project-specific aspects and impacts register entails a systematic review of
operational activities, identifying effective control measures, mitigations and/or improvement plans at all stages in the project life
cycle from inception, through to abandonment and decommissioning. The people undertaking this process shall be competent
with the requisite experience and technical knowledge, so that a high quality review of an activity, project, process, design or an
operation is carried out. Aspects may be identified through workshops, meetings, reviews and audits and separated into two
groups; planned and unplanned. EnQuest has also established an Identification and Evaluation of Compliance Obligations
Procedure in order to ensure that the organisation is aware of and understands how its activities are (or will be) affected by
current and new legislative requirements. This procedure is aligned with the requirements of ISO 14001:2015. Furthermore, the
Group strengthened its climate change oversight through the introduction of an Energy (Emission) Management System -
Structure & Governance procedure (as noted in the Strategy (a) disclosure). The HSEA team keeps up-to-date with the
identification and maintenance of awareness of compliance obligations through professional subscriptions, by consulting
relevant websites, including regulatory and government departments, as well as through training, attendance of seminars,
conferences, network forums and meetings. Consultations with government, other regulatory agencies and any other
stakeholders may also be required. Other compliance requirements are identified and recorded from the Group’s HSEA Policy,
licences, permits and authorisations and industry standards and codes of practice. The result of the evaluation of compliance is
detailed in the monthly KPI report, while on a routine basis, the HSEA teams review and discuss open non-conformances and any
new legal requirements.
(b) Describe the organisation’s processes for managing climate-related risks.
The Safety, Sustainability and Risk Committee also provides a forum for the Board to review selected individual risk areas in
greater depth. Climate change is categorised as a standalone risk area within the Group’s ‘Risk Library’, allowing the
application of EnQuest’s RMF to underpin its approach in this important area. For each risk area, the Safety, Sustainability
and Risk Committee reviews ‘Risk Bowties’ that identify risk causes and impacts and maps these to preventative and
containment controls used to manage the risks to acceptable levels. Climate change-related issues cover both physical
and transition risks in accordance with the TCFD framework (as outlined in the Strategy section (a)). They are also
considered within the context and review of several other risk areas, such as oil price, which are considered by the Board to
be a more material risk than climate change on a standalone basis (see the Strategy and Risk management sections for
the Group’s assessment of financial materiality and potential impact and likelihood with respect to PEAR, respectively).
Task Force on Climate-related
Financial Disclosures
continued
59
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2022
A Continuous Improvement Plan (‘CIP’) describes EnQuest’s improvement initiatives, what the Company will do to achieve
them and how it will measure success. Specific objectives, targets and actions are developed and cascaded to all levels
within the organisation, including a number related to the management of climate-related risks.
In addition to the CIP, EnQuest has defined Key Performance Indicators (‘KPIs’), which are used to monitor performance.
They take into account the significant environmental aspects and the Company’s compliance obligations.
(c) Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the
organisation’s overall risk management.
See the Risk management disclosure (a) for a description of how climate-related risks are integrated into EnQuest’s overall RMF.
Risks are uploaded to the Group’s risk software tools which assign ownership for the risks with associated systemised monitoring
of mitigations being closed out. These systems require the risk owner to assess the materiality of each given risk before and after
mitigations in accordance with the Group’s materiality thresholds (outlined in the metrics and targets section below).
EnQuest disclosures
Additional/related
information
Metrics and targets
Disclose the metrics
and targets used to
assess and manage
relevant climate-
related risks and
opportunities where
such information is
material
Absolute emissions and their reduction are a key area of focus for EnQuest
given the Group’s commitment to play its part in the UK’s drive towards net
zero by 2050 (2045 in Scotland).
EnQuest operates offshore in the UK and Malaysia, which are highly-regulated
mature hydrocarbon provinces. The Group has a well-established HSEA Policy
outlining its commitment to integrating environmental management into its
operations, with its Environmental Management System ensuring the Group
manages and mitigates its impact on the environment and complies with the
regulatory requirements in the areas in which it operates. Through this process,
the Group has not identified any material risks associated with water, energy,
land use, and waste management.
EnQuest has considered the climate-related metric categories in Table A2.1
within the TCFD implementation guidance, but has not set any other metrics
or targets beyond those listed below.
See pages 3
(KPIs), 14 to 15
(Infrastructure
and New Energy
review), 30
(Environmental),
64 (s172), 94, 96
and 102 (CPC
and PSP
disclosures
within the
Directors’
Remuneration
Report) and 109
(GHG emissions
disclosures in
the Directors’
report)
EnQuest disclosures
(a) Disclose the
metrics used by the
organisation to assess
climate-related risks
and opportunities in
line with its strategy
and risk management
process.
Metric
Description
Scope 1, 2 and 3 absolute
emissions and emissions
intensity
EnQuest operates in an industry and geography in the UK that has agreed
medium- and long-term absolute Scope 1 and 2 emission reduction
targets, expressed as percentage reductions in tonnes of CO
2
equivalent
emissions. As such, the Group monitors progress against these and its own
associated targets (see metrics and targets (c)).
The Group has defined criteria for screening and ranking emission
reduction opportunities within its existing operations, including: the
potential contribution to the Group’s targets; economic indicators; the
chance of success; time to implement; and any risks to the Group’s
production.
The Group also monitors its emissions intensity ratio (as set out in the
Directors’ report on page 109), recognising the impact this metric has
on certain risks and opportunities, such as reputation, access to
capital and M&A opportunities.
Transition risks and
carbon prices
The Group primarily produces oil from its offshore installations and so
deems the oil price and costs of emissions to be the most material risks to
its business, particularly as these metrics are impacted by other of the
identified transition risks and opportunities outlined in Strategy (a). As
such, the Group actively monitors the price of oil and cost of emissions
trading allowances, hedging a proportion of its exposure to oil prices to
ensure a minimum price is received for its production.
EnQuest uses oil and carbon prices in its internal planning and investment
(including M&A) decision-making processes. The Group’s forward-looking
oil prices are disclosed in note 2 of the financial statements, while the
carbon price is set in relation to the UK Emissions Trading Scheme forward
price curve. For 2023, the carbon price is £75 per tonne.
60
Task Force on Climate-related
Financial Disclosures
continued
EnQuest disclosures
(a) Disclose the
metrics used by the
organisation to
assess climate-
related risks and
opportunities in line
with its strategy and
risk management
process.
(continued)
Metric
Description
Physical risks
All of the Group’s assets are in offshore environments and so subject to
physical risks, as outlined in Strategy (a).
Climate-related
opportunities
Within the Group’s I&NE business, EnQuest is assessing opportunities
that could deliver operations at scale in the long term. For example,
the Group’s carbon capture and storage opportunity has identified
the potential to store up to 10mtpa of CO
2
from stranded emitters in
depleted North Sea reservoirs, potentially taking the Company
beyond net zero, in comparison to the Group’s reported Scope 1 and 2
emissions footprint.
Capital deployment
The Group’s new energy and decarbonisation projects are at an early
stage. As such, EnQuest is currently allocating less than 2% of its
operating and capital expenditure budget to such activities to
minimise regret costs. Such expenditures are reset on an annual
basis.
Remuneration
The Group’s emission reduction targets and progress of its energy
transition and decarbonisation strategy development and execution
are linked to short-term and long-term remuneration, as set out in the
Directors’ Remuneration Report.
(b) Disclose Scope 1,
Scope 2, and, if
appropriate, Scope 3
greenhouse gas
(‘GHG’) emissions,
and the related risks.
As outlined in the Directors’ report, EnQuest discloses Scope 1 and 2 emissions and associated
intensity outcomes on an operational control basis. The Group is cognisant of the risks of access
to capital and people, rising emission costs and reputational and regulatory risks associated with
failure to adhere to policies and guidelines or missing targets.
(c) Describe the
targets used by the
organisation to
manage climate-
related risks and
opportunities, and
performance against
targets.
The Board’s goal is to be as ambitious as it can in setting decarbonisation targets, while balancing
the economic realities of operating late-life assets. As such, in 2021 the Board approved a targeted
10% reduction in EnQuest’s absolute Scope 1 and 2 emissions from its existing portfolio over three
years, from a year-end 2020 baseline. As at 31 December 2022, Group emissions had been reduced
by c.23% against the 2020 baseline.
Discrete targets for emission reductions compared to 2021 associated with diesel use and flaring
were also set, for which performance was assessed as being between target and stretch.
As at 31 December 2022, UK emissions had been reduced by c.43% against the 2018 baseline,
significantly ahead of the North Sea Transition Deal targets of achieving a 10% reduction by 2025
and close to the 50% reduction targeted by 2030.
During the year, the Group made excellent progress in each of its new energy and decarbonisation
opportunities. In carbon capture and storage, studies have identified the potential to store up to
10mtpa of CO
2
from stranded emitters in depleted North Sea reservoirs, while EnQuest’s
electrification and hydrogen ambitions could harness renewable energy to help decarbonise
offshore developments and a number of other industries, respectively, with ambitions to produce
around one million tonnes of green hydrogen annually. These opportunities remain at an early
stage and require further regulatory and fiscal development before appropriate financial targets
can be considered.
61
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2022
62
SECTION 172 STATEMENT
The Board has acted in a way that it considers to be most
likely to promote the success of the Company for the
benefit of its members as a whole and, in so doing, has
regard for the potential impact of the Group’s activities
on its various stakeholders.
In the majority of cases, information and feedback are
provided throughout the year to the Directors by the
Group’s Executive Directors, senior and functional
management and external advisers through a variety of
Board reports, presentations and ad hoc correspondence.
These reports cover the Group’s financial, operational and
environmental performance, while EnQuest’s advisers
provide the Board with relevant insight from their
interactions with their respective stakeholders.
When appropriate, the Directors seek further understanding
of the concerns of relevant stakeholders, which could
include direct engagement by the relevant Director and/or
requesting additional information to ensure they have a
full appreciation of a given matter prior to making any
decisions. As such, the Directors are able to assess the
impact of business decisions on stakeholders and fulfil
their duty to promote the long-term success of the Group.
The Directors consider principal decisions (outlined on
page 64) on the basis of materiality of the incremental
impact they are anticipated to have on the Company’s
stakeholders and/or the Company itself. Throughout the
year, the Board and management team considered various
M&A opportunities. For several of these, it was decided that
their pursuit would not be in the interests of the Group’s
stakeholders, reflecting EnQuest’s in-depth review
processes (including those by the Technical and Reserves
Committee) and focus on capital discipline.
Stakeholder groups
A
Our people
Our employee and contractor workforce is critical to the
delivery of SAFE Results and EnQuest’s success. As such,
we are committed to ensuring EnQuest remains a great
place to work. We have a strong set of Values that
underpin our way of working and provide a rewarding
work environment, with opportunities for growth and
learning while contributing to the delivery of our strategy.
B
Investors
Our investors support management in the execution of
EnQuest’s business strategy, including the provision of
capital for management to develop the business in order
to deliver returns in a responsible manner.
C
Partners
We collaborate with our existing joint venture partners,
securing their support to deliver our asset plans. We value
their contribution to the effective operational and financial
management of our assets as we deliver on our business
strategy.
In pursuit of the Group’s Infrastructure and New Energy
ambitions, we also engage with potential strategic and
financial partners.
D
Host governments and regulators
We work closely with the host governments and regulators
in the jurisdictions in which we operate. The Group
complies with the necessary regulatory requirements,
including those related to environmental matters such as
reducing emissions, to ensure it maintains a positive
reputation and licence to operate, enabling the effective
delivery of the Group’s strategy.
E
Suppliers
EnQuest relies on its suppliers to provide specialist
equipment and services, including skilled personnel,
to assist in the delivery of SAFE Results.
F
Communities
Making a positive contribution, and appropriately
managing our environmental impact in the communities
in which we live and work around the world, remains a key
part of our activities. Our communities provide a potential
source of employees, contractors and support services,
and are important in supporting EnQuest’s social licence
to operate and maintaining a positive reputation.
G
Customers
Our customers help facilitate the provision of hydrocarbon-
related products to meet a variety of consumer demands
and, as such, require a reliable supply of hydrocarbons to
meet their needs.
We have also begun engaging with potential customers
in relation to our carbon capture and storage and
electrification opportunities as part of our Infrastructure
and New Energy business.
Stakeholder engagement
63
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2022
Direct Board level engagement in 2022
Other engagement activities in 2022
Three Global Employee Forum meetings per year with
designated Non-Executive Directors were organised;
video messages; subject matter expert virtual and
physical attendance at scheduled Board and Board
Committee meetings; physical and virtual safety
leadership engagement visits; three interactive virtual
Town Hall Meetings.
See the accompanying principal decisions on page 64
and pages 38 to 39 of the ESG section which detail the
various people-related initiatives implemented during the
year, including the employee surveys and those related to
our people’s safety and wellbeing.
Virtual and physical meetings (including the Annual
General Meeting, post-results roadshows and multiple
investor conferences and ad hoc meetings), calls and
direct correspondence with a wide range of equity and
debt investors in relation to the Group’s refinancing plans
and delivery against its strategic objectives.
See the accompanying principal decisions on page 64 and the
Strategic report on pages 02 to 64, which explains the Group’s
performance and investment decisions during the year.
Page 71 of the Corporate governance statement outline
in more detail how the Group engages with its investors.
Financing is identified as one of the Group’s Principal risks
and uncertainties on page 46.
Virtual and physical meetings and calls.
The Group has regular engagement with its joint venture
partners on day-to-day asset management and the
execution of the longer-term asset strategy. This occurs
through a combination of formal interactions, governed by
joint operating agreements, and via informal engagement.
See pages 12 to 17 of the Strategic report for further details
on operational and financial activities and decisions
undertaken across our assets.
Joint venture partners are recognised as one of the Group’s
Principal risks and uncertainties on page 50.
Virtual and physical meetings and calls with the North
Sea Transition Authority (‘NSTA’) in the UK and Malaysian
Petroleum Management (‘MPM’) in Malaysia. A number
of meetings have been held with the Shetland Islands
Council (‘SIC’) in relation to the Group’s Infrastructure and
New Energy business, while several meetings and other
correspondence have been undertaken with UK Treasury
officials on the UK’s Energy Profits Levy (‘EPL’).
See the Strategic report on pages 02 to 64 and the Group’s
Principal risks and uncertainties on pages 40 to 51, which
outline EnQuest’s strong relationships with governments and
regulators. Pages 30, 33 to 35 and 39 of the ESG section and
pages 106 to 110 of the Directors’ report outline further details
on the Group’s regulatory compliance activities.
None
The Group has continued its active and positive engagement
with its suppliers through various supplier forums, performance
reviews, ad hoc virtual meetings and industry events. The Group
continues to monitor and report its supplier payment
performance.
Please also see the Group’s Principal risks and uncertainties
on pages 40 to 51, a number of which are impacted by the
Group’s supplier relationships.
None
See pages 36 to 37 of the ESG section which outline the Group’s
community engagement activities and environmental
considerations, with the importance of maintaining a positive
reputation outlined in the Group’s Principal risks and
uncertainties on page 50.
None
We have maintained strong relationships with existing
customers, including fuel oil blenders to whom the Group
supplies Kraken oil as an unrefined constituent of IMO 2020
compliant low-sulphur bunker fuel.
64
Principal decision and impacted
stakeholders
Stakeholder considerations and impact on the long-term sustainable success of the Company
Energy transition and
decarbonisation strategy
development and execution
Impacted stakeholders:
A
B
C
D
E
F
G
Following the establishment of the Infrastructure and New Energy business in 2021, the Group enhanced
its business model to include a focus on repurposing existing infrastructure to support its renewable
energy and decarbonisation ambitions. Further assessment of the strategic advantages of the Sullom
Voe Terminal has resulted in the Group targeting three specific opportunities: carbon capture and
storage of up to 10 million tonnes per annum (‘mtpa’) in redundant offshore hydrocarbon reservoirs;
electrification of offshore assets from a combination of wind power and grid connection; and production
of green hydrogen and associated products from wind power. Each of these projects was determined to
align with the energy transition and offer significant decarbonisation potential for a number of industries.
For more information on the good progress made throughout 2022, see the ‘Infrastructure and New
Energy’ section on pages 14 to 15.
At this stage, the Board supports the strategy of unlocking these opportunities in a capital-light manner
with single-digit-million expenditure per annum. The Board considers these activities important in
attracting and retaining investment and talent across the Group, potentially providing long-term
employment opportunities in Shetland.
Reducing and refinancing
the Group’s debt facilities
while remaining focused on
further deleveraging
Impacted stakeholders:
A
B
C
E
G
Through feedback from management, investors and advisers, the Board was aware of the need to
maintain a focus on deleveraging while actively pursuing the refinancing of the Group’s reserve based
lending (‘RBL’) and bond facilities to provide a better balance to the capital structure and extend debt
maturities. This resetting of the balance sheet would also provide EnQuest’s people, partners, suppliers
and customers with confidence in the Group’s ability to deliver on its ambitions, while positively altering
investors’ view of the Company’s risk profile.
With a challenged credit market, EnQuest pursued a phased approach to its refinancing activity, starting
with its retail bond offering. The retail bond refinancing was conducted in April under an exchange and
cash offer process, allowing both existing and new holders to participate. Following a successful
refinancing, EnQuest assessed whether it was the right time to progress with the RBL and high yield bond
refinancing activities. The combination of market feedback and the Board’s confidence in the Group’s
material cash generating capability, led to the decision to defer these elements of the refinancing
process until a later date.
After delivering significant free cash flow generation and repaying the Group’s RBL by the end of
September, EnQuest sought further market and adviser feedback before commencing on a successful
upsizing of the RBL and a materially reduced high yield bond, providing an improved mix of debt facilities
and a platform to deliver on the Group’s strategy.
The Board remains focused on further deleveraging towards the Company’s target of 0.5x EnQuest net
debt to adjusted EBITDA. Following the UK Government’s decision to amend the Energy Profits Levy by
increasing the tax rate and extending the duration of implementation, the Group has re-evaluated its
investment plans and has deferred further expenditure associated with the Kraken asset to focus on
low-cost, quick payback investments at its Magnus asset to facilitate further debt reduction.
For further information, see pages 20 to 26 of this Strategic report and note 18 to the financial statements.
Board succession
Impacted stakeholders:
A
B
D
Effective succession planning remains a key focus area for the Board, Governance and Nomination
Committee and management. Following Jonathan Swinney notifying the Board of his intention to step
down from the Board as Chief Financial Officer (‘CFO’) and Executive Director in March, it was agreed that
Salman Malik, who had long been identified as a potential CFO successor, would succeed Jonathan.
Salman had been a member of EnQuest’s Executive Committee for several years and has a wealth of
industry and financial experience, alongside developing the Group’s Infrastructure and New Energy
business. He led some of the Group’s most recent business development activities, particularly the
Magnus and Golden Eagle transactions, which have added material value to the Group. Given the
Group’s ongoing attention on deleveraging, refinancing, creative M&A and repurposing existing
infrastructure to deliver EnQuest’s decarbonisation ambitions, the Board was confident his appointment
would be positively received by the Group’s stakeholders.
In June, Martin Houston notified the Board of his intention to step down as Non-Executive Chairman to
focus on his other business interests. Howard Paver, Senior Independent Director, led the search for
Martin’s successor. During this process, Howard engaged with several of the Group’s major shareholders
to understand their views on the necessary attributes of Chair candidates. Following a thorough search,
and having consideration for shareholders’ views, the Board appointed Gareth Penny as Non-Executive
Chairman in December 2022. Gareth has a wealth of board-level experience, having chaired both public
and private boards, along with extensive experience in extractive industries, having spent 22 years with
De Beers and Anglo American.
For more information, see page 11 of this Strategic report and pages 68 to 77 of the Corporate
governance section.
Stakeholder engagement continued
Chris Sawyer
Company Secretary
The Strategic report was approved by the Board and signed on its behalf by the Company Secretary on 4 April 2023.
65
EnQuest PLC –
Annual Report and Accounts 2022
Corporate Governance
Executive Committee
Key strengths and experience
•
Significant international
experience
• Senior positions held in
operations, field development,
business development and
project roles for both
operators and service
companies
Richard rejoined EnQuest in
December 2020 as Managing
Director in Malaysia and now
has overall responsibility for
the Group’s operations and
development projects.
Richard previously worked for
EnQuest as part of the Executive
Committee as Head of Major
Capital Projects where he was
instrumental in taking Kraken
from project concept stage
through to production. Prior to
joining EnQuest, Richard held
roles at Petrofac, including:
vice president of operations
& developments; and general
manager in Malaysia, where he
started Petrofac Malaysia. Richard
went on to be co-founder and
CEO of Malaysia-focused Nio
Petroleum and has also been
chairman and CEO of the private
equity backed service company
Influit. He was also one of four
founders and operations director
of the service company UWG Ltd.
Richard Hall
Managing Director – Global
Operations and Developments
Key strengths and experience
• Strong experience in the
energy sector
• A Fellow of the Chartered
Institute of Personnel and
Development
Janice joined the Executive
Committee in August 2020 after
two years as UK Head of Human
Resources. She has held HR
leadership roles in a variety of
sectors, including oil and gas and
transportation. Prior to joining
EnQuest, Janice was head of HR
for Repsol Sinopec Resources.
She also holds a masters of law
degree in employment law and a
BA in hospitality management.
In recent years, Janice has
overseen the Group’s 2020
transformation programme
and the institution of EnQuest’s
Diversity and Inclusion Policy.
Janice Doyle
Director of People, Culture and
Diversity
Key strengths and experience
• Over 25 years’ experience
in senior technical and
commercial roles
• Extensive geographical
experience
Martin joined EnQuest in 2016 and
is responsible for all business
development-related activities
across the Group. He has over
25 years of broad international
oil and gas operator experience.
Throughout his career he has
gained significant technical
and commercial expertise in
field development planning,
project execution, reservoir
management and investment
assurance across the value chain,
from upstream through to LNG.
Martin Mentiply
Business Development Director
Key strengths and experience
• International legal experience,
having managed teams
supporting multiple
geographies in energy and
natural resources in all phases
of development and
operations
• Wealth of experience in
mergers and acquisitions
Chris joined EnQuest in January
2023 from bp, where he was
assistant general counsel, oil
regions and production and
operations. He has an MA in
Jurisprudence from Oxford
University and obtained his legal
professional qualifications at
the College of Law in Chester.
Chris has responsibility for the
commercial and legal affairs
of the Company and holds
the offices of General Counsel
and Company Secretary
and Chief Risk Officer.
Chris Sawyer
General Counsel and
Company Secretary
Note:
Chief Executive Officer and Chief Financial Officer are also members of the Executive Committee. You can see their profiles on page 66
66
Board of Directors
G
R
Key strengths and experience
• A wealth of board-level and
extractive industry experience
Gareth, having chaired a
number of public and private
boards, joined EnQuest in
December 2022. He is currently
chairman of Ninety One Plc and
Ltd, having previously been
chairman of Norilsk Nickel,
Russia’s largest diversified
mining and metals company.
Gareth also served on the board
of Julius Baer Group for 12 years.
Gareth has extensive experience
in extractive industries, having
spent 22 years with De Beers
and Anglo American, the last
five of which he was group chief
executive officer of De Beers.
Principal external
appointments
Chairman of Ninety
One Plc and Ltd.
Gareth Penny
Non-Executive Director
Appointed 06 December 2022
G
Key strengths and experience
• Extensive energy industry and
leadership experience
Amjad worked for the Atlantic
Richfield Company (‘ARCO’)
from 1984 to 1998, eventually
becoming president of ARCO
Petroleum Ventures. In 1998,
he founded and was the
chief executive of Petrofac
Resources International
Limited which merged into
Petrofac PLC in 2003.
In 2010, Amjad formed EnQuest PLC,
having previously been a founding
non-executive chairman of Serica
Energy PLC and a founding partner
of Stratic Energy Corporation. Amjad
was chairman of Enviromena Power
Systems Ltd., the largest solar power
engineering company in the MENA
region, until its sale in 2017. Amjad
was British Business Ambassador
for Energy from 2013 to 2015.
Principal external
appointments
Chairman of the independent
energy community for the World
Economic Forum since 2016.
Director of The Amjad and Suha
Bseisu Foundation since 2011.
Amjad Bseisu
Chief Executive
Appointed 22 February 2010
Key strengths and experience
•
Significant capital markets
and mergers and acquisitions
experience
• Retains role as Managing
Director, Infrastructure and
New Energy, overseeing
EnQuest’s renewable energy
and decarbonisation business
Salman joined EnQuest in 2013
and is a CFA charter holder,
with extensive experience in
investment management,
investment banking and private
equity in Canada and the Middle
East. Prior to his appointment as
CFO, Salman has been a key
member of the senior leadership
team, responsible for EnQuest’s
global strategy and business
development. This includes the
creation of a renewable energy
and decarbonisation hub at
the Group’s Shetland operation,
which Salman continues to
oversee. With his extensive
experience in structured finance,
acquisitions, post-acquisition
management and divestitures
across the energy value chain,
Salman brings a drive to ensure
that EnQuest’s investment and
growth ambitions are delivered.
Principal external
appointments
None.
Salman Malik
Chief Financial Officer
Appointed 15 August 2022
R
A
G
T
Key strengths and experience
• 40 years’ global experience in
exploration, development and
production, including 20 years
at senior executive level
Howard is a petroleum engineer
and began his professional
career at Schlumberger
before moving to Mobil and
then BHP Petroleum, where
he was regional president,
Europe, Russia, Africa &
Middle East, before becoming
president, global exploration
& alliance development. He
most recently served as SVP,
strategy, commercial & business
development at Hess, a role
he took up in July 2013, having
joined the company in 2000 as
senior vice president, North Sea/
international. Between 2005 and
2013 he held the position of SVP,
global new business development.
Principal external
appointments
Non-executive director of
OGL Geothermal Ltd.
Howard Paver
Senior Independent Director
Appointed 1 May 2019
A
S
Key strengths and experience
• Substantial audit and
accounting experience in the
energy sector
Carl is a Fellow of the Institute
of Chartered Accountants in
England and Wales, and a
Fellow of the Energy Institute.
Carl joined Arthur Andersen
in 1983 and became a
partner in 1993. Throughout
his professional career he
specialised in the oil and gas,
mining and utilities sectors,
becoming the head of the UK
energy and resources industry
practice of Andersen in 1999
and subsequently of Deloitte
in 2002. When Carl retired from
the partnership of Deloitte in
2015, he was a vice-chairman,
senior audit partner and
leader of the firm’s energy and
resources business globally.
Principal external
appointments
Board member of the Audit
Committee Chairs’ Independent
Forum. Member of the General
Synod of the Church of
England. Deputy chairman
of the finance committee of
The Archbishops’ Council.
Carl Hughes
Non-Executive Director
Appointed 1 January 2017
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EnQuest PLC –
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Corporate Governance
A
R
Key strengths and experience
• Strong energy industry and
financial experience, as well as
deep insights into Malaysia
Farina is a Fellow of the Institute
of Chartered Accountants
Australia and New Zealand. She
started her career in 1994 with
Coopers & Lybrand, Australia,
before returning to Malaysia
in 1997 to join PETRONAS,
where she held various senior
positions. Farina was chief
financial officer of PETRONAS
Carigali Sdn. Bhd, one of
the largest subsidiaries of
PETRONAS with operations in
over 20 countries and has also
been chief financial officer
at PETRONAS Exploration and
Production. From 2013, Farina
was the chief financial officer
of PETRONAS Chemical Group
Berhad, the largest listed
entity of PETRONAS. Farina left
PETRONAS in 2015 to pursue
non-executive opportunities.
Principal external
appointments
Senior independent director
and member of the board of
PETRONAS Gas Berhad.Member
of the boards of the following
Malaysian listed companies:
KLCC Property Holdings
Berhad, AMMB Holdings
Berhad Icon Offshore Berhad.
Farina Khan
Non-Executive Director
Appointed 1 November 2020
S
T
Key strengths and experience
• Technical, project management
and executive management
roles in major energy
companies, working on six
continents
Rani is CEO of OGL Geothermal Ltd.
and has 25 years’ experience
working within large multinational,
independent and start-up energy
companies. These include Shell
International, Hess and
Tullow and have involved a
variety of technical, project
management and executive
management roles across
Europe, Asia, the Americas
and Africa. Between 2017
and 2020 Rani was chief
petroleum engineer at Tullow.
She has led multi-billion-
dollar projects across the
globe from unconventional
shales in the US to oil
developments in East Africa.
Principal external
appointments
CEO of OGL Geothermal Ltd.,
Fellow of the Energy Institute,
Fellow of the Institution of
Mechanical Engineers & Trustee
of Lloyds Register Foundation.
Rani Koya
Non-Executive Director
Appointed 1 January 2022
A
S
Key strengths and experience
• Extensive experience of the
energy industry, public policy
and governance
Liv Monica has 20 years’
experience as a corporate
lawyer. She started her career
as an attorney before becoming
political adviser to the Centre
Party Finance Parliamentary
Group. From 1997, she spent
two years as a legal adviser to
an industry alliance for private
ownership before becoming
partner at her original law firm.
In 2005, Liv Monica moved back
into politics and was Norway’s
Deputy Minister of Foreign
Affairs for two years, followed
by two years as Deputy Minister
of Petroleum and Energy. Liv
Monica rejoined the private
sector in 2009 and held four
top executive industry positions
within the Aker Group in Norway,
including as EVP in the listed
EPC contractor Kværner, before
moving back into law in 2015.
Principal external
appointments
Partner at the Oslo-based law
firm Selmer. Sits on a number
of private company boards,
industrial boards and academic
committees, including as
chairperson of Hafslund Oslo
Celsio (formerly Fortum Oslo
Varme AS), Silex Gas Norway
and Morrow Batteries.
Liv Monica Stubholt
Non-Executive Chairman
Appointed 15 February 2021
T
S
Key strengths and experience
• Extensive technical leadership
experience in global exploration,
business development and
asset management
John is a member of the
American Association of
Petroleum Geologists. John
joined Occidental in 1981 as a
geologist with the company
and had a strong record of
exploration success globally,
with over two billion barrels
of oil equivalent discovered
in the Philippines, Indonesia,
Bangladesh, Malaysia, Russia,
the US and Yemen. After a 20+
year technical career, John
moved into executive roles,
including high-level executive
leadership positions. John left
Occidental in 2013 and since
then has provided strategic,
technical and performance
management advice to
oil and gas companies.
Principal external
appointments
Non-executive director
of CC Energy.
John Winterman
Non-Executive Chairman
Appointed 7 September 2017
Committees key
A
Audit
G
Governance and Nominatio
n
R
Remuneration and Social Responsibility
S
Safety, Sustainability and Risk
T
Technical and Reserves
Denotes Committee Chair
68
Chairman’s letter
Dear shareholder
On behalf of the Board of Directors (the ‘Board’), I am pleased
to introduce EnQuest’s Corporate governance report.
I was appointed to the Board on 6 December 2022 and am
delighted to join an independent energy company with an
advantaged business model suitable for the energy transition.
I would like to extend my thanks and appreciation to Martin
Houston, who stepped down from the Board on 6 December
2022. Much was achieved during his time with the Group.
We have had several planned changes in Board membership
during the year. As reported last year, on 1 January 2022, we
welcomed Rani Koya as a Non-Executive Director, while Philip
Holland stepped down from the Board following EnQuest’s AGM
on 17 June 2022, having served on the Board for nearly seven
years. Jonathan Swinney notified the Board of his intention to
step down from the Board as Chief Financial Officer (‘CFO’) and
Executive Director in March, and it was agreed that Salman
Malik, who had long been identified as a potential CFO
successor, would succeed Jonathan. Salman was appointed
as CFO and Executive Director on 15 August 2022. It is always
gratifying to see succession from within the organisation;
Salman has been with EnQuest since 2014 and is a member
of the Executive Committee, also holding the position of
Managing Director, Corporate Development, Infrastructure and
New Energy. On behalf of the whole Board, I extend thanks to
Jonathan and Philip for their contributions over many years.
Following Martin Houston’s resignation in June 2022, the
Governance and Nomination Committee, on behalf of the
Board, appointed a sub-Committee led by Howard Paver,
Senior Independent Director, to undertake the replacement
Chair search. The Committee also reviewed our Board
Committee composition during the year to reflect better the
expertise and time commitments of the Non-Executive
Directors. Key changes to the Committees included the
appointment of Rani Koya to the Technical and Reserves
Committee and as Chair to the Safety, Sustainability and Risk
Committee (formerly the Safety, Climate and Risk Committee).
Rani‘s appointment as Committee Chair followed Liv Monica
Stubholt, who we had previously reported as intending to take
on the role of Chair, reflecting on the role requirements and
confirming she was unable to give it the time commitment
she thought appropriate. The report of the Governance and
Nomination Committee work during 2022 follows on
immediately from this Corporate Governance Statement.
A significant amount of time was spent on reviewing the
Group’s refinancing activities and I am delighted that we
successfully reduced our gross debt by c.$483 million over the
year and materially extended our debt maturity profiles to
2027 through a combination of strong cash flow generation
and the refinancing of each of our debt instruments. Against a
volatile macroeconomic and geopolitical backdrop, it is
important to note that EnQuest was able to access additional
support from its syndicate of lender banks, including the
introduction of institutions attracted to the opportunities
presented by the Group’s Infrastructure and New Energy
business. This was a significant achievement which has
rebalanced the Group’s capital structure.
There is a strong commitment across the organisation to
create a more diverse and inclusive workplace, with the
Group-wide diversity and inclusion (‘D&I’) strategy alongside
the D&I Policy firmly embedded in the business. During the
year, the Board considered diversity of talent and agreed to
adopt the FTSE Women Leaders Review targets and reviewed
and supported work being undertaken throughout the
organisation to create a more inclusive workplace.
Having undertaken an externally facilitated Board
evaluation in 2021, for 2022 it was appropriate to undertake
the evaluation internally. The changes in Board composition
during the year undoubtedly impacted on the survey
results, which were discussed at the January 2023 Board
meeting and for which we have a clear action plan for
development, as outlined further on page 69.
The Board considers that strong and appropriate governance
leads to better decision making that reflects the interests of the
Group’s stakeholders. To that end, during the year the Board
initiated a review of its governance processes and how decisions
are taken. This is discussed on page 76. The governance review
was well received by the Board and gives me confidence that we
will build on the lessons identified.
Employee engagement continues to be an important part of
the Board’s work. An example of engagement in action was
when the members of the Technical and Reserves Committee
visited the office in Aberdeen to review operations and took
the opportunity to meet with technical staff, have dinner with
a group of mainly new employees, and host a breakfast with
high-potential employees. More about our other employment
engagement activities can be found on page 70.
I am delighted to have joined the Board of EnQuest and look
forward to working with my colleagues and the Company to
achieve our strategic objectives over the coming years and
firmly cementing EnQuest’s position as an energy transition
company.
Gareth Penny
Chairman
4 April 2023
“Corporate governance is an
essential part of our overall
framework, supporting both
risk management and the
Group’s core Values.”
Gareth Penny
Chairman
ENQUEST STRUCTURE
Investment
Committee
HSEA
Directorate
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EnQuest PLC –
Annual Report and Accounts 2022
Corporate Governance
1
During the year, the Safety, Climate and Risk Committee changed its name to the Safety, Sustainability and Risk Committee
2 Committee Chair
Remuneration
and Social
Responsibility
Committee
Howard Paver
2
Farina Khan
Gareth Penny
Technical
and Reserves
Committee
John Winterman
2
Rani Koya
Howard Paver
Safety,
Sustainability
and Risk
Committee
1
Rani Koya
2
Carl Hughes
Liv Monica Stubholt
John Winterman
Audit
Committee
Carl Hughes
2
Farina Khan
Howard Paver
Liv Monica Stubholt
EnQuest PLC Board
of Directors
Governance and
Nomination
Committee
Gareth Penny
2
Amjad Bseisu
Howard Paver
Executive
Committee
Operations
Committee
Chief
Executive
Key corporate governance activities during the year
Activity
Purpose
Result
Succession
planning and
Board
composition
Creating a well-balanced Board,
continuous refreshing of talent,
and development of internal
talent
• Appointment of Gareth Penny as Chairman of EnQuest PLC and as
Chair of the Governance and Nomination Committee
•
Appointment of Salman Malik to the Board as CFO and Executive Director
• Appointment of Rani Koya to the Board as a Non-Executive Director
and as Chair of the Safety, Sustainability and Risk Committee and
a member of the Technical and Reserves Committee
Refinancing
activity
Strengthening the balance sheet,
ensuring appropriate funding for
future activities
•
Successful refinancing of the Group’s debt instruments with an
improved mix of debt and extended maturities
Governance
review
Challenging our way of working to
ensure greater transparency and
adherence to best practice
• Review of the way in which decisions are taken, with learnings to be
implemented during the year
Strategy
enhancement
More clearly defining the role
EnQuest will play in the energy
transition
• The Group’s strategy was enhanced to include a focus on
repurposing assets for potential new energy and/or decarbonisation
opportunities prior to entering their decommissioning phase
Further details of the Board’s activities and how they support compliance with the Code are shown in the table on page 74
70
Corporate governance statement
Statement of compliance
The Board believes that the manner in which it conducts its business is important and it is committed to delivering the
highest standards of corporate governance for the benefit of all of its stakeholders. The Directors are cognisant of their
duties to stakeholders under Section 172 of the Companies Act 2006 and considerations related to stakeholders are
reflected throughout this Annual Report and Accounts (‘2022 ARA’). The Section 172 Statement can be found on page 62.
The Company applies the principles and complies with the provisions of the Financial Reporting Council‘s UK Corporate
Governance Code 2018 (the ‘Code’) which was effective for accounting periods beginning on or after 1 January 2019, except
in respect of Provision 33 of the Code, details of which may be found on page 73. The Code can be found on the Financial
Reporting Council’s website at www.frc.org.uk. Detailed below is EnQuest’s application of, and compliance with, the Code.
In order to avoid duplication, cross-references to appropriate sections within the 2022 ARA are provided.
The manner in which the Company has applied the principles of the Code can be found in the following sections:
Board leadership and company purpose
• Corporate governance statement (page 70)
• Strategic report (page 04)
Division of responsibilities
• Corporate governance statement (page 72)
Composition, succession and evaluation
• Governance and Nomination Committee report (page 75)
Audit, risk and internal control
• Strategic report (page 40)
• Audit Committee report (page 78)
• Safety, Sustainability and Risk Committee report (page 103)
Remuneration
• Directors’ Remuneration Report (page 85)
Board leadership and company purpose
The Board takes seriously its roles in promoting the long-term success of the Company, generating value for shareholders,
having regard to the interests of other stakeholders and contributing to wider society. How the Company manages these
areas can be found in the Strategic report, in particular on pages 04 to 05.
The Board is responsible for:
• The Group’s overall purpose and strategy;
• Health, safety and environmental performance;
• Review of business plans and trading performance;
• Approval of major capital investment projects;
• Acquisition and divestment opportunities;
•
Review of significant financial and operational issues;
•
Review and approval of the Group’s financial statements;
• Oversight of control and risk management systems;
• Succession planning and appointments; and
• Oversight of employee culture.
Culture
The Board ensures that the culture of the Group is aligned with its purpose, Values and strategy. EnQuest’s Values embody
the ethos of the Group, and the Board carefully monitors and promotes a positive culture. The Board believes that engaged
and committed employees are integral to the delivery of the Group’s business plan and, to assist this, an employee survey
is held on a regular basis. The survey is used by the Board as a baseline from which to enhance and improve the culture of
the Group. In addition, the Global Employee Forum (the ‘Forum’) met three times over the year. The Board received updates
following each forum meeting from the designated Directors for employee engagement.
During the year, the Board reviewed the purpose of the Forum and determined that its purpose had changed and its
primary function was now for the raising of non-strategic issues. As such, the Board agreed that it should continue under
the direction of the Director of People, Culture and Diversity. The designated Directors for employee engagement now
undertake a wider programme of formal and informal engagement with employees in line with the requirements of the
Code to understand the views of the workforce.
EnQuest’s Code of Conduct underpins the governance and ethos of the Group. All personnel are required to be familiar
with the Code of Conduct, which sets out the behaviours that the organisation expects of those who work at and with
the Group. The Group’s Values complement the behaviours contained within the Code and are a key part of the Group’s
identity. They guide the workforce as they pursue EnQuest’s strategy and delivery of SAFE Results.
Workforce concerns
Through the Forum, regular briefings, which include an opportunity for the workforce to ask questions to management,
the promotion of its Code of Conduct and Values and various communication media, the Group seeks to set positive,
appropriate standards of conduct for its people within an open, dynamic and inclusive culture. The Group encourages
all employees to escalate any concerns and, as part of its whistleblowing procedure, provides an external ‘speak-up’
reporting line which is available to all employees, allowing for anonymous reporting through an independent third party.
Where concerns are raised, these are investigated and reported to the Chairman of the Audit Committee, with follow-up
action taken as soon as practicable thereafter.
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Corporate Governance
Stakeholder engagement
EnQuest continued to have an active and constructive dialogue with its shareholders throughout the year to understand
their views on governance and performance against strategy.
With the gradual lifting of COVID-19 related restrictions,
there was a return to face-to-face meetings and engagement activities, although the Company’s stakeholders also
continued to conduct virtual meetings for speed and efficiency.
The Company’s engagement activities were conducted through a planned programme of investor relations activities,
including meetings with:
•
Credit and equity investors and research analysts with regard to the Group’s refinancing of its secured and unsecured
debt facilities, performance against guidance and overall debt management strategy;
•
A selection of the Group’s larger shareholders in relation to the search for a new Board Chair; and
• Retail investors at the Company’s AGM.
The Group also delivered presentations alongside its half-year and full-year results, copies of which are available on the
dedicated section of the Group’s website, which can be found under ‘Investors’ at
www.enquest.com, as well as ad hoc
presentations at investor conferences. The Group’s results meetings are followed by investor roadshows with existing and
potential new investors. These meetings, which take place throughout the year, other than during closed periods, are
organised directly by the Company, via brokers and in response to direct investor requests.
EnQuest’s Investor Relations team and Company Secretarial department respond to queries from shareholders, debt
holders, analysts and other stakeholders, all of whom can register on the website to receive email alerts of relevant Group
news. EnQuest’s registrars, Link Group in the UK and Euroclear in Sweden, also have teams available to answer shareholder
queries in relation to technical and administrative aspects of their holdings. The Board is routinely kept informed of investor
feedback, broker and analyst views and industry news in a paper submitted at each Board meeting by the Group’s Investor
Relations team and as required on an ad hoc basis.
The Board is also kept informed of relevant developments relating to other stakeholder groups such as suppliers,
regulators, partners and governments, as required by the Executive Directors and/or the appropriate functional
management and considers potential impacts on these groups of principal decisions made during the course of the
year (see pages 64 to 66 for more details).
Board agenda and key activities throughout 2022
During 2022, the Board resumed face-to-face meetings following the lifting of restrictions imposed during the COVID-19
pandemic. However, the Board also took advantage of the speed and efficiency of virtual meetings where appropriate
to ensure that business was conducted in a time-effective and environmentally sensitive manner. Regular Board agenda
items and key activities are shown on page 72.
Directors’ attendance at Board meetings in 2022
Meetings
attended
Scheduled meetings 2022
Executive Directors
Amjad Bseisu
6/6
Jonathan Swinney
1
3/3
Salman Malik
2
3/3
Non-Executive Directors
Martin Houston³
5/5
Gareth Penny
4
1/1
Farina Khan
6/6
Howard Paver
6/6
Philip Holland
5
3/3
Carl Hughes
6/6
Rani Koya
6
6/6
Liv Monica Stubholt
6/6
John Winterman
6/6
1
Jonathan Swinney stood down as Chief Financial Officer and Executive Director on 15 August 2022
2
Salman Malik was appointed as Chief Financial Officer and Executive Director on 15 August 2022
3
Martin Houston stood down as Chairman and Non-Executive Director on 6 December 2022
4
Gareth Penny was appointed as Chairman and Non-Executive Director on 6 December 2022
5
Philip Holland stood down as Non-Executive Director on 17 June 2022
6
Rani Koya was appointed as Non-Executive Director on 1 January 2022
72
Corporate governance statement
continued
The table below sets out matters that the Board discuss at each meeting and the key activities that have taken place
throughout this period.
Key activities for the Board throughout 2022
Strategy
Operations
Governance
Stakeholders
• Key projects, their status
and progress made
• Strategy
• Key transactions
• Financial reports and
statements
• Liquidity
• HSEA
• Production
• Operational issues
and highlights
• HR issues and
developments
• Key legal updates
• Succession planning
• Assurance and risk
management
• Investor relations and
capital market updates
• Employee engagement
• Government and regulator
engagement
Conflicts of interest and compliance
The Group has procedures in place which identify and, where appropriate, manage conflicts or potential conflicts of
interest with the Group’s interests. In accordance with the provisions relating to Directors’ interests in the Companies Act
2006, all Directors are required to submit details to the Company Secretary of any situations which may give rise to a
conflict or potential conflict. The Board is satisfied that formal procedures are in place to ensure that authorisation for
potential and actual conflicts of interest are operated efficiently. Directors are required to obtain Board approval before
accepting any further external appointments and demands on a Director’s time are taken into account before approval
is given.
The Group is committed to behaving fairly and ethically in all of its endeavours and has policies which cover anti-bribery,
anti-corruption and tax evasion. The anti-bribery and corruption programme is reviewed annually by the Board and a
compulsory online anti-corruption training course is required to be completed by all staff. Additional information can be
found on page 52 and in the Code of Conduct which is available on the Group’s website.
Board education
All Directors receive an induction pack and meet with management on joining the Company. They are also offered Director
training and memberships of organisations which deliver knowledge and training to Non-Executive Directors. Education is
provided from time to time by the Company Secretary or external advisers; for example, a session was held with external
counsel to discuss the Board’s specific responsibilities in relation to the refinancing, anti-corruption and bribery,
responsibilities under the Market Abuse Regulations and on corporate governance matters pertinent to the discharge of
Non-Executive Directors’ duties.
2022 Annual Report and Accounts
The Directors are responsible for preparing the 2022 ARA and consider that, taken as a whole, the 2022 ARA is fair, balanced
and understandable, and provides the necessary information for shareholders to assess the Company and Group’s
position and performance, business model and strategy.
Annual General Meeting (‘AGM’)
The Company’s AGM is ordinarily attended by the Directors and executive and senior management and is open to all
EnQuest shareholders to attend.
Division of responsibilities
There is a clear division of responsibilities between the leadership of the Board and the executive leadership of EnQuest.
The roles of the Chairman and Chief Executive are not exercised by the same individual.
Chairman
The Chairman is responsible for the leadership of the Board, setting the Board agenda and ensuring the overall effective
working of the Board. The Chairman holds regular one-to-one and group meetings with the Non-Executive Directors
without the Executive Directors present.
Chief Executive
The Chief Executive is accountable and reports to the Board. His role is to develop strategy in consultation with the Board,
to execute that strategy following presentation to, and consideration and approval by, the Board and to oversee the
operational management of the business.
Senior Independent Director
The Senior Independent Director (‘SID’) is available to shareholders if they have concerns where contact through the
normal channels of the Chairman or the Executive Directors has failed to resolve an issue, or where such contact is
inappropriate. The SID acts as a sounding board for the Chairman and also conducts the Chairman’s evaluation on
an annual basis. During the year, the SID led the process for recruiting a new Chairman following the resignation of Martin
Houston in June.
Non-Executive Directors
The Non-Executive Directors combine broad business and commercial experience from oil and gas and other industry
sectors. They bring independence, external skills and objective judgement, and constructively challenge the actions of
executive and senior management. This is critical for providing assurance that the Executive Directors are exercising good
judgement in delivery of strategy, risk management and decision making. They receive a monthly report on Group
performance and updates on major projects, irrespective of a meeting taking place, which allows them to monitor
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Corporate Governance
performance regularly. In addition, they hold to account the performance of management and individual Directors against
agreed objectives and assess and monitor the culture of the Company. All Directors of EnQuest have been determined to
have sufficient time to meet their responsibilities and this is monitored on a regular basis. At the date of this report there are
nine Directors, consisting of two Executive Directors and seven independent Non-Executive Directors (including the Chairman).
During the year, the Non-Executive Directors spent significant additional time on Company business and, having taken
advice from the Company’s remuneration advisers, the Board agreed to award the Non-Executive Directors an additional
fee as permitted under the Remuneration Policy. Following this decision, the Board initiated a review of its approval
processes. The review concluded that the Board’s decision making was consistent with law and the Company’s Articles of
Association (the ‘Articles’). However, the process for approving the additional fees for Non-Executive Directors differed from
the specific process set out in the Remuneration and Social Responsibility Committee’s terms of reference in that the full
Board, rather than the Chairman and Executive Directors, approved the additional fee to the Non-Executive Directors.
Further, it noted that that while the process to increase the Chairman’s fees was consistent with the Company’s Articles,
it did not comply with Provision 33 of the Code in that the Board, rather than the Remuneration and Social Responsibility
Committee, approved the additional fee to the Chairman.
Company Secretary
The Company Secretary is responsible for advising the Board, through the Chairman, on all Board procedures and
governance matters. In addition, each Director has access to the advice and services of the Company Secretary. The
Company Secretary assists with the ongoing training and development of the Board and is instrumental in facilitating
the induction of new Directors. The appointment and removal of the Company Secretary is a Board matter. The Company
Secretary supports the Chairman in the provision of accurate and timely information. Board agendas are drawn up by the
Company Secretary in conjunction with the Chairman and with agreement from the Chief Executive. All Board papers are
published via an online Board portal system which offers a fast, secure and reliable method of distribution.
Independence
The Chairman was independent on appointment and the Board considers that all the Non-Executive Directors continue
to remain independent and free from any relationship that could affect, or appear to affect, their independent judgement.
Information on the skills and experience of the Non-Executive Directors can be found in the Board biographies on
pages 66 and 67.
Committees
The Board has five Committees which meet on a regular basis and report back to the Directors at each Board meeting.
This allows for the Board to be apprised of important Committee business and, if necessary, to discuss issues should they
need to be escalated to Board level. There are formal terms of reference for each Committee which set out the scope of
authority of the Committee, satisfy the requirements of the Code and are reviewed and approved on an ongoing basis
by the Board. Copies of the terms of reference are available on the Group’s website, www.enquest.com. Membership and
attendance of each Committee can be found on the dedicated Committee pages, details of which are found below:
Audit Committee
The Audit Committee responsibilities include reviewing the effectiveness of the Group’s internal controls and risk
management systems. The Committee is also in charge of approving statements to be included in the Annual Report
concerning risk management as well as monitoring and reviewing the effectiveness of the Group’s internal audit capability
in the context of the Group’s overall risk management system. The work of the Audit Committee is on pages 78 to 84.
Remuneration and Social Responsibility Committee
The Remuneration and Social Responsibility Committee is responsible for assessing the Group’s performance and for
determining appropriate performance-related compensation. It reviews and takes note of institutional shareholder
guidelines. During 2023, the Committee will be reviewing the existing shareholder-approved Remuneration Policy ahead of
issuing the Remuneration Policy for shareholder vote in 2024. The Committee also reviews the Group’s social responsibility
programme, both external (how the Group engages in its communities) and internal (employee engagement and a positive
workforce culture). The work of the Remuneration and Social Responsibility Committee is set out on pages 85 to 102.
Safety, Sustainability and Risk Committee
The Safety, Sustainability and Risk Committee continues to progress its comprehensive Risk Management Framework and
has conducted a robust assessment of the principal risks facing the Group, which are outlined on pages 40 to 51 of the
Strategic report. The work of the Committee, which includes monitoring HSEA issues and oversight of decarbonisation
matters, is on pages 103 to 104.
Technical and Reserves Committee
The Technical and Reserves Committee provides the Board with additional technical insight when making Board decisions.
The work of the Committee can be found on 105.
Governance and Nomination Committee
The Governance and Nomination Committee leads the process for appointments and regularly reviews the structure, size
and composition of the Board. It also considers succession planning for the Executive Committee and has expanded its
remit to cover all aspects of the Code. The work of the Governance and Nomination Committee, including information
regarding the Board’s diversity and the Company’s associated policy, recruitment and the Board annual evaluation
process, is on page 76.
74
Corporate governance statement
continued
Board discussions and outcomes
Code requirements
Key Board discussions
Outcome
• Ensuring an effective and
entrepreneurial Board to promote
long-term sustainable success
• Macroeconomic environment
• Growth opportunities, including new
energy and decarbonisation
developments at the Sullom Voe
Terminal and potential acquisitions
• Board evaluation results
• Training
• Clear understanding of European
energy security issues and the
impact of the Russia/Ukraine crisis
• The Board discusses growth
opportunities at every Board meeting,
including at the opportunity costs of
pursuing ventures
• Corporate governance training,
anti-corruption and bribery training
and training on Directors’
responsibilities
• Establishing and aligning purpose,
Values and strategy with culture
• Culture, Values and ESG are included
in Company Performance Indicators
• Board discussed impact of COVID-19
on working arrangements
• Discussed the need to keep diversity
training refreshed and relevant
•
The Board agreed flexible initiatives for
returning to work, reflecting local
requirements and culture
• Ensuring necessary resourcing is in
place and establishing a framework
of controls to enable risk to be
assessed
• Rigorous assessment of the Group’s
liquidity requirements
• Reviewed Risk Management
Framework
• Reviewed principal risks and
uncertainties and emerging risks
•
Successful refinancing of the Group’s
debt facilities
• Regular in-depth reviews of risks and
their mitigants through its Committees
• Effective engagement with
shareholders and stakeholders
• UK and Malaysia regulatory
environment
•
Refinancing the Group’s debt facilities
• Discussion and alignment on
compliance with regulatory
requirements
• Engagement on impact of UK Energy
Profits Levy
• Debt investor engagement
• Ensuring workforce policies and
practices are consistent with the
Company’s Values
• Diversity and inclusion
• The Board adopted aspirational
diversity targets and approved the
approach to enhancing inclusion
• Appointments are subject to formal
rigorous and transparent procedure
with effective succession plan for
Board and senior management
• Use of external consultants for
chair appointment
• Appointment of CFO as part of
internal succession planning
• Detailed discussions on succession
planning and review of roles and
accountabilities of Executive
Committee
• Approved use of external agent
to benchmark senior employees’
readiness for succession
75
EnQuest PLC –
Annual Report and Accounts 2022
Corporate Governance
Governance and Nomination Committee membership
The Governance and Nomination Committee comprises the Chairman of the Company, the SID and the Chief Executive.
Both the Chairman and SID are deemed independent.
Appointment dates and attendance at the five scheduled meetings are set out below:
Member
Date appointed
Committee member
Attendance at
meetings during
the year
Martin Houston
1
1 October 2019
5/5
Amjad Bseisu
22 February 2010
5/5
Howard Paver
15 October 2019
5/5
Gareth Penny
2
6 December 2022
0/0
Notes:
1
Martin Houston stepped down from the Board as Chairman and Non-Executive Director on 6 December 2022
2
Gareth Penny joined the Board and the Governance and Nomination Committee on 6 December 2022
Main responsibilities
The core work of the Governance and Nomination Committee is to ensure that the Board and its Committees support the
strategy of the Group. Currently, the Board consists of seven Non-Executive Directors and two Executive Directors, who
collectively bring a diverse mix of skills and experience to the Company, collaborating with each other to provide strong
leadership.
The main responsibilities of the Committee are to:
•
Review the size, structure and composition (including the skills, experience, independence, knowledge and diversity) of
the Board and its Committees;
•
Ensure the orderly succession of Executive Directors, Non-Executive Directors and executive and senior management;
•
Identify, evaluate and recommend candidates for appointment or reappointment as Directors or Company Secretary,
taking into account diversity, including gender, social and ethnic backgrounds, cognitive and personal strengths and the
balance of knowledge, skills and experience required to serve on the Board;
• Review the outside directorships/commitments of Non-Executive Directors; and
•
Exercise oversight of the compliance of the Company with the Corporate Governance Code (the ‘Code’).
The Committee’s full terms of reference can be found on the Group’s website, www.enquest.com, under Corporate
Governance.
Committee activities during the year
The Governance and Nomination Committee met five times in 2022. Its key activities included:
Appointment of Non-Executive Chairman
The Committee launched a Board search process in the summer of 2022 to recruit a Non-Executive Director to take on the
role of Chair. A sub-Committee, comprising Howard Paver, as SID, and Liv Monica Stubholt, was formed to manage the
recruitment process. The Company appointed Spencer Stuart & Associates (‘Spencer Stuart’) to support the sub-
Committee to ensure that a wide range of candidates were considered.
Spencer Stuart met with each continuing Director to understand fully the Company’s requirements, including diversity profiles,
and the cultural fit necessary to succeed in the role. It presented a long list of clients for the sub-Committee to consider before
interviewing candidates.
Throughout the selection process, the sub-Committee actively considered Board diversity in all its forms as part of its
thorough review of each candidate, including the balance of skills, knowledge and level of independence each would
bring to the Board. In addition, it considered any potential conflicts of interest that would arise from the appointment and
gave careful consideration to other existing commitments the candidates had and whether they would be able to devote
the appropriate amount of time in order to meet fully what was expected of them. The sub-Committee recommended the
appointment of Gareth Penny to the Board, which unanimously approved his appointment.
Review of tenure of Non-Executive Directors
The Committee discussed the optimum length of service of Non-Executive Directors, noting that the average tenure
across FTSE 150 companies was under five years and that the Code states that service beyond nine years could impair
independence. As no independent Director was approaching nine years’ service it was agreed that a formal policy on
tenure was not, at this point, needed.
Committee composition
The composition of the Safety, Sustainability and Risk Committee (‘SSRC’) was discussed by the Committee. During the
year, the Committee noted that Philip Holland would step down from the chairmanship of the SSRC when he left the Board
following the Group’s Annual General Meeting (‘AGM’) and that, for reason of capacity, Farina Khan also wanted to step
down from the SSRC. The Committee initially considered that Liv Monica Stubholt would be an appropriate replacement
for Philip but, following discussions with Liv Monica, agreed that she would be overcommitted and that it would be more
appropriate for Rani Koya to Chair the SSRC. Accordingly, the Committee recommended to the Board that Rani take on the
role following Philip Holland’s departure.
76
Corporate governance statement
continued
Global Employee Forum composition
The Committee considered the composition and purpose of the Global Employee Forum during the year. At the start of 2022, the
designated Directors for employee engagement were Philip Holland and Farina Khan, and both attended the Global Employee
Forum in that capacity. With Philip Holland stepping down from the Board, and Farina Khan wishing to step down as designated
Director for employee engagement for reasons of capacity, the Committee recommended to the Board that Rani Koya and
Howard Paver become the designated Directors for employee engagement. As noted on page 107, the focus of the Forum
changed during the year and the designated Directors no longer participate in all its meetings. Instead, the designated
Directors have instigated a programme of formal and informal events with employees to enable the Board to get a clear
understanding of the views of employees.
Appointment of Executive Director
Jonathan Swinney notified the Board of his intention to step down from the Board as Chief Financial Officer (‘CFO’) and
Executive Director in March, and it was agreed that Salman Malik, who had long been identified as an internal candidate to
be a potential CFO successor, would succeed Jonathan. Salman had been a member of EnQuest’s Executive Committee
for several years and has a wealth of industry and financial experience, alongside developing the Group’s Infrastructure
and New Energy business. Given the Group’s ongoing attention on deleveraging, refinancing, creative M&A and
repurposing existing infrastructure to deliver EnQuest’s decarbonisation ambitions, the Board is confident he has the
necessary skills, experience and vision for the role.
Appointment of Company Secretary
The Committee oversaw an external search for a new Company Secretary to succeed Stefan Ricketts who notified his
intention to resign from the Company. The Committee considered diversity in all its forms and met with a range of
candidates to assess their skills, knowledge and experience before deciding to recommend the appointment of Chris Sawyer.
Chris joined EnQuest from bp where he was assistant general counsel, oil regions and production and operations and a
member of senior leadership teams responsible for upstream and low carbon energy.
Structured Board succession planning
Succession planning is an important part of both the Committee and the Board’s deliberations. This includes for both
senior management and the wider organisation, with regard to individuals who are considered as having high potential.
This ensures that the Board has oversight of the Group’s talent pipeline and future leaders and can progress and support
development within the organisation.
In considering the composition of the Board which will best serve the strategy, Values and Company purpose into the
future, the Board has adopted diversity targets. Its membership represents a spread of backgrounds and experiences
which cover the oil and gas and other industries, including those supporting the energy transition. See pages 66 to 67 for
Board biographies.
The Board and the Governance and Nomination Committee remain satisfied that the individuals currently fulfilling key
executive and senior management positions in the Group have the requisite depth and breadth of skills, knowledge and
experience, to ensure that orderly succession to the Board and Executive Committee can take place. The Group continues
to work to identify capability strengths and development gaps and to develop the process for encouraging and supporting
high-potential employees.
Annual evaluation
Having carried out an external Board evaluation in 2021, supported by Grant Thornton, it was felt appropriate to undertake
an internal Board evaluation in 2022. This evaluation was carried out with support from BoardClic and used the same
online tool as in previous internal evaluations. The online survey was then supported by individual calls between the
Directors and the Chairman.
The results from the evaluation, which were discussed in detail at the February 2023 Board meeting, reflect the changes
that occurred on the Board during the year and provide a clear guide to the priorities in 2023.
The Board agreed that the key themes for development were:
• Ensuring that the Board has a good process for setting strategy;
• Ensuring that the Board gets good-quality information, both before and between meetings;
•
Further improvement in governance processes and structures to assist the Board and its Committees in supporting the
Executive Directors and management to deliver on the strategy of the Group; and
•
Developing and clarifying the succession planning process.
As the Chairman was only appointed immediately before the evaluation, no separate assessment of the Chairman’s
performance was carried out. The SID will lead a review of the Chairman’s performance during 2023.
The key areas from the 2021 external evaluation were kept under review during the year. These included Board dynamics,
which have evolved as the composition of the Board has changed. The strategy has continued to be refined, with an
increased focus on repurposing existing assets and infrastructure in support of the Group’s decarbonisation ambitions.
An increased amount of attention was given to the oversight of organisational culture, including appropriate training for
managers and supervisors in creating inclusive cultures alongside assessing the impact of returning to the workplace
for office-based staff based in the UK, Dubai and Malaysia.
77
EnQuest PLC –
Annual Report and Accounts 2022
Corporate Governance
Re-election to the Board
Following a review of the effectiveness of the Board, the Governance and Nomination Committee confirms that it is satisfied with
both the performance and the time commitment of each Director throughout the year. The Committee also remains confident
that each of them is in a position to discharge their duties to the Company in the coming year and that together they continue to
bring the necessary skills required to the Board. Board approval is required should a Director wish to accept a further external role.
Detailed biographies for each Director, including their skills and external appointments, can be found on pages 66 to 67.
Priorities for the coming year
The main focus of the Committee in 2023 will be in supporting the Board to align our culture and succession plans with the
delivery of our strategy.
Boardroom diversity
The Group’s Diversity and Inclusion Policy can be found on the Group’s website at www.enquest.com/environmental-
social-and-governance/social/people.
The Company has adopted the FTSE Women Leaders Review diversity targets of 40% female representation on the Board
and at least one female Director holding the position of Chair, Senior Independent Director, CEO or CFO by 2026. As at
4 April 2023, none of these roles are held by females. The Board has also agreed diversity targets for leadership roles
(including the Executive Committee, Aberdeen Leadership Team and Malaysia Leadership Team) by 2025 of: 30% of
management roles to be occupied by women and 15–20% of executive management roles to be occupied by ethnic
minorities. Data relating to gender and ethnicity is collected by the Group’s Human Resources department, where
disclosed by the individual.
In addition, the EnQuest Diversity and Inclusion Policy aligns with the Company’s Values, which incorporate both respect
and openness. The Group seeks diversity in its employee base, recognising that those from different backgrounds,
experience and abilities can bring fresh ideas, perspectives and innovation to improve the business and working practices.
Activities within the Group to encourage awareness of diversity considerations include a staff-wide diversity survey and
education of the workforce.
The chart below illustrates gender breakdown of EnQuest’s Directors and workforce as at 31 December 2022
1
.
Directors
Senior managers
Employees
86.21%
13.79%
66.67%
33.33%
81.04%
18.96%
Female
Male
0
20
40
60
80
100
Note:
1
Breakdown of percentages: Directors (3 female, 6 male); Senior managers (8 female, 50 male); Employees (135 female, 577 male). Senior management and
total employee figures include EnQuest’s employees in Dubai, Malaysia and the UK
78
Audit Committee report
Dear fellow shareholder
I am pleased to present the Audit Committee report for the
year ended 31 December 2022, covering our activities over
the course of the year.
The Audit Committee oversees and monitors the Group’s
financial reporting (including reporting on the financial
aspects related to climate change), external and internal
audit, the effectiveness of the Risk Management Framework
(‘RMF’) and system of internal controls.
More information on the role and responsibilities of the
Committee and its terms of reference, which are reviewed
annually, can be found at www.enquest.com/investors/
corporate-governance.
In addition to the standing agenda items for the year, the
Committee also considered a variety of other focus areas
including: monitoring the CFO transition, refinancing of the
Group’s debt, climate change disclosure recommendations,
challenging management on control improvements,
reviewing the impact of the UK Energy Profits Levy (‘EPL’)
on EnQuest’s business model and the wider competitive
landscape, monitoring IT control improvement progress and
reviewing cyber-security measures and the Group’s IT
resourcing model. It was pleasing to see a smooth CFO
transition and the Group successfully refinance its debt,
materially extending its maturities in what was a challenging
market environment. The Committee was also pleased to
see that in July 2022, in its Thematic Review: Judgements
and Estimates Update, the Financial Reporting Council (‘FRC’)
highlighted EnQuest’s 2021 Annual Report and Accounts as
an example of good practice with regard to disclosure of
deferred tax sensitivities.
During the year, the Committee agreed to update its terms
of reference to highlight its responsibilities more explicitly
with regard to the IT control environment, with the first IT
controls review held at the December Committee meeting.
A significant amount of time, including an additional
Committee meeting, was also spent reviewing the finance
function’s resourcing requirements and progress against
improvements identified in conjunction with the Group’s
external auditor. A number of process and IT control
improvements have been implemented in the lead-up
to and during the 2022 year-end process, including
developing granular timetables for significant processes,
building flexibility into existing Excel finance models and
incorporating peer reviews. In addition, the finance team
has successfully implemented its succession plans and is
building additional capacity into the team with the
recruitment of new team members.
During the year, the FRC conducted a formal Audit Quality
Review of the Deloitte audit of EnQuest’s 2021 Annual Report
and Accounts, the results of which were received in January
2023 with only limited improvements required. To ensure
that Deloitte can incorporate the necessary actions into
future audit plans, the Committee will work closely with
Deloitte and management.
In June 2022, subsequent to the publication of the EnQuest
Annual Report and Accounts 2021, EnQuest received a letter
from the Board for Swedish Financial Reporting Supervision
informing EnQuest that it had initiated an investigation into
a potential breach under the provisions of the Securities
Market Act regarding filing of financial information following
the UK’s exit from the European Union. The Committee was
provided with updates of the investigation’s progress at
each subsequent meeting. In March 2023, EnQuest was
informed that after consideration of EnQuest’s responses
the investigation had been closed. As part of this process,
the Group reviewed its disclosure practices and has
implemented the necessary updates to ensure ongoing
compliance.
The Committee is pleased to confirm that the actions of the
Committee were, and continue to be, in compliance with
the Code and that it is satisfied with the formal and
transparent policies and procedures in place. Furthermore,
the Committee ensured that key judgements and estimates
made in the financial statements, such as the recoverable
value of the Group’s assets, were carefully assessed.
Carl Hughes
Chairman of the Audit Committee
4 April 2023
“The Committee has continued to
focus on the Group’s disclosures
as well as challenge the Group’s
financial reporting processes and
system of internal controls while
monitoring the Risk Management
Framework and work of key
functions.”
Carl Hughes
Chairman of the Audit Committee
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EnQuest PLC –
Annual Report and Accounts 2022
Corporate Governance
Committee composition
As required by the Code published in July 2018, the Committee exclusively comprises Non-Executive Directors, biographies
of whom are set out on pages 66 and 67. The Board is satisfied that the Chairman of the Committee, Carl Hughes,
previously an energy and resources audit partner of Deloitte, and a Fellow of the Institute of Chartered Accountants in
England and Wales, meets the requirement for recent and relevant financial experience.
Membership of the Committee, appointment dates and attendance at the five meetings (including one unscheduled) held
during 2022 is provided in the table below:
Member
Date appointed
Committee member
Attendance at
meetings during
the year
Carl Hughes
1 January 2017
5/5
Howard Paver
1 May 2019
5/5
Farina Khan
1 November 2020
5/5
Liv Monica Stubholt
1
15 February 2021
2/5
1
Liv Monica Stubholt was unable to attend certain meetings due to unforseen travel disruption
Meetings are also normally attended by the General Counsel and Company Secretary, the Chief Financial Officer, the
external auditor, the internal auditors and other key finance team members as required. The Chief Executive and the
Chairman of the Board also attend the meetings when invited to do so by the Committee. PricewaterhouseCoopers LLP
(‘PwC’), in its role as internal auditor for certain specialist areas, such as cyber-security, attended meetings during 2022,
as appropriate. The Chairman of the Committee regularly meets with the external audit partner (with such meetings
including the independent review of the going concern and viability assessments) and internal audit (which for 2022
comprised both the internal audit manager and the PwC partner) to discuss matters relevant to the Company.
The Committee continues to monitor its own effectiveness and that of the functions it supports on a regular basis. Through
the review of the terms of reference of the Committee, regular meetings with the internal and external auditors and key
management personnel, the Committee has concluded that its core duties in relation to financial reporting, internal
controls and risk management systems, whistleblowing and fraud, internal audit, external audit and reporting
responsibilities are being performed well.
Fair, balanced and understandable
A key requirement of the Group’s Annual Report and Accounts is for the report to be fair, balanced and understandable.
In addition, the Annual Report should contain sufficient information to enable the position, performance, strategy and
business model of the Company to be clearly understood and details of measurable key performance indicators and
explanations of how the Company has engaged with all of its stakeholders (as set out in the Group’s Section 172 Statement
on page 62). The Committee and the Board are satisfied that the Annual Report and Accounts meet these requirements,
with appropriate weight being given to both positive and negative developments in the year.
With regard to these requirements, the Committee has considered the robust process which operates when compiling
the Annual Report and Accounts, including:
• Clear guidance and instructions are provided to all contributors;
• Revisions to regulatory requirements, including the Code, are communicated and monitored;
•
A thorough process of review, evaluation and verification of the content of the Annual Report and Accounts is undertaken
to ensure accuracy and consistency;
•
External advisers, including the external auditors, provide advice to management and the Audit Committee on best
practice with regard to the creation of the Annual Report and Accounts; and
•
A meeting of the Committee was held in March 2023 to review and approve the draft 2022 Annual Report and Accounts
in advance of the final sign-off by the Board.
80
Audit Committee report
continued
Audit Committee meetings
There were five Committee meetings in 2022. A summary of the main items discussed in each meeting is set out in the
table below:
Agenda item
March
2022
May
2022
August
2022
November
2022
December
2022
Audit Committee self-evaluation assessment of its effectiveness
including review of actions identified in previous effectiveness review
Audit Committee terms of reference
Significant matters arising from completed internal audits
Internal audit progress against 2022 plan, including findings since
last meeting
Independence and objectivity of internal audit
Internal audit and assurance plan for 2023
Joint venture audit plan for 2022, including summary findings since
last meeting
Cyber-security update
Annual external audit plan
External (Deloitte) audit fees subject to the audit plan
Level of non-audit service fees for Deloitte
Quality, independence and objectivity of Deloitte
Effectiveness of Deloitte as external auditors
Evaluate the viability assessment
Appropriateness of going concern assumption
Review of half-year or full-year regulatory press release and results
statements
Briefings on regulatory developments including financial focus areas
and climate-related matters
Key risks, judgements and uncertainties, including consideration
of climate change, impacting half-year or year-end financial statements
(reports from both management and external auditor)
Debt refinancing strategy and associated accounting
Presentation on reserves audit and evaluation of Competent Person’s
independence and objectivity
Finance strategy and organisation update including CFO transition
planning
Tax strategy, policy and compliance
Impact of UK Energy Profits Levy and other tax topics
Management’s response to significant audit findings, recommendations
and notable control weaknesses, including
potential improvements and agreed actions
Review of process and controls relating to development of the Group’s
internal control framework
IT resourcing and controls progress against IT audit findings
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EnQuest PLC –
Annual Report and Accounts 2022
Corporate Governance
Financial reporting and significant financial statement reporting issues
The primary role of the Committee in relation to financial reporting is to assess, among other things:
•
The appropriateness of the accounting policies selected and disclosures made, including whether they comply with
International Financial Reporting Standards; and
•
Those judgements, estimates and key assumptions that could have a significant impact on the Group’s financial
performance and position, or on the remuneration of executive and senior management.
These items are considered by the Committee, together with reports from both management and its external auditor, at
each Committee meeting. The significant accounting and reporting areas considered, including those related to EnQuest’s
2022 consolidated financial statements, are set out below:
Significant financial statement reporting issue
Consideration
Going concern and viability
The Group’s assessments of the going concern assumption
and viability are based on detailed cash flow, covenant and
reserve based lending borrowing base forecasts. These are,
in turn, underpinned by forecasts and assumptions in
respect of:
• Production for the next three years, based on the Group’s
approved 2022 business plan and forecasts; and
• The oil price assumption, based on a forward curve of
$78.5/bbl (2023), $78.5/bbl (2024) and $75/bbl (2025).
The Committee reviewed and considered the Directors’
half-year and full-year statements with respect to the
going concern basis of accounting. The Board also
regularly reviews the liquidity projections of the Group. The
detailed going concern and longer-term viability analysis,
including sensitivity analysis and stress testing, along with
explanations and justifications for the key assumptions
made, were presented at the March 2023 meeting.
This analysis was considered and challenged by the
Committee, including, but not limited to, the appropriateness
of the period covered, planning scenarios, including production
volume expectations, and whether macroeconomic
assumptions were realistic, stress tests were appropriate and
mitigations achievable to ensure that the Group has sufficient
headroom to continue as a going concern. Particular focus was
applied to the implications of the EPL on the Group’s investment
plans and future cash flows. The Committee supported the
going concern basis of accounting. The disclosures in the
Annual Report concerning the viability statement and going
concern assumption (see pages 25 to 26) were reviewed and
approved at the March 2023 meeting for recommendation to
the Board.
Assessment of oil and gas reserves
The Group has total proved and probable (‘2P’) reserves as
at 31 December 2022 of c.190 MMboe. The estimation of
reserves is essential to:
• The valuation of the Company;
• The assessment of going concern and viability;
• Impairment testing;
• Decommissioning liability provisions; and
• The calculation of depreciation.
During the March 2023 meeting, management presented
the Group’s 2P reserves, together with the report from
Gaffney, Cline & Associates, the Group’s reserves auditor.
The Committee considered the scope and adequacy of the
work performed by Gaffney, Cline & Associates and their
independence and objectivity and concurred that the
estimation of reserves had been applied to
the financial statements, where appropriate.
Impairment of tangible and intangible assets
The recoverability of asset carrying values is a significant
area of judgement. These impairment tests are
underpinned by assumptions regarding:
• 2P reserves;
• Oil price assumptions (based on an internal view of
forward curve prices of $84/bbl (2023), $80/bbl (2024),
$75/bbl (2025) and $70/bbl real thereafter);
•
Life of field production profiles and opex, capex and
abandonment expenditure; and
• A post-tax market discount rate derived using the
weighted average cost of capital methodology.
For more details, see note 2 Critical accounting judgements
and key sources of estimation uncertainty: recoverability of
asset carrying values, and notes 10, 11 and 12.
Impairment testing has been performed, resulting in a
pre-tax non-cash impairment charge of $81.0 million.
At the March 2023 meeting, management presented the
key assumptions made in respect of impairment testing
and the result thereof to the Committee. The Committee
considered and challenged these assumptions, including
the potential impacts of the EPL, climate change and the
energy transition, in line with the challenges performed as
part of the going concern and viability review. Sensitivity
analysis and disclosures estimating the effect of price
reductions were reviewed. Consideration was also given to
Deloitte’s view of the work performed by management.
82
Audit Committee report
continued
Significant financial statement reporting issue
Consideration
Contingent consideration
Any contingent consideration included in the consideration
payable for a business combination or asset acquisition is
recorded at fair value at the date of acquisition. These fair
values are generally based on risk-adjusted future cash
flows discounted using appropriate discount rates.
The Group calculates contingent consideration payable
in respect of its Magnus and Golden Eagle acquisitions.
See note 22 for further details.
At the March 2023 meeting, the key assumptions and result
of the fair value calculations, along with explanation of
movements in the year, were presented to the Committee.
Consideration was also given to Deloitte’s view of the work
performed by management.
The Committee concluded that the assumptions and inputs
for contingent consideration payable were reasonable and
consistent with other relevant judgements and estimates
made and the related liabilities recorded were appropriate.
Climate change in financial reporting
While the Group’s view of evolving climate risks continues
to develop, appropriate disclosure is an area of focus for
the Committee.
Climate change and the transition to a lower carbon
economy may have significant impacts on the currently
reported amounts of the Group’s assets and liabilities and
on similar assets and liabilities that may be recognised in
the future.
See note 2 Use of judgements, estimates and assumptions:
climate change and energy transition.
The Committee considered financial statement disclosures,
including TCFD reporting, and how the Group’s climate
change scenarios are reflected in the Group’s key
judgements and estimates used in the preparation of the
Group’s 2022 financial statements. This included a review of
management’s best estimate of oil price assumptions for
fair value less cost of disposal (‘FVLCD’) impairment testing,
including testing the Group’s resilience under the
International Energy Agency’s Announced Pledges Scenario
and Net Zero Emissions by 2050 Scenario.
The Committee, recognising the evolving nature of climate
change risks and responses, concluded that climate
change has been appropriately considered by
management in key judgements and estimates and
concurred with the disclosures proposed by management.
Appropriateness of the decommissioning provision
The Group’s decommissioning provision of $691.6 million at
31 December 2022 is based upon a discounted estimate of
the future costs and timing of decommissioning of the
Group’s oil and gas assets. Judgement exists in respect of
the estimation of the costs involved, the discount rate
assumed, and the timing of decommissioning activities.
See note 2 Critical accounting judgements and key sources
of estimation uncertainty: provisions.
The Committee reviewed the report by management
summarising the key findings and their impact on the
provision. Sensitivity analysis and disclosure estimating the
effect of a change in discount rates was reviewed. Regard
was also given to the observations made by Deloitte as to
the appropriateness of the estimates made.
Taxation
At 31 December 2022, the Group carried deferred tax balances
comprising $705.8 million of tax assets (primarily related to
previous years’ tax losses) and $166.3 million of tax liabilities
(primarily related to the recognition of deferred taxes
associated with the UK Energy Profits Levy).
The introduction of an Energy Profits Levy by the UK
Government in 2022, chargeable on taxable profits from the
production of oil and gas in the UK, resulted in an additional
net deferred tax liability of $153.7 million at 31 December
2022 (see note 7).
The recoverability of the tax losses has been assessed by
reference to future profit estimates derived from the Group’s
impairment testing. Ring-fence losses totalling $2,497.7
million ($902.1 million tax-effected) have been recognised.
Given the complexity of tax legislation, risk exists in
respect of some of the Group’s tax positions.
The Committee received a report from the Group’s Head of
Tax, outlining all uncertain tax positions, and discussed
management’s assumptions of future profit estimates and
evaluated the amount of deferred tax assets recognised.
It was noted that the assumptions are consistent with
those used in the impairment assessment (see above).
The Committee also took into account the views of Deloitte
as to the adequacy of the Group’s tax balances.
An evaluation of the transparency of the Group’s tax
exposures was undertaken, reviewing the adequacy and
appropriateness of tax disclosures, including those related
to the EPL, presented by management. Regard was also
given to the observations made by Deloitte as to the
appropriateness of the disclosures made.
Risk management
The Code requires that the Board monitors the Company’s risk management and, at least annually, carries out and
reports on the results of a review of their effectiveness. The Board has oversight of risk management within EnQuest for
the Company’s emerging and principal risks. Pages 40 to 42 provide more detail on how the Board, and its Safety,
Sustainability and Risk Committee, has discharged its responsibility in this regard. The Audit Committee Chairman is
also a member of the Safety, Sustainability and Risk Committee.
83
EnQuest PLC –
Annual Report and Accounts 2022
Corporate Governance
Internal control
Responsibility in respect of financial internal control is delegated by the Board to the Committee. The effectiveness of
the Group’s internal control framework is reviewed continually throughout the year. Key features include:
•
Clear delegations of authority to the Board and its sub-Committees, and to each level of management;
•
Setting of HSEA, operational and financial targets and budgets which are subsequently monitored by management
and the Board;
•
A comprehensive risk management process with clear definition of risk tolerance and appetite. This includes a review
by the Safety, Sustainability and Risk Committee of the effectiveness of management controls and actions which
address and mitigate the most significant risks;
• An annual risk-based internal audit programme developed in conjunction with management. Findings are
communicated to the Audit Committee and follow-up reviews are conducted where necessary; and
• Further objective feedback provided by the external auditors and other external specialists.
Obtaining assurance on the internal control environment
The Committee received reports from internal audit at each scheduled Committee meeting in 2022 and meets privately with
the internal auditor from time to time. The Committee continued to review the effectiveness and capabilities of internal audit
and monitor its independence during the year. During the latter half of 2022, the Internal Audit Manager transitioned into the
Group Financial Controller role. In order to ensure an ongoing programme of assurance, the Committee agreed that PwC
would undertake the full internal audit programme until a replacement can be found. In order to ensure independence and
objectivity, the primary reporting line of all assurance providers, including the Group’s internal audit function, is to the Chair of
the Committee, with day-to-day management oversight provided by the General Counsel.
The purpose, scope and authority of internal audit are defined within its charter which is approved annually by the
Committee. The internal audit function maintains an internal quality assurance and improvement programme covering
all aspects of internal audit’s activities, and evaluates the conformance of these activities with the Chartered Institute of
Internal Auditors’ Standards.
The Group’s system of internal control, which is embedded in all key operations, provides reasonable rather than absolute
assurance that the Group’s business objectives will be achieved within the risk tolerance levels defined by the Board.
Regular management reporting, which provides a balanced assessment of key risks and controls, is an important
component of assurance. As part of the Committee’s self-evaluation assessment, it was noted that there remains an
opportunity to begin the development of an Audit and Assurance Policy to focus attention on the level of assurance
relating to all reported key financial and non-financial information.
In respect of the work performed by internal audit, an internal audit plan is approved by the Committee each year. When
setting the plan, recommendations from management and internal audit are considered, and take into account the
particular risks impacting the Company, which are reviewed by the Board and the Safety, Sustainability and Risk
Committee. During 2022, internal audit activities were undertaken for various areas, including reviews of:
• Gender pay gap reporting and diversity and inclusion;
• HSEA KPIs;
•
‘Purchase to pay’ (Maximo) upgrade project (pre-execution);
• HSSE and asset integrity RMF Bowtie;
•
HR RMF Bowtie and flexible working;
• Project execution RMF Bowtie; and
•
Internal control processes of the financial accounting and reporting function.
Detailed results from internal audit were presented to management and a summary of the findings was presented to the
Committee, together with copies of all internal audit reports. Where potential control enhancements were identified as
being required, the Committee agreed appropriate actions with management and assessed management’s response to
the findings. Throughout the year, the Committee is kept appraised of management’s progress against the agreed actions,
with the majority of actions closed in accordance with the agreed schedule.
External audit
One of the Committee’s key responsibilities is to monitor the performance, objectivity and independence of the external auditor.
Each year, the Committee ensures that the scope of the auditor’s work is sufficient and that the auditor is remunerated fairly.
When agreeing the annual audit fees, the Committee noted the significant change in the regulatory environment in recent
years, including significant changes in auditing standards and the level of scrutiny on auditors from the FRC, resulting in an
increase in the required investment in audit quality. In addition, the impact of inflation in a competitive job market have all
resulted in a material impact on fees across the audit profession.
The annual process for reviewing the performance of the external audit process involves an interview or questionnaire
with key members of the Group who are involved in the audit process to obtain feedback on the quality, efficiency and
effectiveness of the audit. Additionally, Committee members take into account their own view of the external auditor’s
performance when determining whether or not to recommend reappointment. The Committee also held private meetings
with the external auditor during the year.
84
Audit Committee report
continued
The Committee considered the external audit plan, in particular to gain assurance that it was tailored to reflect changes
in circumstances from the prior year. The significant audit risks addressed during the course of the 2022 audit were:
• Impairment of oil and gas assets and goodwill;
• Contingent consideration;
• Decommissioning provision;
• Deferred tax;
•
Revenue recognition – crude oil cut-off; and
• Management override of controls.
Deloitte regularly updated the Committee on the status of their procedures during the year, including how they had
challenged the Group’s assumptions. The Committee and Deloitte discussed how risks to audit quality were addressed,
key accounting and audit judgements, material communications between Deloitte and management and any issues
arising from them.
Taking into account management’s review and its own experiences with the external auditor, the Committee concluded
that the audit team was providing the required quality in relation to the provision of audit services in its third year as
auditor and has maintained its independence and objectivity. This was further confirmed by the results from the FRC’s
Audit Quality Review noted previously, which resulted in limited improvements required. As required under UK auditing
standards, Deloitte confirmed their independence to the Committee.
The Committee considers the reappointment of the external auditor each year, including consideration of the advisability
and potential impact of conducting a tender process for the appointment of a different independent public accounting
firm. The Committee is also responsible for making a recommendation to the Board for it to put to the Company’s
shareholders for approval at the AGM, to appoint, reappoint or remove the external auditor. At the AGM in June 2022, the
shareholders approved a resolution to reappoint Deloitte as external auditor. The Company has complied with the Code
and FRC Guidance in respect of audit tendering and rotation, under which the Company will be required to tender for the
audit no later than the 2030 financial year. The Committee regularly reviews auditor performance and may elect to carry
out the tender earlier than the 2030 financial year if it determined it would be in the interests of the Company’s
shareholders to do so.
Use of external auditors for non-audit services
The Committee is responsible for EnQuest’s policy on non-audit services and the approval of non-audit services. The
Committee and Board believe that the external auditor’s independence and objectivity can potentially be affected by the
level of non-audit services to EnQuest. However, the Committee acknowledges that certain work of a non-audit nature is best
undertaken by the external auditor given their working knowledge of the Group. To ensure objectivity and independence,
and to reflect best practice in this area, the Company’s policy on non-audit services reflects the UK Regulations.
As part of the Committee’s process in respect of the provision of non-audit services, the external auditor provides the
Committee with information about its policies and processes for maintaining independence and monitoring compliance
with current regulatory requirements.
The key features of the non-audit services policy, the full version of which is available on our website (www.enquest.com;
under Corporate Governance within the Investors section), are as follows:
•
A pre-defined list of prohibited services has been established;
•
A schedule of services where the Group may engage the external auditor has been established and agreed by
the Committee;
•
Any non-audit project work which could impair the objectivity or independence of the external auditor may not be
awarded to the external auditor; and
•
Fees for permissible non-audit services provided by the external auditor are to be capped at no more than 70% of
the average Group audit fee and the UK audit fee for the preceding three years.
The Committee continues to review non-audit services and, in light of the revised FRC Ethical Standards, reviews the scope
of work to ensure its close link to audit services.
The Committee regularly reviews reports from management on the audit and non-audit services reported in accordance
with the policy or for which specific prior approval from the Committee is being sought.
Delegated authority by the Committee for the approval of non-audit services by the external auditor is as follows:
Authoriser
Value of services per
non-audit project
Chief Financial Officer
Up to £50,000
Chairman of the Audit Committee
Up to £100,000
Audit Committee
Above £100,000
In each case where the audit or non-audit service contract does not exceed the relevant threshold, the matter is approved
by management by delegated authority from the Committee and is subsequently presented for approval by the
Committee at the next meeting.
The scope of the non-audit services contracted with the external auditor in 2022 consisted mainly of the interim review
and other assurance services associated with the Group’s debt refinancing activities undertaken during the year.
85
EnQuest PLC –
Annual Report and Accounts 2022
Corporate Governance
Directors’ Remuneration Report
Dear fellow shareholder
On behalf of the Board and my fellow members of the
Remuneration and Social Responsibility Committee, I am
pleased to present EnQuest’s Directors’ Remuneration Report
(‘DRR’) for the financial year ended 31 December 2022.
Overview
The Committee has remained focused on ensuring the
appropriateness of the Group’s overall reward package
available for Executive Directors to maintain continued
alignment with our own Remuneration Policy and the UK
Corporate Governance Code (the ‘Code’). These core
principles were at the forefront when the Committee set
the compensation of the new Chief Financial Officer (‘CFO’)
in 2022.
We carefully consider all components of Executive Directors’
and Executive Committee members’ reward to ensure that
they remain competitive with the remuneration practices in
companies of a similar size and scope. Ahead of the proposed
recommendations for salary changes in 2023, the Committee
robustly examined benchmarking data with the ongoing
support of an independent remuneration adviser, in addition
to considering both the increases made across the wider
workforce and the personal performance contributions of
each executive.
The Committee believes that the current remuneration
structure remains clear, simple and closely aligned with
the Group’s strategy, risk appetite and culture, and that
incentives are appropriately capped.
In line with Directors’ Remuneration Reports since 2019,
the chosen calculation for the 2022 Chief Executive Officer
(‘CEO’) pay ratio was in line with single figure methodology,
also known as ‘Option A’, resulting in a CEO pay ratio of 20:1
in 2022.
Within the Strategic report, the Group has set out its intent
to contribute positively towards the objective under the
UK’s current legislation to achieve net zero emissions by
2050. Emission reduction targets continue to form a key
performance condition of three-year Performance Share
Plan (‘PSP’) awards.
The DRR has three sections:
1. This annual summary statement;
2. A summary of the Policy approved in 2021 which is
presented for information only; and
3. The Annual Report on Remuneration of the Executive
Directors and Non-Executive Directors for 2022, which will be
subject to an advisory shareholder vote at the 2023 AGM.
Committee changes
As announced on 6 December 2022, Martin Houston
stepped down as the Non-Executive Chair of the Board
and as a member of the Committee. He was succeeded
as Non-Executive Chairman by Gareth Penny, who also
became a member of the Committee in February 2023. The
all-inclusive fee for Gareth Penny as Chairman of the Board
was discussed by the Committee and was maintained at
the current level.
Chief Financial Officer succession
After Jonathan Swinney notified the Board of his intention to
step down as CFO and Executive Director, the Board approved
a successor. Salman Malik, who joined the Company in 2013,
became CFO on 15 August 2022, with his remuneration set at a
level that is aligned to an external comparator group and
reflects his retained dual responsibility as Managing Director,
Corporate Development, Infrastructure and New Energy.
Acknowledging this broader role, Salman Malik’s base salary
was set at £440,000 per annum with a payment in lieu of
pension contribution of 10% of base salary. His package
complies fully with the 2020 Remuneration Policy that was
approved by shareholders at the 2021 AGM. Further
information on Salman’s remuneration package since his
appointment as CFO is provided on pages 93 and 101.
Since stepping down from the Board, Jonathan Swinney has
been available to work closely with Salman Malik to ensure
a smooth transition and provide assistance in relation to
ongoing projects. Jonathan Swinney left the Company on
22 March 2023.
Jonathan Swinney’s remuneration arrangements continued to
be in line with his service contract and the Remuneration Policy.
Shareholder consultation
Continued open and transparent shareholder dialogue
provides an invaluable contribution to the Committee.
“The Committee’s focus remains
on ensuring reward for Executive
Directors, the Executive Committee
and senior managers incentivises
the delivery of EnQuest’s strategy
and performance goals.”
Howard Paver
Chair of the Remuneration and
Social Responsibility Committee
86
The current 2020 Remuneration Policy was approved by
95.4% of shareholders and during 2022, shareholders
continued to contribute to the Committee’s ongoing work in
ensuring our Policy continues to support and drive our
business strategy. During 2022, we used shareholder
feedback to further simplify the performance measures
used in both the annual bonus and PSP, as well as to test
support for the remuneration package for our new CFO.
In line with corporate governance standards, we intend
to review the Policy during 2023 ahead of its submission
for shareholder approval at the 2024 AGM. Shareholder
consultation will form a key part of the Committee’s
review over the course of the coming year. Ensuring our
Remuneration Policy supports and drives our business
strategy remains a core requirement for the Committee.
Performance and remuneration outcomes for 2022
Production performance in 2022 was on target for the year
and expenditure measures that included operating, capital
and decommissioning expenditure exceeded stretch
performance. This combination helped to drive an overall
strong performance for the year. A key target for the year was
to reset the capital structure and strengthen the balance
sheet. The refinancing of the Group’s retail bond, high yield
bond and reserve based lending facility were all delivered
despite challenging market conditions. An important ongoing
environmental, social and governance (‘ESG’) objective for the
Company is to ensure a marked reduction to the emissions
from the assets within EnQuest’s portfolio and in 2022 we are
proud to have again exceeded our target. We have also
exceeded our expectations with lower employee attrition than
targeted and made good progress with the delivery of
projects in our growth agenda.
2022 annual bonus – payable in 2023
The Executive Directors’ annual bonus awards are based
on a combination of financial and operational results and
the achievement of key accountability objectives. The bonus
attainment for Amjad Bseisu (CEO) was based solely on
achievement against the Company Performance Contract
(‘CPC’). For Salman Malik, his bonus for the period prior to
being appointed as CFO was based on a combination of
CPC outcome (50% of target) and individual performance
objectives (the remaining 50% of target). From the date of his
appointment as CFO in August 2022, Salman’s annual bonus
was also based entirely on the CPC outcome.
The 2022 target and maximum bonus potential for Amjad
Bseisu was 75% and 125% of salary, respectively, with the final
bonus award being equal to 92.88% of base salary (74.30% of
maximum). From his appointment as CFO on 15 August 2022,
Salman Malik’s target and maximum bonus potential was
also 75% and 125% of base salary, with the final award being
applied pro rata to reflect his time in the role. The final award
for Salman Malik in his role as CFO was equal to 35.4% of
annual salary. The Committee believes that the payouts,
which were generated directly from the CPC outcome, are
appropriate and representative of the performance of the
Executive Directors and senior management when balanced
against the shareholder and employee experience, and that
further discretionary adjustment was not required. Full details
of how these awards were determined are included on pages
93 to 95 of this report. Following his resignation, Jonathan
Swinney was not awarded an annual bonus for performance
in 2022.
Performance Share Plan (‘PSP’)
The three-year performance period for the 2020 PSP ended
on 31 December 2022. Vesting of these awards was based
wholly on EnQuest’s TSR performance relative to an agreed
group of sector comparators. Over the performance period,
EnQuest’s TSR ranked between the median and upper
quartile, resulting in 74.8% of the original award vesting. In
line with the Directors’ Remuneration Policy, vested awards
will be subject to a mandatory two-year holding period
commencing on 9 September 2023.
To mitigate any potential windfall gains on vesting, at the
time the awards were made, the Committee applied its
discretion and used the 12-month average share price at
the date of award for Executive Directors.
During the year, a PSP award calculated at 250% of salary for
Amjad Bseisu and 75% of salary for Salman Malik (before he
was appointed as CFO) was granted on 27 April 2022,
measured 80% against relative total shareholder return
(‘TSR’) and 20% against the achievement of an emission
reduction target.
Executive Director shareholding
Executive Directors are expected to build up and hold a
shareholding of 200% of salary. Amjad Bseisu comfortably
meets this requirement and, as a new Executive Director,
Salman Malik is expected to build up to this level within five
years of his appointment.
Executive Director remuneration in 2023
2023 base salaries
For 2023, the Committee has increased the CEO’s salary by
4%, slightly below the average increase for the UK workforce.
The salary of the CFO, set on his appointment in August
2022, will not be increased in 2023.
The Committee is mindful of the market positioning of the
CEO’s fixed remuneration and its proximity to the CFO’s, and
has committed to review and recommend an appropriate
course of action during 2023.
2023 annual bonus
For 2023, the annual bonus for the CEO and CFO will be
based 100% on the 2023 CPC outcome, with a target level of
75% of salary and a maximum of 125% of salary. Details of
the performance measures and weightings are set out on
page 101.
2023 PSP awards
As with the annual bonus, there will be no change to the
operation of the PSP in 2023, and Amjad Bseisu and Salman
Malik will each receive an award of 250% of salary in April 2023.
Awards will continue to be measured 80% on the basis of TSR
performance relative to a peer group (the constituents of which
have been slightly revised for 2023), and 20% on emission
reduction over the period 1 January 2023 to 31 December 2025.
Further details are set out on pages 101 and 102.
Conclusion
We continue to appreciate the benefits of transparency and
proactive interaction with major shareholders. We welcome
your input and are always open and ready to listen and take
on board suggestions that help EnQuest to continue to
develop and improve.
The Committee and I wish to thank all our shareholders for
their ongoing support over the years. I hope you will support
and vote for this DRR at the forthcoming AGM.
Howard Paver
Chair of the Remuneration and Social Responsibility
Committee
4 April 2023
Directors’ Remuneration Report
continued
87
EnQuest PLC –
Annual Report and Accounts 2022
Corporate Governance
Governance
General governance
The Directors’ Remuneration Report has been prepared in accordance with the requirements of the Companies Act 2006 and
Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 as amended in
August 2013. It also describes the Group’s compliance with the 2018 UK Corporate Governance Code (the ‘Code’) in relation to
remuneration. The Committee has taken account of the new requirements for the disclosure of Directors’ remuneration and
guidelines issued by major shareholder bodies when setting the remuneration strategy for the Group.
Remuneration Policy
The following sections of this report set out a summary of our Directors’ Remuneration Policy (the ‘Policy’), which was
approved by shareholders at the 2021 Annual General Meeting (‘AGM’) in accordance with Section 439A of the Companies
Act 2006.
Remuneration principles
In determining the Policy approved at the 2021 AGM and summarised below, the Group reviewed its overall remuneration
principles to ensure that they continue to be aligned with the Group’s strategy and stakeholder interests. EnQuest’s
strategic objective is to be the partner of choice for responsible management of existing energy assets, applying our core
capabilities to create value through the transition.
EnQuest’s remuneration principles remain clear and simple: to ensure that the Group operates with the appropriate
culture, strengthening the link between reward and performance and emphasising the importance of its purpose and
Values.
In summary, the principles underpinning the Policy are that remuneration for Executive Directors should:
• Support alignment of executives with stakeholders;
•
Be fair, reflective of best practice, and market competitive;
•
Comprise fixed pay set around the median and variable pay capable of delivering remuneration at upper quartile; and
•
Reward performance with a balance of short-term and long-term elements, with the emphasis on longer-term reward.
The table below sets out how the principles of the Code relating to the design of remuneration policies and practices have
been applied:
Clarity
Simplicity
Risk
Predictability
Proportionality
Alignment to culture
Ensure a strong link
between pay and
performance and that
our remuneration
structure is designed
to be appropriately
logical and
transparent.
The Group engages
in shareholder
consultation when
considering material
changes to Policy or
process.
The Group believes
its remuneration
arrangements, and
the principles
underpinning them,
are clear and well
understood by its
stakeholders.
Remuneration for
Executive Directors is
comprised of distinct
elements:
• Salary;
• Pension and other
benefits aligned
with the wider UK
workforce (in
accordance with
Provision 38 of the
Code);
• Annual bonus; and
• Long-term incentive
awards to reward
sustainable
long-term
performance.
Remuneration
arrangements ensure
that the risks from
excessive rewards are
easily identified and
mitigated.
Salaries are reviewed
annually and consider
a variety of factors,
including external
benchmarking and
salary increases
across the wider
workforce.
Variable pay
elements are linked
directly to Group
performance.
Target ranges and
potential maximum
payments under
each element of
remuneration are
disclosed within the
DRR.
The Committee
operates a high
degree of discretion
over variable pay
elements and can
adjust any pay
outcomes that the
Committee deems
are inconsistent with
the performance of
the Group.
The Committee
has ensured that
appropriate
safeguards are
incorporated into
the 2021 Policy.
The annual bonus is
directly aligned to
Group objectives, and
the Committee
retains discretion to
adjust outcomes that
are considered
disproportionate to
the experience of
other stakeholders.
The Group’s Business
performance metrics
and remuneration
structure are aligned
to its culture and
Values, with specific
non-financial
measures included
in performance
metrics.
The Committee keeps
all performance
metrics under review
and retains the
flexibility to introduce
further culture and
Values measures into
its annual bonus
plan.
Executive Directors
General approach
The remuneration of the Executive Directors comprises base salary, participation in an annual bonus plan (paid partly in
cash and partly in deferred shares), a long-term incentive plan (referred to as the PSP), private medical insurance, life
assurance, personal accident insurance, and a modest cash allowance in lieu of pension.
When setting remuneration for the Executive Directors, the Committee takes into account the performance and experience
of the Director, as well as the Group performance, employment conditions for other employees in the Group, and the
external marketplace. Comparative data for our sector is obtained from a variety of independent sources.
88
The following table summarises EnQuest’s Remuneration Policy which became binding on 12 May 2021 with 95.35% of
votes cast in favour. The full policy can be viewed in the 2020 Annual Report which can be found on the Group’s website,
www.enquest.com:
Component
Operation/key features
Maximum potential
opportunity
Applicable performance measures
Salary and fees
• Set at or below median when compared to a
comparator group and reviewed by the
Committee annually.
• Increases in excess of
the general workforce by
exception only.
None.
Pension and
other benefits
• Pension delivered as cash in lieu, with
remaining benefits provided by the Group.
• Participation in Sharesave permitted.
•
Additional benefits offered when required, in
line with local practice.
• Reasonable business-related expenses
permitted.
•
Benefits reviewed periodically.
• Maximum pension
allowance is lesser of
10% of salary or £50,000
1
.
• Private medical and
personal accident
insurance.
• Life assurance.
None.
Annual bonus
• Bonus in excess of 100% of salary deferred into
EnQuest shares for two years, otherwise paid
in cash.
• Committee discretion to allow dividend
equivalent on deferrals.
• Cash and share elements both subject to
malus and clawback for up to three years
post payment.
• Target award: 75% of
salary.
• Maximum award: 125%
of salary.
• Scorecard including key performance
objectives set annually by the Committee
and measured against threshold, target
and stretch levels with bonuses accruing
on a sliding scale from 0% at threshold.
Performance
Share Plan (‘PSP’)
• Awarded annually.
• Three-year vesting dependent on achievement
of performance conditions.
• Further two-year holding period.
• Awards can be conditional, nil cost options
or joint interests in shares.
• Dividend equivalent on unvested awards
permitted in shares.
• Subject to malus and clawback.
• Normal maximum:
250% of salary.
• Exceptional maximum:
350% of salary.
• A blend of measures including, but not
limited to, relative TSR and ESG measures.
• Maximum of 25% vesting at threshold.
• Performance conditions detailed in the
Annual Report on Remuneration.
• The number, type and weighting of
measures may vary in the future in line
with business priorities.
• Shareholder consultation will normally
take place before material changes
are made.
Shareholding
requirements
• Executive Director shareholding of at least 200%
of salary, with a requirement that this level is
achieved within five years of appointment.
• Shareholding to be retained at the lower of
actual shareholding or 200% of salary for two
years post-employment, including both vested
and unvested shares.
n/a
None.
Chairman and
Non-Executive
Director fees
• Reviewed annually considering comparator
group fee levels, time commitment and
employee salary increases.
• Non-Executive Directors receive base fees with
additional fees paid to Committee Chairs and
the Senior Independent Director.
• Additional fees can be paid if there is a
material increase in time commitment.
• Reasonable business-related expenses are
permitted.
•
Not eligible for Group benefits or incentive
schemes.
• Chairman receives an all-inclusive fee set
by the Senior Independent Director.
• Reviewed periodically
and limited by the
Company’s Articles
of Association.
None.
Note:
1
Pension allowance for Amjad Bseisu was 10.1% of salary in 2022 in line with the planned transition to pension contribution equivalence with the broader
workforce started in 2021. From 2023, Amjad Bseisu will be aligned to this Policy with a pension allowance at 9.7% of salary
Changes to policy
No changes have been made to the Policy since its adoption at the 2021 AGM.
Performance measures and targets
Annual bonus
The key performance indicators in the Group scorecard that also determine a significant proportion of the annual bonus
of Executive Directors include, but are not limited to, the following categories:
• Environmental, social and governance (’ESG’);
•
Financial (including operating expenditure (‘opex’), capital expenditure (‘capex’) and EnQuest net debt;
• Operational performance/production;
• Project delivery;
• Reserves additions; and
• Objectives linked to key accountabilities.
Directors’ Remuneration Report
continued
89
EnQuest PLC –
Annual Report and Accounts 2022
Corporate Governance
The measures in each category are selected by the Committee to support the creation of shareholder value. These criteria
are also aligned with the longer-term strategy of the Group and the performance conditions of the Group’s PSP. In addition
to measuring performance against objectives, the Committee will consider the overall quality of the Group’s financial
performance and other factors, particularly HSEA, when determining annual performance pay awards.
Bonus objectives for Amjad Bseisu are typically based solely on the Group scorecard, referred to as the Company Performance
Contract (‘CPC’) of EnQuest. The CFO’s bonus objectives are also primarily based on the CPC for EnQuest, but may also include
up to 25% based on additional objectives that cover specific key accountabilities and responsibilities of this role.
Annual performance bonus and share deferrals
Executive Directors will normally receive any applicable annual performance bonus in cash and deferred shares, with any
amount above the equivalent of 100% of salary converted into EnQuest shares (without further performance conditions)
and deferred for two years, subject to continued employment. In exceptional circumstances, these awards may be settled
in cash, but only with the pre-approval of the Remuneration Committee.
Performance Share Plan
The PSP is typically awarded annually and has a minimum vesting period of three years. Awards granted from 2019
onwards are subject to an additional two-year holding period which, unless the Committee determines otherwise, will
apply up to the fifth anniversary of the date of grant.
Approach to recruitment remuneration
In the event that the Company appoints a new Executive Director, either internally or externally, when determining
appropriate remuneration arrangements, the Committee will take into consideration a number of factors including, but
not limited to: quantum relating to prior arrangements; the remuneration of other Executive Directors in the Company;
appropriate benchmarks in the industry; and the financial condition of the Group. On the appointment of a new Chair or
Non-Executive Director, the fees will be set taking into account the experience and calibre of the individual. This ensures
that the arrangements are in the best interests of both the Company and its shareholders without paying more than is
necessary to recruit an executive of the required calibre.
Salaries for new hires (including internal promotions) will be set to reflect their skills and experience, the Group’s intended
pay positioning and the market rate for the role. If it is considered appropriate to appoint a new Director on a below-
market salary initially (for example, to allow them to gain experience in the role), their salary may be increased to a median
market level over a period by way of increases above the general rate of wage growth in the Group and inflation.
The remuneration package for a new Executive Director would be set in accordance with the terms of the Group’s
approved Policy at the time. Different performance objectives may be set for the year of joining the Board for the annual
bonus and PSP, taking into account the individual’s role and responsibilities and the point in the year the executive joined.
Benefits and pensions for new appointees to the Board will be provided in line with those offered to other executives and
employees taking into account corporate governance requirements and local market practice, with relocation expenses/
arrangements provided for, if necessary. Tax equalisation may also be considered if an executive is adversely affected by
taxation due to their employment with EnQuest. Legal fees and other relevant costs and expenses incurred by the
individual may also be paid by the Group.
In the case of an internal promotion, any outstanding variable pay awarded in relation to the previous role will be allowed
to continue according to its terms of grant.
The Committee may make additional awards on appointing an Executive Director to ‘buy out’ remuneration arrangements
forfeited on leaving a previous employer. Any such payments would be based solely on remuneration lost when leaving
the former employer and would reflect (as far as practicable) the delivery mechanism, time horizons and performance
requirement attached to that remuneration. The Group’s existing incentive arrangements, including the 2020 Restricted
Share Plan (‘RSP’), will be used to the extent possible for any buyout (subject to the relevant plan limits), although awards
may also be granted outside of these schemes, if necessary, and as permitted under the Listing Rules.
Service contracts
Amjad Bseisu and Salman Malik entered into service agreements with the Company which are terminable by either party
giving not less than 12 months’ written notice. The Company may terminate their employment without giving notice by
making a payment equal to the aggregate of the Executive Director’s base salary and the value of any contractual
benefits for the notice period including any accrued but untaken holiday. Such payments may be paid monthly and
would be subject to mitigation.
Executive Directors
1
Date of appointment
Notice period
Amjad Bseisu
22 February 2010
12 months
Salman Malik
15 August 2022
12 months
Note:
1
Jonathan Swinney stood down as an Executive Director in August 2022
90
The Chairman and Non-Executive Directors have letters of appointment, the details of which are provided below.
Non-Executive Directors’ letters of appointment
1
Date of appointment
Notice period
Initial term of
appointment
Gareth Penny
6 December 2022
3 months
3 years
Carl Hughes
1 January 2017
3 months
3 years
John Winterman
7 September 2017
3 months
3 years
Howard Paver
1 May 2019
3 months
3 years
Farina Khan
1 November 2020
3 months
3 years
Liv Monica Stubholt
15 February 2021
3 months
3 years
Rani Koya
1 January 2022
3 months
3 years
Note:
1
Phillip Holland stood down as a Non-Executive Director on 17 July 2022 and Martin Houston stood down as Non-Executive Chairman on 6 December 2022
External directorships
EnQuest recognises that its Executive Directors may be invited to become non-executive directors of companies outside
the Company and exposure to such non-executive duties can broaden experience and knowledge, which would be of
benefit to EnQuest. Any external appointments are subject to Board approval (which would not be given if the proposed
appointment required a significant time commitment; was with a competing company; would lead to a material conflict
of interest; or could otherwise have a detrimental effect on a Director’s performance). Executive Directors will be permitted
to retain any fees arising from such appointments, details of which will be provided in the respective companies’ Annual
Report on Remuneration.
Policy on payment for loss of office
The Company’s policy is for all Executive Directors to have contracts of service which can be terminated by either the
Director concerned or the Company on giving 12 months’ notice of termination. In the event of termination by the Company
(other than as a result of a change of control), the Executive Directors would be entitled to compensation for loss of base
salary and cash benefit allowance and insured benefits for the notice period up to a maximum period of 12 months. Such
payments may be made monthly and would be subject to mitigation. The Company may also enable the provision of
outplacement services to a departing Executive Director, where appropriate.
When Executive Directors leave the Company with good leaver status, and they have an entitlement to unvested shares
granted under the Deferred Bonus Share Plan (‘DBSP’) and PSP, any performance conditions associated with each award
outstanding would remain in place and be tested as normal at the end of the original performance period. Shares would
also normally then vest on their original vesting date in the proportion to the satisfied performance conditions and are
normally pro-rated for time. Awards held by Executive Directors who are not good leavers would lapse.
An annual bonus would not typically be paid to Executive Directors when leaving the Company. However, in good leaver
circumstances, the Committee has the discretion to pay a pro-rated bonus in cash, in consideration for performance
targets achieved in the year. Deferred bonus shares held by good leavers will normally vest at the normal vesting date.
Similar provisions related to the treatment of incentive awards would apply on a change of control, with performance
conditions normally tested at the date of the change of control and with pro-rating for time, although the Committee has
discretion to waive pro-rating (but not the performance conditions) where it feels this is in the best interests of
shareholders.
The Non-Executive Directors do not have service contracts but their terms are set out in a letter of appointment. Their
terms of appointment may be terminated by either party giving three months’ notice in writing. During the notice period,
Non-Executive Directors will continue to receive their normal fee.
Remuneration and Social Responsibility Committee discretion and determinations
The Committee will operate the annual bonus scheme, DBSP, PSP, RSP and Sharesave Scheme according to their respective
rules and in accordance with the Listing Rules and HMRC requirements, where relevant. The Committee, consistent with
market practice, retains discretion over a number of areas relating to the operation and administration of these
arrangements. These include, but are not limited to, the following:
• Who participates in the plans;
• The timing of grant of award and/or payment;
• The size of an award and/or payment;
•
Discretion relating to the adjudication of performance against targets in the event of a change of control or
reconstruction;
•
Applying good leaver status in circumstances such as death, ill health and other categories as the Committee
determines appropriate and in accordance with the rules of the relevant plan;
•
Discretion to disapply time pro-rating in the event of a change of control or good leaver circumstances;
• Discretion to settle any outstanding share awards in cash in exceptional circumstances;
•
Adjustments or variations required in certain circumstances (for example, rights issues, corporate restructuring, change
of control, special dividends and other major corporate events); and
•
The ability to adjust existing performance conditions and performance targets for exceptional events so that they can
still fulfil their original purpose.
Directors’ Remuneration Report
continued
91
EnQuest PLC –
Annual Report and Accounts 2022
Corporate Governance
If an event occurs which results in any applicable performance conditions and/or targets being deemed no longer
appropriate (for example, a material acquisition or divestment), the Committee will have the ability to adjust appropriately
the measures and/or targets and alter weightings, provided that the revised conditions or targets are not materially less
difficult to satisfy.
If tax liabilities arise from an error or omission by the Group that is outside of the control of the Executive Directors, the
Committee will have the ability to reimburse any such tax liabilities.
Legacy awards
For the avoidance of doubt, authority is given to the Committee to honour any commitments entered into with current or
former Directors (such as the payment of a pension or the unwind of legacy share schemes) that have been disclosed to
shareholders in this or any previous DRRs or subsequently agreed in line with the approved Policy in force at that time.
Details of any payments to former Directors will be set out in the Annual Report on Remuneration as they arise.
Remuneration outcomes in different performance scenarios
The charts below set out an illustration of the remuneration arrangements for 2023 in line with the Policy. These charts
provide an illustration of the proportion of total remuneration made up of each component of the Policy and the value of
each component.
In accordance with the remuneration reporting requirements, four 2023 scenarios are illustrated for each Executive
Director:
Below threshold performance
• Fixed remuneration
• Zero annual bonus
• No vesting under the PSP
Target performance
• Fixed remuneration
• 75% of annual base salary as annual bonus
• 25% of maximum vesting under the PSP at threshold performance
(62.5% of base salary)
Maximum performance
• Fixed remuneration
• 125% of annual base salary as annual bonus
• Full vesting under the PSP (250% of base salary)
Maximum performance plus 50% share
appreciation
• Fixed remuneration
• Maximum payout under the annual bonus
• Full vesting under the PSP plus assumed 50% share price
appreciation at vesting (equivalent to 375% of base salary)
£2,489
Chief Executive Officer
Minimum
Target
Maximum
Maximum +
50% share
appreciation
45%
30%
25%
100%
£565
£1,270
22.7%
25.8%
18.0%
20.5%
51.5%
61.5%
£3,131
Long-term incentives
Annual bonus
Fixed pay
Remuneration (£’000s)
0
500
1,000
1,500
2,000
2,500
3,500
3,000
Chief Financial Officer
Minimum
Target
Maximum
Maximum +
50% share
appreciation
48%
28%
24%
100%
£561
£1,090
25.4%
24.9%
20.3%
19.9%
49.8%
59.8%
£2,211
£2,761
Notes:
For the CEO, fixed pay comprises salary from 1 January 2023, a pension allowance of £50,000 plus medical insurance benefit of £1,133.
For the CFO, fixed pay comprises salary from 1 January 2023, a pension allowance of £44,000, international medical insurance benefit of £13,007 with an additional
£13,884 in respect of grossing up the value of this premium in respect of taxation, plus a further fixed-term monthly allowance of £8,333 in respect of costs relating
to relocating from the United Arab Emirates in 2022 (this allowance is scheduled to finish in June 2023).
92
Statement of consideration of employment conditions elsewhere in the Group
The remuneration arrangements for the Executive Directors are consistent with the remuneration principles that have
been established and are similar to those of the other employees of EnQuest.
The key differences are as follows:
•
Executive Directors and members of the Executive Committee have their fixed pay set below or at market median for the
industry; other employees typically have their salaries positioned at market median. Specific groups of key technical
employees may have their salaries set above median for the industry;
•
All employees are offered a non-contributory pension scheme. Executive Directors have opted to receive cash in lieu of
pension. Non-Executive Directors do not participate in any pension or benefits arrangements;
• Non-Executive Directors do not participate in the annual bonus scheme;
•
If applicable, Executive Directors have an element of the annual bonus automatically converted to shares and deferred;
and
•
All other employees may be invited to participate in the DBSP where they can elect to defer a defined proportion of their
annual bonus and receive a matching amount of shares that vest over the following three years. Executive Directors are
not eligible to receive matching share awards under this plan.
During the annual remuneration review, the Committee receives a report which details the remuneration arrangements of
other executives and senior management as well as the overall spend versus budget for all employees. This report helps to
act as a guide to the Committee as to the levels of reward being achieved across the organisation so that they can ensure
the Directors’ pay does not fall out of line with the general trends.
Employees have not previously been directly consulted about the setting of Directors’ pay, although the Committee will
take into consideration any developments in regulations in operating this Policy.
Statement of shareholder views
The Remuneration and Social Responsibility Committee welcomes and values the opinions of EnQuest’s shareholders with
regard to the structure and levels of remuneration for Directors. The 2021 DRR was voted on at the AGM held in June 2022,
where 86.13% of the votes cast were in favour. The Policy, where 95.35% of votes cast at the AGM held in May 2021 were in
favour, incorporated shareholder feedback following consultation.
Annual Report on Remuneration for 2022
Terms of reference
The Committee’s terms of reference are available either on the Group website, www.enquest.com, or by written request
from the Company Secretariat team at the Group’s London headquarters. The remit of the Committee embraces the
remuneration strategy and policy for the Executive Directors, the Executive Committee, senior management and, in certain
matters, for the whole Group.
Meetings in 2022
The Committee has four scheduled meetings per year. During 2022, it met on four occasions to review and discuss
appropriate compensation for Salman Malik as incoming CFO, base salary adjustments for 2023, the setting of Group
performance conditions and related annual bonus for 2022, PSP performance conditions, UK Corporate Governance Code
provisions and the approval of share awards.
Committee members, attendees and advisers
Member
Date appointed
Committee member
Attendance at scheduled
meetings during the year
Howard Paver
1 May 2019
4 of 4
Martin Houston
1
15 October 2019
3 of 4
Farina Khan
1 November 2020
4 of 4
Gareth Penny
2
15 February 2023
n/a
Notes:
1
Martin Houston stepped down as Non-Executive Chairman and as a member of the Committee on 6 December 2022
2
Gareth Penny was appointed as a member of the Committee on 15 February 2023
Advisers to the Remuneration and Social Responsibility Committee
The Committee invites individuals to attend meetings to provide advice so as to ensure that the Committee’s decisions are
informed and take account of pay and conditions in the Group as a whole. Those individuals, who are not members but
may attend by invitation, include, but are not limited to:
• The Chief Executive (Amjad Bseisu);
•
The Chief Financial Officer (Salman Malik);
• The Company Secretary;
• A representative from the Group’s Human Resources department;
•
A representative from Mercer Kepler, appointed as remuneration adviser by the Committee from 1 August 2017, and
terminated in March 2022; and
•
A representative from Ellason LLP, appointed as remuneration adviser by the Committee from 1 April 2022.
Directors’ Remuneration Report
continued
93
EnQuest PLC –
Annual Report and Accounts 2022
Corporate Governance
Information subject to audit
Directors’ remuneration: the ‘single figure’
In this section of the report, payments made to the Executive and Non-Executive Directors of EnQuest for the year ended
31 December 2022, together with comparative figures for 2021 are set out.
Single total figure of remuneration – Executive Directors
‘Single figure’ of remuneration – £’000s
1
Director
Year
Salary
and fees
All taxable
benefits
Pension
3
Total fixed
pay
Annual
bonus
4
LTIP
5
Total
variable
Total fixed
and variable
Amjad Bseisu
2022
494
1
50
545
458
1,352
1,810
2,355
2021
479
1
50
530
392
736
1,128
1,658
Salman Malik
2
2022
207
53
20
280
156
249
405
685
Jonathan Swinney
6
2022
211
1
21
233
0
0
0
233
2021
338
1
34
373
277
516
793
1,166
Total
2022
912
55
91
1058
614
1,601
2,215
3,273
2021
817
2
84
903
669
1,252
1,921
2,824
Notes:
1
Rounding may apply
2
Salman Malik was appointed CFO on 15 August 2022 and his salary, benefits and variable incentives are shown on a pro-rata basis, with the LTIP value based on
an award made before his appointment. Taxable benefits for Salman Malik include grossed-up international private medical insurance and a fixed-term
monthly allowance of £8,333 in respect of relocation costs (this allowance is due to terminate in June 2023)
3 Cash in lieu of company pension contribution
4
The amount stated is the full amount (including any portion deferred). Any amount that is above 100% of their salary is paid in EnQuest PLC shares, deferred for
two years, and subject to continued employment
5
PSP awarded on 24 April 2020 which will vest on 9 September 2023: the LTIP value shown in the 2022 single figure is calculated by taking the number of
performance shares that will vest (74.80%) multiplied by the average value of the EnQuest share price between 1 October 2022 and 31 December 2022 (25.50
pence), as the share price on 9 September 2023 is not known at the time of this report. This number of shares has been adjusted in line with the open offer
dated 26 July 2021, further details of which are included on page 97.
The PSP awarded on 24 April 2019 which vested on 24 April 2022: the LTIP value shown in the 2021 single figure is calculated by taking the number of performance
shares that vested (43.89%) multiplied by the actual share price of 31.90 pence on the next business day following the vesting date of 24 April 2022, as the
vesting date was a weekend in the UK. The 2021 value of the vested shares in the remuneration table has been updated from last year’s value to represent
the actual value received on the date of vesting
6
Jonathan Swinney stepped down as CFO on 15 August 2022 and his salary and benefits are shown on a pro-rata basis. Following his resignation, he was not
entitled to any variable incentives
Single total figure of remuneration – Non-Executive Directors
The remuneration of the Non-Executive Directors for the year ended 31 December 2022 was as follows, together with
comparative figures for 2021:
‘Single figure’ of remuneration – £’000s
Director
Salary
and fees
2022
7
Salary
and fees
2021
All taxable
benefits
2022
All taxable
benefits
2021
Total for
2022
Total for
2021
Gareth Penny
1
14
–
–
–
14
–
Martin Houston
2
264
200
–
–
264
200
Howard Paver
105
80
–
–
105
80
Carl Hughes
95
70
–
–
95
70
Philip Holland
3
58
70
–
–
58
70
John Winterman
95
70
–
–
95
70
Farina Khan
4
85
60
–
–
85
60
Liv Monica Stubholt
5
85
45
–
–
85
45
Rani Koya
6
88
–
–
–
88
–
Total
889
595
–
–
889
595
Notes:
1
Gareth Penny was appointed as Non-Executive Chairman on 6 December 2022. His fees were pro-rated
2
Martin Houston stepped down from the role of Non-Executive Chairman on 6 December 2022. His fees were pro-rated
3
Philip Holland retired from the Board on 17 July 2022. His fees were pro-rated
4
Farina Khan became a member of the Remuneration and Social Responsibility Committee in February 2021
5
Liv Monica Stubholt was appointed to the Board on 15 February 2021. Her fees in 2021 were pro-rated
6
Rani Koya was appointed to the Board on 1 January 2022 and became a member of the Safety, Sustainability and Risk Committee and Technical Committee.
On 1 September 2022, Rani became Chair of the Safety, Sustainability and Risk Committee and her additional fee as a Committee Chair was pro-rated in 2022
7
Non-Executive Directors were each paid an additional one-off fee of £25,000 in July 2022. Further details in the Governance section, page 73
94
Annual bonus 2022 – paid in 2023
The Committee’s belief is that any short-term annual bonus should be tied to the overall performance of the Group. An
Executive Director’s annual bonus may also be tied to additional objectives that cover their own specific area of key
accountabilities and responsibilities. The maximum bonus entitlement for the year ended 31 December 2022 as a
percentage of base salary was 125% for Amjad Bseisu and Salman Malik.
For both Amjad Bseisu and Salman Malik, the annual bonus reported in the single figure table for 2022 was wholly based on
the CPC results, with Salman’s bonus pro-rated from the date of his appointment as CFO.
Company Performance Contract (‘CPC’)
The details of the CPC for both Amjad Bseisu and Salman Malik are set out in the following tables, showing the
performance conditions and respective weightings against which the bonus outcome was assessed.
Performance targets and payout
1
Performance measure
Weighting
Amjad Bseisu and
Salman Malik
2
Production
(Kboed)
25.00%
Threshold: 44.0
Target: 47.0
Maximum: 51.0
Maximum bonus %
available
31.25%
Actual: 47.3
Actual % payout
19.75%
Expenditure
Cash opex/capex/abex ($ million)
15.00%
Threshold: 821.2
Target: 684.3
Maximum: 658.8
Maximum bonus %
available
18.75%
Actual: 576.1
Actual % payout
18.75%
ESG, culture and D&I
Emissions: reduce diesel usage and flaring
against 2021
5.00%
Threshold reduction: 5.0%
Target reduction: 10.0%
Maximum reduction: 15.0%
Maximum bonus %
available
6.25%
Actual: 12.0%
Actual % payout
4.75%
ESG, culture and D&I
Improve on outcome of diversity and
Inclusion pulse survey against 2021
5.00%
Threshold: holding position
Target: improving
Maximum: exceeding
Maximum bonus %
available
6.25%
Actual: Threshold
Actual % payout
1.88%
ESG, culture and D&I
Manage voluntary employee attrition
rates
5.00%
Threshold: 16.0%
Target: 11.0%
Maximum: 6.0%
Maximum bonus %
available
6.25%
Actual: 8.0%
Actual % payout
5.25%
Liquidity management
Deliver appropriate funding
(extension/refinancing of RBL,
refinancing of retail and high
yield bonds)
25.00%
Threshold: deliver one
Target: deliver two
Maximum: deliver three
Maximum bonus %
available
31.25%
Actual: delivered three
Actual % payout
31.25%
Organic and inorganic growth
Deliver projects that contribute to
ongoing growth of the Company
20.00%
Threshold: deliver one
Target: deliver two
Maximum: deliver three
or more
Maximum bonus %
available
25.00%
Actual: delivered one with
partial delivery of another
Actual % payout
11.25%
Total bonus outturn (% of salary)
92.88%
Notes:
1
Rounding has been applied to percentages and figures shown
2
In relation to the financial measures, threshold, target and stretch performance pay out at 0%, 60% and 100% of maximum respectively and on a straight-line
basis between threshold and target performance and between target and stretch performance
Any payout against the CPC may be subject to an additional underpin based on the Committee’s assessment of the
Group’s HSEA performance. Following above-target performance in relation to HSEA metrics, it was the view of the
Committee that the scorecard outcome was a reasonable representation of Executive Director performance and did
not require further adjustment.
The annual bonus summary for the Executive Directors for 2022 is shown in the table on the following page based on
the achievement of the performance conditions against the CPC for both Amjad Bseisu and Salman Malik.
Directors’ Remuneration Report
continued
95
EnQuest PLC –
Annual Report and Accounts 2022
Corporate Governance
Amjad Bseisu
Salman Malik
Performance measure
2
Weighting
Maximum
Actual outturn % of salary
1
Production (Kboed)
25.00%
31.25%
19.75%
Expenditure – opex/capex/abex ($ million)
15.00%
18.75%
18.75%
ESG, culture and D&I: emission reduction
5.00%
6.25%
4.75%
ESG, culture and D&I: D&I survey
5.00%
6.25%
1.88%
ESG, culture and D&I: employee attrition
5.00%
6.25%
5.25%
Liquidity management
25.00%
31.25%
31.25%
Growth - organic & inorganic
20.00%
25.00%
11.25%
Total outturn (%)
100.00%
125.00%
92.88%
Total payout (% of maximum)
74.30%
74.30%
Total payout (%)
92.88%
92.88%
(Pro-rated applies from appointment as CFO on 15 August 2022)
n/a
35.37%
Total 2022 bonus award (£)
£458,347
£155,623
Notes:
1
Rounding has been applied to the percentages shown
2
The total bonus outturn for Salman Malik was applied to his pro-rated annual base salary from the date of his appointment as CFO in August 2022. Salman
Malik also received a pro-rated performance bonus based on targets set in his role as Managing Director, Corporate Development, Infrastructure and New
Energy
2020 PSP awards that vest in 2023
The LTIP award made to Executive Directors on 10 September 2020 was based on the performance to the year ended
31 December 2022 and will vest on 9 September 2023.
Targets applying to the 2020 PSP award were set by the Committee in August 2020 following a period of consultation with
shareholders. Performance conditions would normally be set in March each year, with awards granted in April; however, due
to significant oil price volatility early in the year and the developing situation around COVID-19, awards were delayed in 2020.
The performance targets for this award and actual performance against those targets over the three-year financial period
were as follows:
Measure
Weighting
Threshold
(25% vesting)
Maximum
(100% vesting)
Actual ranking
Vesting outcome
(% of maximum)
Relative TSR over the period
1 January 2020 to 31 December 2022
100.0%
50th percentile
75th percentile
67th percentile
74.80%
Note:
The TSR comparators for the 2020 PSP cycle are shown in the table on page 97
The table below shows the number of nil cost options awarded on 10 September 2020 that will vest on 9 September 2023
and their value as at 31 December 2022. This figure is calculated by taking the average closing share price on each trading
day of the period 1 October 2022 to 31 December 2022 and is used as the basis for reporting the 2022 ‘single figure’ of
remuneration. The actual value of these shares recorded in the remuneration table will be updated in 2023 to represent
the actual value received on the day of vesting.
Name
Original
number of
shares
Adjusted
number of
shares
1
Portion vesting
No. of
shares
vesting
Average
share price
£
Value at
31 Dec 2022
£
Amjad Bseisu
7,057,406
7,090,042
74.80%
5,303,351
0.2550
1,352,270
Salman Malik
2
1,297,406
1,303,405
74.80%
974,946
0.2550
248,596
Notes:
1.
Following an adjustment made in relation to the open offer of 26 July 2021
2. Awards made to Salman Malik were under the relevant terms applicable for his role before he was appointed CFO in August 2022
The 2020 PSP award granted to Amjad Bseisu was based on the average middle market quotation of the 12 months
preceding the date of grant of 10 September 2020 of 16.64 pence. Compared to the average value of the EnQuest share
price between 1 October 2022 and 31 December 2022 of 25.50 pence, this represents a 53.3% increase in the share price
over the period and means that 34.7% of the reported value at 31 December 2022 is due to share price appreciation. The
award made to Salman Malik in 2020 was while he was a member of the Executive Committee and was reduced in value
by 15% in line with other Executive Committee members at the time.
96
The Committee is satisfied that the implied values vesting to Executive Directors and the overall single figures of
remuneration for the year are appropriate taking into account the performance of the Group. At the time of grant a
12-month average share price was used instead of the normal three-day average, which led to the grant price being
approximately 40% higher than it would otherwise have been. Due to this action that was applied at the time of grant, the
Committee agrees that no further discretion was needed in relation to the change in share price. Awards will be subject to
a mandatory two-year holding period ending in September 2025.
April 2022 PSP award grant
After due consideration of Business performance in 2021, the Remuneration and Social Responsibility Committee awarded
the Executive Directors the following performance shares on 25 April 2022:
Face value
(% of salary)
Face value at
date of grant
£
Number
of shares
1
Performance period
Amjad Bseisu
250.0%
1,197,840
3,343,689
1 Jan 2022–31 Dec 2024
Salman Malik
2
171.9%
580,017
1,619,078
1 Jan 2022–31 Dec 2024
Notes:
1
Based on the average middle market quote for the three days preceding the date of grant of 35.82 pence
2
The level of the PSP awarded to Salman Malik in 2022 was aligned to the level of his role prior to being appointed CFO
Summary of performance measures and targets – April 2022 PSP grant
The 2022 PSP share awards granted on 25 April 2022 will be measured 80% against a relative TSR performance condition
over a three-year financial performance period and 20% based on emission reduction over the same period.
Vesting is determined on a straight-line basis between threshold and maximum for the performance condition.
The performance period for the award will be 1 January 2022 to 31 December 2024 and thereafter subject to a mandatory
two-year holding period.
2022 PSP – schedule for vesting in 2025
Measure
Weighting
Threshold
(25% vesting)
Maximum
(100% vesting)
Relative TSR over the period
1 January 2022 to 31 December 2024
80.0%
50th percentile
75th percentile
or higher
Emission reduction over the period
1 January 2022 to 31 December 2024
20.0%
10% reduction
12% reduction
or more
Note:
1
Linear between threshold and maximum
PSP measure – base levels
These are the historical base levels that performance is measured from, for a three-year period for each annual PSP grant,
up to and including the PSP award granted in 2022:
Year of grant
Emissions –
base level
2020 100% relative TSR
n/a
2021 80% relative TSR/20% emission reduction
1,343 ktCO
2
e
2022 80% relative TSR/20% emission reduction
1,145 ktCO
2
e
Directors’ Remuneration Report
continued
97
EnQuest PLC –
Annual Report and Accounts 2022
Corporate Governance
The comparator group companies for the TSR performance condition relating to the 2020 PSP award are as follows:
FTSE 350
FTSE All-Share
FTSE AIM – Top 100
NASDAQ OMX Stockholm
Other
Capricorn Energy
1
Harbour Energy
2
Hurricane Energy
Africa Oil
Genel Energy
Tullow Oil
Pharos Energy
Rockhopper Exploration Orrön Energy
3
Bowleven
Aker BP ASA
Serica
Notes:
1
Capricorn Energy was previously known as Cairn Energy
2
Harbour Energy was previously known as Premier Oil
3
Orrön Energy was previously known as Lundin Petroleum
The comparator group companies for the TSR performance condition relating to the 2021 and 2022 awards are as follows:
FTSE 250
FTSE AIM – Top 100
FTSE Small Cap
NASDAQ OMX Stockholm
Oslo Bors
Other
Capricorn Energy
1
Jadestone
Pharos Energy
Africa Oil
Aker BP ASA
Genel Energy
Diversified Energy
Serica
Tullow Oil
Orrön Energy
3
BW Energy
Hibiscus
Energean
DNO
Hurricane Energy
Harbour Energy
2
Okea
Kosmos
Maurel & Prom
Santos
Notes:
1
Capricorn Energy was previously known as Cairn Energy
2
Harbour Energy was previously known as Premier Oil
3
Orrön Energy was previously known as Lundin Petroleum
The number of PSP awards outstanding as at 31 December 2022 is as follows:
Total shares
awarded
Adjusted shares
awarded
Performance period
Performance conditions
(and weighting)
Vesting date
Grant date – September 2020
Amjad Bseisu
7,057,406
7,090,042
1 Jan 2020–31 Dec 2022
TSR (100%)
9 Sep 2023
Salman Malik
1,297,406
1,303,405
Grant date – April 2021
Amjad Bseisu
7,407,792
7,442,048
1 Jan 2021–31 Dec 2023
TSR (80%)
26 Apr 2024
Salman Malik
1,157,869
1,163,223
Emission reduction (20%)
Grant date – April 2022
Amjad Bseisu
3,343,689
n/a
1 Jan 2022–31 Dec 2024
TSR (80%)
24 Apr 2025
Salman Malik
1,619,078
n/a
Emission reduction (20%)
Pension allowance
Executive Directors who do not participate in the EnQuest pension plan instead receive cash in lieu. Amjad Bseisu received
£50,000, Jonathan Swinney received £21,000 and Salman Malik received £20,000 in 2022. This was equivalent to 10.1% of Amjad
Bseisu’s 2022 salary and 10.0% of the Executive Director salary received by Jonathan Swinney and Salman Malik in 2022.
98
Statement of Directors’ shareholding and share interests
The interests of the Directors in the share capital of the Company as at 31 December 2022 are shown below:
In 2022, the following awards were granted, lapsed and adjusted for the Executive Directors.
PSP
31 December
2021
Granted
Lapsed
31 December
2022
Vesting period
Expiry date
Amjad Bseisu
5,240,006
2,940,168
0
1
24 Apr 2019–24 Apr 2022
24 Apr 2029
7,090,042
7,090,042
10 Sep 2020–9 Sep 2023
9 Sep 2030
7,442,048
7,442,048
27 Apr 2021–26 Apr 2024
26 Apr 2031
3,343,689
3,343,689
25 Apr 2022–24 Apr 2025
24 Apr 2032
PSP
31 December
2021
Granted
Lapsed
31 December
2022
Vesting period
Expiry date
Salman Malik
732,758
411,151
321,607
24 Apr 2019–24 Apr 2022
24 Apr 2029
1,303,405
1,303,405
10 Sep 2020–9 Sep 2023
9 Sep 2030
1,163,223
1,163,223
27 Apr 2021–26 Apr 2024
26 Apr 2031
1,619,078
1,619,078
25 Apr 2022–24 Apr 2025
24 Apr 2032
Note:
1
Amjad Bseisu elected to exercise 2,299,838 shares in July 2022
The table above shows the maximum number of shares that could be released if awards were to vest in full. These awards
first vest on the third anniversary of the award date, subject to the achievement of performance conditions (as described
elsewhere in this report). Awards vesting from 2019 onwards will then be subject to an additional two-year holding period
which, unless the Committee determines otherwise, will apply up to the fifth anniversary of the date of grant.
Statement of Directors’ shareholdings and share interests
Executive Directors are currently required to build up and hold shares in the Company worth 200% of salary and are
expected to retain 50% of shares from vested awards under the PSP (other than sales to settle any tax or social security
withholdings due) until they hold at least 200% of salary in shares (this includes shares which are beneficially owned
directly or indirectly by family members of an Executive Director).
Legally owned
(number of
shares)
Value of
legally owned
shares as %
of salary
1
Unvested and
subject to
performance
conditions
under the PSP
Vested but
not
exercised
under the
PSP
Vested but
not
exercised
under the
RSP
Sharesave
Executive
deferrals
Total at
31 December
2022
Value of
shareholding
as a % of
salary
1
Amjad Bseisu
2
234,732,857
12,128%
16,089,088
4,604,010
–
–
72,475
255,498,430
13,201%
Salman Malik
565,705
33%
3,757,247
444,086
–
–
–
4,767,038
276%
Gareth Penny
–
n/a
n/a
n/a
n/a
n/a
n/a
–
n/a
Howard Paver
457,617
n/a
n/a
n/a
n/a
n/a
n/a
457,617
n/a
Carl Hughes
109,390
n/a
n/a
n/a
n/a
n/a
n/a
109,390
n/a
Farina Khan
211,235
n/a
n/a
n/a
n/a
n/a
n/a
211,235
n/a
Rani Koya
–
n/a
n/a
n/a
n/a
n/a
n/a
–
n/a
Liv Monica Stubholt
–
n/a
n/a
n/a
n/a
n/a
n/a
–
n/a
John Winterman
221,123
n/a
n/a
n/a
n/a
n/a
n/a
221,123
n/a
Notes:
1
Shares are valued by taking the average closing share price on each trading day of the period 1 October 2022 to 31 December 2022
2
As at 31 December 2022, 201,881,058 shares were held by Double A Limited, a company beneficially owned by the extended family of Amjad Bseisu. 32,674,840
shares were also held by The Amjad and Suha Bseisu Foundation and the remaining 176,959 shares were held by Amjad Bseisu directly
Directors’ Remuneration Report
continued
99
EnQuest PLC –
Annual Report and Accounts 2022
Corporate Governance
Information not subject to audit
Total Shareholder Return and Chief Executive total remuneration
The following graph shows the Company’s performance, measured by TSR, compared with the performance of the FTSE
AIM All-Share Oil & Gas, also measured by TSR. The FTSE AIM All-Share Oil & Gas index has been selected for this
comparison as it is the index whose constituents most closely reflect the size and activities of EnQuest.
160
01 Jan 21
01 Jan 22
31 Dec 23
01 Jan 20
01 Jan 19
EnQuest
FTSE AIM – Oil & Gas
01 Jan 13
01 Jan 14
01 Jan 15
01 Jan 16
01 Jan 17
01 Jan 18
120
140
100
80
60
40
20
0
Historical Chief Executive pay – single figure history
The table below sets out details of the Chief Executive’s pay for 2022 and the previous nine years and the payout of incentive
awards as a proportion of the maximum opportunity for each period. The Chief Executive’s pay is calculated as per the
‘single figure’ of remuneration shown elsewhere in this report. During this time, Amjad Bseisu’s total remuneration has been:
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
‘Single figure’ of total remuneration
(£’000s)
1,356
817
884
941
998
1,306
1,275
1,244
1,658
1
2,355
2
Annual bonus (as a % of maximum)
50
24
27
33
57
79
81
60
65
74
Long-term incentive vesting rate
(as a % of maximum PSP)
67
79
77
56
11
56
50
64
44
75
Notes:
1
Confirmed outcome
2 Forecast outcome
CEO pay ratio 2022
The CEO pay ratio has been calculated using the ‘Option A’ methodology which compares the single total figure of
remuneration (‘STFR’) of the CEO to UK employees for the 12 months ending 31 December 2022 on a full-time equivalent
basis. This methodology has been chosen as it offers the most accurate and preferred approach for companies to apply
based on institutional investor guidelines.
CEO pay ratio
Financial year
Methodology
P25
(lower quartile)
P50
(median)
P75
(upper quartile)
2022
A
STFR
25:1
20:1
17:1
2021
15:1
13:1
11:1
2020
14:1
12:1
10:1
2019
23:1
14:1
11:1
Total remuneration is as defined in the single total figure of remuneration for Executive Directors. EnQuest has determined
the P25, P50 and P75 individuals with reference to a ranking of total remuneration and by identifying those employees with
the most typical pay structure of a UK-based employee. All employees have been included as at 31 December 2022, with
remuneration of part-time employees and those employees on statutory leave included on a full-time equivalent basis.
The increase in the CEO pay ratio in 2022 can be attributed to the higher value of the PSP at vest.
100
Data points reflect the 25th, 50th and 75th percentile of all UK employees’ total remuneration as follows:
CEO
UK STFR
Financial year
Methodology
P25
(lower quartile)
P50
(median)
P75
(upper quartile)
2022
A
STFR
£2,355,344
£95,589
£115,917
£136,877
2021
£1,418,141
£92,108
£106,862
£128,860
2020
£1,118,892
£78,729
£92,508
£110,817
2019
£1,448,480
£62,717
£104,769
£129,558
2022
A
Base salary
£493,510
£71,268
£71,675
£71,966
2021
£479,136
£65,500
£69,960
£89,920
2020
£455,179
£52,346
£75,833
£70,874
2019
£469,741
£51,952
£76,503
£87,941
In setting both the CEO remuneration and the remuneration structures for the wider UK workforce, EnQuest has adopted a
remuneration structure which includes the same elements for employees at all levels (base pay, benefits, pension, cash
bonus and share awards). While all employees receive a base salary that is market competitive for their role and
commensurate with our business size, differences exist in the quantum of variable pay that is achievable by the senior
executive team and by individuals at senior management levels within the Group. At these levels, where there is a greater
opportunity to influence Group performance, there is a greater emphasis on aligning executives with shareholders. Based
on this distinction, the Group believes that the median pay ratio is consistent with the wider pay, reward and progression
policies impacting UK employees.
Relative spend on pay
The table below shows the actual expenditure of the Group on total employee pay, as well as profitability and distributions
to shareholders, and the change between the current and previous years:
2021
$ million
2022
$ million
Adjusted EBITDA
1
743
979
EnQuest net debt
1
1,222
717
Distribution to shareholders
0
0
Total employee pay
103
93
Note:
1
Adjusted EBITDA has been chosen as an appropriate measure of return to shareholders and net debt as a measure of EnQuest’s commitment to its lenders
Change in Directors’ pay relative to the workforce
Base salary/fees
%
Bonus
%
Benefits
%
2021 to
2022
2020 to
2021
2019 to
2020
2021 to
2022
2020 to
2021
2019 to
2020
2021 to
2022
2020 to
2021
2019 to
2020
Amjad Bseisu
3
5
(3)
17
9
(25)
0
0
0
Salman Malik
–
–
–
–
–
–
–
–
–
Gareth Penny
–
–
–
–
–
–
–
–
–
Rani Koya
–
–
–
–
–
–
–
–
Martin Houston
1
32
5
(5)
–
–
–
–
–
–
Howard Paver
31
14
27
–
–
–
–
–
–
Philip Holland
2
36
5
(5)
–
–
–
–
–
–
Carl Hughes
36
5
(5)
–
–
–
–
–
–
Farina Khan
42
–
–
–
–
–
–
–
–
Liv Monica Stubholt
3
42
–
–
–
–
–
–
–
–
John Winterman
36
5
(8)
–
–
–
–
–
–
UK employees (average)
4
3
0
3
(7)
3
(21)
0
0
3
Notes:
UK employees have been chosen as the most appropriate comparator group as the majority of the EnQuest workforce is UK based and their pay structure is
comparable to the Directors’ pay based on annualised amounts paid in 2021 and 2022. Benefits include employer pension contribution and/or allowance
1
Martin Houston resigned as Non-Executive Chairman in 2022. His fees in 2022 include a fee as payment in lieu of notice
2
Phillip Holland resigned as a Director in 2022. His fees in 2022 were pro-rated
3
Liv Monica Stubholt was appointed as a Director in 2021. Her fees in 2021 were pro-rated
4
The vast majority of UK-based employees directly support the North Sea business and have a proportion of their bonus based on the performance of the
business unit
Directors’ Remuneration Report
continued
101
EnQuest PLC –
Annual Report and Accounts 2022
Corporate Governance
Statement of implementation of the Remuneration Policy for the year ending 31 December 2023
Base salary and 2023 pay review
As stated in the annual statement to this report, the remuneration for the Executive Directors is geared towards variable pay linked
to long-term performance targets, with base salaries currently set in relation to benchmarks for the energy industry and
comparable sized companies. In the view of the Committee, it is therefore important to ensure that the base salaries of the
Executive Directors are reviewed annually and that any increase reflects the change in scale and complexity of the role as the
Group grows, as well as the performance of the Executive Director. The table below shows the changes applied to salaries for 2023.
Name
Salary for 2022
£
Salary for 2023
£
Increase
%
Amjad Bseisu
493,500
513,300
4.0%
Salman Malik
1
440,000
440,000
0.0%
Note:
1
The salary for Salman Malik in 2022 is shown as the annual rate from the appointment on 15 August 2022 and does not reflect the total base salary received
during 2022
The average salary uplift for Group employees was 4.5%, although individual uplifts varied according to market position,
and individual experience and performance.
Pension and other benefits
The Group will continue to pay a cash benefit in lieu of pension of the lesser of 10% of salary or £50,000 (the CEO will receive
the pension benefit at the capped level). The Group will also continue to pay private medical insurance, life assurance and
personal accident insurance, the costs of which are determined by third-party providers. The Company pays for
international private medical insurance for Salman Malik and his family as part of the relocation arrangements made and
to reflect the multi-country residence of his dependents.
Annual bonus
For the year ended 31 December 2023, the annual bonus opportunities for the CEO and CFO will continue to be 75% of salary
at target and 125% of salary at maximum.
The annual bonus scheme for 2023 is structured as follows:
•
Awards will be determined based on a balanced combination of financial and operational performance measures;
•
Executive Directors (and other executive management) will have threshold, target and stretch performance levels
attributed to key performance objectives;
• Executive Directors’ bonuses will be determined predominantly by the performance of the Group;
•
Each part of the bonus will represent a discrete element which will be added together to determine the performance
award for the year; and
• Stretching targets will continue to apply to achieve maximum payout.
The 2023 metrics and weightings, which will determine the level of short-term incentive awards for the CEO and CFO, are
set out below.
Group 2023 performance measures scorecard
Metric
Weighting
Production
25%
Expenditure
15%
ESG, culture and D&I
10%
Liquidity management
20%
Growth
30%
Notes:
Precise targets are commercially sensitive and are not being disclosed in advance at this time
Performance in HSEA is central to EnQuest’s overall results. This category may be used as an overlay on overall Group performance
Maximum bonus will only be payable when performance significantly exceeds expectations. To the extent that the targets
are no longer commercially sensitive, they will be disclosed in next year’s report.
Any amount of bonus earned above 100% of salary will be deferred into EnQuest shares for two years, subject to continued
employment.
Performance share awards
2023 PSP awards
After due consideration of Business performance in 2022 and the performance of the Executive Directors, as well as other
factors, the Remuneration and Social Responsibility Committee decided to award a grant equal to 250% of salary to Amjad
Bseisu and Salman Malik, to be awarded in April 2023. The Committee recognises the preference of some shareholders for
an upfront reduction to award levels where there has been a fall in share price compared to the previous year’s grant.
However, the Committee believes that making this assessment at the end of the vesting period, once all relevant
information is known and the impact of potential ‘windfall gains’ can be more readily quantified, is preferable.
102
Summary of 2022 PSP performance measures and targets
The PSP share awards granted in 2023 will have two performance metrics, both measured over a three-year financial period:
•
80% of the award relates to relative TSR against a comparator group of 20 oil and gas companies; and
• 20% relates to emission reduction over three years.
2023 PSP – schedule for 2026 vesting
Measure
Weighting
Threshold
(25% vesting)
Maximum
(100% vesting)
Relative TSR over the period
1 January 2023 to 31 December 2025
80.0%
50th percentile
75th percentile
or higher
Emission reduction over the period
1 January 2023 to 31 December 2025
20.0%
10% reduction
12% reduction
or more
2023 PSP award TSR comparator group
Africa Oil
Energean
Hurricane Energy
Maurel & Prom
Aker BP
Genel Energy
Ithaca
Okea
BW Energy
Gulf Keystone
Jadestone
Pharos Energy
Capricorn Energy
Harbour Energy
Kistos
Serica Energy
DNO
Hibiscus
Kosmos
Tullow Oil
Non-Executive Directors
The fees for the Non-Executive Directors with effect from 1 January 2023 are:
Fee
Chairman
£200,000
Director
£60,000
Senior Independent Director
£10,000
Committee Chair
£10,000
External benchmarking of Non-Executive Directors is carried out on an annual basis. The decision was taken to keep fees
for Non-Executive Directors at the current 2022 levels following a benchmark review.
Advisers to the Committee
Mercer Kepler provided advice to the Remuneration and Social Responsibility Committee until March 2022. Ellason LLP were
appointed by the Committee following a competitive tender process and began providing advice to the Committee from
August 2022.
The Committee satisfied itself that the advice given was objective and independent. Both Ellason LLP and Mercer Kepler are
signatories to the Remuneration Consultants Group Code of Conduct, which sets out guidelines for managing conflicts of
interest. Neither Mercer Kepler nor Ellason LLP provide any other services to the Group.
The fees paid to Mercer Kepler totalled £23,575 (excluding VAT), and fees paid to Ellason LLP in 2022 totalled £38,240
(excluding VAT). In both cases, the fees were charged on the basis of the number of hours worked.
Statement of voting at the Annual General Meeting
The table below summarises the voting at the AGM held on 17 June 2022 in respect of the Directors’ Remuneration Report.
The Remuneration Policy was last approved by shareholders at the 2021 AGM, receiving 95.35% support. The Group is
committed to ongoing shareholder dialogue and takes an active interest in voting outcomes. Where there are substantial
votes against resolutions in relation to Directors’ remuneration, the reasons for any such vote will be sought, and any
actions in response will be detailed here.
Number of
votes cast for
Percentage of
votes cast for
Number of votes
cast against
Percentage of
votes cast
against
Total
votes cast
Number of
votes withheld
Remuneration Report (2022)
811,351,326
86.13%
130,652,955
13.87%
942,004,281
9,693,270
The Directors’ Remuneration Report was approved by the Board and signed on its behalf by Howard Paver.
Howard Paver
Chair of the Remuneration and Social Responsibility Committee
4 April 2023
Directors’ Remuneration Report
continued
103
EnQuest PLC –
Annual Report and Accounts 2022
Corporate Governance
Safety, Sustainability and Risk Committee report
Dear shareholder
On behalf of the Board and my fellow Committee members,
I am pleased to present EnQuest’s Safety, Sustainability and
Risk Committee report.
During 2022, recognising the increased focus on climate,
the scope of the Committee has been broadened to cover
Sustainability as well as the key areas of Safety and Risk.
The Group has adopted the United Nations Sustainable
Development Goal (‘SDG’) 12 target of “By 2030, substantially
reduce waste generation through prevention, reduction,
recycling and reuse” through its waste reduction activities.
The Committee reviewed the plans of the Group’s
Infrastructure and New Energy Business, both in its emission
reduction objectives and longer-term renewable energy and
decarbonisation opportunities, and see exciting and positive
opportunities in this area for the Group.
The UK Government’s North Sea Transition Deal (‘NSTD’)
requires the industry to deliver material, progressive CO
2
equivalent reductions by 2025, 2027 and 2030, measured
against a 2018 baseline. I am pleased to report the Group is
well ahead of the 2025 and 2027 targets and on track to
meet the required reduction by 2030. In addition, the Group
will review the suitability of waste reduction as a Scope 3
emission measure thus allowing for further improvement in
our emission reduction targets.
The health and safety of our personnel remain a key priority
and throughout 2022 we continued to undertake detailed
analysis of specific risk areas such that asset integrity and
the safety of our personnel are not compromised.
We continued to progress the improvement actions identified
by the 2021 asset integrity review. Engagement with the Health
and Safety Executive (‘HSE’) remained positive throughout the
year and the three HSE Improvement Notices (‘INs’) received in
2021 were all successfully closed out ahead of the agreed
deadline. The North Sea Transition Authority (‘NSTA’) issued an
IN in November in relation to the isolation arrangements at
Magnus. While receiving the IN is disappointing, it represents
an opportunity for the Group to identify and drive further
improvements and we are confident that this will be closed
out ahead of the deadline.
There has been some deterioration in HSEA performance,
particularly in lagging indicators, but the Committee is
satisfied that necessary steps have been taken to improve
the performance of the Group in this critical area. Reflecting
the desire for improved performance, the Group developed
an integrated HSEA Continuous Improvement Plan (‘CIP’) to
drive enhanced performance in 2023 and beyond.
The Group has developed a robust Risk Management
Framework, which the Committee reviews regularly,
incorporating a wide range of risks in a complex and rapidly
changing landscape for the sector. The Committee has
reviewed these areas and plans for 2023 incorporate
enhancement in the Group’s activity on Safety, Sustainability
and Risk in support of it’s strategic purpose to provide
creative solutions through the energy transition.
Rani Koya
Chair of the Safety, Sustainability and Risk Committee
4 April 2023
Safety, Sustainability and Risk Committee membership
Membership of the Committee and attendance at the three
meetings held during 2022 is provided in the table below:
Member
Date appointed
Committee member
Attendance at
meetings during
the year
Philip Holland
1
25 January 2016
2/2
Rani Koya
2
1 September 2022
1/1
Carl Hughes
1 January 2017
3/3
Farina Khan
3
1 November 2020
1/1
Liv Monica Stubholt
15 February 2021
3/3
Joh Winterman
9 December 2020
3/3
Notes:
1
Philip Holland stepped down from the Board of Directors and as Chair of the
Safety, Sustainability and Risk Committee following EnQuest’s Annual
General Meeting on 17 June 2022
2 Rani Koya joined the Safety, Sustainability and Risk Committee and
assumed the Chair position on 1 September 2022
3 Farina Khan stepped down from her position on the Committee on
2 February 2022
“EnQuest is actively driving
decarbonisation and emission
reductions in support of the
United Nation’s Sustainable
Development Goals and the
UK’s net zero carbon emissions
commitment.”
Rani Koya
Chair of the Safety, Sustainability and Risk Committee
104
Safety, Sustainability and Risk Committee responsibilities
The main responsibilities of the Committee are to:
•
Undertake in-depth analysis of specific risks, including
emerging risks, in relation to the Group and consider
existing and potential new controls;
• Support the implementation and progression of the
Group’s Risk Management Framework;
• Review the Group’s HSEA performance and the
effectiveness of its policies and guidelines in managing
HSEA risks and reporting;
•
Conduct detailed reviews of key non-financial risks not
reviewed within the Audit Committee;
• Assess the Group’s exposure to managing risks from
‘climate change’ (including assessing emissions updates)
and review actions to mitigate these risks in line with its
assessment of other risks;
• Review and monitor the Group’s decarbonisation activities,
including reviewing the adequacy of the associated
framework and its alignment with the evolving regulatory
environment (for example, around those being developed
by the ISSB and UK TPT); and
• Review targets and milestones for the achievement of
decarbonisation objectives.
The Committee’s full terms of reference can be found on the
Group’s website, www.enquest.com, under Investors/
Corporate Governance.
Committee activities during the year
The Committee:
• Considered the impact of HSEA processes and culture
and the Group’s Risk Management Framework;
•
Continued to refine the Group’s Risk Management
Framework and continuous improvement planning;
• Reviewed the Group Risk Register, assurance map and
Risk Report (focusing on the most critical risks and
emerging and changing risk profiles. This included
obtaining assurance that the risks associated with
climate change are appropriately assessed and
incorporated within relevant risk areas);
•
Undertook in-depth reviews of ‘financial risks’,
‘compliance with regulation, legislation and ethical
conduct’ and ‘climate change risks’, in each case
identifying improvements to certain controls;
• Received routine updates on HSEA (including reviewing
the Group’s performance along with ongoing and
planned HSEA activities), which continues to be a key
focus area for the Committee; and
• Received routine updates on the Group’s emission
reduction targets and strategy for further enhancing
its contributions to SDG 12.
For further information on these risks, please see the Risks
and uncertainties section on pages 40 to 51.
Priorities for the coming year
In 2023, the Committee will continue to focus on detailed
analysis of key risk areas, including those relating to the Group’s
activity on Safety, Sustainability and Risk in support of its
strategic purpose to provide creative solutions through the
energy transition.
Safety, Sustainability and Risk Committee report
continued
105
EnQuest PLC –
Annual Report and Accounts 2022
Corporate Governance
Technical and Reserves Committee report
Dear fellow shareholder
On behalf of the Board and my fellow Committee members,
I am pleased to present the Technical and Reserves
Committee report.
The Committee was established to support the Board
and management in relation to all technical matters,
including the business plan, major development projects,
acquisitions, and the review of reserves. During the year,
the Committee undertook a trip to the Aberdeen office to
meet with technical staff and receive presentations on
subsurface, decommissioning, operations, production,
supply chain and wells. We were pleased to note the quality
of staff and to observe the positive morale at the site.
While there, we held a dinner with mainly new employees
and a breakfast with high-potential employees to listen to
their views.
Towards the end of the year, the Committee carried out a
post-investment review of the Golden Eagle acquisition, a
transaction that completed in 2021. Each major investment
decision is reviewed by the Committee 12–18 months after
implementation or acquisition to both assess the project
and to note and share key learnings.
The Committee reviewed the year-end reserves and
recommended to the Board a move to reporting Malaysia
2P reserves on a working interest basis, with entitlement
reserves reported as a secondary datapoint. This brings
us into line with our industry peer group.
From time to time the Committee reviews business
development opportunities which, if appropriate, will be
recommended to the Board.
Both Martin Houston and Philip Holland stood down from
the Committee on their respective departures from the
Board. On behalf of the Committee, I thank them both for
their valued contribution. As reported last year, Rani Koya
joined the Committee on her appointment to the Board.
She brings with her a wealth of technical expertise and
experience to support the Committee’s work.
John Winterman
Chairman of the Technical and Reserves Committee
4 April 2022
Technical and Reserves Committee responsibilities
The main responsibility of the Committee is to provide the
Board with additional technical insight when making Board
decisions. The Committee’s full terms of reference can be
found on the Group’s website, www.enquest.com, under
Corporate Governance.
Technical and Reserves Committee membership
Member
Date appointed
Committee member
Attendance at
meetings during
the year
John Winterman
15 October 2019
3/3
Philip Holland
1
15 October 2019
2/2
Martin Houston
2
15 October 2019
2/2
Howard Paver
15 October 2019
3/3
Rani Koya
1 January 2022
3/3
Notes:
1
Philip Holland stepped down from the Board as Non-Executive Director
on 17 June 2022
2 Martin Houston stepped down from the Board as Chairman and
Non-Executive Director on 6 December 2022
Committee activities during the year
• Visit to Aberdeen to meet technical employees
• Review of Malaysia drilling and workover readiness
• Review of 2021 and 2022 year-end reserves and resources
• Review of business development opportunities
• Review of technical assumptions underlying the 2023
business plan
• Update on Golden Eagle Area Development
Priorities for the coming year
In 2023, the Committee will continue to focus on supporting
the business, in particular when assessing new opportunities,
reserve and resource maturation and asset integrity
management across its assets. Deep dives, with presentations
by asset personnel, will remain a key part of this process.
“The Committee remains focused
on providing technical expertise
to the Board to assist in its
decisions.”
John Winterman
Chair of the Technical and Reserves Committee
106
Directors’ report
Directors
The Directors’ biographical details are set out on pages 66 and 67. Gareth Penny and Salman Malik will stand for election at
the 2023 Annual General Meeting (‘AGM’) on 5 June 2023, with the other Directors offering themselves for re-election.
Directors’ indemnity provisions
Under the Company’s Articles, the Directors of the Company may be indemnified out of the assets of the Company against
certain costs, charges, expenses, losses or liabilities which may be sustained or incurred in or about the execution of their
duties. Such qualifying third-party indemnity provision remains in force as at the date of approving the Directors’ report.
Such indemnities are in a form consistent with the limitations imposed by law.
Substantial interests in shares
The table below shows the holdings in the Company’s issued share capital, which had been notified to the Company in
accordance with Chapter 5 of the Disclosure Guidance and Transparency Rules (‘DTR’):
Name
Number of
Ordinary shares
held at
31 December
2022
% of issued
share capital
held at
31 December
2022
2
Number of
Ordinary shares
held as at
4 April
2023
% of issued
share capital
held as at
4 April
2023
Bseisu consolidated interests
1
234,732,857
12.45
234,732,857
12.45
Aberforth Partners LLP
153,086,238
8.12
154,851,175
8.21
Schroders Plc
107,791,256
5.72
107,599,635
5.71
Baillie Gifford & Co Ltd
97,461,903
5.17
92,908,242
4.93
Hargreaves Lansdown Asset Management
80,680,736
4.28
86,537,010
4.59
Cobas Asset Management
73,527,084
3.90
78,398,386
4.16
Dimensional Fund Advisors
70,851,770
3.76
71,709,307
3.80
BlackRock Inc
69,246,326
3.67
73,099,461
3.88
Avanza Fonder AB
64,018,826
3.39
67,947,513
3.60
Notes:
1
201,881,058 shares are held by Double A Limited, a company beneficially owned by the extended family of Amjad Bseisu. 32,674,840 shares are also held by The
Amjad and Suha Bseisu Foundation and 176,959 shares are held directly by Amjad Bseisu
2 Rounding applies
“The Directors of EnQuest present
their Annual Report together with
the Group and Company audited
financial statements for the year
ended 31 December 2022.”
Chris Sawyer
Company Secretary
107
EnQuest PLC –
Annual Report and Accounts 2022
Corporate Governance
Directors’ interests
The interests of the Directors in the Ordinary shares of the Company, which are unchanged between 31 December 2022
and 4 April 2023, are shown below:
Name
At
31 December
2022
At
4 April
2023
Amjad Bseisu
1
234,732,857
234,732,857
Gareth Penny
–
-
Carl Hughes
109,390
109,390
Farina Khan
211,235
211,235
Rani Koya
-
-
Salman Malik
565,705
565,705
Howard Paver
457,617
457,617
Liv Monica Stubholt
-
-
John Winterman
221,123
221,123
Note:
1
201,881,058 shares are held by Double A Limited, a company beneficially owned by the extended family of Amjad Bseisu. 32,674,840 shares are also held by The
Amjad and Suha Bseisu Foundation and 176,959 shares are held directly by Amjad Bseisu
Share capital
The Company’s share capital during the year consisted of Ordinary shares of £0.05 each (‘Ordinary shares’). Each Ordinary
share carries one vote. Throughout 2022, there were 1,885,924,339 Ordinary shares in issue. No further shares have been
issued subsequent to the year end. All of the Company’s issued Ordinary shares have been fully paid up. Further
information regarding the rights attaching to the Company’s Ordinary shares can be found in note 20 to the financial
statements on page 153. No person has any special rights with respect to control of the Company.
The Company did not purchase any of its own shares during 2022 or up to and including 4 April 2023, being the date of this
Directors’ report. At the 2023 AGM, shareholders will be asked to renew authorities relating to the issue and purchase of Company
shares. Details of the resolutions will be included in the Notice of AGM, which can be found on the Company’s website.
Company share schemes
The trustees of the Employee Benefit Trust (‘EBT’) did not purchase any Ordinary shares in the Company during 2022. At
year end, the EBT held 1.36% of the issued share capital of the Company (2021: 2.14%) for the benefit of employees and their
dependants. The voting rights in relation to these shares are exercised by the trustees.
Employee engagement
EnQuest operates a framework for employee information and consultation which complies with the requirements of the
Information and Consultation of Employees Regulations 2005. Employees are informed about significant business issues
and other matters of concern via regular business briefings, country-level Town Hall meetings, Global Town Hall meetings
(whereby staff in all geographic locations are invited to attend), email and other electronic communications, particularly
the Company’s intranet and internal ‘Yammer’ channel.
Following the lifting of COVID-19 restrictions, face-to-face briefing meetings have resumed along with the use of virtual
communications to ensure all employees have the opportunity to participate. Appropriate consultations take place with
employees when business change is undertaken.
A Global Employee Forum, to allow for direct employee engagement with the Board of Directors, was established in early
2019 in line with the UK Corporate Governance Code (the ‘Code’). During the year, the Board considered the continued
effectiveness of the Global Employee Forum and concluded that its primary function had been for the raising of non-
strategic issues. As such, the Board agreed that the Forum should continue under the direction of the Director of People,
Culture and Diversity and without the participation of the two Non-Executive Directors who are the designated Directors for
workplace engagement. These designated Directors now have the responsibility to ensure that a broader range of
activities are undertaken such that the Board gets a clear understanding of the views of employees in accordance with the
requirement of the Code.
EnQuest offers employees the opportunity to participate directly in the success of the Company through participation in
share schemes, such as the Save As You Earn (‘SAYE’) Share Scheme. 70% of eligible employees currently participate in
SAYE. Eligibility for participation in other share schemes depends on a number of factors, such as seniority.
Articles of Association
The Company’s Articles of Association may only be amended by special resolution at a General Meeting of shareholders.
The Company’s Articles, found on the Company’s website at www.enquest.com/corporate-governance, contain provisions
on the appointment, retirement and removal of Directors, along with their powers and duties. While there are no specific
restrictions, the transfer of shares in the Company is also provided for in the Articles.
Annual General Meeting
The Company’s AGM will be held at Ashurst LLP, London Fruit & Wool Exchange, 1 Duval Square, London, E1 6PW on 5 June 2023.
Formal notice of the AGM, including details of special business, is set out in the Notice of AGM which accompanies this Annual
Report. It will be available on the Group’s website at www.enquest.com/shareholder-information/annual-general-meetings.
108
Registrars
In connection with the Ordinary shares traded on the London Stock Exchange, the Company’s share registrar is Link Asset
Services. For the Ordinary shares traded on NASDAQ OMX Stockholm, the Company’s share registrar is Euroclear Sweden.
Full details of both registrars can be found in the Company information section on the inside back cover.
Political donations
At the 2022 AGM, a resolution was passed giving the Company authority to make political donations and/or incur political
expenditure as defined in Sections 362 to 379 of the Companies Act 2006. Although the Company does not make and does
not intend to make political donations or to incur political expenditure, the legislation is very broadly drafted and may
catch such activities as funding seminars or functions to which politicians are invited, or may extend to bodies concerned
with policy review, law reform and representation of the business community that the Company and its subsidiaries might
wish to support.
No political donations were made in 2022 by the Company, or any of its subsidiaries.
Dividends
The Company has not declared or paid any dividends since incorporation and does not plan to pay dividends in the
immediate future. However, the Board anticipates reviewing the policy when appropriate, the timing of which will be
subject to the earnings and financial condition of the Company meeting the conditions for dividend payments which
the Company has agreed with its lenders and such other factors as the Board of Directors of the Company consider
appropriate, including the Company’s expected future cash flows.
Change of control agreements
The Company (or other members of the Group) are not party to any significant agreements which take effect, alter or
terminate upon a change of control of the Company following a takeover bid, except in respect of:
(a) the reserve based lending facility, which includes provisions that, upon a change of control, permit each lender not to
provide certain funding under that facility and to cancel its commitment to provide that facility and to require
repayment of the credit which may already have been advanced to the Company and the other borrowers under
the facility;
(b) the working capital facility, originally dated 1 December 2017, in respect of the operation of the Sullom Voe Terminal
(‘SVT’), which includes provisions that upon a change of control, permit the lender not to provide certain funding under
that facility and to cancel its commitment to provide that facility and to require repayment of the credit which may
already have been advanced to the borrower (EnQuest Heather Limited) under the facility;
(c) the deeds of indemnity, originally dated 10 June 2021 and 28 February 2023, pursuant to which the sureties have agreed
to consider requests to issue, procure or participate in surety bonds, each include provisions that, upon a change of
control, permit each surety to require the indemnitors to provide cash cover in respect of the liability assumed by the
sureties (and costs and fees of the sureties) in relation to the Company and the other indemnitors under the deeds;
(d) the Company’s Euro Medium Term Note Programme (under which the Company has in issue Euro Medium Term Notes
originally due in 2022, which was subsequently automatically extended to 15 October 2023, with an aggregate nominal
amount of approximately £111.3 million, including capitalised interest, at the date of this report), pursuant to which, if
there is a change of control of the Company, a holder of a note has the option to require the Company to redeem such
note at its principal amount, together with any accrued interest thereon; and
(e) under the indenture governing the Company’s high yield notes originally due in 2027, which at the date of this report
have an aggregate nominal amount of approximately $305.0 million, if the Company undergoes certain events defined
as constituting a change of control, each holder of the high yield notes may require the Company to repurchase all or a
portion of its notes at 101% of their principal amount, plus any accrued and unpaid interest.
Directors’ statement of disclosure of information to auditor
The Directors in office at the date of the approval of this Directors’ report have each confirmed that, so far as they are
aware, there is no relevant audit information (as defined by Section 418 of the Companies Act 2006) of which the
Company’s auditor is unaware, and each of the Directors has taken all the steps he/she ought to have taken as a Director
to make himself/herself aware of any relevant audit information and to establish that the Company’s auditor is aware of
that information. This confirmation is given and should be interpreted in accordance with the provisions of Section 418 of
the Companies Act 2006.
Responsibility statements under the DTR
The Directors who held office at the date of the approval of the Directors’ report confirm that, to the best of their knowledge,
the financial statements, prepared in accordance with UK-adopted IFRS, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;
and the Directors’ report, Operating review and Financial review include a fair review of the development and performance
of the business and the position of the Company and the undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and uncertainties that they face.
Independent auditor
Having reviewed the independence and effectiveness of the auditor, the Audit Committee has recommended to the Board
that the existing auditor, Deloitte, be reappointed. Deloitte has expressed its willingness to continue as auditor. An ordinary
resolution to reappoint Deloitte as auditor of the Company and authorising the Directors to set its remuneration will be
proposed at the forthcoming AGM. Information on the Company’s policy on audit tendering and rotation is on pages 83 to 84.
Directors’ report
continued
109
EnQuest PLC –
Annual Report and Accounts 2022
Corporate Governance
Going concern
The Group’s business activities, together with the factors likely to affect its future development, performance and position,
are set out in the Strategic report on pages 02 to 64. The financial position of the Group, its cash flow, liquidity position and
borrowing facilities are described in the Financial review on pages 20 to 26. The Board’s assessment of going concern and
viability for the Group is set out on pages 25 and 26. In addition, note 27 to the financial statements on page 161 includes:
the Group’s objectives, policies and processes for managing its capital; its financial risk management objectives; details of
its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk.
Greenhouse gas (‘GHG’) emissions
EnQuest has reported on all of the emission sources within its operational control required under the Companies Act 2006
(Strategic Report and Directors’ Report) Regulations 2013 and The Companies (Directors’ Report) and Limited Liability
Partnerships (Energy and Carbon Report) Regulations 2018. These sources fall within the EnQuest consolidated financial
statements. EnQuest has used the principles of the GHG Protocol Corporate Accounting and Reporting Standard (revised
edition), ISO 14064-1 and data gathered to fulfil the requirements under the ‘Environmental Reporting Guidelines: Including
streamlined energy and carbon reporting guidance March 2019’. The Streamlined Energy & Carbon Reporting (‘SECR’)
report includes assets which are in the operational control of EnQuest.
Emissions
2022
SECR
2021
5, 6
SECR
2018
baseline
Total emissions tCO
2
e
2
1,051,869
1,164,138
1,704,893
Scope 1
Extraction emissions tCO
2
e
2
949,275
1,065,443
1,562,507
Scope 2
Extraction emissions tCO
2
e
2
796
787
1,515
Extraction intensity ratio kgCO
2
e/Boe
2
45.01
49.08
47.54
Scope 1
Terminal (SVT) emissions tCO
2
e
2, 3
29,794
29,296
54,859
Scope 2
Terminal (SVT) emissions tCO
2
e
2, 3
72,003
68,612
86,011
Terminal (SVT) intensity ratio kgCO
2
e/Boe
2
throughput
3
2.28
2.09
4.65
Energy
Consumption
4
2022
SECR
2021
SECR
Total kWh
4,455,083,433
4,944,948,025
Scope 1
Extraction kWh
3,924,133,320
4,415,389,182
Scope 2
Extraction kWh
2,548,727
2,446,472
Extraction intensity ratio kWh/Boe
2
186.04
203.37
Scope 1
Terminal (SVT) kWh
2, 3
116,158,249
143,280,355
Scope 2
Terminal (SVT) kWh
2, 3
412,243,137
383,832,016
Terminal (SVT) intensity ratio kWh/Boe
2
throughput
3
11.84
11.24
UK & Overseas Breakdown
2022
SECR (operational
control) scope
2021
SECR (operational
control) scope
Scope 1
UK onshore tCO
2
e
29,823
29,318
UK offshore tCO
2
e
637,070
634,678
Non-UK tCO
2
e
312,176
430,743
Scope 2
UK onshore tCO
2
e
72,384
69,019
UK offshore tCO
2
e
0
0
Non-UK tCO
2
e
416
380
Scope 1
UK onshore kWh
116,302,182
143,390,072
UK offshore kWh
2,599,376,955
2,578,121,049
Non-UK kWh
1,324,612,431
1,837,158,416
Scope 2
UK onshore kWh
414,208,783
385,749,524
UK offshore kWh
0
0
Non-UK kWh
583,081
528,964
Notes:
1
When it is considered that the portfolio of assets under a company’s operational control has changed significantly, the baseline, which is based on verified
scope data, is recalculated to an appropriate comparative period for which good data is available. As such, the baseline is currently 2018
2 tCO
2
e = tonnes of CO
2
equivalent. kgCO
2
e = kilogrammes of CO
2
equivalent. Boe = barrel of oil equivalent. EnQuest is required to report the aggregate gross
(100%) emissions for those assets over which it has operational control. As such, the extraction intensity ratio is calculated by taking the aggregate gross (100%)
reported Scope 1 and 2 kgCO
2
e from those assets divided by the aggregate gross (100%) hydrocarbon production from the same assets. The throughput ratio is
calculated by taking the aggregate gross (100%) reported Scope 1 and 2 kgCO
2
e from SVT divided by the aggregate total throughput at the terminal
3
Note on uncertainty: The uncertainty for total emissions within the verified scope is calculated as 3.01%. SVT emissions in isolation are not within 5% due to the
steam and electricity meters for SVT not having supportable uncertainties
4
Kilo-watt hour (kWh) data is reported on a net calorific value basis throughout
5
PM8/Seligi (Malaysia) fuel gas/flare calculation: An improved accuracy calculation/methodology has been applied to 2018 to 2022 data to ensure accurate
and transparent comparatives. Some activity data anomalies were also identified and have been corrected. The change in total reported emissions for
2018–2021 inclusive is 5% or less
6
2022 is the first year that the PM8/Seligi (Malaysian) asset has been included within the verified scope as supportable metering uncertainty documentation
has become available for 2022. The 2021 and 2018 baseline figures in the tables above are quoted for all assets in the operational control of EnQuest but it is
declared for transparency that the PM8/Seligi asset contribution was not verified for 2021 or the 2018 baseline
110
Energy efficiency strategy
A number of emission reduction opportunities have previously been identified via energy saving workshops and developed as
projects. These include compressor remapping on Kittiwake, and the commissioning of Waste Heat Recovery Units on Kraken,
both completed during 2020 with ongoing reductions achieved in 2021 and 2022. It is recognised that improved environmental
performance is a continuous process, and during 2021, the Group established its Infrastructure and New Energy business with
overall responsibility for delivering the Group’s emission reduction and other decarbonisation ambitions. A number of projects,
which range from minor modifications, such as “right-sizing” export pumps, to material technical alterations, such as flaring
reconfiguration, are currently being assessed against a range of criteria. Additional workshops will be scheduled during 2023
to ensure the correct projects continue to be identified, shortlisted and progressed to realise further emission reduction
opportunities across the Group’s portfolio of assets. In addition, The Group’s Infrastructure and New Energy business is
developing plans for a multi-year programme of projects which will right-size the SVT facilities for expected future throughput
and prepare the way for the next phase of SVT operations, which includes a potential renewable energy power solution for the
terminal. This programme of work will ensure EnQuest reduces the emissions footprint of the site.
SECR (operational control) scope
EnQuest has a number of financial interests (for example, joint ventures and joint investments), as covered in this Annual
Report for which it does not have operational control. In line with SECR and ISO 14064-1 guidance, only those assets where
EnQuest has operational control greater than 50% are captured within the SECR reporting boundary. Where EnQuest has
less than 50% operational control of an asset, it is not included within the SECR reporting boundary. Hence, the SECR
operational control boundary is different to EnQuest’s financial boundary. In line with SECR guidance, this is fully disclosed.
ISO-14064 verified scope
EnQuest has voluntarily opted to have emissions reported within the SECR scope verified to the internationally recognised
ISO 14064-1 standard by a UKAS accredited verification body. This increases the robustness of the reported emissions and
provides the reader with more confidence in the stated figures. This goes beyond the minimum requirements of the SECR
guidance.
Further disclosures
The Company has set out disclosures in the Strategic report in accordance with Section 414C(11) of the Companies Act
(2006) – information required by Schedule 7 to the Accounting Regulations to be contained in the Directors’ report. These
disclosures and any further disclosure requirements as required by the Companies Act 2006, Schedule 7 of the Large
and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, The Companies (Miscellaneous
Reporting) Regulations 2018 and the FCA’s Listing Rules and DTR are found on the following pages of the Company’s
Annual Report and are incorporated into the Directors’ report by reference:
Disclosure
Page number
Future developments
6 to 17
Acquisitions and disposals
8, 11 and 20
Fair treatment of disabled employees
38
Anti-slavery disclosure
52
Corporate governance statement
70 to 74
Gender diversity
38 and 77
Financial risk and financial instruments
161
Important events subsequent to year end
n/a
Branches outside of the UK
165
s.172 statement and stakeholder engagement
62 to 64
Research and development
n/a
Related party transactions
160
The Directors’ report was approved by the Board and signed on its behalf by the Company Secretary on 4 April 2023.
Chris Sawyer
Company Secretary
Directors’ report
continued
111
EnQuest PLC –
Annual Report and Accounts 2022
Financial Statements
Statement of Directors’ responsibilities for the
Group financial statements
The Directors are responsible for preparing the Annual
Report and the Group financial statements in accordance
with applicable United Kingdom law and regulations.
Company law requires the Directors to prepare Group
financial statements for each financial year. Under that law,
the Directors are required to prepare Group financial
statements under International Financial Reporting
Standards (‘IFRS’) as adopted by the UK.
Under Company law the Directors must not approve the
Group financial statements unless they are satisfied that
they give a true and fair view of the state of affairs of the
Group and of the profit or loss of the Group for that period.
In preparing the Group financial statements, International
Accounting Standard 1 (‘IAS’) requires that the Directors:
• Properly select and apply accounting policies;
• Present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
• Provide additional disclosures when compliance with the
specific requirements in IFRS is insufficient to enable
users to understand the impact of particular transactions,
other events and conditions on the Group’s financial
position and financial performance; and
• Make an assessment of the Group’s ability to continue as
a going concern.
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and explain
the Group’s transactions and disclose with reasonable
accuracy at any time the financial position of the Group
and enable them to ensure that the Group financial
statements comply with the Companies Act 2006 and
Article 4 of the IAS Regulation. They are also responsible for
safeguarding the assets of the Group and hence for taking
reasonable steps for the prevention and detection of fraud
and other irregularities.
The Directors are also responsible for preparing the
Strategic Report, Directors’ report, the Directors’
Remuneration Report and the Corporate governance
statement in accordance with the Companies Act 2006 and
applicable regulations, including the requirements of the
Listing Rules and the Disclosure and Transparency Rules.
Fair, balanced and understandable
In accordance with the principles of the UK Corporate
Governance Code, the Directors are responsible for
establishing arrangements to evaluate whether the
information presented in the Annual Report, taken as a
whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the
Group’s position and performance, business model and
strategy, and making a statement to that effect. This
statement is set out on page 70 of the Annual Report.
112
Independent auditor’s report
to the members of EnQuest PLC
Report on the audit of the financial statements
1. Opinion
In our opinion:
•
the financial statements of EnQuest 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 2022 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
Generally Accepted Accounting Practice, including Financial Reporting Standard 101 “
Reduced Disclosure Framework
”;
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 Group Income Statement;
• the Group and Company Balance Sheets;
• the Group and Company Statement of Changes in Equity;
• the Group Statement of Cash Flows;
•
the related notes 1 to 29 to the Group financial statements; and
•
the related notes 1 to 11 to the Company financial statements.
The financial reporting framework that has been applied in the preparation of the group financial statements is applicable
law, United Kingdom adopted international accounting standards and IFRSs as issued by the IASB. The financial reporting
framework that has been applied in the preparation of the parent company financial statements is applicable law and
United Kingdom Accounting Standards, including FRS 101 “Reduced Disclosure Framework” (United Kingdom Generally
Accepted Accounting Practice).
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 5g 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.
3. Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
• Valuation of oil and gas related assets and liabilities
• Valuation of decommissioning liability
Within this report, key audit matters are identified as follows:
Newly identified
Increased level of risk
Similar level of risk
Decreased level of risk
Materiality
The materiality that we used for the group financial statements was $30m which was determined on
the basis of 3% of adjusted EBITDA (earnings before interest, tax, depreciation, amortisation,
remeasurements and exceptional items).
Scoping
EnQuest PLC has two significant operating segments, being the North Sea and Malaysia. They
accounted for 100% of the group’s revenue, 100% of its adjusted EBITDA and 100% of its net assets.
Significant
changes in our
approach
There were no significant changes in our approach compared to the prior year.
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Financial Statements
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:
•
we obtained an understanding of the relevant controls relating to management’s assessment of going concern;
•
we have tested the clerical accuracy of the model used to prepare the going concern forecasts;
• we have assessed the historical accuracy of forecasts prepared by management;
•
we have evaluated the consistency of key inputs relating to future costs, hedging, production and working capital to
other financial and operational information obtained during our audit;
•
we have challenged management as to the reasonableness of commodity pricing assumptions applied against recent
market prices;
•
we have agreed the available facilities to underlying agreements and external confirmation from debt providers and
reperformed covenant calculation forecasts;
•
we have considered the reduction to the borrowing base of the reserve based lending facility as a result of changes to
the Energy Profits Levy;
•
we have assessed the reasonableness of management’s sensitivity analysis on the forecast, including the downside
scenarios such as lower oil prices and reduced production, and considered the mitigating actions highlighted by
management in the event that they were required; and
•
we have assessed the adequacy of disclosures made in the Annual Report and Accounts.
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 or the 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.
114
Independent auditor’s report
to the members of EnQuest PLC
continued
5.1. Valuation of oil and gas related assets and liabilities
Key audit matter
description
We identified a key audit matter in relation to the valuation of the group’s oil and gas related assets
and liabilities. This relates in particular to the significant assumptions and estimates, including
commodity prices and discount rate, that impact the forecast future cash flows used for valuation
purposes. The following areas are part of this key audit matter:
• Impairment assessment of oil and gas assets;
• Impairment assessment of goodwill;
• Valuation of Magnus contingent consideration;
• Impairment assessment of the parent company investment; and
• Valuation of the deferred tax asset.
Management performed an impairment assessment for oil and gas assets and goodwill carrying
value, by reference to IAS36 Impairment of Assets. As at 31 December 2022, the net book value of oil
and gas assets was $2,037 million (2021: $2,347 million) and management have recorded a pre-tax
impairment of $81 million (2021: $40 million impairment reversal) against certain oil and gas assets,
including related right of use assets, as disclosed in note 10.
As at 31 December 2022, the net book value of goodwill was $134 million (2021: $134 million). No
goodwill impairment charge has been recorded in 2022 (2021: nil), as disclosed in note 11.
The valuation of Magnus contingent consideration was $589 million (2021: $366 million) as at
31 December 2022, based on the fair value of the future cash flows for the Magnus oil and gas asset,
as disclosed in note 22. This includes the Magnus decommissioning-linked liability.
Management also performed an assessment of the carrying values of the parent company’s
investment in subsidiaries by reference to IAS 36 Impairment of Assets and IFRS 9 Financial
Instruments. As at 31 December 2022, the net book value of investments recognised in the parent
company balance sheet was $370 million (2021: $397 million) and management have recorded an
impairment of $31 million (2021: $319 million impairment reversal), as disclosed in note 3 to the parent
company financial statements.
As at 31 December 2022, a deferred tax asset of $706m (2021: $703m) was recognised, based on the
expected utilisation of historical tax losses, underpinned by forecasts of future profitability. As a result of
the Energy Profits Levy an initial deferred tax liability of $178m has been recognised for the first time.
The oil and gas assets are reviewed for indicators of impairment, tested for impairment where
indicators are identified and then subsequently valued at their recoverable amounts. This also
applies to the value of the investment in subsidiaries recognised in the parent company balance
sheet, which is assessed for impairment based on the valuation of the underlying oil and gas assets.
Goodwill is required to be tested for impairment at least annually. Contingent consideration
constitutes a financial liability and is therefore recorded at fair value. Further details
are included in notes 2, 10, 11 and 22 to the group financial statements. Deferred tax assets are
recognised to the extent that it is probable that future taxable profits will be available and is
measured on an undiscounted basis using tax rates that have been substantively enacted.
The recoverable amounts of oil and gas assets and goodwill are subject to significant estimation
uncertainty, as set out below and further disclosed in note 2. Consequently, they represent a high risk
of impairment charge or reversal. There is a risk that these oil and gas assets and goodwill are not
recoverable, or that reversal of previous impairments of oil and gas assets is required. The
impairment charge recorded in the year on oil and gas assets was primarily because of a the
introduction of the UK Energy Profits Levy, changes in the asset production profiles, and a higher
discount rate, partially offset by the group’s higher future commodity price assumptions. There was
no impairment recognised on goodwill as the recoverable amount of estimated North Sea future
cash flows was higher than the related book value, including the carrying value of goodwill.
The key assumptions and judgements underpinning the impairment assessments include:
•
forecast future commodity prices, including the potential impact of climate change on those prices;
• forecast future production; and
• determining appropriate discount rates.
The group’s accounting policies are detailed in notes 2, 10 and 11, these notes also include details of
the sensitivity to changes in assumptions.
Given the interrelated nature of the key areas noted above, management have applied consistent
assumptions across all of these valuations where appropriate.
The group’s Audit Committee has considered this key audit matter in their Audit Committee Report
for the year ended 31 December 2022 on pages 81 and 82.
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Financial Statements
How the scope
of our audit
responded to the
key audit matter
Procedures on the overall impairment review, Magnus contingent consideration valuation and
valuation of the group’s deferred tax asset
• we have understood management’s process for identifying indicators of impairment and for
performing their impairment assessment and related valuations;
•
we obtained an understanding of the relevant controls and then evaluated the associated design
and implementation of such controls relating to the impairment assumptions, the Magnus
contingent consideration modelling, deferred tax asset modelling and reviews;
•
we evaluated and challenged the key assumptions and inputs into the impairment and valuation
models, which included performing sensitivity analysis, to evaluate the impact of selecting
alternative assumptions;
• we evaluated the reasonableness and supportability of current year changes to the key
assumptions;
•
we worked with our modelling specialists to evaluate the arithmetical accuracy of the impairment
and valuation models. We recalculated the impairment charges and headroom, as well as
valuation changes, and agreed these to financial records;
• we challenged management’s determination of oil and gas cash generating units and considered
whether there was any contradictory evidence;
• we evaluated the impairment and valuation judgements taken, with reference to our assessment
of the key assumptions as outlined above and the outcome of the sensitivities performed; and
• we evaluated and challenged management’s disclosures including in relation to the sensitivity on
oil and gas assets and goodwill, Magnus contingent consideration and deferred tax assets. In
particular we challenged oil and gas price assumptions, including reduced demand scenarios,
whether due to climate change or other reasons.
Procedures relating to oil and gas prices
• we independently developed a reasonable range of forecasts based on external data, against
which we compared the group’s future oil and gas price assumptions in order to challenge whether
they are reasonable;
•
in developing this range we obtained a variety of reputable third party forecasts, peer information
and market data;
•
we performed sensitivity analysis on the pricing assumptions to determine the impact on the
valuations and related changes arising from reasonably possible changes in the assumption; and
•
in challenging management’s price assumptions, we considered the extent to which they, and the
forecast pricing scenarios obtained from third parties, reflect the impact of lower oil and gas
demand due to climate change.
Procedures relating to forecast future cash flows and reserves estimates
•
we assessed whether forecast cash flows were consistent with Board approved forecasts, and
analysed reasonably possible downside sensitivities;
•
with involvement from our petroleum engineering experts, we evaluated production profiles by
reference to external reserve estimates and agreed these to the cash flow forecast assumptions;
• we compared hydrocarbon production forecasts used in impairment tests to estimates and reports
and our understanding of the life of fields;
•
working with our petroleum engineering specialists, we agreed estimates of oil and gas reserves to
third party reserve reports, assessing the competence, objectivity and capability of those third-
party experts; and
• we challenged and evaluated the appropriateness of the operating and capital cost assumptions
within the model.
116
Independent auditor’s report
to the members of EnQuest PLC
continued
5.1. Valuation of oil and gas related assets and liabilities
continued
How the scope of
our audit
responded to the
key audit matter
continued
Procedures relating to the discount rate
• with input from our valuation specialists, we independently evaluated the group’s discount rates
used in impairment tests, valuations and cash flow analyses; and
•
we assessed whether country risks and tax adjustments were appropriately reflected in the group’s
discount rates.
Procedures relating to the impairment of parent company investments
• we evaluated the methodology applied in reviewing the investments for impairment with reference
to the requirements of IAS 36
Impairment of Assets
;
•
we challenged the key assumptions within management’s cash flow forecasts as described in this
key audit matter;
• we tested the mechanical accuracy of the impairment model; and
• we evaluated the adequacy of the parent company’s disclosures regarding the investment
impairment in note 3 of the financial statements.
Procedures relating to the carrying value of the deferred tax asset
•
we evaluated the methodology applied in calculating the group’s deferred tax assets and liabilities;
with reference to IAS 12
Income Taxes
•
we agreed the deferred tax balances to their corresponding assets and liabilities on the group’s
balance sheet, applying the relevant tax rates, including the application of the Energy Profits Levy;
•
we agreed the inputs used in the group’s calculations of tax losses to the group’s cash flow
forecasts used for the purposes of impairment testing, as discussed further within this key audit
matter; and
•
we assessed the appropriateness of the carrying value of the closing deferred tax asset.
Key observations
•
The group’s future commodity price assumptions are within our acceptable range for all periods;
•
The group’s impairment discount rate is within the acceptable range estimated by our internal
valuation specialists;
•
From the work performed, we are satisfied that the impairment charge recorded and the carrying
value of the investments in subsidiaries are appropriate;
•
The carrying value of the Magnus contingent consideration is reasonable. The significant
assumptions and cash flows are consistent with the impairment model;
•
The group’s discount rate used to discount the Magnus contingent consideration is reasonable and
in line with the requirement of IFRS 13
Fair value measurement
;
•
The deferred tax asset recognition is appropriate and the carrying value is a reasonable estimate;
and
•
We are satisfied that the group’s impairments are appropriately estimated in accordance with the
requirements of IAS 36
Impairment of Assets
, and the carrying value of the Magnus contingent
consideration and deferred tax assets are appropriate.
5.2. Valuation of decommissioning liability
Key audit matter
description
The decommissioning provision at 31 December 2022 was $724 million (2021: $880 million). The
provision represents the present value of decommissioning costs which are expected to be incurred
up to 2048, assuming no further development on the group’s assets. Further details on the key
sources of estimation uncertainty underpinning the valuation of decommissioning provisions can be
found in note 2. Details on the sensitivity to changes in key assumptions such as discount rates are
disclosed in note 2.
Decommissioning liabilities are inherently judgemental areas, in particular in relation to cost
estimates , which can also be impacted by changes in climate related goals. The key assumptions
and judgements underpinning the provision include:
• cessation of production dates;
• post production cessation operating cost estimates;
• rates and norms assumptions;
• discount rate; and
•
inflation rate.
The two key management estimates that have an increased likelihood of resulting in a material
misstatement within the estimation are:
• internal well cost estimates (rig services, vessels, onshore time-writing costs) included in the
decommissioning model; and
• internal cost reduction factors applied to the gross decommissioning cost estimates.
The Group’s Audit Committee has considered this key audit matter in their Audit Committee Report for
the year ended 31 December 2022 on page 82.
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EnQuest PLC –
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Financial Statements
How the scope
of our audit
responded to the
key audit matter
Procedures relating to internal control
• we assessed management’s decommissioning processes, and the oversight and governance of
those processes in relation to decommissioning; and
•
we obtained an understanding of the relevant controls and then evaluated the associated design
and implementation of such controls relating to the decommissioning provision.
General procedures relating to the decommissioning model
• we held meetings with the group’s internal experts responsible for determining the
decommissioning estimates to understand the key changes in underlying assumptions and
methodology applied;
• we assessed the technical competence, objectivity and capability of management’s internal and
external experts;
• we assessed the decommissioning provision for compliance with IAS 37
Provisions, Contingent
Liabilities and Contingent Assets
;
• we worked with our modelling specialists to evaluate the arithmetical accuracy of the
decommissioning model. We recalculated the closing decommissioning provision and agreed it to
the group’s financial records;
• we challenged the group’s key assumptions, outlined above, for reasonableness and consistency
with the external market expectations (see below for procedures on internal well cost estimates and
internal cost reduction factors);
• we have assessed available benchmarking reports for indications of developments in industry
practice in light of climate change goals;
• we tested actual decommissioning costs incurred during the period and recognised against the
provision; and
• we evaluated management’s disclosures including in the sensitivity of decommissioning
assumptions.
Procedures on internal well cost estimates
•
we challenged the group’s assumptions within the cost estimate and benchmarked to peer and
market rates; and
•
we assessed the duration assumptions for plug and abandonment of wells, by comparison to
available benchmarking data and contradictory evidence available from active decommissioning
projects or operator estimates.
Procedures on internal cost reduction factors
• we challenged the group’s cost reduction factors applied to the decommissioning model through
obtaining supporting evidence for the factors applied; and
• we benchmarked cost reduction factors to peers and other applicable sources, and considered
contradictory evidence.
Key observations
•
We have not identified any material errors in the valuation of the decommissioning estimates;
•
We are satisfied that the group’s decommissioning provision is prepared in accordance with the
requirements of IAS 37
Provisions, Contingent Liabilities and Contingent Assets
; and
•
We are satisfied the disclosures in the financial statements are appropriate.
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
$30 million (2021: $20 million)
$12.7 million (2021: $10.3 million)
Basis for
determining
materiality
3% of adjusted EBITDA (earnings before interest,
tax, depreciation, amortisation, remeasurements
and exceptional items) (2021: 3% of adjusted
EBITDA).
Management have presented a reconciliation of
$979 million adjusted EBITDA to profit from
continuing activities in the glossary to the
financial statements on page 175.
3% of net assets (2021: 3% of net assets).
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Independent auditor’s report
to the members of EnQuest PLC
continued
Rationale for the
benchmark
applied
Adjusted EBITDA was considered to be the most
relevant benchmark as it is a key performance
measure used by the group and by investors and
represents a consistent profit measure used
widely by stakeholders.
The parent company acts principally as a holding
company and therefore net assets is a key
measure for this business.
6. Our application of materiality
continued
6.1. Materiality
continued
Adjusted EBITDA
$979m
Group materiality
Component materiality range
$15m to $27m
Audit Committee reporting threshold 1.5m
Group materiality $30m
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
materiality
70% (2021: 60%) of group materiality
70% (2021: 60%) of parent company materiality
Basis and
rationale for
determining
performance
materiality
In determining performance materiality, we considered factors including the control environment,
size and nature and volume of uncorrected and corrected misstatements identified in the previous
audit, macro-economic factors such as commodity price volatility and geo-political instability, and
management’s willingness to correct errors identified in the prior year and current year. Upon
consideration of these factors we concluded that the likelihood of misstatement would reduce
compared to the prior year, and as a result have increased our factor applied to materiality in
determining performance materiality.
6.3.Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of $1.5 million
(2021: $1 million), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation
of the financial statements.
7. An overview of the scope of our audit
7.1. Identification and scoping of components
Our audit was scoped by obtaining an understanding of the group and its environment, including group-wide controls,
and assessing the risks of material misstatement at the group level. In the current year we performed full scope audit
procedures on the North Sea and Malaysia components. Audit procedures were performed by the group audit team for
the North Sea component and by the Malaysia component team for the Malaysia component.
The materiality applied for the Malaysia component was $15 million (2021: $8.5 million). The materiality applied for the UK
component was $27 million (2021: $15 million).
The North Sea and Malaysia components, where we performed full scope audit procedures, accounted for 100% of the
group’s revenue, 100% of the group’s adjusted EBITDA and 100% of the group’s net assets, consistent with the prior year. The
Malaysia component contributed 9% of the group’s revenue, 11% of the group’s adjusted EBITDA and 5% of the group’s total
assets (2021: 7% of the group’s revenue, 7% of the group’s adjusted EBITDA and 6% of the group’s total assets).
7.2. Our consideration of the control environment
We obtained an understanding of the relevant controls in relation to key business processes as well as IT systems that
were relevant to the audit, being the financial reporting system. We worked with our IT specialists to test the operating
effectiveness of the general environment and relied on the automated foreign exchange revaluation and joint venture
allocation controls.
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Financial Statements
7.3. Our consideration of climate-related risks
We performed enquiries of management to understand the impact of climate-related risks and controls relevant to
the group. We performed a review of the climate change risk assessment and related documentation prepared by
management and considered the completeness and accuracy of the climate-related risks identified and summarised
in the Task Force on Climate-related Financial Disclosures report on page 53.
As disclosed in note 2, management identified key judgements and estimates with elevated climate-related risk, relating
to impairment of oil and gas assets, valuation of contingent consideration, valuation of the decommissioning provision,
valuation of deferred tax assets, and estimation of oil and gas reserves.
We considered whether the risks identified by management within their climate change risk assessment and related
documentation were complete and challenged assumptions impacting the financial statements. The key piece of
climate-related regulation enacted to date and impacting the group continued to relate to carbon costs and emission
allowances. The key market-related matter which could have a material impact on the valuation of the items noted above
is in respect of future demand for, and pricing of, oil and gas as the energy mix evolves in response to climate change risk
and other matters.
We also performed a review of the disclosures within the Annual Report, with the involvement of our Environmental, Social
and Governance specialists, and considered whether these were materially consistent with the financial disclosures,
complete, and consistent with our understanding of the climate-related risks, assumptions and judgements during the
year. Both of our key audit matters are considered to contain climate-related risks, being the key market-related matters
which could have a material impact on the valuation of oil and gas related assets and liabilities and valuation of the
decommissioning provision. The procedures performed for these key audit matters are discussed in detail in the key audit
matters section above.
7.4. Working with other auditors
The North Sea component was audited by the group audit team and we oversaw the Malaysia component audit through
regular meetings and direct supervision. We organised planning and working meetings virtually, led by the audit partner or
other senior members of the engagement team. Throughout the year, the group audit team has been directly involved in
overseeing the component audit planning and execution, through frequent conversations, team meetings, debate,
challenge and review of reporting and underlying work papers. In addition to our direct interactions, we sent detailed
instructions to the component audit team and attended audit closing meetings. We are satisfied that the level of
involvement of the lead audit partner and team in the component audit has been extensive and has enabled us to
conclude that sufficient appropriate audit evidence has been obtained in support of our opinion on the group financial
statements as a whole.
8. Other information
The other information comprises the information included in the annual report, other than the financial statements and
our auditor’s report thereon. The directors are responsible for the other information contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly
stated in our report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to
be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this
gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we
conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
9. Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors
determine is necessary to enable the preparation of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s
ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going
concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease
operations, or have no realistic alternative but to do so.
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Independent auditor’s report
to the members of EnQuest PLC
continued
10. Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with
ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
11. Extent to which the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line
with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The
extent to which our procedures are capable of detecting irregularities, including fraud is detailed below.
11.1. Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance
with laws and regulations, we considered the following:
•
the nature of the industry and sector, control environment and business performance including the design of the group’s
remuneration policies, key drivers for directors’ remuneration, bonus levels and performance targets;
•
results of our enquiries of management, internal audit, the directors and the Audit Committee about their own
identification and assessment of the risks of irregularities, including those that are specific to the group’s sector;
•
any matters we identified having obtained and reviewed the group’s documentation of their policies and procedures
relating to:
–
identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of
non-compliance;
–
detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged
fraud; and
–
the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations;
•
the matters discussed among the audit engagement team, including the component audit team, and relevant internal
specialists, including tax, valuations, IT, modelling, and oil and gas reserves specialists regarding how and where fraud
might occur in the financial statements and any potential indicators of fraud.
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for
fraud and identified the greatest potential for fraud in the following areas:
• valuation of oil and gas related assets and liabilities;
• valuation of decommissioning provision; and
• crude oil revenue recognition.
In common with all audits under ISAs (UK), we are also required to perform specific procedures to respond to the risk of
management override.
We also obtained an understanding of the legal and regulatory framework that the group operates in, focusing on
provisions of those laws and regulations that had a direct effect on the determination of material amounts and disclosures
in the financial statements. The key laws and regulations we considered in this context included the UK Companies Act
2006 and the Listing Rules of the UK Listing Authority and the relevant tax compliance regulations in the jurisdictions in
which the group operates.
In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial
statements but compliance with which may be fundamental to the group’s ability to operate or to avoid a material
penalty. These included Market Abuse Regulation, environmental laws and regulations in the countries in which the
group operates.
121
EnQuest PLC –
Annual Report and Accounts 2022
Financial Statements
11.2. Audit response to risks identified
As a result of performing the above, we identified the valuation of oil and gas related assets and liabilities and the
valuation of the decommissioning provision as key audit matters related to the potential risk of fraud. The key audit
matters section of our report explains the matters in more detail and also describes the specific procedures we performed
in response to those key audit matters.
In addition to the above, our procedures to respond to risks identified included the following:
•
reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with
provisions of relevant laws and regulations described as having a direct effect on the financial statements;
•
enquiring of management, the Audit Committee and in-house legal counsel concerning actual and potential litigation
and claims;
•
performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material
misstatement due to fraud;
•
reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing
correspondence with relevant authorities;
•
in addressing the risk of fraud in revenue recognition associated with the cut-off of crude oil sales, we tested a sample of
invoices from a population of December 2022 and January 2023 sales invoices; and
•
in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries
and other adjustments, assessing whether the judgements made in making accounting estimates are indicative of a
potential bias, and evaluating the business rationale of any significant transactions that are unusual or outside the
normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team
members including internal specialists and significant component audit teams, and remained alert to any indications of
fraud or non-compliance with laws and regulations throughout the audit.
122
Independent auditor’s report
to the members of EnQuest PLC
continued
Report on other legal and regulatory requirements
12. Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the directors’ remuneration report to be audited has been properly prepared in accordance
with the Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
•
the information given in the strategic report and the directors’ report for the financial year for which the financial
statements are prepared is consistent with the financial statements; and
•
the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the group and the parent company and their environment obtained
in the course of the audit, we have not identified any material misstatements in the strategic report or the directors’
report.
13. Corporate Governance Statement
The Listing Rules require us to review the directors’ statement in relation to going concern, longer-term viability and that
part of the Corporate Governance Statement relating to the group’s compliance with the provisions of the UK Corporate
Governance Code specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the
Corporate Governance Statement is materially consistent with the financial statements and our knowledge obtained
during the audit:
•
the directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and
any material uncertainties identified set out on pages 25 and 26;
•
the directors’ explanation as to its assessment of the group’s prospects, the period this assessment covers and why
the period is appropriate set out on page 25 and 26;
• the directors’ statement on fair, balanced and understandable set out on page 79;
•
the board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on
pages 40 to 51;
•
the section of the annual report that describes the review of effectiveness of risk management and internal control
systems set out on pages 82 and 83; and
•
the section describing the work of the Audit Committee set out on pages 80 to 82.
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.
123
EnQuest PLC –
Annual Report and Accounts 2022
Financial Statements
15. Other matters which we are required to address
15.1. Auditor tenure
Following the recommendation of the Audit Committee, we were appointed by shareholders on 21 May 2020 to audit
the financial statements for the year ending 31 December 2020 and subsequent financial periods. The period of total
uninterrupted engagement including previous renewals and reappointments of the firm is three years, covering the
years ended 31 December 2020 to 31 December 2022.
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.
James Leigh FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
4 April 2023
124
Group Income Statement
For the year ended 31 December 2022
Notes
2022
2021
Business
performance
$’000
Remeasurements
and exceptional
items (note 4)
$’000
Reported
in year
$’000
Business
performance
$’000
Remeasurements
and exceptional
items (note 4)
$’000
Reported
in year
$’000
Revenue and other operating
income
5(a)
1,839,147
14,475
1,320,265
(54,451)
Cost of sales
5(b)
(1,195,806)
(4,900) (1,200,706 )
(900,433)
(7,201)
(907,634 )
Gross profit/(loss)
643,341
9,575
419,832
(61,652)
Net impairment (charge)/reversal
to oil and gas assets
4,10
–
(81,049)
(81,049 )
–
39,715
General and administration
expenses
5(c)
(7,553)
–
(7,553 )
(363)
–
(363 )
Other income
5(d)
76,247
7,706
30,990
162,647
Other expenses
5(e)
(2,810)
(233,570)
(236,380 )
(7,278)
(3,832)
(11,110 )
Profit/(loss) from operations before
tax and finance income/(costs)
709,225
(297,338)
443,181
136,878
Finance costs
6
(176,227)
(36,410)
(212,637 )
(169,451)
(58,395)
(227,846 )
Finance income
6
1,816
2,148
228
–
Profit/(loss) before tax
534,814
(331,600)
273,958
78,483
Income tax
7
(322,468)
78,020
(244,448 )
(53,674)
78,221
Profit/(loss) for the year
attributable to owners of the
parent
212,346
(253,580)
(41,234 )
220,284
156,704
Total comprehensive (loss)/profit
for the year, attributable to owners
of the parent
(41,234 )
There is no comprehensive income attributable to the shareholders of the Group other than the profit for the period.
Revenue and operating profit/(loss) are all derived from continuing operations.
Earnings per share
8
$
$
$
$
Basic
0.114
(0.022 )
0.127
Diluted
0.112
(0.022 )
0.125
The attached notes 1 to 29 form part of these Group financial statements.
125
EnQuest PLC –
Annual Report and Accounts 2022
Financial Statements
Group Balance Sheet
At 31 December 2022
Notes
2022
$’000
2021
$’000
ASSETS
Non-current assets
Property, plant and equipment
10
Goodwill
11
Intangible assets
12
Deferred tax assets
7(c)
Other financial assets
19
Current assets
Inventories
13
Trade and other receivables
16
Current tax receivable
Cash and cash equivalents
14
Other financial assets
19
TOTAL ASSETS
EQUITY AND LIABILITIES
Equity
Share capital and premium
20
Share-based payment reserve
Retained earnings
20
TOTAL EQUITY
Non-current liabilities
Borrowings
18
Bonds
18
Leases liabilities
24
Contingent consideration
22
Provisions
23
Deferred tax liabilities
7(c)
Current liabilities
Borrowings
18
Bonds
18
–
Leases liabilities
24
Contingent consideration
22
Provisions
23
Trade and other payables
17
Other financial liabilities
19
Current tax payable
TOTAL LIABILITIES
TOTAL EQUITY AND LIABILITIES
The financial statements were approved by the Board of Directors and authorised for issue on 4 April 2023 and signed on
its behalf by:
Salman Malik
126
Group Statement of Changes in Equity
For the year ended 31 December 2022
Share
capital
and share
premium
$’000
Share–
based
payments
reserve
$’000
Retained
earnings
$’000
Total
$’000
Balance at 1 January 2021
(255,219 )
Profit/(loss) for the year
–
–
Total comprehensive profit for the year
–
–
Issue of share capital, net of expenses
–
–
Share-based payment
–
–
Shares purchased on behalf of Employee Benefit Trust
(576 )
–
–
Balance at 31 December 2021
Profit/(loss) for the year
–
–
(41,234 )
(41,234 )
Total comprehensive profit for the year
–
–
(41,234 )
(41,234 )
Share-based payment
–
–
Balance at 31 December 2022
The attached notes 1 to 29 form part of these Group financial statements.
127
EnQuest PLC –
Annual Report and Accounts 2022
Financial Statements
Group Statement of Cash Flows
For the year ended 31 December 2022
Notes
2022
$’000
2021
$’000
CASH FLOW FROM OPERATING ACTIVITIES
Cash generated from operations
29
Cash received from insurance
Cash received/(paid) on purchase of financial instruments
(1,354 )
(277 )
Decommissioning spend
(58,964 )
(65,791 )
Income taxes paid
(49,293 )
(17,396 )
Net cash flows from/(used in) operating activities
INVESTING ACTIVITIES
Purchase of property, plant and equipment
(107,668 )
(43,712 )
Purchase of intangible oil and gas assets
(8,168 )
(8,127 )
Purchase of other intangible assets
12
(1,199 )
(10,052 )
Payment of Magnus contingent consideration – Profit share
22
(45,975 )
(968 )
Acquisitions
–
(258,627 )
Interest received
Net cash flows (used in)/from investing activities
(161,247 )
(321,230 )
FINANCING ACTIVITIES
Net proceeds of share issue
–
Net proceeds of loans and borrowings
Net repayment of loans and borrowings
(545,278 )
(184,276 )
Repayment of Magnus contingent consideration – Vendor loan
22
–
(73,728 )
Shares purchased by Employee Benefit Trust
–
(576 )
Payment of obligations under financing leases
24
(147,971 )
(136,651 )
Interest paid
(103,387 )
(63,025 )
Net cash flows (used in)/from financing activities
(731,163 )
(285,474 )
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
Net foreign exchange on cash and cash equivalents
(24,193 )
(3,603 )
Cash and cash equivalents at 1 January
CASH AND CASH EQUIVALENTS AT 31 DECEMBER
Reconciliation of cash and cash equivalents
Total cash at bank and in hand
14
Restricted cash
14
Cash and cash equivalents per balance sheet
The attached notes 1 to 29 form part of these Group financial statements.
128
For the year ended 31 December 2022
the Companies Act and is registered in England and Wales and listed on the London Stock Exchange and on the Stockholm
NASDAQ OMX. The address of the Company’s registered office is shown on the inside back cover.
The principal activities of the Company and its subsidiaries (together the ‘Group’) are to responsibly optimise production,
leverage existing infrastructure, deliver a strong decommissioning performance and explore new energy and
The Group’s financial statements for the year ended 31 December 2022 were authorised for issue in accordance with a
resolution of the Board of Directors on 4 April 2023.
The consolidated financial statements have been prepared in accordance with UK-adopted International Accounting
Standards (‘IAS’) in conformity with the requirements of the Companies Act 2006. The accounting policies which follow
set out those policies which apply in preparing the financial statements for the year ended 31 December 2022.
The Group financial information has been prepared on an historical cost basis, except for the fair value remeasurement of
certain financial instruments, including derivatives and contingent consideration, as set out in the accounting policies. The
presentation currency of the Group financial information is US Dollars (‘$’) and all values in the Group financial information
are rounded to the nearest thousand ($’000) except where otherwise stated.
The Group’s results on a UK-adopted International Financial Reporting Standards (‘IFRS’) basis are shown on the Group
Income Statement as ‘Reported in the year’, being the sum of its Business performance results and its Remeasurements and
exceptional items as permitted by IAS 1 (Revised) Presentation of Financial Statements. Remeasurements and exceptional
items are items that management considers not to be part of underlying business performance and are disclosed separately
in order to enable shareholders to understand better and evaluate the Group’s reported financial performance. For further
information see note 4.
The financial statements have been prepared on the going concern basis.
The Group closely monitors and manages its funding position and liquidity risk throughout the year, including monitoring
forecast covenant results, to ensure that it has access to sufficient funds to meet forecast cash requirements. Cash forecasts
are regularly produced and sensitivities considered for, but not limited to, changes in crude oil prices (adjusted for hedging
undertaken by the Group), production rates and costs. These forecasts and sensitivity analyses allow management to mitigate
liquidity or covenant compliance risks in a timely manner.
During 2022, the Group successfully completed a refinancing of its debt facilities, securing a $500.0 million amended and
restated reserve based lending facility (‘RBL’) with a $300.0 million accordion maturing in April 2027 and $305.0 million 11.625%
high yield bond maturing in November 2027. The net proceeds from the issue of the high yield bond, along with drawings of
$400.0 million under the RBL and cash on hand, were used for the redemption of the $792.3 million aggregate principal amount
of the Company’s 7.00% high yield bond due 2023. This refinancing was in addition to the 9.00% retail bond exchange and
issuance in April 2022 which resulted in a principal issue of £133.3 million. £111.3 million of the October 2023 7.00% retail bond
remains in issue.
The RBL requires completion of a semi-annual review and redetermination on 30 June and 31 December each year. The amount
available to draw under the RBL is based on an amortisation schedule and the borrowing base availability derived from the
semi-annual review.
The RBL review and redetermination for the first half of 2023 was updated to include the increase in the EPL rate to 35%, extension
of duration until March 2028 and removal of the windfall tax price floor introduced in the Autumn Statement 2022. This has
resulted in a reduction of the available RBL capacity, and therefore liquidity available to the Group. In the first quarter of 2023,
EnQuest repaid $118.0 million of the RBL facility, bringing the cash drawn balance down to $282.0 million, ensuring the Group
remains ahead of the amended amortisation profile. The amended RBL repayment profile includes a further c.$100.0 million RBL
deleveraging during the going concern period.
The Group’s latest approved business plan, which includes the aforementioned RBL redetermination, underpins management’s
base case (‘Base Case’) and is in line with the Group’s production guidance and uses oil price assumptions of $78.5/bbl for 2023
and 2024, adjusted for hedging activity undertaken.
The Base Case indicates that the Group is able to operate as a going concern and remain covenant compliant for 12 months
from the date of publication of its full-year results. The Base Case reflects rapid deleveraging during the period, with redemption
of the £111.3 million 7% retail bond in October 2023 and further RBL amortisations totalling c.$100.0 million, in addition to a $50.0
million contingent consideration payment in relation to the Golden Eagle acquisition in July 2023.
A reverse stress test has been performed on the Base Case. Given the rapid deleveraging required under the amended
amortisation profile within the going concern period, an oil price of c.$77.0/bbl maintains covenant compliance.
The Base Case has also been subjected to further testing through (i) a $5.00/bbl reduction in the average price from the Base
Case; and (ii) a scenario reflecting the impact of the following plausible downside risks (the ‘Downside Case’):
EnQuest PLC –
Annual Report and Accounts 2022
2. Basis of preparation
continued
•
10.0% discount to Base Case prices resulting in Downside Case prices of $70.7/bbl for 2023 and $70.7/bbl for 2024;
• Production risking of 5.0% for 2023 and 2024; and
• 2.5% increase in operating costs.
The case with $5.00/bbl reduction in the average price from the Base Case and the Downside Case indicate that mitigants
would be required to remain covenant compliant. Should circumstances arise that differ from the Group’s Base Case
projections, the Directors believe that several mitigating actions, including cargo prepayment or other funding options,
can be executed successfully in the necessary timeframe to meet debt repayment obligations as they become due and
maintain liquidity.
After making appropriate enquiries and assessing the progress against the forecast, projections and the status of the
mitigating actions referred to above, the Directors have a reasonable expectation that the Group will continue in operation
and meet its commitments as they fall due over the going concern period. Accordingly, the Directors continue to adopt the
New standards and interpretations
The following new standards became applicable for the current reporting period. No material impact was recognised
upon application:
• Reference to the Conceptual Framework (Amendments to IFRS 3)
•
Property, Plant and Equipment – Proceeds before intended use (Amendment to IAS 16)
•
Onerous contracts – Cost of Fulfilling a Contract (Amendments to IAS 37)
• Annual improvements to IFRS Accounting Standards 2018-2020 Cycle
Standards issued but not yet effective
At the date of authorisation of these financial statements, the Group has not applied the following new and revised IFRS
Standards that have been issued but are not yet effective:
IFRS 17
Insurance Contracts
IFRS 10 and IAS 28 (amendments)
Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
Amendments to IAS 1
Classification of Liabilities as Current or Non-current and Disclosure of Accounting
Policies
Amendments to IAS 8
Disclosure of Accounting Policies
Amendments to IAS 12
Deferred Tax related to Assets and Liabilities arising from a Single Transaction
The Directors do not expect that the adoption of the Standards listed above will have a material impact on the financial
statements of the Group in future periods.
The consolidated financial statements incorporate the financial statements of EnQuest PLC and entities controlled by the
Company (its subsidiaries) made up to 31 December each year. Control is achieved when the Company:
• has power over the investee;
•
is exposed, or has rights, to variable returns from its involvement with the investee; and
• has the ability to use its power to affect its returns.
The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes
to one or more of the three elements of control listed above. Consolidation of a subsidiary begins when the Company
obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, the results
of subsidiaries acquired or disposed of during the year are included in profit or loss from the date the Company gains
control until the date the Company ceases to control the subsidiary.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used
into line with the Group’s accounting policies. All intra-Group assets and liabilities, equity, income, expenses and cash
Oil and gas operations are usually conducted by the Group as co-licensees in unincorporated joint operations with
other companies. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when
decisions about the relevant activities require the consent of the relevant parties sharing control. The joint operating
agreement is the underlying contractual framework to the joint arrangement, which is historically referred to as the joint
venture. The Annual Report and Accounts therefore refers to ‘joint ventures’ as a standard term used in the oil and gas
industry, which is used interchangeably with joint operations.
Most of the Group’s activities are conducted through joint operations, whereby the parties that have joint control of the
arrangement have the rights to the assets, and obligations for the liabilities relating to the arrangement. The Group
recognises its share of assets, liabilities, income and expenses of the joint operation in the consolidated financial
statements on a line-by-line basis. During 2022, the Group did not have any material interests in joint ventures or in
Notes to the Group Financial Statements
continued
2. Basis of preparation
continued
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary
economic environment in which the entity operates (‘functional currency’). The Group’s financial statements are presented
in US Dollars, the currency which the Group has elected to use as its presentation currency.
In the financial statements of the Company and its individual subsidiaries, transactions in currencies other than a
company’s functional currency are recorded at the prevailing rate of exchange on the date of the transaction. At the year
end, monetary assets and liabilities denominated in foreign currencies are retranslated at the rates of exchange prevailing
at the balance sheet date. Non-monetary assets and liabilities that are measured at historical cost in a foreign currency
are translated using the rate of exchange at the dates of the initial transactions. Non-monetary assets and liabilities
measured at fair value in a foreign currency are translated using the rate of exchange at the date the fair value was
Emissions liabilities
The Group operates in an energy intensive industry and is therefore required to partake in emission trading schemes
(‘ETS’). The Group recognises an emission liability in line with the production of emissions that give rise to the obligation.
To the extent the liability is covered by allowances held, the liability is recognised at the cost of these allowances held and
if insufficient allowances are held, the remaining uncovered portion is measured at the spot market price of allowances
at the balance sheet date. The expense is presented within ‘production costs’ under ‘cost of sales’ and the accrual is
presented in ‘trade and other payables’. Any allowance purchased to settle the Group’s liability is recognised on the
balance sheet as an intangible asset. Both the emission allowances and the emission liability are derecognised upon
settling the liability with the respective regulator.
The preparation of the Group’s consolidated financial statements requires management to make judgements, estimates
and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying
disclosures, at the date of the consolidated financial statements. Estimates and assumptions are continuously evaluated
and are based on management’s experience and other factors, including expectations of future events that are believed
to be reasonable under the circumstances. Uncertainty about these assumptions and estimates could result in outcomes
that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.
The accounting judgements and estimates that have a significant impact on the results of the Group are set out below
and should be read in conjunction with the information provided in the Notes to the financial statements. The Group does
not consider contingent consideration and deferred taxation (including EPL) to represent a significant estimate or
judgement as the estimates and assumptions relating to projected earnings and cash flows used to assess contingent
consideration and deferred taxation are the same as those applied in the Group impairment process as described below
in
Recoverability of asset carrying values
. Judgements and estimates, not all of which are significant, made in assessing
the impact of climate change and the transition to a lower carbon economy on the consolidated financial statements are
also set out below. Where an estimate has a significant risk of resulting in a material adjustment to the carrying amounts
Climate change and energy transition
As covered in our principal risks on oil and gas prices on page 45, the Group recognises that the energy transition is likely
to impact the demand, and hence the future prices, of commodities such as oil and natural gas. This in turn may affect the
recoverable amount of property, plant and equipment, and goodwill in the oil and gas industry. The Group acknowledges
that there are a range of possible energy transition scenarios that may indicate different outcomes for oil prices. There are
inherent limitations with scenario analysis and it is difficult to predict which, if any, of the scenarios might eventuate.
The Group has assessed the potential impacts of climate change and the transition to a lower carbon economy in
preparing the consolidated financial statements, including the Group’s current assumptions relating to demand for oil and
natural gas and their impact on the Group’s long-term price assumptions. See
Recoverability of asset carrying values: Oil
prices
.
While the pace of transition to a lower carbon economy is uncertain, oil and natural gas demand is expected to remain a
key element of the energy mix for many years based on stated policies, commitments and announced pledges to reduce
emissions. Therefore, given the useful lives of the Group’s current portfolio of oil and gas assets, a material adverse change
is not expected to the carrying values of EnQuest’s assets and liabilities as a result of climate change and the transition to
a lower carbon economy.
Management will continue to review price assumptions as the energy transition progresses and this may result in
impairment charges or reversals in the future.
EnQuest PLC –
Annual Report and Accounts 2022
Critical accounting judgements and key sources of estimation uncertainty
The Group has considered its critical accounting judgements and key sources of estimation uncertainty, and these are set
out below.
Recoverability of asset carrying values
Judgements:
The Group assesses each asset or cash-generating unit (‘CGU’) (excluding goodwill, which is assessed
annually regardless of indicators) in each reporting period to determine whether any indication of impairment exists.
Assessment of indicators of impairment or impairment reversal and the determination of the appropriate grouping
of assets into a CGU or the appropriate grouping of CGUs for impairment purposes require significant management
judgement. For example, individual oil and gas properties may form separate CGUs whilst certain oil and gas properties
with shared infrastructure may be grouped together to form a single CGU. Alternative groupings of assets or CGUs
may result in a different outcome from impairment testing. See note 11 for details on how these groupings have been
determined in relation to the impairment testing of goodwill.
Estimates:
Where an indicator of impairment exists, a formal estimate of the recoverable amount is made, which is
considered to be the higher of the fair value less costs to dispose (‘FVLCD’) and value in use (‘VIU’). The assessments
require the use of estimates and assumptions such as the effects of inflation and deflation on operating expenses,
discount rates, capital expenditure, production profiles, reserves and resources, and future commodity prices, including
the outlook for global or regional market supply-and-demand conditions for crude oil and natural gas.
As described above, the recoverable amount of an asset is the higher of its VIU and its FVLCD. When the recoverable
amount is measured by reference to FVLCD, in the absence of quoted market prices or binding sale agreement, estimates
are made regarding the present value of future post-tax cash flows. These estimates are made from the perspective of a
market participant and include prices, future production volumes, operating costs, capital expenditure, decommissioning
costs, tax attributes, risking factors applied to cash flows and discount rates. Reserves and resources are included in the
assessment of FVLCD to the extent that it is considered probable that a market participant would attribute value to them.
Details of impairment charges and reversals recognised in the income statement and details on the carrying amounts of
assets are shown in note 10, note 11 and note 12.
The estimates for assumptions made in impairment tests in 2022 relating to discount rates and oil prices are discussed
below. Changes in the economic environment or other facts and circumstances may necessitate revisions to these
assumptions and could result in a material change to the carrying values of the Group’s assets within the next financial year.
Discount rates
For discounted cash flow calculations, future cash flows are adjusted for risks specific to the CGU. FVLCD discounted cash
flow calculations use the post-tax discount rate. The discount rate is derived using the weighted average cost of capital
methodology. The discount rates applied in impairment tests are reassessed each year and, in 2022, the post-tax discount
rate increased to 11% (2021: 10%) reflecting market volatility and the increase in interest rates.
Oil prices
The price assumptions used for FVLCD impairment testing were based on latest internal forecasts as at 31 December 2022,
which assume short-term market prices will revert to the Group’s assessment of long-term price. These price forecasts
reflect EnQuest’s long-term views of global supply and demand, including the potential financial impacts on the Group of
climate change and the transition to a low carbon economy as outlined in the Basis of Preparation, and are benchmarked
with external sources of information such as analyst forecasts. The Group’s price forecasts are reviewed and approved by
management and challenged by the Audit Committee.
EnQuest revised its oil price assumptions for FVLCD impairment testing compared to those used in 2021. The assumptions
were increased to reflect an improved demand outlook as at the end of 2022. Oil prices were higher than 2021 throughout
much of 2022. They peaked at c.$130/bbl following the Russian invasion of Ukraine in March and remained elevated for the
summer, driven by a combination of uncertainty over the impact of sanctions on Russia, measured increases in OPEC+
supply and continued capital discipline across the industry. Towards the end of 2022, prices declined towards c.$80/bbl
as oil demand slowed, reflecting the combination of uncertainty over the pace at which COVID-19 related restrictions
would be removed in China and mounting global inflation and recessionary pressures. A summary of the Group’s revised
price assumptions is provided below. These assumptions, which represent management’s best estimate of future prices,
sit within the range of external forecasts. They do not correspond to any specific Paris–consistent scenario, but when
compared to the International Energy Agency’s (‘IEA’) forecast prices under its Announced Pledges Scenario (‘APS’), which
is considered to be a scenario achieving an emissions trajectory consistent with keeping the temperature rise in 2100
below 2°C, could, on average, be considered to be broadly in line with a Paris-consistent scenario. EnQuest’s short and
medium term assumptions are below those assumed under the APS, while its longer term prices are slightly higher. The
impact on the Group from the forecast prices under the APS are discussed in EnQuest’s Task Force for climate-related
Financial Disclosures report in pages 53 to 60. Discounts or premiums are applied to price assumptions based on the
characteristics of the oil produced and of the terms of the relevant sales contracts.
2. Basis of preparation
continued
An inflation rate of 2% (2021: 2%) is applied from 2026 onwards to determine the price assumptions in nominal terms (see
table below). The price assumptions used in 2021 were $75.0/bbl (2022), $70.0/bbl (2023), $70.0/bbl (2024) and $60.0/bbl
real thereafter, inflated at 2.0% per annum from 2025.
2023
2024
2025
2026>
Brent oil ($/bbl)
84.0
80.0
75.0
70.0
Oil and natural gas reserves
Hydrocarbon reserves are estimates of the amount of hydrocarbons that can be economically and legally extracted
from the Group’s oil and gas properties. The business of the Group is to responsibly optimise production, leverage
existing infrastructure, deliver a strong decommissioning performance and explore new energy and decarbonisation
opportunities. Factors such as the availability of geological and engineering data, reservoir performance data, acquisition
and divestment activity and drilling of new wells all impact on the determination of the Group’s estimates of its oil and
gas reserves and result in different future production profiles affecting prospectively the discounted cash flows used in
impairment testing and the calculation of contingent consideration, the anticipated date of decommissioning and the
depletion charges in accordance with the unit of production method, as well as the going concern assessment. Economic
assumptions used to estimate reserves change from period to period as additional technical and operational data is
generated. This process may require complex and difficult geological judgements to interpret the data.
The Group uses proven and probable (‘2P’) reserves (see page 18) as the basis for calculations of expected future cash
flows from underlying assets because this represents the reserves management intends to develop and it is probable that
a market participant would attribute value to them. Third-party audits of EnQuest’s reserves and resources are conducted
annually.
Sensitivity analyses
Management tested the impact of a change in cash flows in FVLCD impairment testing arising from a 10% reduction in
price assumptions.
Price reductions of this magnitude in isolation could indicatively lead to a further reduction in the carrying amount of
EnQuest’s oil and gas properties by approximately $269.0 million, which is approximately 11% of the net book value of
property, plant and equipment as at 31 December 2022.
The oil price sensitivity analysis above does not, however, represent management’s best estimate of any impairments that
might be recognised as it does not fully incorporate consequential changes that may arise, such as reductions in costs
and changes to business plans, phasing of development, levels of reserves and resources, and production volumes. As
the extent of a price reduction increases, the more likely it is that costs would decrease across the industry. The oil price
sensitivity analysis therefore does not reflect a linear relationship between price and value that can be extrapolated.
Management also tested the impact of a one percentage point change in the discount rate used for FVLCD impairment
testing of oil and gas properties which is considered a reasonably possible change given the prevailing macroeconomic
environment.
If the discount rate was one percentage point higher across all tests performed, the net impairment charge
in 2022 would have been approximately $62.7 million higher. If the discount rate was one percentage point lower, the net
impairment charge would have been approximately $68.1 million lower.
Goodwill
Irrespective of whether there is any indication of impairment, EnQuest is required to test annually for impairment of
goodwill acquired in business combinations. The Group carries goodwill of approximately $134.4 million on its balance
sheet (2021: $134.4 million), principally relating to the Magnus oil field transactions. Sensitivities and additional information
relating to impairment testing of goodwill are provided in note 11.
Deferred tax
The Group assesses the recoverability of its deferred tax assets at each period end. Sensitivities and additional information
relating to deferred tax assets/liabilities are provided in note 7(d).
75% Magnus acquisition contingent consideration
Estimates:
Following the volatility in financial markets experienced in the second half of 2022, the Group reassessed the
fair value discount rate associated with the Magnus contingent consideration. This was estimated to be 10.0% as at the end
of 2022, as calculated in line with IFRS 13. Sensitivities and additional information relating to the 75% Magnus acquisition
contingent consideration are provided in note 22.
Provisions
Estimates:
Decommissioning costs will be incurred by the Group at the end of the operating life of some of the Group’s oil
and gas production facilities and pipelines. The Group assesses its decommissioning provision at each reporting date.
The ultimate decommissioning costs are uncertain and cost estimates can vary in response to many factors, including
changes to relevant legal requirements, estimates of the extent and costs of decommissioning activities, the emergence
of new restoration techniques and experience at other production sites. The expected timing, extent and amount of
expenditure may also change; for example, in response to changes in oil and gas reserves or changes in laws and
regulations or their interpretation. Therefore, significant estimates and assumptions are made in determining the provision
for decommissioning. As a result, there could be significant adjustments to the provisions established which would affect
future financial results, although this is not expected within the next year.
The timing and amount of future expenditures relating to decommissioning and environmental liabilities are reviewed
annually. The interest rate used in discounting the cash flows is reviewed half-yearly. The nominal interest rate used to
determine the balance sheet obligations at the end of 2022 was increased to 3.5% (2021: 2%), reflecting increasing interest
rates as the Bank of England sought to control inflation. The weighted average period over which decommissioning costs
are generally expected to be incurred is estimated to be approximately ten years. Costs at future prices are determined by
applying inflation rates for 2022 at 4% (2023), 3% (2024) and a long term inflation rate of 2% thereafter (2021: 2% from 2022
onwards) to decommissioning costs.
Further information about the Group’s provisions is provided in note 23. Changes in assumptions, including cost reduction
factors in relation to the Group’s provisions could result in a material change in their carrying amounts within the next
financial year. A 1.0 percentage point decrease in the nominal discount rate applied, which is considered a reasonably
possible change given the prevailing macroeconmic environment, could increase the Group’s provision balances by
approximately $54.0 million (2021: $40.9 million). The pre-tax impact on the Group income statement would be a charge of
approximately $53.6 million.
Intangible oil and gas assets
Judgements:
The application of the Group’s accounting policy for exploration and evaluation expenditure requires
judgement to determine whether future economic benefits are likely from either exploitation or sale, or whether activities
The Group’s organisational structure reflects the various activities in which EnQuest is engaged. Management has
considered the requirements of IFRS 8 Operating Segments in regard to the determination of operating segments and
concluded that at 31 December 2022, the Group had two significant operating segments: the North Sea and Malaysia.
Operations are managed by location and all information is presented per geographical segment. The Group’s segmental
reporting structure remained in place throughout 2022. The North Sea’s activities include Upstream operations,
Decommissioning and Infrastructure & New Energy. Malaysia’s activities include Upstream operations. The Group’s
reportable segments may change in the future depending on the way that resources may be allocated and performance
assessed by the Chief Operating Decision Maker, who for EnQuest is the Chief Executive. The information reported to the
Chief Operating Decision Maker does not include an analysis of assets and liabilities, and accordingly this information is
not presented, in line with IFRS 8 para 23.
Year ended 31 December 2022
$’000
North Sea
Malaysia
All other
segments
Total
segments
Adjustments
and
eliminations
(i)
Consolidated
Revenue:
Revenue from contracts with customers
1,873,214
159,578
–
2,032,792
–
2,032,792
Other operating income/(expense)
9,832
–
264
10,096
(189,266)
(179,170)
Total revenue and other operating income/(expense)
1,883,046
159,578
264 2,042,888
(189,266) 1,853,622
Income/(expenses) line items:
Depreciation and depletion
(319,025)
(14,116)
(107)
(333,248)
–
(333,248)
Net impairment (charge)/reversal to oil and gas assets
(81,049)
–
–
(81,049)
–
(81,049)
Segment profit/(loss)
(ii)
546,199
65,160
112
611,471
(199,584)
411,887
Other disclosures:
Capital expenditure
(iii)
115,853
39,030
30
154,913
–
154,913
Year ended 31 December 2021
$’000
North Sea
Malaysia
All other
segments
Total
segments
Adjustments
and
eliminations
(i)
Consolidated
Revenue:
Revenue from contracts with customers
1,283,939
99,959
–
1,383,898
–
1,383,898
Other operating income/(expense)
3,811
–
235
4,046
(122,130)
(118,084)
Total revenue and other operating income/(expense)
1,287,750
99,959
235
1,387,944
(122,130)
1,265,814
Income/(expenses) line items:
Depreciation and depletion
(299,324)
(13,612)
(134)
(313,070)
–
(313,070)
Net impairment (charge)/reversal to oil and gas assets
39,715
–
–
39,715
–
39,715
Segment profit/(loss)
(ii)
653,301
35,625
(291)
688,635
(108,576)
580,059
Other disclosures:
Capital expenditure
(iii)
459,302
17,419
314
477,035
–
477,035
(i)
Finance income and costs and gains and losses on derivatives are not allocated to individual segments as the underlying instruments are managed on
a Group basis
(ii) Inter-segment revenues are eliminated on consolidation. All other adjustments are part of the reconciliations presented further below
(iii) Capital expenditure consists of property, plant and equipment and intangible exploration and appraisal assets, with 2021 reflecting the acquisition of the
Golden Eagle asset
Reconciliation of profit/(loss):
Year ended
31 December
2022
$’000
Year ended
31 December
2021
$’000
Segment profit/(loss)
611,471
688,635
Finance costs
(212,637)
(227,846)
Finance income
3,964
228
Gain/(loss) on oil and foreign exchange derivatives
(i)
(199,584)
(108,576)
Profit/(loss) before tax
203,214
352,441
(i)
Includes $209.2 million realised losses on derivatives and $9.6 million unrealised gains on derivatives
Revenue from two customers relating to the North Sea operating segment each exceeds 10% of the Group’s consolidated
revenue arising from sales of crude oil, with amounts of $365.1 million and $321.7 million per each single customer (2021:
Accounting policy
As permitted by IAS 1 (Revised) Presentation of Financial Statements, certain items of income or expense which are
material are presented separately. Additional line items, headings, sub-totals and disclosures of the nature and amount
are presented to provide relevant understanding of the Group’s financial performance.
Remeasurements and exceptional items are items that management considers not to be part of underlying business
performance and are disclosed in order to enable shareholders to understand better and evaluate the Group’s reported
financial performance. The items that the Group separately presents as exceptional on the face of the Group income
statement are those material items of income and expense which, because of the nature or expected infrequency of
the events giving rise to them, merit separate presentation to allow shareholders to understand better the elements
of financial performance in the year, so as to facilitate comparison with prior periods and to better assess trends in
financial performance. Remeasurements relate to those items which are remeasured on a periodic basis and are applied
consistently year-on-year. If an item is assessed as a remeasurement or exceptional item, then subsequent accounting
to completion of the item is also taken through remeasurement and exceptional items. Management has exercised
judgement in assessing the relevant material items disclosed as exceptional.
The following items are classified as remeasurements and exceptional items (‘exceptional’):
•
Unrealised mark-to-market changes in the remeasurement of open derivative contracts at each period end are
recognised within remeasurements, with the recycling of realised amounts from remeasurements into Business
performance income when a derivative instrument matures;
• Impairments on assets, including other non-routine write-offs/write-downs where deemed material, are
remeasurements and are deemed to be exceptional in nature;
•
Fair value accounting arising in relation to business combinations is deemed as exceptional in nature, as these
transactions do not relate to the principal activities and day-to-day Business performance of the Group. The subsequent
remeasurements of contingent assets and liabilities arising on acquisitions, including contingent consideration, are
presented within remeasurements and are presented consistently year-on-year; and
•
Other items that arise from time to time that are reviewed by management as non-Business performance and are
disclosed further below.
Year ended 31 December 2022
$’000
Fair value
remeasurement
(i)
Impairments
and write-offs
(ii)
Other
(iii)
Total
Revenue and other operating income
14,475
–
–
14,475
Cost of sales
(4,900)
–
–
(4,900)
Net impairment (charge)/reversal on oil and gas assets
–
(81,049)
–
(81,049)
Other income
1,070
–
6,636
7,706
Other expense
(233,570)
–
–
(233,570)
Finance costs
–
–
(36,410)
(36,410)
Finance income
–
–
2,148
2,148
(222,925)
(81,049)
(27,626)
(331,600)
Tax on items above
89,599
32,420
7,817
129,836
Recognition of undiscounted deferred tax asset
(iv)
–
127,024
–
127,024
Deferred UK Energy Profits Levy
–
–
(178,840)
(178,840)
(133,326)
78,395
(198,649)
(253,580)
Year ended 31 December 2021
$’000
Fair value
remeasurement
(i)
Impairments
and write-offs
(ii)
Other
(iii)
Total
Revenue and other operating income
(54,451)
–
–
(54,451)
Cost of sales
472
–
(7,673)
(7,201)
Net impairment (charge)/reversal on oil and gas assets
–
39,715
–
39,715
Other income
140,079
–
22,568
162,647
Other expenses
–
–
(3,832)
(3,832)
Finance costs
–
–
(58,395)
(58,395)
86,100
39,715
(47,332)
78,483
Tax on items above
(36,518)
(14,722)
24,915
(26,325)
Recognition of undiscounted deferred tax asset
(iv)
–
104,546
–
104,546
49,582
129,539
(22,417)
156,704
(i)
Fair value remeasurements include unrealised mark-to-market movements on derivative contracts and other financial instruments and the impact of
recycled realised gains and losses out of ‘Remeasurements and exceptional items’ and into Business performance profit or loss of $9.6 million (2021: $(54.0)
million). Other expense net of other income relates to the fair value remeasurement of contingent consideration relating to the acquisition of Magnus and
associated infrastructure of $232.5 million (note 22) (2021: other income of $140.1 million)
(ii) Impairments and write offs include a net impairment charge of tangible oil and gas assets and right-of-use assets totalling $81.0 million (note 10) (2021:
reversal of $39.7 million)
(iii) Other items are made up of the following: In 2021, cost of sales included $7.7 million mainly related to a provision for a dispute with a third party contractor.
Other income of $6.6 million in 2022 relates to recognition of insurance income related to PM8/Seligi riser incident. 2021 included the write-off of the fair value
ascribed to accruals of $12.0 million as part of the accounting at the time of acquisition of the additional 75% in Magnus and the recognition of $9.0 million of
insurance income related to the PM8/Seligi riser incident. In 2021, other expense of $3.8 million relates to expenses incurred on the repayment of the bp vendor
loan. Finance costs relates to the finance cost element of the 75% acquisition of Magnus and associated infrastructure of $36.4 million (note 22) (2021: $58.3
million). Finance income of $2.1 million in 2022 represents a realised gain on the partial buy back of the Group’s 7.00% high yield bond
(iv) Non-cash deferred tax recognition in 2022 due to the Group’s higher oil price assumptions. In 2021 includes impact of the Group’s acquisition of Golden Eagle
(a) Revenue and other operating income
The Group generates revenue through the sale of crude oil, gas and condensate to third parties, and through the provision
of infrastructure to its customers for tariff income. Revenue from contracts with customers is recognised when control
of the goods or services is transferred to the customer at an amount that reflects the consideration to which the Group
expects to be entitled to in exchange for those goods or services. The Group has concluded that it is the principal in its
revenue arrangements because it typically controls the goods or services before transferring them to the customer. The
Sale of crude oil, gas and condensate
The Group sells crude oil, gas and condensate directly to customers. The sale represents a single performance obligation,
being the sale of barrels equivalent to the customer on taking physical possession or on delivery of the commodity into
an infrastructure. At this point the title passes to the customer and revenue is recognised. The Group principally satisfies
its performance obligations at a point in time; the amounts of revenue recognised relating to performance obligations
satisfied over time are not significant. Transaction prices are referenced to quoted prices, plus or minus an agreed fixed
discount rate to an appropriate benchmark, if applicable.
Tariff revenue for the use of Group infrastructure
Tariffs are charged to customers for the use of infrastructure owned by the Group. The revenue represents the performance
of an obligation for the use of Group assets over the life of the contract. The use of the assets is not separable as they are
interdependent in order to fulfil the contract and no one item of infrastructure can be individually isolated. Revenue is
recognised as the performance obligations are satisfied over the period of the contract, generally a period of 12 months
or less, on a monthly basis based on throughput at the agreed contracted rates.
Other operating income
Other revenue includes rental income from vessels, which is recognised to the extent that it is probable economic benefits
The Group enters into oil derivative trading transactions which can be settled net in cash. Accordingly, any gains or losses
are not considered to constitute revenue from contracts with customers in accordance with the requirements of IFRS 15
rather are accounted for in line with IFRS 9 and included within other operating income (see note 19).
Year ended
31 December
2022
$’000
Year ended
31 December
2021
$’000
Revenue from contracts with customers:
Revenue from crude oil sales
1,517,666
1,139,171
Revenue from gas and condensate sales
(i)
514,206
244,073
Tariff revenue
920
654
Total revenue from contracts with customers
2,032,792
1,383,898
Rental income from vessels
–
702
Realised losses on oil derivative contracts (see note 19)
(203,741)
(67,679)
Other
10,096
3,344
Business performance revenue and other operating income
1,839,147
1,320,265
Unrealised gains/(losses) on oil derivative contracts
(ii)
(see note 19)
14,475
(54,451)
Total revenue and other operating income
1,853,622
1,265,814
(i)
Includes onward sale of third-party gas purchases not required for injection activities at Magnus. See note 5(b)
(ii) Unrealised gains and losses on oil derivative contracts are disclosed as fair value remeasurement items in the income statement (see note 4)
Disaggregation of revenue from contracts with customers
Year ended
31 December 2022
$’000
Year ended
31 December 2021
$’000
North Sea
Malaysia
North Sea
Malaysia
Revenue from contracts with customers:
Revenue from crude oil sales
1,360,228
157,438
1,040,577
98,594
Revenue from gas and condensate sales
(i)
512,066
2,140
242,708
1,365
Tariff revenue
920
–
654
–
Total revenue from contracts with customers
1,873,214
159,578
1,283,939
99,959
(i)
Includes onward sale of third-party gas purchases not required for injection activities at Magnus. See note 5(b)
Accounting policy
Production imbalances, movements in under/over-lift and movements in inventory are included in cost of sales. The over-
lift liability is recorded at the cost of the production imbalance to represent a provision for production costs attributable
to the volumes sold in excess of entitlement. The under-lift asset is recorded at the lower of cost and net realisable value,
consistent with IAS 2, to represent a right to additional physical inventory. An under-lift of production from a field is included
in current receivables and an over-lift of production from a field is included in current liabilities.
Year ended
31 December
2022
$’000
Year ended
31 December
2021
$’000
Production costs
347,832
292,252
Tariff and transportation expenses
43,266
39,414
Realised loss/(gain) on derivative contracts related to operating costs (see note 19)
5,418
(10,693)
Change in lifting position
(18,790)
62,868
Crude oil inventory movement
3,222
(561)
Depletion of oil and gas assets
(i)
327,027
305,578
Other cost of operations
(ii)
487,831
211,575
Business performance cost of sales
1,195,806
900,433
Unrealised losses/(gains) on derivative contracts related to operating costs
(iii)
(see note 19)
4,900
(472)
Movement in other provisions
–
7,673
Total cost of sales
1,200,706
907,634
(i)
Includes $38.7 million (2021: $45.7 million) Kraken FPSO right-of-use asset depreciation charge and $15.8 million (2021: $14.3 million) of other right-of-use assets
depreciation charge
(ii) Includes $452.8 million (2021: $199.6 million) of purchases and associated costs of third–party gas not required for injection activities at Magnus which is sold on
Year ended
31 December
2022
$’000
Year ended
31 December
2021
$’000
Staff costs (see note 5(f))
75,266
80,098
Depreciation
(i)
6,222
7,492
Other general and administration costs
21,740
21,322
Recharge of costs to operations and joint venture partners
(95,675)
(108,549)
Total general and administration expenses
7,553
363
(i)
Year ended
31 December
2022
$’000
Year ended
31 December
2021
$’000
Net foreign exchange gains
21,329
391
Change in decommissioning provisions (see note 23)
36,763
19,327
Rental income from office sublease
1,549
1,702
Change in Thistle decommissioning provisions (see note 23)
6,060
–
Other
10,546
9,570
Business performance other income
76,247
30,990
Fair value changes in contingent consideration (see note 22)
1,070
140,079
Other non-Business performance (see note 4)
6,636
22,568
Total other income
83,953
5. Revenue and expenses
continued
Year ended
31 December
2022
$’000
Year ended
31 December
2021
$’000
Change in Thistle decommissioning provisions (see note 23)
–
6,184
Other
2,810
1,094
Business performance other expenses
2,810
7,278
Fair value changes in contingent consideration (see note 22)
233,570
–
Other non-Business performance
–
3,832
Total other expenses
236,380
The Group’s pension obligations consist of defined contribution plans. The Group pays fixed contributions with no further
payment obligations once the contributions have been paid. The amount charged to the Group income statement in
respect of pension costs reflects the contributions payable in the year. Differences between contributions payable during
the year and contributions actually paid are shown as either accrued liabilities or prepaid assets in the balance sheet.
Year ended
31 December
2022
$’000
Year ended
31 December
2021
$’000
Wages and salaries
63,430
71,391
Social security costs
6,547
7,120
Defined contribution pension costs
4,968
5,464
Expense of share-based payments (see note 21)
4,719
6,351
Other staff costs
12,984
12,475
Total employee costs
92,648
102,801
Contractor costs
33,661
33,871
Total staff costs
126,309
136,672
General and administration staff costs (see note 5(c))
75,266
80,098
Non-general and administration costs
51,043
56,574
Total staff costs
126,309
136,672
The average number of persons, excluding contractors, employed by the Group during the year was 715, with 335 in the
general and administration staff costs and 380 directly attributable to assets (2021: 734 of which 339 in general and
administration and 395 directly attributable to assets). Compensation of key management personnel is disclosed in
The following amounts for the year ended 31 December 2022 and for the comparative year ended 31 December 2021 were
payable by the Group to Deloitte:
Year ended
31 December
2022
$’000
Year ended
31 December
2021
$’000
Fees payable to the Company’s auditor for the audit of the parent company and Group financial
statements
1,064
847
The audit of the Company’s subsidiaries
274
145
Total audit
1,338
992
Audit-related assurance services
(i)
649
1,419
Total audit and audit-related assurance services
1,987
2,411
Tax services
–
–
Total auditor’s remuneration
1,987
2,411
(i)
Year ended
31 December
2022
$’000
Year ended
31 December
2021
$’000
Finance costs:
Loan interest payable
14,906
20,206
Bond interest payable
62,260
69,085
Unwinding of discount on decommissioning provisions (see note 23)
16,995
15,856
Unwinding of discount on other provisions (see note 23)
777
1,061
Finance charges payable under leases (see note 24)
39,172
45,359
Amortisation of finance fees on loans and bonds
35,287
13,623
Other financial expenses
(i)
6,830
4,261
Business performance finance expenses
176,227
169,451
Unwinding of discount on Magnus-related contingent consideration (see note 22)
36,410
58,395
Total finance costs
212,637
227,846
Finance income:
Bank interest receivable
1,816
228
Business performance finance income
1,816
228
Other financial income (see note 4)
2,148
–
Total finance income
3,964
228
(i)
(a) Income tax
Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation
authorities, based on tax rates and laws that are enacted or substantively enacted by the balance sheet date.
The Group’s operations are subject to a number of specific tax rules which apply to exploration, development and
production. In addition, the tax provision is prepared before the relevant companies have filed their tax returns with the
relevant tax authorities and, significantly, before these have been agreed. As a result of these factors, the tax provision
process necessarily involves the use of a number of estimates and judgements including those required in calculating the
effective tax rate. In considering the tax on exceptional items, the Group applies the appropriate statutory tax rate to each
item to calculate the relevant tax charge on exceptional items.
carrying amounts in the Group financial statements. However, deferred tax is not accounted for if it arises from initial
recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction
affects neither accounting nor taxable profit or loss. Deferred tax is measured on an undiscounted basis using tax rates
(and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when
the related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax assets are recognised to the
extent that it is probable that future taxable profits will be available against which the temporary differences can be
utilised.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except
where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference
will not reverse in the foreseeable future.
The carrying amount of deferred income tax assets is reviewed at each balance sheet date. Deferred income tax assets
and liabilities are offset only if a legal right exists to offset current tax assets against current tax liabilities, the deferred
Production taxes
In addition to corporate income taxes, the Group’s financial statements also include and disclose production taxes on net
income determined from oil and gas production.
Production tax relates to Petroleum Revenue Tax (‘PRT’) within the UK and is accounted for under IAS 12 Income Taxes since
it has the characteristics of an income tax as it is imposed under government authority and the amount payable is based
on taxable profits of the relevant fields. Current and deferred PRT is provided on the same basis as described above for
income taxes.
Investment allowance
The UK taxation regime provides for a reduction in ring-fence supplementary charge tax where investment in new
or existing UK assets qualify for a relief known as investment allowance. Investment allowance must be activated by
commercial production from the same field before it can be claimed. The Group has both unactivated and activated
investment allowances which could reduce future supplementary charge taxation. The Group’s policy is that investment
allowance is recognised as a reduction in the charge to taxation in the years claimed.
Energy Profits Levy
On 14 July 2022, the Energy (Oil & Gas) Profits Levy Act 2022 (‘EPL’) was enacted in the UK and applies an additional tax of
25% on the profits earned by oil and gas companies from the production of oil and gas on the United Kingdom Continental
Shelf. The EPL will increase to a rate of 35% from 25% with effect from 1 January 2023. The increase in rate was substantively
enacted on 30 November 2022. The end date was also extended from 31 December 2025 to 31 March 2028. The enactment
of the EPL led to the additional recognition of deferred tax positions as at 31 December 2022, resulting in a net charge of
The major components of income tax expense/(credit) are as follows:
Year ended
31 December
2022
$’000
Year ended
31 December
2021
$’000
Current UK income tax
Current income tax charge
–
3,559
Adjustments in respect of current income tax of previous years
(243)
199
Current overseas income tax
Current income tax charge
19,017
18,050
Adjustments in respect of current income tax of previous years
(6,551)
(221)
UK Energy Profits Levy
72,147
-
Total current income tax
84,370
21,587
Deferred UK income tax
Relating to origination and reversal of temporary differences
1,784
(43,325)
Adjustments in respect of changes in tax rates
45
–
Adjustments in respect of deferred income tax of previous years
(4,668)
157
Deferred overseas income tax
Relating to origination and reversal of temporary differences
6,884
(5,320)
Adjustments in respect of deferred income tax of previous years
2,363
2,354
Deferred UK Energy Profits Levy
153,670
–
Total deferred income tax
160,078
(46,134)
Income tax expense/(credit) reported in profit or loss
244,448
(24,547)
(b) Reconciliation of total income tax charge
A reconciliation between the income tax charge and the product of accounting profit multiplied by the UK statutory tax
rate is as follows:
Year ended
31 December
2022
$’000
Year ended
31 December
2021
$’000
Profit/(loss) before tax
203,214
352,441
UK statutory tax rate applying to North Sea oil and gas activities of 40% (2021: 40%)
81,284
140,976
Supplementary corporation tax non-deductible expenditure
11,486
4,331
Petroleum revenue tax (net of income tax benefit)
–
2,548
Non-deductible expenditure/(income)
(i)
47,951
(1,442)
North Sea tax reliefs
–
(113,593)
Tax in respect of non-ring-fence trade
8,892
23,378
Deferred tax asset (recognition)/impairment in respect of non-ring-fence trade
8,563
21,241
Deferred tax asset (recognition)/impairment in respect of ring-fence trade
(127,022)
(104,546)
UK Energy Profits Levy
(ii)
225,817
–
Adjustments in respect of prior years
(9,098)
2,489
Overseas tax rate differences
(1,264)
(594)
Share-based payments
(1,345)
1,526
Other differences
(816)
(861)
At the effective income tax rate of 120% (2021: 7%)
244,448
(24,547)
(i) Predominantly in relation to non-qualifying expenditure relating to the initial recognition exemption utilised upon acquisition of Golden Eagle
(ii) Includes current EPL charge of $72.1 million and deferred EPL charge of $153.7 million
Deferred income tax relates to the following:
Group balance sheet
(Credit)/charge for the year
recognised in profit or loss
2022
$’000
2021
$’000
2022
$’000
2021
$’000
Deferred tax liability
Accelerated capital allowances
963,816
768,630
195,185
(52,623)
963,816
768,630
Deferred tax asset
Losses
(902,101)
(1,017,107)
114,996
(35,653)
Decommissioning liability
(238,624)
(286,045)
47,421
24,652
Other temporary differences
(362,565)
(165,030)
(197,524)
17,490
(1,503,290)
(1,468,182)
160,078
(46,134)
Net deferred tax (assets)
(539,474)
(699,552)
Reflected in the balance sheet as follows:
Deferred tax assets
(705,808)
(702,970)
Deferred tax liabilities
166,334
3,418
Net deferred tax (assets)
(539,474)
(699,552)
Reconciliation of net deferred tax assets/(liabilities)
2022
$’000
2021
$’000
At 1 January
699,552
653,418
Tax (expense)/income during the period recognised in profit or loss
(160,078)
46,134
At 31 December
539,474
7. Income tax
continued
(d) Tax losses
The Group’s deferred tax assets at 31 December 2022 are recognised to the extent that taxable profits are expected to
arise in the future against which tax losses and allowances in the UK can be utilised. A $127.0 million tax credit has been
recognised as an exceptional item, reflecting the reversal of the previous deferred tax asset derecognition. In accordance
with IAS 12 Income Taxes, the Group assesses the recoverability of its deferred tax assets at each period end. Sensitivities
have been run on the oil price assumption, with a 10% change being considered a reasonable possible change for the
purposes of sensitivity analysis (see note 2). A 10% reduction in oil price would result in a deferred tax asset derecognition
of $37.6 million while a 10% increase in oil price would not result in any change as the Group is currently recognising all UK
tax losses (with the exception of those noted below).
The Group has unused UK mainstream corporation tax losses of $389.7 million (2021: $346.6 million) and ring-fence tax
losses of $1,163.0 million (2021: $1,057.3 million) associated with the Bentley acquisition, for which no deferred tax asset has
been recognised at the balance sheet date as recovery of these losses is to be established. In addition, the Group has
not recognised a deferred tax asset for the adjustment to bond valuations on the adoption of IFRS 9. The benefit of this
deduction is taken over ten years, with a deduction of $2.2 million being taken in the current period and the remaining
benefit of $10.7 million (2021: $12.9 million) remaining unrecognised.
The Group has unused Malaysian income tax losses of $14.3 million (2021: $15.7 million) arising in respect of the Tanjong
Baram RSC for which no deferred tax asset has been recognised at the balance sheet date due to uncertainty of recovery
of these losses.
No deferred tax has been provided on unremitted earnings of overseas subsidiaries. The Finance Act 2009 exempted
foreign dividends from the scope of UK corporation tax where certain conditions are satisfied.
(e) Changes in legislation
In the budget statement on 3 March 2021, it was announced that the corporation tax rate will increase to 25% from 1 April
2023.
The calculation of earnings per share is based on the profit after tax and on the weighted average number of Ordinary
shares in issue during the period. Diluted earnings per share is adjusted for the effects of Ordinary shares granted under
the share-based payment plans, which are held in the Employee Benefit Trust, unless it has the effect of increasing the
profit or decreasing the loss attributable to each share.
Basic and diluted earnings per share are calculated as follows:
Profit/(loss)
after tax
Weighted average number
of Ordinary shares
Earnings
per share
Year ended 31 December
Year ended 31 December
Year ended 31 December
2022
$’000
2021
$’000
2022
million
2021
million
2022
$
2021
$
Basic
(41,234)
376,988
1,855.0
1,736.4
(0.022)
0.217
Dilutive potential of Ordinary shares granted under
share-based incentive schemes
–
–
39.2
24.7
–
–
Diluted
(i)
(41,234)
376,988
1,894.2
1,761.1
(0.022)
0.214
Basic (excluding remeasurements and exceptional
items)
212,346
220,284
1,855.0
1,736.4
0.114
0.127
Diluted (excluding remeasurements and exceptional
items)
(i)
212,346
220,284
1,894.2
1,761.1
0.112
0.125
(i)
The Company paid no dividends during the year ended 31 December 2022 (2021: none). At 31 December 2022, there are no
Property, plant and equipment is stated at cost less accumulated depreciation and accumulated impairment charges.
Cost
Cost comprises the purchase price or cost relating to development, including the construction, installation and completion
of infrastructure facilities such as platforms, pipelines and development wells and any other costs directly attributable
to making that asset capable of operating as intended by management. The purchase price or construction cost is the
aggregate amount paid and the fair value of any other consideration given to acquire the asset.
The carrying amount of an item of property, plant and equipment is derecognised on disposal or when no future economic
benefits are expected from its use. The gain or loss arising from the derecognition of an item of property, plant and
equipment is included in the other operating income or expense line item in the Group income statement when the asset
is derecognised.
Development assets
Expenditure relating to development of assets including the construction, installation and completion of infrastructure
facilities such as platforms, pipelines and development wells, is capitalised within property, plant and equipment.
Carry arrangements
Where amounts are paid on behalf of a carried party, these are capitalised. Where there is an obligation to make
payments on behalf of a carried party and the timing and amount are uncertain, a provision is recognised. Where the
payment is a fixed monetary amount, a financial liability is recognised.
Borrowing costs directly attributable to the construction of qualifying assets, which are assets that necessarily take a
substantial period of time to prepare for their intended use, are capitalised during the development phase of the project
Oil and gas assets are depleted, on a field-by-field basis, using the unit of production method based on entitlement to
proven and probable reserves, taking account of estimated future development expenditure relating to those reserves.
Changes in factors which affect unit of production calculations are dealt with prospectively. Depletion of oil and gas assets
is taken through cost of sales.
Depreciation on other elements of property, plant and equipment is provided on a straight-line basis, and taken through
general and administration expenses, at the following rates:
Office furniture and equipment
Five years
Fixtures and fittings
Ten years
Right-of-use assets*
Lease term
*
Excludes Kraken FPSO which is depleted using the unit of production method in accordance with the related oil and gas assets
Each asset’s estimated useful life, residual value and method of depreciation is reviewed and adjusted if appropriate at
At each balance sheet date, discounted cash flow models comprising asset-by-asset life of field projections and risks
specific to assets, using Level 3 inputs (based on IFRS 13 fair value hierarchy), have been used to determine the recoverable
amounts for each CGU. The life of a field depends on the interaction of a number of variables; see note 2 for further details.
Estimated production volumes and cash flows up to the date of cessation of production on a field-by-field basis, including
operating and capital expenditure, are derived from the Group’s business plan. Oil price assumptions and discount rate
assumptions used were as disclosed in note 2. If the recoverable amount of an asset is estimated to be less than its
carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised
immediately in the Group income statement.
Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of
its recoverable amount, but only so that the increased carrying amount does not exceed the carrying amount that would
have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment
10. Property, plant and equipment
continued
Oil and gas
assets
$’000
Office
furniture,
fixtures and
fittings
$’000
Right-of-
use assets
(note 24)
$’000
Total
$’000
Cost:
At 1 January 2021
8,552,171
64,220
858,489 9,474,880
Acquisition
386,210
–
–
386,210
Additions
61,704
1,165
17,815
80,684
Change in decommissioning provision
(2,732)
–
–
(2,732)
Disposal
–
–
(8,411)
(8,411)
At 1 January 2022
8,997,353
65,385
867,893
9,930,631
Additions
116,415
1,936
28,394
146,745
Change in decommissioning provision (note 23)
(75,917)
–
–
(75,917)
Disposal
–
–
(19,428)
(19,428)
At 31 December 2022
9,037,851
67,321
876,859
9,982,031
Accumulated depreciation, depletion and impairment:
At 1 January 2021
6,428,559
50,357
362,047
6,840,963
Charge for the year
245,645
3,472
63,953
313,070
Net impairment reversal for the year
(24,046)
–
(15,669)
(39,715)
Disposal
–
–
(5,831)
(5,831)
Other
146
–
–
146
At 1 January 2022
6,650,304
53,829
404,500
7,108,633
Charge for the year
272,588
2,796
57,864
333,248
Net impairment charge for the year
78,058
–
2,991
81,049
Disposal
–
–
(17,874)
(17,874)
At 31 December 2022
7,000,950
56,625
447,481
7,505,056
Net carrying amount:
At 31 December 2022
2,036,901
10,696
429,378 2,476,975
At 31 December 2021
2,347,049
11,556
463,393
2,821,998
At 1 January 2021
2,123,612
13,863
496,442
2,633,917
The amount of borrowing costs capitalised during the year ended 31 December 2022 was nil (2021: nil).
Impairments to the Group’s producing assets and reversals of impairments are set out in the table below:
Impairment
(charge)/reversal
Recoverable
amount
(i)
Year ended
31 December
2022
$’000
Year ended
31 December
2021
$’000
31 December
2022
$’000
31 December
2021
$’000
North Sea
(81,049)
39,715
1,448,391
1,496,219
Net pre-tax impairment (charge)/reversal
(81,049)
39,715
(i)
Recoverable amount has been determined on a fair value less costs of disposal basis (see note 2 for further details of judgements, estimates and
assumptions made in relation to impairments). The amounts disclosed above are in respect of assets where an impairment (or reversal) has been recorded.
Assets which did not have any impairment or reversal are excluded from the amounts disclosed
For information on judgements, estimates and assumptions made in relation to impairments see ‘Use of judgements,
estimates and assumptions’ within note 2.
The 2022 net impairment charge of $81.0 million relates to producing assets in the UK North Sea. Impairment charges were
primarily driven by the introduction of EPL, changes in production profiles and an increased discount rate partially offset by
an increase in EnQuest’s oil price assumptions. The CGUs on which impairment charges relate were $9.6 million for Kraken,
$34.9 million for GKA and Scolty/Crathes CGU, $36.1 million for Golden Eagle and $0.5 million for Alba.
The 2021 net impairment reversal of $39.7 million relates to producing assets in the UK North Sea. Impairment reversals
were primarily driven by an increase in EnQuest’s near-term future oil price assumptions. The CGUs on which impairment
reversals relate were $53.7 million for Kraken and $6.1 million for Alba. In addition, impairment losses of $20.1 million
were incurred relating to the GKA and Scolty/Crathes CGU, primarily as a result of forecast increased costs and lower
Cost
Goodwill arising on a business combination is initially measured at cost, being the excess of the cost of the business
combination over the net fair value of the identifiable assets, liabilities and contingent liabilities of the entity at the date of
acquisition. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group
reassesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the
procedures used to measure the amounts to be recognised at the acquisition date. If the reassessment still results in an excess
of the fair value of net assets acquired over the aggregate consideration transferred, the gain is recognised in profit or loss.
Impairment of goodwill
Following initial recognition, goodwill is stated at cost less any accumulated impairment losses. In accordance with
IAS 36 Impairment of Assets, goodwill is reviewed for impairment annually or more frequently if events or changes in
circumstances indicate the recoverable amount of the CGU to which the goodwill relates should be assessed.
For the purposes of impairment testing, goodwill acquired is allocated to the CGU that is expected to benefit from the
synergies of the combination. Each unit or units to which goodwill is allocated represents the lowest level within the
Group at which the goodwill is monitored for internal management purposes. Impairment is determined by assessing
the recoverable amount of the CGU to which the goodwill relates. Where the recoverable amount of the CGU is less than
the carrying amount of the CGU containing goodwill, an impairment loss is recognised. Impairment losses relating to
goodwill cannot be reversed in future periods. For information on significant estimates and judgements made in relation to
impairments see Use of judgements, estimates and assumptions: recoverability of asset carrying values within note 2.
A summary of goodwill is presented below:
2022
$’000
2021
$’000
Cost and net carrying amount
At 1 January
134,400
134,400
At 31 December
134,400
134,400
The majority of the goodwill, $94.6 million, relates to the 75% acquisition of the Magnus oil field and associated interests.
The remaining goodwill balance arose from the acquisition of Stratic and PEDL in 2010 and the Greater Kittiwake Area asset
in 2014.
Impairment testing of goodwill
Goodwill, which has been acquired through business combinations, has been allocated to the UK North Sea segment CGU,
and this is therefore the lowest level at which goodwill is reviewed. The UK North Sea is a combination of oil and gas assets,
as detailed within property, plant and equipment (note 10).
The recoverable amounts of the CGU and fields have been determined on a fair value less costs of disposal basis. See
notes 2 and 10 for further details. An impairment charge of nil was taken in 2022 (2021: nil) based on a fair value less costs
Sensitivity to changes in assumptions
The Group’s recoverable value of assets is highly sensitive,
inter alia
, to oil price achieved and production volumes. A
sensitivity has been run on the oil price assumption, with a 10% change being considered to be a reasonable possible
change for the purposes of sensitivity analysis (see note 2). A 10% reduction in oil price would not result in an impairment
charge (2021: 10% reduction would result in a net impairment of $54.7 million). A 25% reduction in oil price would fully impair
Exploration and appraisal assets
Exploration and appraisal assets have indefinite useful lives and are accounted for using the successful efforts method
of accounting. Pre-licence costs are expensed in the period in which they are incurred. Expenditure directly associated
with exploration, evaluation or appraisal activities is initially capitalised as an intangible asset. Such costs include the
costs of acquiring an interest, appraisal well drilling costs, payments to contractors and an appropriate share of directly
attributable overheads incurred during the evaluation phase. For such appraisal activity, which may require drilling of
further wells, costs continue to be carried as an asset whilst related hydrocarbons are considered capable of commercial
development. Such costs are subject to technical, commercial and management review to confirm the continued intent to
develop, or otherwise extract value. When this is no longer the case, the costs are written off as exploration and evaluation
expenses in the Group income statement. When exploration licences are relinquished without further development, any
previous impairment loss is reversed and the carrying costs are written off through the Group income statement. When
assets are declared part of a commercial development, related costs are transferred to property, plant and equipment. All
intangible oil and gas assets are assessed for any impairment prior to transfer and any impairment loss is recognised in
the Group income statement.
During the year ended 31 December 2022, there was no impairment of historical exploration and appraisal expenditures
(2021: nil).
12. Intangible assets
continued
Other intangibles
UK emissions allowances (‘UKAs’) purchased to settle the Group’s liability related to emissions are recognised on the balance
Exploration
and
appraisal
assets
$’000
UK
emissions
allowances
$’000
Total
$’000
Cost:
At 1 January 2021
162,312
–
162,312
Additions
10,141
10,052
20,193
Write-off of relinquished licences previously impaired
(72)
–
(72)
At 1 January 2022
172,381
10,052
182,433
Additions
8,168
1,199
9,367
Write-off of relinquished licences previously impaired
(25,612)
–
(25,612)
Disposal
–
(10,052)
(10,052)
At 31 December 2022
154,937
1,199
156,136
Accumulated impairment:
At 1 January 2021 and 1 January 2022
(134,766)
–
(134,766)
Write-off of relinquished licences previously impaired
25,128
–
25,128
At 31 December 2022
(109,638)
–
(109,638)
Net carrying amount:
At 31 December 2022
45,299
1,199
46,498
At 31 December 2021
37,615
10,052
47,667
At 1 January 2021
27,546
–
Inventories of consumable well supplies and inventories of hydrocarbons are stated at the lower of cost and NRV, cost
2022
$’000
2021
$’000
Hydrocarbon inventories
19,613
22,835
Well supplies
56,805
50,188
76,418
73,023
During 2022, a net loss of $4.0 million was recognised within cost of sales in the Group income statement relating to
inventory (2021: net gain of $0.4 million).
The inventory valuation at 31 December 2022 is stated net of a provision of $38.9 million (2021: $43.2 million) to write
down well supplies to their estimated net realisable value. During the year, a portion of the provided for well supplies was
Cash and cash equivalents includes cash at bank, cash in hand, outstanding bank overdrafts and highly liquid interest-
2022
$’000
2021
$’000
Available cash
293,866
276,970
Restricted cash
7,745
9,691
Cash and cash equivalents
301,611
286,661
The carrying value of the Group’s cash and cash equivalents is considered to be a reasonable approximation to their fair
value due to their short-term maturities.
Included within the cash balance at 31 December 2022 is restricted cash of $7.7 million which has been placed on deposit
in relation to bank guarantees for the Group’s Malaysian assets. Included within the cash balance at 31 December 2021 was
restricted cash of $9.7 million. This included $8.2 million on deposit relating to bank guarantees for the Group’s Malaysian
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity
instrument of another entity. Financial instruments are recognised when the Group becomes a party to the contractual
provisions of the financial instrument.
Financial assets and financial liabilities are offset and the net amount is reported in the Group balance sheet if there is a
currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis.
Financial assets are classified, at initial recognition, as amortised cost, fair value through other comprehensive income
(‘FVOCI’), or fair value through profit or loss (‘FVPL’). The classification of financial assets at initial recognition depends on
the financial assets’ contractual cash flow characteristics and the Group’s business model for managing them. The Group
does not currently hold any financial assets at FVOCI, i.e. debt financial assets.
Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when
Financial assets at amortised cost
Trade receivables, other receivables and joint operation receivables are measured initially at fair value and subsequently
recorded at amortised cost, using the effective interest rate (‘EIR’) method, and are subject to impairment. Gains and
losses are recognised in profit or loss when the asset is derecognised, modified or impaired and EIR amortisation is
included within finance costs.
The Group measures financial assets at amortised cost if both of the following conditions are met:
•
The financial asset is held within a business model with the objective to hold financial assets in order to collect
contractual cash flows; and
•
The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
Prepayments, which are not financial assets, are measured at historical cost.
The Group recognises a provision for expected credit loss (‘ECL’), where material, for all financial assets held at the balance
sheet date. ECLs are based on the difference between the contractual cash flows due to the Group, and the discounted
actual cash flows that are expected to be received. Where there has been no significant increase in credit risk since
initial recognition, the loss allowance is equal to 12-month expected credit losses. Where the increase in credit risk is
considered significant, lifetime credit losses are provided. For trade receivables, a lifetime credit loss is recognised on
initial recognition where material.
The provision rates are based on days past due for groupings of customer segments with similar loss patterns (i.e. by
geographical region, product type, customer type and rating) and are based on historical credit loss experience, adjusted
for forward-looking factors specific to the debtors and the economic environment. The Group evaluates the concentration
of risk with respect to trade receivables and contract assets as low, as its customers are joint venture partners and there
are no indications of change in risk. Generally, trade receivables are written off when they become past due for more than
Financial liabilities are classified, at initial recognition, as amortised cost or at fair value through profit or loss.
Financial liabilities are derecognised when they are extinguished, discharged, cancelled or they expire. When an existing
financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing
liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability
and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the Group income
Financial liabilities at amortised cost
Loans and borrowings, trade payables and other creditors are measured initially at fair value net of directly attributable
transaction costs and subsequently recorded at amortised cost, using the EIR method. Loans and borrowings are interest
bearing. Gains and losses are recognised in profit or loss when the liability is derecognised and EIR amortisation is
included within finance costs.
The Group holds derivative financial instruments classified as held for trading, not designated as effective hedging
instruments. The derivative financial instruments include forward currency contracts and commodity contracts, to address
the respective risks; see note 27. Derivatives are carried as financial assets when the fair value is positive and as financial
liabilities when the fair value is negative.
Financial instruments at FVPL are carried in the Group balance sheet at fair value, with net changes in fair value recognised
in the Group income statement. Unrealised mark-to-market changes in the remeasurement of open derivative contracts
at each period end are recognised within remeasurements, with the recycling of realised amounts from remeasurements
into Business performance income when a derivative instrument matures. Option premium received or paid for
commodity derivatives are recognised in remeasurements.
Financial assets with cash flows that are not solely payments of principal and interest are classified and measured at fair
value through profit or loss, irrespective of the business model. All financial assets not classified as measured at amortised
cost or FVOCI as described above are measured at FVPL. Financial instruments with embedded derivatives are considered
in their entirety when determining whether their cash flows are solely payment of principal and interest.
The Group also holds contingent consideration (see note 22) and a listed equity investment (see note 19). The movements
The following table provides the fair value measurement hierarchy of the Group’s assets and liabilities:
31 December 2022
Notes
Total
$’000
Quoted
prices in
active
markets
(Level 1)
$’000
Significant
observable
inputs
(Level 2)
$’000
Significant
unobservable
inputs
(Level 3)
$’000
Financial assets measured at fair value:
Derivative financial assets measured at FVPL
Gas commodity contracts
4,705
–
4,705
–
Other financial assets measured at FVPL
Quoted equity shares
6
6
–
–
Total financial assets measured at fair value
4,711
6
4,705
–
Liabilities measured at fair value:
Derivative financial liabilities measured at FVPL
Oil commodity derivative contracts
19
46,537
–
46,537
–
Forward UKA contracts
19
4,429
–
4,429
–
Other financial liabilities measured at FVPL
Contingent consideration
22
636,875
–
–
636,875
Total liabilities measured at fair value
687,841
–
50,966
636,875
Liabilities measured at amortised cost for which fair values are
disclosed below:
Interest-bearing loans and borrowings
18
417,967
–
–
417,967
Obligations under leases
24
482,066
–
–
482,066
Retail bond 7.00%
18
133,535
133,535
–
–
Retail bond 9.00%
18
153,754
153,754
–
–
High yield bond 11.625%
18
297,528
297,528
–
–
Total liabilities measured at amortised cost for which fair values
are disclosed
1,484,850
584,817
–
900,033
31 December 2021
Notes
Total
$’000
Quoted
prices in
active
markets
(Level 1)
$’000
Significant
observable
inputs
(Level 2)
$’000
Significant
unobservable
inputs
(Level 3)
$’000
Financial assets measured at fair value:
Derivative financial assets measured at FVPL
Forward UKA contracts
90
–
90
–
Forward foreign currency contracts
382
–
382
–
Other financial assets measured at FVPL
Quoted equity shares
6
6
–
–
Total financial assets measured at fair value
478
6
472
–
Liabilities measured at fair value:
Derivative financial liabilities measured at FVPL
Oil commodity derivative contracts
19
55,247
–
55,247
–
Other financial liabilities measured at FVPL
Contingent consideration
22
410,778
–
–
410,778
Total liabilities measured at fair value
466,025
–
55,247
410,778
Liabilities measured at amortised cost for which fair values are
disclosed below:
Interest-bearing loans and borrowings
18
424,864
–
–
424,864
Obligations under leases
24
570,781
–
–
570,781
Retail bond 7.00%
18
244,387
244,387
–
–
High yield bond 7.00%
18
773,499
773,499
–
–
Total liabilities measured at amortised cost for which fair values
are disclosed
2,013,531
1,017,886
–
Fair value hierarchy
All financial instruments for which fair value is recognised or disclosed are categorised within the fair value hierarchy,
based on the lowest level input that is significant to the fair value measurement as a whole, as follows:
Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities;
Level 2: Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly
(i.e. as prices) or indirectly (i.e. derived from prices) observable;
Level 3: Valuation techniques for which the lowest level input that is significant to the fair value measurement is
unobservable.
Derivative financial instruments are valued by counterparties, with the valuations reviewed internally and corroborated
with readily available market data (Level 2). Contingent consideration is measured at FVPL using the Level 3 valuation
processes disclosed in note 22. There have been no transfers between Level 1 and Level 2 during the period (2021: no
transfers).
For the financial liabilities measured at amortised cost but for which fair value disclosures are required, the fair value of the
bonds classified as Level 1 was derived from quoted prices for that financial instrument. Both interest-bearing loans and
borrowings and obligations under finance leases were calculated using the discounted cash flow method to capture the
2022
$’000
2021
$’000
Current
Trade receivables
69,508
94,992
Joint venture receivables
95,854
68,157
Under-lift position
26,474
35,769
Other recevables
4,141
11,703
195,977
210,621
Prepayments and accrued income
80,386
85,447
276,363
296,068
The carrying values of the Group’s trade, joint venture and other receivables as stated above are considered to be a
reasonable approximation to their fair value largely due to their short-term maturities. Under-lift is valued at the lower of
cost or NRV at the prevailing balance sheet date (note 5(b)).
Trade receivables are non-interest-bearing and are generally on 15 to 30-day terms. Joint venture receivables relate to
amounts billable to, or recoverable from, joint venture partners. Receivables are reported net of any ECL with no losses
2022
$’000
2021
$’000
Current
Trade payables
34,661
49,701
Accrued expenses
349,668
297,744
Over-lift position
25,658
53,742
Joint venture creditors
11,957
10,852
VAT payable
4,167
7,561
Other payables
536
944
426,647
420,544
The carrying value of the Group’s trade and other payables as stated above is considered to be a reasonable
approximation to their fair value largely due to the short-term maturities. Certain trade and other payables will be settled
in currencies other than the reporting currency of the Group, mainly in Sterling. Trade payables are normally non-interest-
bearing and settled on terms of between 10 and 30 days.
Accrued expenses include accruals for capital and operating expenditure in relation to the oil and gas assets and interest
2022
$’000
2021
$’000
Borrowings
413,358
401,614
Bonds
586,930
1,081,596
1,000,288
1,483,210
(a) Borrowings
The Group’s borrowings are carried at amortised cost as follows:
2022
2021
Principal
$’000
Fees
$’000
Total
$’000
Principal
$’000
Fees
$’000
Total
$’000
RBL facility
400,000
(4,609)
395,391
415,000
(23,250)
391,750
SVT working capital facility
12,275
–
12,275
9,864
–
9,864
Vendor loan facility
5,692
–
5,692
–
–
–
Total borrowings
417,967
(4,609)
413,358
424,864
(23,250)
401,614
Due within one year
131,936
210,505
Due after more than one year
281,422
191,109
Total borrowings
413,358
401,614
See liquidity risk – note 27 for the timing of cash outflows relating to loans and borrowings.
18. Loans and borrowings
continued
Reserve Based Lending facility
In October 2022, the Group agreed an amended and restated RBL facility with commitments of $500.0 million, reducing in
accordance with an amortisation schedule, a sub limit for drawings in the form of Letters of Credit of $75.0 million and a
standard accordion facility which allowed the Group to increase commitments by an amount of up to $300.0 million on
no more than three occasions. The maturity of the new facility is April 2027. Funds can only be drawn under the RBL to a
maximum amount of the lesser of (i) the total commitments and (ii) the borrowing base amount. Interest accrued at 4.00%
plus a combination of an agreed credit adjustment spread and Secured Overnight Financing Rate (‘SOFR’). The amended
and restated RBL facility replaced the Group’s previous facility, which was signed on 11 June 2021 and accrued interest at
4.25% plus a combination of a fixed rate based on the interest period and SOFR (2021: 4.25% plus USD LIBOR). During 2022,
EnQuest fully repaid the previous RBL facility prior to agreeing the amended and restated RBL facility.
As at 31 December 2022, the carrying value of the facility was $395.4 million (2021: $391.8 million), comprising the principal
of $400.0 million out of commitments of $500.0 million (2021: $415.0 million out of commitments of $500.0 million) and
unamortised fees of $4.6 million (2021: $23.3 million).
At 31 December 2022, after allowing for letter of credit utilisation of $52.7 million (2021: $53.0 million), $47.3 million (2021:
$32.0 million) remained available for drawdown under the RBL.
SVT working capital facility
On 1 December 2020, EnQuest extended, for a further three years, the £42.0 million revolving loan facility with a joint operator
partner to fund the short-term working capital cash requirements of SVT and associated interests. The facility is guaranteed
by BP EOC Limited until the earlier of a) the date on which production from Magnus permanently ceases; or b) if the operating
agreements for both SVT and associated infrastructure are amended to allow for cash calling. The facility is able to be drawn
down against, in instalments, and accrues interest at 1.0% per annum plus GBP Sterling Over Night Index Average (‘SONIA’).
Vendor loan facility
In December 2022, the Group agreed a facility with a third party vendor refinancing the payment of existing invoices up
to an amount of £7.5 million. At 31 December 2022, an amount of £4.7 million was drawn down on the facility repayable in
June 2023. Interest is payable monthly at a rate of 8.00% per annum.
(b) Bonds
The Group’s bonds are carried at amortised cost as follows:
2022
2021
Principal
$’000
Fees and
discount
$’000
Total
$’000
Principal
$’000
Fees and
discount
$’000
Total
$’000
High yield bond 7.00%
–
–
–
827,166
(1,725)
825,441
High yield bond 11.625%
305,000
(13,815)
291,185
–
–
–
Retail bond 7.00%
134,544
–
134,544
256,574
(419)
256,155
Retail bond 9.00%
161,201
–
161,201
–
–
–
Total
600,745
(13,815)
586,930
1,083,740
(2,144)
1,081,596
Due within one year
134,544
–
134,544
–
–
–
Due after more than one year
466,201
(13,815)
452,386
1,083,740
(2,144)
1,081,596
Total
600,745
(13,815)
586,930
1,083,740
(2,144)
1,081,596
High yield bond 7.00%
In October 2022, the Group redeemed the full outstanding balance of $792.3 million ahead of its maturity in October 2023.
At 31 December 2021, the carrying value of the bond was $825.4 million. This included bond principal of $827.2 million
less unamortised fees of $1.7 million. In 2021, the high yield bond did not include accrued interest of $12.2 million, which is
reported within trade and other payables.
High yield bond 11.625%
In October 2022, the Group concluded an offer of $305.0 million for a US Dollar high yield bond. The notes accrue a fixed
coupon of 11.625% payable semi-annually in arrears with a maturity date of November 2027.
The above carrying value of the bond as at 31 December 2022 is $291.2 million. This includes bond principal of $305.0
million less the original issue discount (‘OID’) of $4.2 million and unamortised fees of $9.6 million. The high yield bond does
not include accrued interest of $6.5 million, which is reported within trade and other payables. The fair value of the high
yield bond 11.625% is disclosed in note 15.
Retail bond 7.00%
In 2013, the Group issued a £155.0 million retail bond. On 21 November 2016, the retail bond was amended pursuant to a
scheme of arrangement whereby all existing notes were exchanged for new notes, accruing a fixed coupon of 7.00% payable
semi-annually in arrears. The interest is only payable in cash if the ‘Cash Payment Condition’ is satisfied, being the average
of the Daily Brent Oil Prices during the period of six calendar months immediately preceding the ‘Cash Payment Condition
Determination Date’ is equal to or above $65/bbl. The ‘Cash Payment Condition Determination Date’ is the date falling one
calendar month prior to the relevant interest payment date. If the ‘Cash Payment Condition’ is not satisfied,
interest will not be
paid in cash but instead will be capitalised and satisfied through the issue of additional retail notes (‘Additional Retail Notes’).
18. Loans and borrowings
continued
On 27 April 2022, following a successful partial exchange and cash offer, £79.3 million of the retail bond 7.00% were
exchanged for the retail bond 9.00%. This resulted in a reduction of principal by $104.4 million.
The above carrying value of the bond as at 31 December 2022 is $134.5 million (2021: $256.2 million). This includes bond
principal of $134.5 million (2021: $256.6 million) less unamortised fees of nil (2021: $0.4 million), with the prior unamortised
amount of fees recognised in the income statement in 2022 upon completion of the refinancing via the partial exchange
and cash offer noted above. The retail bond does not include accrued interest of $2.6 million (2021: $6.2 million), which is
reported within trade and other payables. The fair value of the retail bond 7.00% is disclosed in note 15.
Retail bond 9.00%
On 27 April 2022, the Group issued a new 9.00% retail bond following a successful partial exchange and cash offer. The
principal of the retail bond 9.00% raised by the partial exchange and cash offer totalled £133.3 million. The notes accrue a
fixed coupon of 9.00% payable semi-annually in arrears and are due to mature in October 2027.
The above carrying value of the bond as at 31 December 2022 is $161.2 million. All fees associated with this offer were
recognised in the income statement in 2022. The retail bond 9.00% does not include accrued interest of $3.6 million, which
19. Other financial assets and financial liabilities
(a) Summary as at year end
2022
2021
Assets
$’000
Liabilities
$’000
Assets
$’000
Liabilities
$’000
Fair value through profit or loss:
Derivative commodity contracts
4,705
46,537
–
55,245
Derivative foreign exchange contracts
–
–
382
–
Commodity futures
–
–
–
2
Derivative UKA contracts
–
4,429
90
–
Total current
4,705
50,966
472
55,247
Fair value through profit or loss:
Quoted equity shares
6
–
6
–
Total non-current
6
–
6
–
(b) Income statement impact
The income/(expense) recognised for derivatives are as follows:
Year ended 31 December 2022
Revenue and other
operating income
Cost of
sales
Realised
$’000
Unrealised
$’000
Realised
$’000
Unrealised
$’000
Commodity options
(204,943)
20,401
–
–
Commodity swaps
(86)
(5,928)
–
–
Commodity futures
1,288
2
–
–
Foreign exchange contracts
–
–
(5,158)
(381)
UKA contracts
–
–
(260)
(4,519)
(203,741)
14,475
(5,418)
(4,900)
Year ended 31 December 2021
Revenue and other
operating income
Cost of
sales
Realised
$’000
Unrealised
$’000
Realised
$’000
Unrealised
$’000
Commodity options
(62,016)
(55,570)
–
–
Commodity swaps
(4,258)
1,121
–
–
Commodity futures
985
(2)
–
–
Foreign exchange contracts
–
–
(4)
382
UKA contracts
–
–
10,697
90
(65,289)
(54,451)
10,693
472
(c) Commodity contracts
The Group uses derivative financial instruments to manage its exposure to the oil price, including put and call options,
swap contracts and futures.
For the year ended 31 December 2022, losses totalling $189.3 million (2021: losses of $119.7 million) were recognised in
respect of commodity contracts designated as FVPL. This included losses totalling $203.7 million (2021: losses of $65.3
million) realised on contracts that matured during the year, and mark-to-market unrealised gains totalling $14.5 million
(2021: losses of $54.5 million). Of the realised amounts recognised during the year, a loss of $1.3 million (2021: losses of
$1.0 million) was realised in Business performance revenue in respect of the premium expense received on sale of these
options.
The mark-to-market value of the Group’s open commodity contracts as at 31 December 2022 was a liability of $46.5 million
(2021: liability of $55.2 million).
(d) Foreign currency contracts
The Group enters into a variety of foreign currency contracts, primarily in relation to Sterling. During the year ended
31 December 2022, losses totalling $5.4 million (2021: gains of $0.4 million) were recognised in the Group income statement.
This included realised losses totalling $5.2 million (2021: gains of $0.1 million) on contracts that matured in the year.
The mark-to-market value of the Group’s open contracts as at 31 December 2022 was nil (2021: $0.4 million).
(e) UK emissions allowance forward contracts
The Group enters into forward contracts for the purchase of UKAs to manage its exposure to price. During 2021, a number of
open contracts were closed out early resulting in gains totalling $10.8 million, including realised gains totalling $10.7 million
that matured in the year. The result of this was that the Group is required to account for UKA forwards as derivatives. During
the year ended 31 December 2022, no open contracts were closed out early.
The mark-to-market value of the Group’s open contracts as at 31 December 2022 was $4.4 million (2021: $0.1 million).
(f) Other receivables
2022
$’000
2021
$’000
At 1 January
6
7
Change in fair value
–
(1)
At 31 December
6
6
Non-current
6
6
6
6
Accounting policy
The balance classified as equity share capital includes the total net proceeds (both nominal value and share premium)
on issue of registered share capital of the parent company. Share issue costs associated with the issuance of new equity
are treated as a direct reduction of proceeds. The share capital comprises only one class of Ordinary share. Each Ordinary
Retained earnings
Retained earnings contain the accumulated profits/(losses) of the Group.
Share-based payments reserve
Equity-settled share-based payment transactions are measured at the fair value of the services received, and the
corresponding increase in equity is recorded. EnQuest PLC shares held by the Group in the Employee Benefit Trust are
recognised at cost and are deducted from the share-based payments reserve. Consideration received for the sale of such
shares is also recognised in equity, with any difference between the proceeds from the sale and the original cost being
taken to reserves. No gain or loss is recognised in the Group income statement on the purchase, sale, issue or cancellation
of equity shares.
Authorised, issued and fully paid
Ordinary shares
of £0.05 each
Number
Share
capital
$’000
Share
premium
$’000
Total
$’000
At 1 January 2022 and 31 December 2022
1,885,924,339
131,650
260,546
392,196
At 31 December 2022, there were 21,663,181 shares held by the Employee Benefit Trust (2021: 39,718,323). The movement in the
Notes to the Group Financial Statements
continued
Eligible employees (including Executive Directors) of the Group receive remuneration in the form of share-based payment
transactions, whereby employees render services in exchange for shares or rights over shares of EnQuest PLC.
Information on these plans for Executive Directors is shown in the Directors’ Remuneration Report on pages 94 to 97.
The cost of these equity-settled transactions is measured by reference to the fair value at the date on which they are
granted. The fair value of awards is calculated in reference to the scheme rules at the market value, being the average
middle market quotation of a share for the three immediately preceding dealing days as derived from the Daily Official
List of the London Stock Exchange, provided such dealing days do not fall within any period when dealings in shares are
prohibited because of any dealing restriction.
The cost of equity-settled transactions is recognised over the vesting period in which the relevant employees become
fully entitled to the award. The cumulative expense recognised for equity-settled transactions at each reporting date until
the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number
of equity instruments that will ultimately vest. The Group income statement charge or credit for a period represents the
movement in cumulative expense recognised as at the beginning and end of that period.
In valuing the transactions, no account is taken of any service or performance conditions, other than conditions linked
to the price of the shares of EnQuest PLC (market conditions) or ‘non-vesting’ conditions, if applicable. No expense is
recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market or
non-vesting condition, which are treated as vesting irrespective of whether or not the market or non-vesting condition
is satisfied, provided that all other performance conditions are satisfied. Equity awards cancelled are treated as vesting
immediately on the date of cancellation, and any expense not previously recognised for the award at that date is
recognised in the Group income statement.
The Group operates a number of equity-settled employee share plans under which share units are granted to the Group’s
senior leaders and certain other employees. These plans typically have a three-year performance or restricted period.
Leaving employment will normally preclude the conversion of units into shares, but special arrangements apply for
The share-based payment expense recognised for each scheme was as follows:
2022
$’000
2021
$’000
Performance Share Plan
3,264
5,241
Other performance share plans
261
135
Sharesave Plan
1,194
975
4,719
6,351
The following table shows the number of shares potentially issuable under equity-settled employee share plans, including
the number of options outstanding and the number of options exercisable at the end of each year.
Share plans
2022
Number
2021
Number
Outstanding at 1 January
125,493,995
110,263,670
Granted during the year
17,368,011
35,552,383
Exercised during the year
(15,712,039)
(8,056,525)
Forfeited during the year
(24,878,703)
(12,265,533)
Outstanding at 31 December
102,271,264
125,493,995
Exercisable at 31 December
10,490,719
14,249,920
In addition, the Group operates an approved savings-related share option scheme (the Sharesave Plan). The plan is based
on eligible employees being granted options and their agreement to opening a Sharesave account with a nominated
savings carrier and to save over a specified period, either three or five years. The right to exercise the option is at the
employee’s discretion at the end of the period previously chosen, for a period of six months.
The following table shows the number of shares potentially issuable under equity-settled employee share option
plans, including the number of options outstanding, the number of options exercisable at the end of each year and the
corresponding weighted average exercise prices.
Share options
2022
2021
Number
Weighted
average
exercise
price $
Number
Weighted
average
exercise
price $
Outstanding at 1 January
37,518,927
0.14
42,383,654
0.13
Granted during the year
1,292,788
0.32
1,370,748
0.25
Exercised during the year
(2,150,313)
0.17
(885,646)
0.10
Forfeited during the year
(3,353,153)
0.14
(5,349,829)
0.15
Outstanding at 31 December
33,308,249
0.14
37,518,927
0.14
Exercisable at 31 December
445,318
0.17
422,981
When the consideration transferred by the Group in a business combination includes a contingent consideration
arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of
the consideration transferred in a business combination. Changes in fair value of the contingent consideration that
qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against
goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the
‘measurement period’ (which cannot exceed one year from the acquisition date) about facts and circumstances that
existed at the acquisition date.
The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as
measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration
depicted below is remeasured to fair value at subsequent reporting dates with changes in fair value recognised in profit or
loss. Contingent consideration that is classified as equity if any, is not remeasured at subsequent reporting dates and its
subsequent settlement is accounted for within equity.
Contingent consideration is discounted at a risk free rate combined with a risk premium, calculated in alignment with IFRS
13 and the unwinding of the discount is presented within finance costs.
Any contingent consideration included in the consideration payable for an asset acquisition is recorded at fair value at
the date of acquisition and included in the initial measurement of cost. Subsequent measurement changes relating to the
variable consideration are capitalised as part of the asset value if it is probable that future economic benefits associated
Magnus 75%
$’000
Magnus
decommissioning-
linked liability
$’000
Golden Eagle
$’000
Total
$’000
At 31 December 2021
344,627
20,976
45,175
410,778
Change in fair value (see note 5(d))
233,570
(1,070)
–
232,500
Unwinding of discount (see note 6)
34,463
1,947
3,162
39,572
Utilisation
(45,975)
–
–
(45,975)
At 31 December 2022
566,685
21,853
48,337
636,875
Classified as:
Current
72,264
2,597
48,337
123,198
Non-current
494,421
19,256
–
513,677
566,685
21,853
48,337
636,875
22. Contingent consideration
continued
75% Magnus acquisition contingent consideration
On 1 December 2018, EnQuest completed the acquisition of the additional 75% interest in the Magnus oil field (‘Magnus’) and
associated interests (collectively the ‘Transaction assets’) which was part funded through a vendor loan and profit share
arrangement with bp.
The consideration for the acquisition was $300.0 million, consisting of $100.0 million cash contribution, paid from the funds
received through the rights issue undertaken in October 2018, and $200.0 million deferred consideration financed by bp.
The deferred consideration financed by bp was fully settled in June 2021. The consideration also included a contingent
profit-sharing arrangement whereby EnQuest and bp share the net cash flow generated by the 75% interest on a 50:50
basis, subject to a cap of $1.0 billion received by bp. Together, the deferred consideration and contingent profit-sharing
arrangement are known as contingent consideration. The contingent consideration is a financial liability classified as
measured at fair value through profit or loss. The fair value of contingent consideration has been determined by calculating
the present value of the future expected cash flows expected to be paid and is considered a Level 3 valuation under the
fair value hierarchy. Future cash flows are estimated based on inputs including future oil prices, production volumes and
operating costs. Oil price assumptions and discount rate assumptions used were as disclosed in Use of judgements,
estimates and assumptions within note 2. The contingent consideration was fair valued at 31 December 2022, which resulted
in an increase in fair value of $233.6 million (2021: decrease of $145.3 million). The increase in fair value in 2022 is a result of
the Group’s higher long-term oil price assumptions and changes in asset profiles and cost assumptions. The decrease in
2021 reflected revised operating cost assumptions. The fair value accounting effect and finance costs of $34.5 million (2021:
$57.0 million) on the contingent consideration were recognised through remeasurements and exceptional items in the Group
income statement. The contingent profit-sharing arrangement cap of $1.0 billion has been met in 2022 in the present value
calculations (2021: cap was not met). Within the statement of cash flows, the profit share element of the repayment, $46.0
million (2021: $1.0 million) is disclosed separately under investing activities; in 2021, the repayment of the vendor loan of $73.7
million was disclosed under financing activities; and the interest paid on the vendor loan of $6.2 million was included within
interest paid under financing activities. At 31 December 2022, the contingent consideration for Magnus was $566.7 million
(31 December 2021: $344.6 million).
Management has considered alternative scenarios to assess the valuation of the contingent consideration including, but
not limited to, the key accounting estimate relating to discount rate, the oil price and the interrelationship with production
and the profit-share arrangement. A 1.0% reduction in the discount rate applied, which is considered a reasonably possible
change given the prevailing macroeconomic conditions, would increase contingent consideration by $23.0 million. A
1.0% increase would decrease contingent consideration by $21.5 million. As the profit-sharing cap of $1.0 billion has been
met in 2022 in the present value calculations, sensitivity analysis has only been undertaken on a reduction in the price
assumptions of 10%, which is considered to be a reasonably possible change. This results in a reduction of $73.6 million to
the contingent consideration (2021: reduction of $85.1 million and 10% increase in price assumptions results in an increase
of $85.1 million). The change in value represents a change in timing of cash flows.
The payment of contingent consideration is limited to cash flows generated from Magnus. Therefore, no contingent
consideration is payable if insufficient cash flows are generated over and above the requirements to operate the asset. By
reference to the conditions existing at 31 December 2022, the maturity analysis of the contingent consideration is disclosed
in Risk management and financial instruments: liquidity risk (note 27).
Magnus decommissioning-linked contingent consideration
As part of the Magnus and associated interests acquisition, bp retained the decommissioning liability in respect of the
existing wells and infrastructure and EnQuest agreed to pay additional consideration in relation to the management of
the physical decommissioning costs of Magnus. At 31 December 2022, the amount due to bp calculated on an after-tax
basis by reference to 30% of bp’s decommissioning costs on Magnus was $21.9 million (2021: $21.0 million). Any reasonably
possible change in assumptions would not have a material impact on the provision.
Golden Eagle contingent consideration
On 22 October 2021, the Group completed the acquisition of the entire 26.69% non-operated working interest in the Golden
Eagle Area Development, comprising the producing Golden Eagle, Peregrine and Solitaire fields. The consideration for
the acquisition included an amount that was contingent on the average oil price between July 2021 and June 2023.
The contingent consideration is payable in the second half of 2023, if between July 2021 and June 2023 the Dated Brent
average crude price equals or exceeds $55/bbl, upon which $25.0 million is payable, or if the Dated Brent average crude
price equals or exceeds $65/bbl, upon which $50.0 million is payable. The contingent consideration liability is discounted
at 7.00%, based on an appropriate credit risk premium at the time of acquisition, and is calculated principally based on the
oil price assumptions as disclosed in note 2. At 31 December 2022, the contingent consideration was valued at $48.3 million
Decommissioning
Provision for future decommissioning costs is made in full when the Group has an obligation: to dismantle and remove a
facility or an item of plant; to restore the site on which it is located; and when a reasonable estimate of that liability can be
made. The Group’s provision primarily relates to the future decommissioning of production facilities and pipelines.
A decommissioning asset and liability are recognised, within property, plant and equipment and provisions respectively,
at the present value of the estimated future decommissioning costs. The decommissioning asset is amortised over the life
of the underlying asset on a unit of production basis over proven and probable reserves, included within depletion in the
Group income statement. Any change in the present value of estimated future decommissioning costs is reflected as an
adjustment to the provision and the oil and gas asset for producing assets. For assets that have ceased production, the
change in estimate is reflected as an adjustment to the provision and the Group Income Statement, via other income or
expense. The unwinding of the decommissioning liability is included under finance costs in the Group income statement.
These provisions have been created based on internal and third-party estimates. Assumptions based on the current
economic environment have been made which management believes are a reasonable basis upon which to
estimate the future liability. These estimates are reviewed regularly to take into account any material changes to the
assumptions. However, actual decommissioning costs will ultimately depend upon future market prices for the necessary
decommissioning works required, which will reflect market conditions at the relevant time. Furthermore, the timing of
decommissioning liabilities is likely to depend on the dates when the fields cease to be economically viable. This in
turn depends on future oil prices, which are inherently uncertain. See Use of judgements, estimates and assumptions:
Other
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events; it is
probable that an outflow of resources will be required to settle the obligation; and a reliable estimate can be made of the
amount of the obligation.
Decommissioning
provision
$’000
Thistle
decommissioning
provision
$’000
Other
provisions
$’000
Total
$’000
At 31 December 2021
835,721
43,930
15,291
894,942
Additions during the year
(i)
2,814
–
1,423
4,237
Changes in estimates
(i)
(115,493)
(6,060)
(1,373)
(122,926)
Unwinding of discount
16,995
777
–
17,772
Utilisation
(48,452)
(5,832)
(962)
(55,246)
Foreign exchange
(1)
(95)
(1,013)
(1,109)
At 31 December 2022
691,584
32,720
13,366
737,670
Classified as:
Current
47,883
9,086
13,366
70,335
Non-current
643,701
23,634
–
667,335
691,584
32,720
13,366
737,670
(i) Includes $36.8 million relating to assets in decommissioning disclosed in note 5(d) and $75.9 million related to producing assets disclosed in note 10
Decommissioning provision
The Group’s total provision represents the present value of decommissioning costs which are expected to be incurred up
to 2048, assuming no further development of the Group’s assets. Additions during the year relate to the decommissioning
provision recognised due to drilling of new wells in Magnus and Golden Eagle. Changes in estimates during the year primarily
reflect an increase in the Group’s discount rate to 3.5% (2021: 2.0%) as detailed in note 2, partially offset by the net effect of
underlying increases in cost estimates. At 31 December 2022, an estimated $407.0 million is expected to be utilised between one
and five years (2021: $409.6 million), $67.6 million within six to ten years (2021: $81.4 million), and the remainder in later periods.
The Group enters into surety bonds principally to provide security for its decommissioning obligations. The surety bond
facilities which expired in December 2021 were renewed for 12 months, subject to ongoing compliance with the terms of the
Group’s borrowings. At 31 December 2022, the Group held surety bonds totalling $227.6 million (2021: $240.8 million).
Thistle decommissioning provision
In 2017, EnQuest had the option to receive $50.0 million from bp in exchange for undertaking the management of the
physical decommissioning activities for Thistle and Deveron and making payments by reference to 7.5% of bp’s share
of decommissioning costs of Thistle and Deveron fields. The option was exercised in full during 2018 and the liability
recognised within provisions. At 31 December 2022, the amount due to bp by reference to 7.5% of bp’s decommissioning
costs on Thistle and Deveron was $32.7 million (2021: $43.9 million). For the year ended 31 December 2022, change in
estimates of $6.1 million are included within other income (2021: $6.2 million other expenses) and unwinding of discount of
$0.8 million is included within finance income (2021: $1.1 million).
Other provisions
During 2020, a riser at the Seligi Alpha platform which provides gas lift and injection to the Seligi Bravo platform detached.
A provision with respect to required repairs to remedy the damage caused was established. During 2022, $0.3 million was
utilised with a foreign exchange impact of $0.5 million. At 31 December 2022, the provision was $0.7 million (31 December
2021: $1.5 million).
23. Provisions
continued
During 2021, the Group recognised $8.2 million in relation to disputes with third-party contractors. In 2022, one dispute was
settled for $0.5 million and the other dispute is ongoing. At 31 December 2022, the provision was $7.5 million (31 December
As a lessee
The Group recognises a right-of-use asset and a lease liability at the lease commencement date.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement
date, discounted by using the rate implicit in the lease, or, if that rate cannot be readily determined, the Group uses its
incremental borrowing rate.
The incremental borrowing rate is the rate that the Group would have to pay for a loan of a similar term, and with similar
security, to obtain an asset of similar value. The incremental borrowing rate is determined based on a series of inputs
including: the term, the risk-free rate based on government bond rates and a credit risk adjustment based on EnQuest
bond yields.
Lease payments included in the measurement of the lease liability comprise:
•
fixed lease payments (including in-substance fixed payments), less any lease incentives;
•
variable lease payments that depend on an index or rate, initially measured using the index or rate at the
commencement date;
•
the exercise price of purchase options, if the lessee is reasonably certain to exercise the options; and
•
payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease.
The lease liability is subsequently recorded at amortised cost, using the effective interest rate method. The liability is
remeasured when there is a change in future lease payments arising from a change in an index or rate or if the Group
changes its assessment of whether it will exercise a purchase, extension or termination option. When the lease liability
is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is
recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero. The Group did not
make any such adjustments during the periods presented.
The right-of-use asset is measured at cost, which comprises the initial amount of the lease liability adjusted for any lease
payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to
dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any
lease incentives received. Right-of-use assets are depreciated over the shorter period of lease term and useful life of the
underlying asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that
the Group expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the
underlying asset. The depreciation starts at the commencement date of the lease.
The Group applies the short-term lease recognition exemption to those leases that have a lease term of 12 months or
less from the commencement date. It also applies the low-value assets recognition exemption to leases of assets below
£5,000. Lease payments on short-term leases and leases of low-value assets are recognised as an expense on a straight-
line basis over the lease term.
The Group applies IAS 36 Impairment of Assets to determine whether a right-of-use asset is impaired and accounts for any
identified impairment loss as described in the ‘property, plant and equipment’ policy.
Variable rents that do not depend on an index or rate are not included in the measurement of the lease liability and the
right-of-use asset. The related payments are recognised as an expense in the period in which the event or condition that
triggers those payments occurs and are included within ‘cost of sales’ or ‘general and administration expenses’ in the
Group income statement.
For leases within joint ventures, the Group assesses on a lease-by-lease basis the facts and circumstances. This relates
mainly to leases of vessels. Where all parties to a joint operation jointly have the right to control the use of the identified
asset and all parties have a legal obligation to make lease payments to the lessor, the Group’s share of the right-of-use
asset and its share of the lease liability will be recognised on the Group balance sheet. This may arise in cases where the
lease is signed by all parties to the joint operation or the joint operation partners are named within the lease. However, in
cases where EnQuest is the only party with the legal obligation to make lease payments to the lessor, the full lease liability
and right-of-use asset will be recognised on the Group balance sheet. This may be the case if, for example, EnQuest, as
operator of the joint operation, is the sole signatory to the lease. If the underlying asset is used for the performance of the
joint operation agreement, EnQuest will recharge the associated costs in line with the joint operating agreement.
As a lessor
When the Group acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operating
lease. Whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee, the
contract is classified as a finance lease. All other leases are classified as operating leases.
When the Group is an intermediate lessor, it accounts for the head-lease and the sub-lease as two separate contracts.
The sub-lease is classified as a finance or operating lease by reference to the right-of-use asset arising from the head-
lease.
24. Leases
continued
Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct
costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and
recognised on a straight-line basis over the lease term.
Amounts due from lessees under finance leases are recognised as receivables at the amount of the Group’s net
investment in the leases. Finance lease income is allocated to reporting periods so as to reflect a constant periodic rate of
return on the Group’s net investment outstanding in respect of the leases.
When a contract includes lease and non-lease components, the Group applies IFRS 15 to allocate the consideration under
Right-of-use assets and lease liabilities
Set out below are the carrying amounts of the Group’s right-of-use assets and lease liabilities and the movements during
the period:
Right-of-
use assets
$’000
Lease
liabilities
$’000
As at 31 December 2020
496,442
647,846
Additions in the period
17,815
17,815
Depreciation expense
(63,953)
–
Impairment reversal
15,669
–
Disposal
(2,580)
(3,121)
Interest expense
–
45,359
Payments
–
(136,651)
Foreign exchange movements
–
(467)
As at 31 December 2021
463,393
570,781
Additions in the period (see note 10)
28,394
28,130
Depreciation expense (see note 10)
(57,864)
–
Impairment charge (see note 10)
(2,991)
–
Disposal
(1,554)
(1,432)
Interest expense
–
39,172
Payments
–
(147,971)
Foreign exchange movements
–
(6,614)
As at 31 December 2022
429,378
482,066
Current
119,100
Non-current
362,966
482,066
The Group leases assets including the Kraken FPSO, property and oil and gas vessels, with a weighted average lease term
of four years. The maturity analysis of lease liabilities is disclosed in note 27.
Amounts recognised in profit or loss
Year ended
31 December
2022
$’000
Year ended
31 December
2021
$’000
Depreciation expense of right-of-use assets
57,864
63,953
Interest expense on lease liabilities
39,172
45,359
Rent expense – short-term leases
7,116
5,198
Rent expense – leases of low-value assets
50
5
Total amounts recognised in profit or loss
104,202
114,515
Amounts recognised in statement of cash flows
Year ended
31 December
2022
$’000
Year ended
31 December
2021
$’000
Total cash outflow for leases
147,971
136,651
24. Leases
continued
Leases as lessor
The Group sub-leases part of Annan House, the Aberdeen office. The sub-lease is classified as an operating lease, as all
the risks and rewards incidental to the ownership of the right-of-use asset are not all substantially transferred to the lessee.
Rental income recognised by the Group during 2022 was $1.5 million (2021: $1.7 million).
The following table sets out a maturity analysis of lease payments, showing the undiscounted lease payments to be
received after the reporting date:
2022
$’000
2021
$’000
Less than one year
2,313
2,206
One to two years
2,542
2,206
Two to three years
1,905
2,206
Three to four years
822
2,206
Four to five years
824
2,206
More than five years
3,710
1,204
Total undiscounted lease payments
12,116
Capital commitments
At 31 December 2022, the Group had capital commitments amounting to $9.5 million (2021: $1.9 million).
Other commitments
In the normal course of business, the Group will obtain surety bonds, letters of credit and guarantees. At 31 December
2022, the Group held surety bonds totalling $227.6 million (2021: $240.8 million) to provide security for its decommissioning
Contingencies
The Group becomes involved from time to time in various claims and lawsuits arising in the ordinary course of its
business. Outside of those already provided, the Group is not, nor has been during the past 12 months, involved in any
governmental, legal or arbitration proceedings which, either individually or in the aggregate, have had, or are expected to
have, a material adverse effect on the Group balance sheet or profitability.
Nor, so far as the Group is aware, are any such
The Group financial statements include the financial statements of EnQuest PLC and its subsidiaries. A list of the Group’s
principal subsidiaries is contained in note 28 to these Group financial statements.
Balances and transactions between the Company and its subsidiaries, which are related parties, have been eliminated on
consolidation and are not disclosed in this note.
All sales to and purchases from related parties are made at normal market prices and the pricing policies and terms
of these transactions are approved by the Group’s management. With the exception of the transactions disclosed
below, there have been no transactions with related parties who are not members of the Group during the year ended
31 December 2022 (2021: none).
The following table details remuneration of key management personnel of the Group. Key management personnel
comprise Executive and Non-Executive Directors of the Company and the Executive Committee.
2022
$’000
2021
$’000
Short-term employee benefits
6,195
6,890
Share-based payments
3,049
810
Post-employment pension benefits
164
215
Termination payments
228
–
9,636
Risk management objectives and policies
The Group’s principal financial assets and liabilities comprise trade and other receivables, cash and cash equivalents,
interest-bearing loans, borrowings and finance leases, derivative financial instruments and trade and other payables. The
main purpose of the financial instruments is to manage short-term cash flow.
The Group’s activities expose it to various financial risks particularly associated with fluctuations in oil price, foreign
currency risk, liquidity risk and credit risk. Management reviews and agrees policies for managing each of these risks,
which are summarised below. Also presented below is a sensitivity analysis to indicate sensitivity to changes in market
variables on the Group’s financial instruments and to show the impact on profit and shareholders’ equity, where
applicable. The sensitivity has been prepared for periods ended 31 December 2022 and 2021, using the amounts of debt
and other financial assets and liabilities held at those reporting dates.
Commodity price risk – oil prices
The Group is exposed to the impact of changes in Brent oil prices on its revenues and profits generated from sales of crude oil.
The Group’s policy is to have the ability to hedge oil prices up to a maximum of 75% of the next 12 months’ production
on a rolling annual basis, up to 60% in the following 12-month period and 50% in the subsequent 12-month period. On
a rolling quarterly basis, under the RBL facility, the Group is required to hedge a minimum of 45% of volumes of net
entitlement production expected to be produced in the next 12 months, and between 35% and 15% of volumes of net
entitlement production expected for the following 12 months dependent on the proportion of the facility that is utilised. This
requirement ceases at the end date of the facility.
Details of the commodity derivative contracts entered into during and open at the end of 2022 are disclosed in note 19.
As of 31 December 2022, the Group held financial instruments (options and swaps) related to crude oil that covered 3.5
MMbbls of 2023 production. The instruments have an effective average floor price of around $56/bbl in 2023. The Group
utilises multiple benchmarks when hedging production to achieve optimal results for the Group. No derivatives were
designated in hedging relationships at 31 December 2022.
The following table summarises the impact on the Group’s pre-tax profit of a reasonably possible change in the Brent oil
price, on the fair value of derivative financial instruments, with all other variables held constant. The impact in equity is the
same as the impact on profit before tax.
Pre-tax profit
+$10/bbl
increase
$’000
-$10/bbl
decrease
$’000
31 December 2022
(25,321)
19,922
31 December 2021
(91,755)
55,267
Foreign exchange risk
The Group is exposed to foreign exchange risk arising from movements in currency exchange rates. Such exposure arises
from sales or purchases in currencies other than the Group’s functional currency and the 7.00% retail bond which is
denominated in Sterling. To mitigate the risks of large fluctuations in the currency markets, the hedging policy agreed by
the Board allows for up to 70% of the non-US Dollar portion of the Group’s annual capital budget and operating expenditure
to be hedged. For specific contracted capital expenditure projects, up to 100% can be hedged. Approximately 26% (2021:
18%) of the Group’s sales and 85% (2021: 89%) of costs (including operating and capital expenditure and general and
administration costs) are denominated in currencies other than the functional currency.
The Group also enters into foreign currency swap contracts from time to time to manage short-term exposures. The
following tables summarise the Group’s financial assets and liabilities exposure to foreign currency.
Year ended 31 December 2022
USD
$’000
GBP
$’000
MYR
$’000
Other
$’000
Total
$’000
Total financial assets
–
45,732
38,664
746
85,142
Total financial liabilities
–
502,307
13,202
151
515,660
Year ended 31 December 2021
USD
$’000
GBP
$’000
MYR
$’000
Other
$’000
Total
$’000
Total financial assets
–
103,253
34,255
3,967
141,475
Total financial liabilities
–
635,840
21,058
839
657,737
27. Risk management and financial instruments
continued
The following table summarises the sensitivity to a reasonably possible change in the US Dollar to Sterling foreign
exchange rate, with all other variables held constant, of the Group’s profit before tax due to changes in the carrying value
of monetary assets and liabilities at the reporting date. The impact in equity is the same as the impact on profit before tax.
The Group’s exposure to foreign currency changes for all other currencies is not material:
Pre-tax profit
+$10% rate
increase
$’000
-$10% rate
decrease
$’000
31 December 2022
(50,615)
50,615
31 December 2021
(50,695)
50,695
Credit risk is managed on a Group basis. Credit risk in financial instruments arises from cash and cash equivalents and
derivative financial instruments where the Group’s exposure arises from default of the counterparty, with a maximum
exposure equal to the carrying amount of these instruments. For banks and financial institutions, only those rated with an
A-/A3 credit rating or better are accepted. Cash balances can be invested in short-term bank deposits and AAA-rated
liquidity funds, subject to Board-approved limits and with a view to minimising counterparty credit risks.
In addition, there are credit risks of commercial counterparties including exposures in respect of outstanding receivables.
The Group trades only with recognised international oil and gas companies, commodity traders and shipping companies
and at 31 December 2022 there were nil trade receivables past due but not impaired (2021: $0.2 million) and $0.1 million
of joint venture receivables past due (2021: nil) but not impaired. Subsequent to the year end, none of these outstanding
balances have been collected (2021: $0.1 million). Receivable balances are monitored on an ongoing basis with
appropriate follow-up action taken where necessary. The impact of ECL is disclosed in note 16.
Ageing of past due but not impaired receivables
2022
$’000
2021
$’000
Less than 30 days
–
–
30–60 days
–
30
60–90 days
–
146
90–120 days
–
–
120+ days
123
–
123
176
At 31 December 2022, the Group had two customers accounting for 79% of outstanding trade receivables (2021: one
customer, 84%) and one joint venture partner accounting for 25% of outstanding joint venture receivables (2021: one joint
The Group monitors its risk of a shortage of funds by reviewing its cash flow requirements on a regular basis relative to its
existing bank facilities and the maturity profile of its borrowings. Specifically, the Group’s policy is to ensure that sufficient
liquidity or committed facilities exist within the Group to meet its operational funding requirements and to ensure the
Group can service its debt and adhere to its financial covenants. At 31 December 2022, $47.3 million (2021: $32.0 million)
was available for drawdown under the Group’s facilities (see note 18).
The following tables detail the maturity profiles of the Group’s non-derivative financial liabilities including projected
interest thereon. The amounts in these tables are different from the balance sheet as the table is prepared on a
contractual undiscounted cash flow basis and includes future interest payments.
The payment of contingent consideration is limited to cash flows generated from Magnus (see note 22). Therefore, no
contingent consideration is payable if insufficient cash flows are generated over and above the requirements to operate
the asset and there is no exposure to liquidity risk. By reference to the conditions existing at the reporting period end, the
maturity analysis of the contingent consideration is disclosed below. All of the Group’s liabilities, except for the RBL facility,
are unsecured.
Year ended 31 December 2022
On demand
$’000
Up to 1 year
$’000
1 to 2 years
$’000
2 to 5 years
$’000
Over 5 years
$’000
Total
$’000
Loans and borrowings
–
163,223
175,400
152,000
–
490,623
Bonds
(i)
–
194,991
49,919
615,449
–
860,359
Contingent considerations
–
126,910
85,267
327,642
400,480
940,299
Obligations under finance leases
–
151,621
127,592
256,139
37,693
573,045
Trade and other payables
–
426,643
–
–
–
426,643
–
1,063,388
438,178
1,351,230
438,173
3,290,969
(i) Maturity analysis profile for the Group’s bonds includes semi-annual coupon interest. The interest relating to the retail bond 7.00% is only payable in cash if the
average dated Brent oil price is equal to or greater than $65/bbl for the six months preceding one month before the coupon payment date (see note 18)
Year ended 31 December 2021
On demand
$’000
Up to 1 year
$’000
1 to 2 years
$’000
2 to 5 years
$’000
Over 5
years $’000
Total
$’000
Loans and borrowings
–
241,937
204,081
–
–
446,018
Bonds
(i)
–
75,862
1,162,595
–
–
1,238,457
Contingent considerations
–
26,225
68,947
115,485
183,969
394,626
Obligations under finance leases
–
125,374
95,464
311,276
35,844
567,958
Trade and other payables
–
420,543
–
–
–
420,543
–
889,941
1,531,087
426,761
219,813
3,067,602
(i)
Maturity analysis profile for the Group’s bonds includes semi-annual coupon interest. This interest is only payable in cash if the average dated Brent oil price
is equal to or greater than $65/bbl for the six months preceding one month before the coupon payment date (see note 18)
The following tables detail the Group’s expected maturity of payables for its derivative financial instruments. The amounts
in these tables are different from the balance sheet as the table is prepared on a contractual undiscounted cash flow
basis. When the amount receivable or payable is not fixed, the amount disclosed has been determined by reference to a
projected forward curve at the reporting date.
Year ended 31 December 2022
On demand
$’000
Less than 3
months
$’000
3 to 12
months
$’000
1 to 2 years
$’000
Over 2 years
$’000
Total
$’000
Commodity derivative contracts
9,549
27,496
15,553
–
–
52,598
Other derivative contracts
880
4,429
–
–
–
5,309
10,429
31,925
15,553
–
–
57,907
Year ended 31 December 2021
On demand
$’000
Less than 3
months
$’000
3 to 12
months
$’000
1 to 2 years
$’000
Over 2 years
$’000
Total
$’000
Commodity derivative contracts
4,450
17,288
24,035
15,746
–
61,519
4,450
17,288
24,035
15,746
–
27. Risk management and financial instruments
continued
Capital management
The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 18, cash and cash
equivalents and equity attributable to the equity holders of the parent company, comprising issued capital, reserves and
retained earnings as in the Group statement of changes in equity.
The primary objective of the Group’s capital management is to optimise the return on investment, by managing its
capital structure to achieve capital efficiency whilst also maintaining flexibility. The Group regularly monitors the capital
requirements of the business over the short, medium and long term, in order to enable it to foresee when additional capital
will be required.
The Group has approval from the Board to hedge external risks, see Commodity price risk: oil prices and Foreign exchange
risk. This is designed to reduce the risk of adverse movements in exchange rates and market prices eroding the return on
the Group’s projects and operations.
The Board regularly reassesses the existing dividend policy to ensure that shareholder value is maximised. Any future
payment of dividends is expected to depend on the earnings and financial condition of the Company and such other
factors as the Board considers appropriate.
The Group monitors capital using the gearing ratio and return on shareholders’ equity as follows. Further information relating
to the movement year-on-year is provided within the relevant notes and within the Financial review (pages 20 to 26).
2022
$’000
2021
$’000
Loans, borrowings and bond
(i)
(A) (see note 18)
1,018,712
1,508,604
Cash and short-term deposits (see note 14)
(301,611)
(286,661)
EnQuest net debt (B)
717,101
1,221,943
Equity attributable to EnQuest PLC shareholders (C)
484,241
543,766
Profit/(loss) for the year attributable to EnQuest PLC shareholders (D)
(41,234)
376,988
Profit/(loss) for the year attributable to EnQuest PLC shareholders excluding remeasurements and
exceptionals (E)
212,346
220,284
Adjusted EBITDA (F)
979,084
742,868
Gross gearing ratio (A/C)
2.1
2.8
Net gearing ratio (B/C)
1.5
2.2
EnQuest net debt/adjusted EBITDA (B/F)
0.7
1.6
Shareholders’ return on investment (D/C)
N/A
74%
Shareholders’ return on investment excluding exceptionals (E/C)
44%
41%
(i)
At 31 December 2022, EnQuest PLC had investments in the following subsidiaries:
Name of company
Principal activity
Country of
incorporation
Proportion of
nominal value of
issued shares
controlled by the
Group
EnQuest Britain Limited
Intermediate holding company and provision of Group
manpower and contracting/procurement services
England
100%
EnQuest Heather Limited
(i)
Exploration, extraction and production of hydrocarbons
England
100%
EnQuest Thistle Limited
(i)
Exploration, extraction and production of hydrocarbons
England
100%
Stratic UK (Holdings) Limited
(i)
Intermediate holding company
England
100%
Grove Energy Limited
1
Intermediate holding company
Canada
100%
EnQuest ENS Limited
(i)
Exploration, extraction and production of hydrocarbons
England
100%
EnQuest UKCS Limited
(i)
Exploration, extraction and production of hydrocarbons
England
100%
EnQuest Heather Leasing
Limited
(i)
Leasing
England
100%
EQ Petroleum Sabah Limited
(i)
Exploration, extraction and production of hydrocarbons
England
100%
EnQuest Dons Leasing Limited
(i)
Leasing
England
100%
EnQuest Energy Limited
(i)
Exploration, extraction and production of hydrocarbons
England
100%
EnQuest Production Limited
(i)
Exploration, extraction and production of hydrocarbons
England
100%
EnQuest Global Limited
Intermediate holding company
England
100%
EnQuest NWO Limited
(i)
Exploration, extraction and production of hydrocarbons
England
100%
EQ Petroleum Production
Malaysia Limited
(i)
Exploration, extraction and production of hydrocarbons
England
100%
NSIP (GKA) Limited
2
Construction, ownership and operation of an oil pipeline
Scotland
100%
EnQuest Global Services
Limited
(i)3
Provision of Group manpower and contracting/procurement
services for the international business
Jersey
100%
EnQuest Marketing and Trading
Limited
Marketing and trading of crude oil
England
100%
NorthWestOctober Limited
(i)
Dormant
England
100%
EnQuest UK Limited
(i)
Dormant
England
100%
EnQuest Petroleum
Developments
Malaysia SDN. BHD
(i)4
Exploration, extraction and production of hydrocarbons
Malaysia
100%
EnQuest NNS Holdings Limited
(i)
Intermediate holding company
England
100%
EnQuest NNS Limited
(i)
Exploration, extraction and production of hydrocarbons
England
100%
EnQuest Advance Holdings
Limited
(i)
Intermediate holding company
England
100%
EnQuest Advance Limited
(i)
Exploration, extraction and production of hydrocarbons
England
100%
EnQuest Forward Holdings
Limited
(i)
Intermediate holding company
England
100%
EnQuest Forward Limited
(i)
Exploration, extraction and production of hydrocarbons
England
100%
EnQuest Progress Limited
(i)
Exploration, extraction and production of hydrocarbons
England
100%
North Sea (Golden Eagle)
Resources Ltd
Exploration, extraction and production of hydrocarbons
England
100%
EnQuest CCS Limited
(i)
Non-trading
England
100%
Veri Energy Holdings Limited
Intermediate holding company
England
100%
Veri Energy Limited
(i)
Dormant
England
100%
(i)
Held by subsidiary undertaking
The Group has two branches outside the UK (all held by subsidiary undertakings): EnQuest Global Services Limited (Dubai)
and EnQuest Petroleum Production Malaysia Limited (Malaysia).
Registered office addresses:
1
Suite 2200, 1055 West Hastings Street, Vancouver, British Columbia, V6E 2E9
2
Annan House, Palmerston Road, Aberdeen, Scotland, AB11 5QP, United Kingdom
3
Ground Floor, Colomberie House, St Helier, JE4 0RX, Jersey
4
Cash generated from operations
Notes
Year ended
31 December
2022
$’000
Year ended
31 December
2021
$’000
Profit/(loss) before tax
203,214
352,441
Depreciation
5(c)
6,222
7,492
Depletion
5(b)
327,026
305,578
Net impairment charge/(reversal) to oil and gas assets
4
81,049
(39,715)
Write down of inventory
762
151
Change in fair value of investments
–
1
Share-based payment charge
5(f)
4,719
6,351
Change in Magnus related contingent consideration
22
268,910
(81,684)
Change in provisions
23
(25,001)
16,900
Other non-cash income
5(d)
(6,636)
(22,568)
Other expense on final settlement relating to the Magnus acquisition
5(e)
–
3,832
Change in Golden Eagle related contingent consideration
22
3,162
507
Option premiums
19
1,331
1,030
Unrealised (gain)/loss on commodity financial instruments
5(a)
(14,475)
54,451
Unrealised (gain)/loss on other financial instruments
5(b)
4,900
(472)
Unrealised exchange loss/(gain)
(13,588)
(425)
Net finance expense
154,492
152,306
Operating profit before working capital changes
996,087
756,176
Decrease/(increase) in trade and other receivables
12,714
(171,946)
(Increase)/decrease in inventories
(5,388)
(13,496)
Increase/(decrease) in trade and other payables
22,736
186,194
Cash generated from operations
1,026,149
756,928
Changes in liabilities arising from financing activities
Loans and
borrowings
$’000
Bonds
$’000
Lease
liabilities
$’000
Total
$’000
At 1 January 2021
(452,774) (1,079,692)
(647,846)
(2,180,312)
Cash movements:
Repayments of loans and borrowings
184,276
–
–
184,276
Drawdowns of loans and borrowings
(125,000)
–
–
(125,000)
Repayment of lease liabilities
–
–
136,651
136,651
Cash interest paid in year
19,428
38,154
–
57,582
Non-cash movements:
Additions
2,082
–
(17,815)
(15,733)
Interest/finance charge payable
(20,206)
(69,085)
(45,359)
(134,650)
Fee amortisation
(9,857)
(1,173)
–
(11,030)
Disposal
–
–
3,121
3,121
Foreign exchange and other non-cash movements
(14)
1,876
467
2,329
At 31 December 2021
(402,065)
(1,109,920)
(570,781) (2,082,766)
Cash movements:
Repayments of loans and borrowings
415,000
827,166
–
1,242,166
Drawdowns of loans and borrowings
(409,180)
(376,163)
–
(785,343)
Repayment of lease liabilities
–
–
147,971
147,971
Cash interest paid in year
14,771
80,189
–
94,960
Non-cash movements:
Additions
4,038
14,323
(28,130)
(9,769)
Interest/finance charge payable
(14,490)
(62,262)
(39,172)
(115,924)
Fee amortisation
(22,679)
(2,652)
–
(25,331)
Disposal
–
–
1,432
1,432
Foreign exchange and other non-cash movements
1,077
32,036
6,614
39,727
At 31 December 2022
(413,528)
(597,283)
(482,066)
1,492,877
Reconciliation of carrying value
Loans and
borrowings
(see
note 18)
$’000
Bonds
(see
note 18)
$’000
Lease
liabilities
(see
note 24)
$’000
Total
$’000
Principal
(424,864) (1,083,740)
(570,781) (2,079,385)
Unamortised fees
23,250
2,144
–
25,394
Accrued interest (note 17)
(451)
(28,324)
–
(28,775)
At 31 December 2021
(402,065)
(1,109,920)
(570,781) (2,082,766)
Principal
(417,967)
(600,745)
(482,066)
(1,500,778)
Unamortised fees
4,609
13,815
–
18,424
Accrued interest (note 17)
(170)
(10,353)
–
(10,523)
At 31 December 2022
(413,528)
(597,283)
168
Statement of Directors’ Responsibilities
for the Parent Company Financial Statements
The Directors are responsible for preparing the Parent Company financial statements in accordance with applicable law
and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors
have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards and applicable law) including FRS 101 ‘Reduced Disclosure Framework’.
Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true
and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing the
parent company financial statements, the Directors are required to:
• Select suitable accounting policies and then apply them consistently;
• Make judgements and estimates that are reasonable and prudent;
•
State whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed
and explained in the financial statements; and
•
Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the
Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the Company financial statements comply with the Companies Act 2006. They are also
responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
169
EnQuest PLC –
Annual Report and Accounts 2022
Financial Statements
Notes
2022
$’000
2021
$’000
Fixed assets
Investments
3
370,355
396,731
Current assets
Trade and other debtors
– due within one year
4
3
9
– due after one year
4
702,616
1,178,379
Cash at bank and in hand
89
317
702,708
1,178,705
Trade and other creditors:
amounts falling due within one year
6
(14,771)
(35,472)
Net current assets
687,937
1,143,233
Total assets less current liabilities
1,058,292
1,539,964
Trade and other creditors:
amounts falling due after one year
7
(586,930)
(1,081,596)
Net assets
471,362
458,368
Share capital and reserves
Share capital and premium
8
392,196
392,196
Other reserve
40,143
40,143
Share-based payment reserve
11,510
6,791
Profit and loss account
27,513
19,238
Shareholders’ funds
471,362
458,368
The attached notes 1 to 11 form part of these Company financial statements.
The Company reported a profit for the financial year ended 31 December 2022 of $8.3 million (2021: profit of $368.2 million).
There were no other recognised gains or losses in the period (2021: $nil).
The financial statements were approved by the Board of Directors and authorised for issue on 4 April 2023 and signed on
its behalf by:
Salman Malik
Chief Financial Officer
(Registered number: 07140891)
At 31 December 2022
170
Company Statement of Changes in Equity
For the year ended 31 December 2022
Share
capital
and share
premium
$’000
Other
reserve
$’000
Share–
based
payments
reserve
$’000
Profit
and loss
account
$’000
Total
$’000
At 31 December 2020
345,420
40,143
1,016
(348,980)
37,599
Profit/(loss) for the year
–
–
–
368,218
368,218
Total comprehensive income for the year
–
–
–
368,218
368,218
Issue of share capital net of expenses
46,200
–
–
–
46,200
Share-based payment charge
–
–
6,351
–
6,351
Shares purchased on behalf of Employee Benefit Trust
576
–
(576)
–
–
At 31 December 2021
392,196
40,143
6,791
19,238
458,368
Profit/(loss) for the year
–
–
–
8,275
8,275
Total comprehensive expense for the year
–
–
–
8,275
8,275
Share-based payment charge
–
–
4,719
–
4,719
At 31 December 2022
392,196
40,143
11,510
27,513
471,362
171
EnQuest PLC –
Annual Report and Accounts 2022
Financial Statements
Notes to the Financial Statements
For the year ended 31 December 2022
1. Corporate information
The separate parent company financial statements of EnQuest PLC (the ‘Company’) for the year ended 31 December 2022
were authorised for issue in accordance with a resolution of the Directors on 4 April 2023.
EnQuest PLC (‘EnQuest’ or the ‘Company’) is a public limited company incorporated and registered in England and is the
holding company for the Group of EnQuest subsidiaries (together the ‘Group’). The Company address can be found on the
inside back cover.
2. Summary of significant accounting policies
Basis of preparation
These separate financial statements have been prepared in accordance with Financial Reporting Standard 101, ‘Reduced
Disclosure Framework’ (‘FRS 101’) and the Companies Act 2006. The Company meets the definition of a qualifying entity
under FRS 100, ‘Application of Financial Reporting Requirements’ as issued by the Financial Reporting Council. The
Company has previously notified its shareholders in writing about, and they do not object to, the use of the disclosure
exemptions used by the Company in these financial statements.
These financial statements are prepared under the historical cost basis, except for the fair value remeasurement of certain
financial instruments as set out in the accounting policies below. The functional and presentation currency of the separate
financial statements is US Dollars and all values in the separate financial statements are rounded to the nearest thousand
($’000) except where otherwise stated.
As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in
relation to share-based payments, financial instruments, fair value measurement, capital management, presentation of
comparative information in respect of certain assets, presentation of a cash flow statement, standards not yet effective,
impairment of assets and related party transactions. Where relevant, equivalent disclosures have been given in the Group
accounts.
The Directors have taken advantage of the exemption available under Section 408 of the Companies Act 2006 and not
presented an income statement or a statement of comprehensive income for the parent company. The parent company’s
accounts present information about it as an individual undertaking and not about its Group.
Going concern
The Directors’ assessment of going concern concludes that the use of the going concern basis is appropriate and the
Directors have a reasonable expectation that the Group, and therefore the Company, will be able to continue in operation
and meet its commitments as they fall due over the going concern period. See note 2 of the Group financial statements for
further details.
The accounting policies which follow set out those policies which apply in preparing the financial statements for the year
ended 31 December 2022.
Critical accounting estimates and judgements
The management of the Group has to make estimates and judgements when preparing the financial statements of
the Group. Uncertainties in the estimates and judgements could have an impact on the carrying amount of assets and
liabilities and the Group’s results. The most important estimates in relation thereto are:
Impairment of investments in subsidiaries
Determination of whether investments have suffered any impairment requires an estimation of the assets’ recoverable
value. The recoverable value is based on the discounted cash flows expected to arise from the subsidiaries’ oil and gas
assets, using asset-by-asset life of field projections as part of the Group’s assessment for the impairment of the oil and
gas assets. The Company’s investment in subsidiaries is tested for impairment annually. See Group critical accounting
estimates and judgements.
Foreign currencies
Transactions in currencies other than the Company’s functional currency are recorded at the prevailing rate of exchange
on the date of the transaction. At the year end, monetary assets and liabilities denominated in foreign currencies are
retranslated at the rates of exchange prevailing at the balance sheet date. Non-monetary assets and liabilities that are
measured at historical cost in a foreign currency are translated using the rate of exchange as at the dates of the initial
transactions. Non-monetary assets and liabilities measured at fair value in a foreign currency are translated using the rate
of exchange at the date the fair value was determined. All foreign exchange gains and losses are taken to the statement of
comprehensive income.
3. Investments
Accounting policy
Investments in subsidiaries are accounted for at cost less any provision for impairment.
(a) Summary
2022
$’000
2021
$’000
Subsidiary undertakings
370,349
396,725
Other financial assets at FVPL
6
6
Total
370,355
396,731
172
Notes to the Financial Statements
continued
For the year ended 31 December 2022
3. Investments
continued
(b) Subsidiary undertakings
Subsidiary
undertakings
$’000
Cost
At 1 January 2021
1,387,807
Additions
6,350
At 31 December 2021
1,394,157
Additions
4,719
At 31 December 2022
1,398,876
Provision for impairment
At 1 January 2021
1,316,463
Impairment reversal for the year
(319,031)
At 31 December 2021
997,432
Impairment charge for the year
31,095
At 31 December 2022
1,028,527
Net book value
At 31 December 2022
370,349
At 31 December 2021
396,725
At 31 December 2020
71,344
The Company has recognised an impairment of its investment in subsidiary undertakings of $31.1 million (2021: impairment
reversal of $319.0 million). The impairment charge for the year ended 31 December 2022 is primarily attributable to the
introduction of EPL and changes in production profiles, partially offset by an increase in EnQuest’s long term oil price
assumptions.
The Group’s recoverable value of its investments is highly sensitive, inter alia, to oil price achieved. A sensitivity has
been run on the oil price assumption, with a 10.0% change being considered to be a reasonable possible change for the
purposes of sensitivity analysis (see note 2 of the Group financial statements). A 10.0% decrease in oil price would have
increased the impairment charge by $245.2 million.
The oil price sensitivity analysis does not, however, represent management’s best estimate of any impairments that
might be recognised as they do not fully incorporate consequential changes that may arise, such as reductions in costs
and changes to business plans, phasing of development, levels of reserves and resources, and production volumes. As
the extent of a price reduction increases, the more likely it is that costs would decrease across the industry. The oil price
sensitivity analysis therefore does not reflect a linear relationship between price and value that can be extrapolated.
Details of the Company’s subsidiaries at 31 December 2022 are provided in note 28 of the Group financial statements.
(c) Other financial assets at FVPL
The interest in other listed investments at the end of the year is part of the Group’s investment in the Ordinary share capital
of Ascent Resources plc, which is incorporated in the United Kingdom and registered in England and Wales.
4. Trade and other debtors
Financial assets
Financial assets are classified, at initial recognition, as amortised cost, fair value through other comprehensive income
(‘FVOCI’), or fair value through profit or loss (‘FVPL’). The classification of financial assets at initial recognition depends
on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them. The
Company does not currently hold any financial assets at FVOCI, i.e. debt financial assets.
Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when
the financial asset and substantially all the risks and rewards are transferred.
Financial assets at amortised cost
Trade debtors, other debtors and joint operation debtors are measured initially at fair value and subsequently recorded
at amortised cost, using the effective interest rate (‘EIR’) method, and are subject to impairment. Gains and losses are
recognised in profit or loss when the asset is derecognised, modified or impaired and EIR amortisation is included within
finance costs.
The Company measures financial assets at amortised cost if both of the following conditions are met:
•
The financial asset is held within a business model with the objective to hold financial assets in order to collect
contractual cash flows; and
•
The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
Prepayments, which are not financial assets, are measured at historical cost.
173
EnQuest PLC –
Annual Report and Accounts 2022
Financial Statements
4. Trade and other debtors
continued
Impairment of financial assets
The Company recognises a provision for expected credit loss (‘ECL’), where material, for all financial assets held at the
balance sheet date. The measurement of expected credit losses is a function of the probability of default, loss given
default and exposure at default. ECLs are based on the difference between the contractual cash flows due to the
Company, and the discounted actual cash flows that are expected to be received. Where there has been no significant
increase in credit risk since initial recognition, the loss allowance is equal to 12-month expected credit losses. Where the
increase in credit risk is considered significant, lifetime credit losses are provided. For trade receivables, a lifetime credit
loss is recognised on initial recognition where material.
The provision rates are based on days past due for groupings of customer segments with similar loss patterns (i.e. by
geographical region, product type, customer type and rating) and are based on their historical credit loss experience,
adjusted for forward-looking factors specific to the debtors and the economic environment. The Company evaluates
the concentration of risk with respect to intercompany debtors as low, as its customers are intercompany ventures, and
has considered the risk relating to the probability of default on loans that are repayable on demand. The Company has
evaluated an expected credit loss of $2.2 million for the year ended 31 December 2022, as required by IFRS 9’s expected
credit loss model (2021: $2.8 million).
2022
$’000
2021
$’000
Due within one year
Prepayments
3
9
3
9
Due after one year
Amounts due from subsidiaries
702,616
1,178,379
Included within the amounts due from Group undertakings are balances of $667.2 million (2021: $1,138.1 million) on which
interest was charged at between 7.0-11.625% (2021: 7.0-7.12%). All other balances are interest free.
All amounts owed by Group undertakings are unsecured and repayable on demand. However, the Company does not
expect such amounts to be repaid within one year from the balance sheet date.
5. Deferred tax
The Company has unused UK mainstream corporation tax losses of $23.6 million (2021: $57.1 million) for which no deferred
tax asset has been recognised at the balance sheet date due to the uncertainty of recovery of these losses.
6. Trade and other creditors: amounts falling due within one year
Accounting policy
Financial liabilities
Financial liabilities are classified, at initial recognition, as amortised cost or at fair value through profit or loss.
Financial liabilities are derecognised when they are extinguished, discharged, cancelled or they expire. When an existing
financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing
liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability
and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the Group income
statement.
Financial liabilities at amortised cost
Loans and borrowings, trade creditors and other creditors are measured initially at fair value net of directly attributable
transaction costs and subsequently recorded at amortised cost, using the effective interest rate method. Loans and
borrowings are interest bearing. Gains and losses are recognised in profit or loss when the liability is derecognised and EIR
amortisation is included within finance costs.
2022
$’000
2021
$’000
Bond and other interest
10,353
28,617
Amounts due to subsidiaries
4,307
6,699
Accruals
111
156
14,771
35,472
All amounts owed to Group undertakings are unsecured and repayable on demand. No interest was paid on short-term
amounts due to subsidiaries (2021: nil)
174
Notes to the Financial Statements
continued
For the year ended 31 December 2022
7. Trade and other creditors: amounts falling due after one year
2022
$’000
2021
$’000
Bonds
586,930
1,081,596
At 31 December 2022, bonds comprise a high yield bond and two retail bonds. In October 2022, the Group redeemed the
full outstanding balance of $792.3 million of its 7.00% high yield bond, ahead of its maturity in October 2023. In October
2022, the Group concluded an offer of $305.0 million for a US Dollar high yield bond. The principal of the high yield bond is
$291.2 million (2021: $825.4 million), matures in November 2027 and pays a coupon of 11.625% bi-annually. The retail bond
7.00%, which matures in October 2023, has a principal of $134.5 million (2021: $256.2 million) and pays a coupon of 7.00%
bi-annually. On 27 April 2022, following a successful exchange and cash offer, £79.3 million of the retail bond 7.00% were
exchanged for the retail bond 9.00%. The retail bond 9.00% has principal of $161.2 million and pays a coupon of 9.00% with a
maturity date of October 2027. See note 18 of the Group financial statements. The maturity profile of the bonds is disclosed
in note 27 of the Group financial statements.
8. Share capital and share premium
The movement in the share capital and share premium of the Company was as follows:
Authorised, issued and fully paid
Ordinary shares
of £0.05 each
Number
Share capital
$’000
Share premium
$’000
Total
$’000
At 1 January 2022 and 31 December 2022
1,885,924,339
131,650
260,546
392,196
The share capital comprises only one class of Ordinary share. Each Ordinary share carries an equal voting right and right
to a dividend.
At 31 December 2022, there were 21,663,181 shares held by the Employee Benefit Trust (2021: 39,718,323). The movement in the
year was due to shares used to satisfy awards made under the Company’s share-based incentive schemes.
9. Reserves
Share capital and share premium
The balance classified as equity share capital includes the total net proceeds (both nominal value and share premium)
on issue of registered share capital of the parent company. Share issue costs associated with the issuance of new equity
are treated as a direct reduction of proceeds. The share capital comprises only one class of Ordinary share. Each Ordinary
share carries an equal voting right and right to a dividend.
Other reserve
The other reserve is used to record any other transactions taken straight to reserves as non-distributable.
Share-based payments reserve
The reserve for share-based payments is used to record the value of equity-settled share-based payments awards to
employees and the balance of the shares held by the Company’s Employee Benefit Trust. Transfers out of this reserve are
made upon vesting of the original share awards. Share-based payment plan information is disclosed in note 21 of the
Group financial statements.
10. Auditor’s remuneration
Fees payable to the Company’s auditor for the audit of the Company and Group financial statements are disclosed in note
5(g) of the Group financial statements.
11. Directors’ remuneration
The emoluments of the Directors are paid to them in their capacity as Directors of the Company for qualifying services to
the Company and the EnQuest Group. Further information is provided in the Directors’ Remuneration Report on pages 85 to
102.
175
EnQuest PLC –
Annual Report and Accounts 2022
Financial Statements
Glossary – Non-GAAP Measures
The Group uses Alternative Performance Measures (‘APMs’) when assessing and discussing the Group’s financial
performance, balance sheet and cash flows that are not defined or specified under IFRS. The Group uses these APMs,
which are not considered to be a substitute for, or superior to, IFRS measures, to provide stakeholders with additional useful
information by adjusting for exceptional items and certain remeasurements which impact upon IFRS measures or, by
defining new measures, to aid the understanding of the Group’s financial performance, balance sheet and cash flows.
The use of the Business performance APM is explained in note 2 of the Group’s consolidated financial statements on
page 128.
Business performance net profit attributable to EnQuest PLC shareholders
2022
$’000
2021
$’000
Reported net profit/(loss) (A)
(41,234)
376,988
Adjustments – remeasurements and exceptional items (note 4):
Unrealised gains/(losses) on derivative contracts (note 19)
9,575
(53,979)
Net impairment (charge)/reversal to oil and gas assets (note 10, note 11 and note 12)
(81,049)
39,715
Finance costs on Magnus contingent consideration (note 6)
(36,410)
(58,395)
Change in Magnus contingent consideration (2022: notes 5(d) and 5(e); 2021: note 5(d))
(232,500)
140,079
Movement in other provisions
–
(7,673)
Other exceptional income (note 5(d))
6,636
22,568
Other exceptional expenses (note 5(e))
–
(3,832)
Other exceptional finance income (note 6)
2,148
–
Pre-tax remeasurements and exceptional items (B)
(331,600)
78,483
Tax on remeasurements and exceptional items (C)
78,020
78,221
Post-tax remeasurements and exceptional items (D = B + C)
(253,580)
156,704
Business performance net profit attributable to EnQuest PLC shareholders (A – D)
212,346
220,284
Adjusted EBITDA is a measure of profitability. It provides a metric to show earnings before the influence of accounting (i.e.
depletion and depreciation) and financial deductions (i.e. borrowing interest). For the Group, this is a useful metric as a
measure to evaluate the Group’s underlying operating performance and is a component of a covenant measure under
the Group’s RBL facility. It is commonly used by stakeholders as a comparable metric of core profitability and can be used
as an indicator of cash flows available to pay down debt. Due to the adjustment made to reach adjusted EBITDA, the Group
notes the metric should not be used in isolation. The nearest equivalent measure on an IFRS basis is profit or loss before tax
and finance income/(costs).
Adjusted EBITDA
2022
$’000
2021
$’000
Reported profit/(loss) from operations before tax and finance income/(costs)
411,887
580,059
Adjustments:
Remeasurements and exceptional items (note 4)
297,338
(136,878)
Depletion and depreciation (note 5(b) and note 5(c))
333,248
313,070
Inventory revaluation
763
151
Change in provision (note 5(d) and note 5(e))
(42,823)
(13,143)
Net foreign exchange (gain)/loss (note 5(d))
(21,329)
(391)
Adjusted EBITDA (E)
979,084
742,868
Total cash and available facilities is a measure of the Group’s liquidity at the end of the reporting period. The Group
believes this is a useful metric as it is an important reference point for the Group’s going concern and viability
assessments, see pages 25 to 26.
Total cash and available facilities
2022
$’000
2021
$’000
Available cash
293,866
276,970
Restricted cash
7,745
9,691
Total cash and cash equivalents (F) (note 14)
301,611
286,661
Available credit facilities
500,000
500,000
Credit facility – drawn down
(400,000)
(415,000)
Letter of credit (note 18)
(52,700)
(53,000)
Available undrawn facility (G)
47,300
32,000
Total cash and available facilities (F + G)
348,911
318,661
176
Glossary – Non-GAAP Measures
continued
Net debt is a liquidity measure that shows how much debt a company has on its balance sheet compared to its cash and
cash equivalents. With de-leveraging a strategic priority, the Group believes this is a useful metric to demonstrate progress
in this regard. It is also an important reference point for the Group’s going concern and viability assessments, see pages 25
to 26. The Group’s definition of net debt, referred to as EnQuest net debt, excludes the Group’s finance lease liabilities as the
Group’s focus is the management of cash borrowings and a lease is viewed as deferred capital investment.
EnQuest net debt
2022
$’000
2021
$’000
Borrowings (note 18):
RBL facility
395,391
391,750
SVT working capital facility
12,275
9,864
Vendor loan facility
5,692
–
Borrowings (H)
413,358
401,614
Bonds (note 18):
High yield bond
291,185
825,441
Retail bonds
295,745
256,155
Bonds (I)
586,930
1,081,596
Non-cash accounting adjustments (note 18):
Unamortised fees on loans and borrowings
4,609
23,250
Unamortised fees on bonds
13,815
2,144
Non-cash accounting adjustments (J)
18,424
25,394
Debt (H + I + J) (K)
1,018,712
1,508,604
Less: Cash and cash equivalents (note 14) (E)
301,611
286,661
EnQuest net debt/(cash) (K – F) (L)
717,101
1,221,943
The EnQuest net debt/adjusted EBITDA metric is a ratio that provides management and users of the Group’s consolidated
financial statements with an indication of how many years it would take to service the Group’s debt. This is a helpful metric
to monitor the Group’s progress against its strategic objective of de-leveraging.
EnQuest net debt/adjusted EBITDA
2022
$’000
2021
$’000
EnQuest net debt (L)
717,101
1,221,943
Adjusted EBITDA (E)
979,084
742,868
EnQuest net debt/adjusted EBITDA (L/E)
0.7
1.6
Cash capex monitors investing activities on a cash basis, while cash decommissioning expense monitors the Group’s cash
spend on decommissioning activities. The Group provides guidance to the financial markets for both these metrics given
the focus on the Group’s liquidity position and ability to reduce its debt.
Cash capex and Cash capital and decommissioning expense
2022
$’000
2021
$’000
Reported net cash flows (used in)/from investing activities
(161,247)
(321,230)
Adjustments:
Purchase of other intangible assets
1,199
10,052
Repayment of Magnus contingent consideration – Profit share
45,975
968
Acquisition costs
–
258,627
Interest received
(1,763)
(256)
Cash capex
(115,836)
(51,839)
Decommissioning spend
(58,964)
(65,791)
Cash capital and decommissioning expense
(174,800)
(117,630)
177
EnQuest PLC –
Annual Report and Accounts 2022
Financial Statements
Free cash flow (‘FCF’) represents the cash a company generates, after accounting for cash outflows to support operations,
to maintain its capital assets. Currently this metric is useful to management and users to assess the Group’s ability to
reduce its debt.
The Group’s definition of free cash flow is net cash flow adjusted for net repayment/proceeds of loans and borrowings, net
proceeds of share issues and cost of acquisitions.
In 2021, the Group made an accelerated repayment of the Magnus Vendor loan of $58.7 million. As the repayment was
made out of Group cash flows rather than as part of the Magnus-related waterfall mechanism, the Group has adjusted for
this accelerated repayment for the purpose of calculating FCF.
Free cash flow
2022
$’000
2021
$’000
Net cash flows from/(used in) operating activities
931,553
674,138
Net cash flows from/(used in) investing activities
(161,247)
(321,230)
Net cash flows from/(used in) financing activities
(731,163)
(285,474)
Adjustments:
Net proceeds of loans and borrowings
(65,473)
(125,000)
Net repayment of loans and borrowings
545,278
184,276
Acquisitions
–
258,627
Repayment of Magnus contingent consideration – Vendor loan
(i)
–
58,668
Net proceeds from share issue
–
(47,782)
Shares purchased by Employee Benefit Trust
–
576
Free cash flow
518,948
396,799
(i) Related to the accelerated vendor loan repayment
Revenue sales
2022
$’000
2021
$’000
Revenue from crude oil sales (note 5(a)) (M)
1,517,666
1,139,171
Revenue from gas and condensate sales (note 5(a)) (N)
514,206
244,073
Realised (losses)/gains on oil derivative contracts (note 5(a)) (P)
(203,741)
(67,679)
Barrels equivalent sales
2022
kboe
2021
kboe
Sales of crude oil (Q)
14,786
15,609
Sales of gas and condensate
(i)
3,366
2,829
Total sales (R)
18,152
18,438
(i)
Includes volumes related to onward sale of third-party gas purchases not required for injection activities at Magnus
Average realised price is a measure of the revenue earned per barrel sold. The Group believes this is a useful metric for
comparing performance to the market and to give the user, both internally and externally, the ability to understand the
drivers impacting the Group’s revenue.
Average realised prices
2022
$/Boe
2021
$/Boe
Average realised oil price, excluding hedging (M/Q)
102.6
73.0
Average realised oil price, including hedging ((M + P)/Q)
88.9
68.6
Average realised blended price, excluding hedging ((M + N)/R)
111.9
75.0
Average realised blended price, including hedging ((M + N + P)/R)
100.7
71.4
178
Glossary – Non-GAAP Measures
continued
Operating costs (‘opex’) is a measure of the Group’s cost management performance. Opex is a key measure to monitor
the Group’s alignment to its strategic pillars of financial discipline and value enhancement and is required in order to
calculate opex per barrel (see below).
Operating costs
2022
$’000
2021
$’000
Reported cost of sales (note 5(b))
1,200,706
907,634
Adjustments:
Remeasurements and exceptional items (note 5(b))
(4,900)
(7,201)
Depletion of oil and gas assets (note 5(b))
(327,027)
(305,578)
Charge/(credit) relating to the Group’s lifting position and inventory (note 5(b))
15,568
(62,307)
Other cost of operations (note 5(b))
(487,831)
(211,575)
Operating costs
396,516
320,973
Less realised (gain)/loss on derivative contracts (S) (note 5(b))
(5,418)
10,693
Operating costs directly attributable to production
391,098
331,666
Comprising of:
Production costs (T) (note 5(b))
347,832
292,252
Tariff and transportation expenses (U) (note 5(b))
43,266
39,414
Operating costs directly attributable to production
391,098
331,666
Barrels equivalent produced
2022
kboe
2021
kboe
Total produced (working interest) (V)
17,250
16,211
Unit opex is the operating expenditure per barrel of oil equivalent produced. This metric is useful as it is an industry
standard metric allowing comparability between oil and gas companies. Unit opex including hedging includes the effect
of realised gains and losses on derivatives related to foreign currency and emissions allowances. This is a useful measure
for investors because it demonstrates how the Group manages its risk to market price movements.
Unit opex
2022
$/Boe
2021
$/Boe
Production costs (T/V)
20.2
18.1
Tariff and transportation expenses (U/V)
2.5
2.4
Total unit opex ((T + U)/V)
22.7
20.5
Realised loss/(gain) on derivative contracts (S/V)
0.3
(0.7)
Total unit opex including hedging ((S + T+ U)/V)
23.0
19.8
179
EnQuest PLC –
Annual Report and Accounts 2022
Financial Statements
Company information
Registered office
2nd Floor, Charles House
5–11 Regent Street
London
SW1Y 4LR
Corporate brokers
J.P. Morgan Cazenove
25 Bank Street
London
E14 5JP
BofA Securities
2 King Edward Street
London
EC1A 1HQ
Auditor
Deloitte LLP
2 New Street Square
London
EC4A 3BZ
Legal adviser
Ashurst LLP
London Fruit & Wool Exchange
1 Duval Square
London
E1 6PW
Corporate and financial public relations
Teneo
85 Fleet Street
London
EC4Y 1AE
EnQuest PLC shares are traded on the London Stock
Exchange and on the NASDAQ OMX Stockholm, in both
cases using the code ‘ENQ’.
UK Registrar
Link Group
10th Floor
Central Square
29 Wellington Street
Leeds
LS1 4DL
Swedish registrar
Euroclear Sweden AB
Box 191
SE–101 23 Stockholm
Sweden
Financial calendar
June 2023: Annual General Meeting
September 2022: Half year results
More information at
www.enquest.com
Forward-looking statements:
This announcement may contain certain forward-looking statements with respect to EnQuest’s expectations and plans,
strategy, management’s objectives, future performance, production, reserves, costs, revenues and other trend information. These
statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that may
occur in the future. There are a number of factors which could cause actual results or developments to differ materially from those
expressed or implied by these forward-looking statements and forecasts. The statements have been made with reference to
forecast price changes, economic conditions and the current regulatory environment. Nothing in this announcement should be
construed as a profit forecast. Past share performance cannot be relied upon as a guide to future performance.
180
Notes
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London, England
2nd Floor, Charles House
5-11 Regent Street
London, SW1Y 4LR
United Kingdom
T +44 (0)20 7925 4900
Aberdeen, Scotland
Annan House
Palmerston Road
Aberdeen, AB11 5QP
United Kingdom
T +44 (0)1224 975 000
Kuala Lumpur, Malaysia
Level 12, Menara Maxis
Kuala Lumpur City Centre
50088 Kuala Lumpur
Malaysia
T +60 3 2783 1888
Dubai, UAE
1st Floor, Office #102
Emaar Square Building #2
Downtown Dubai
Dubai, UAE
T +971 4 550 7100
More information at
www.enquest.com