Differentiated
operations
through the
energy transition
ENQUEST PLC
ANNUAL REPORT AND
ACCOUNTS 2023
01
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2023
Who we are and what we do
An integrated
energy company
ENQUEST IS FOCUSED ON DELIVERING ENERGY TO MEET TODAY’S AND
TOMORROW’S NEEDS WHILE PURSUING DECARBONISATION OPPORTUNITIES.
Strategic Report
02 Highlights
03
Key performance indicators
04
At a glance
06 Chairman’s statement
08 Market overview
10
Chief Executive’s report
14
Our strengths
16
Our strategy
18
Operational review
24
Oil and gas reserves and resources
25 Hydrocarbon assets
26 Financial review
31
Group non-financial and sustainability
information statement
32
Environmental, Social and Governance
36 Environmental
40 Social
46
Governance: Risks and uncertainties
65
Governance: Business conduct
66
Governance: Task Force on
Climate-related Financial Disclosures
76
Governance: Stakeholder engagement
Corporate Governance
79 Executive Committee
80
Board of Directors
82 Chairman’s letter
84
Corporate governance statement
92
Audit Committee report
99
Directors’ Remuneration Report
118
Sustainability Committee report
120 Directors’ report
Financial Statements
125 Statement of Directors’
responsibilities for the
Group financial statements
126 Independent auditor’s report
to the members of EnQuest PLC
138 Group Income Statement
139 Group Balance Sheet
140 Group Statement of Changes in Equity
141
Group Statement of Cash Flows
142 Notes to the Group Financial Statements
185 Statement of Directors’ Responsibilities for
the Parent Company Financial Statements
186 Company Balance Sheet
187 Company Statement of Changes
in Equity
188 Notes to the Financial Statements
193 Glossary - Non-GAAP Measures
197 Company information
Our
purpose
Our purpose is to provide
creative solutions through
the energy transition.
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.
Our
Values
SAFE Results
Working Collaboratively
Respect & Openness
Growth & Learning
Driving a Focused Business
1
2
3
CONTENTS
UPSTREAM
We responsibly extract
existing oil and gas resources
through established
infrastructure while
minimising emissions.
For more, see Page 20
For more, see Page 18
MIDSTREAM AND
VERI ENERGY
We are focused on safe and
reliable operations while
repurposing infrastructure to
progress renewable energy
and decarbonisation
opportunities at scale.
For more, see Page 22
DECOMMISSIONING
We are committed to delivering
decommissioning programmes
responsibly, minimising emissions
and maximising the reuse of
recovered materials.
Our strategic
focus
Managing assets to optimise
and grow 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
while pursuing selective,
capability-led and
value-accretive acquisitions.
5
TOP QUARTILE PRODUCTION UPTIME
Group operated production efficiency
%
87
2022: 84
WELL PLUG AND ABANDONMENT
Thistle and Heather wells completed
25
2022: 24
CARBON STORAGE
Total CO
2
storage potential
In excess of (mtpa)
500
What we do
4
For more, see
Our strategy on
Page 16
03
02
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2023
Key performance indicators
Highlights
Strong free cash flow
generation driving
continued debt
reduction.
Strong operational performance
and focused cost control and
capital discipline underpinned
robust free cash flow generation.
EnQuest net debt was reduced
in the year from $717.1 million to
$480.9 million, with $260.0 million
of accelerated repayments of the
Group’s reserve based lending (‘RBL’)
facility made during the year. The
Group’s debt maturities have also
been extended to 2027 following a
new $150.0 million term loan facility
being agreed in August 2023 and
the settlement in full of the 7%
Sterling retail bond in October 2023.
Production in the year decreased by
7.3% versus 2022, reflecting natural
declines across the portfolio partially
offset by strong uptime and well
programme activities at Magnus
and PM8/Seligi and additional
gas production from Seligi.
The Group’s adjusted EBITDA
decreased 15.8% to $824.7 million,
primarily reflecting the impact
of lower commodity prices on
revenue, partially offset by lower
cost. Profit before tax increased
by 14.1% to $231.8 million, primarily
driven by fair value changes in the
Magnus contingent consideration
liability, partially offset by a higher
non-cash impairment charge.
The Group reported a basic loss
per share of 1.6 pence (2022: loss
per share of 2.2 pence), primarily
reflecting the current tax impact
of the UK Energy Profits Levy.
The Group’s improved balance
sheet and liquidity position
means EnQuest is well placed to
pursue growth opportunities and
begin returns to shareholders.
COMMODITY PRICES
Average Brent oil price
$/bbl
82.5
-18.2%
2022: 100.8
Average day-ahead gas price
GBp/therm
98.9
-51.4%
2022: 203.5
ALTERNATIVE PERFORMANCE MEASURES
1
Operating costs
$ million
347.2
-12.4%
2022: 396.5
Adjusted EBITDA
$ million
824.7
-15.8%
2022: 979.1
Free cash flow
$ million
300.0
-42.2%
2022: 518.9
Read more in the Financial review
See
Page 26
STATUTORY PERFORMANCE MEASURES
Revenue and other operating income
$ million
1,487.4
-19.8%
2022: 1,853.6
Profit/(loss) before tax
$ million
231.8
+14.1%
2022: 203.2
Basic earnings/(loss) per share
cents
(1.6)
+27.3%
2022: (2.2)
Net cash flows from operating activities
$ million
754.2
-19.0%
2022: 931.6
Net assets/(liabilities)
$ million
456.7
-5.7%
2022: 484.2
Read more in the Financial review
See
Page 26
Note above:
1
See reconciliation of alternative performance measures within the ‘Glossary – Non-GAAP measures’
starting on page 193
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
See reconciliation of alternative performance measures within the ‘Glossary – Non-GAAP measures’
starting on page 193
A: HSEA
Group Lost Time Incident frequency rate
1
-8.8
%
D: Cash generated from operations
$ million
-16.7
%
G: Net 2P reserves
MMboe
-7.9
%
2022
0.57
2023
0.52
2021
0.21
2022
1,026.1
2023
854.7
2021
756.9
2022
190
2023
175
2021
205
2023 performance improved versus 2022
with respect to Lost Time Incident (‘LTI’)
performance but the Group was disappointed
to see LTIs during the year. EnQuest remained
in the upper quartile for this metric and has
engaged in a programme of intervention,
working closely with contractors to ensure that
all people working on EnQuest installations are
aligned with our safety culture.
Cash generated from operations reflected
lower production and lower commodity prices
partially offset by effective cost control.
During the year, the Group produced c.16
MMboe of its year-end 2022 2P reserves base.
B: Net production
Boepd
-7.3
%
E: Cash capital and decommissioning
expense
2
$ million
+20.8
%
H: Scope 1 and 2 emissions
tCO
2
e
-1.0%
2022
47,259
2023
43,812
2021
44,415
2022
174.8
2023
211.1
2021
117.6
2022
1,051.9
2023
1,041.9
2021
1,164.1
The decrease in production was primarily
driven by natural declines across the
portfolio partially offset by strong uptime
and well programme activities at Magnus
and additional gas production from Seligi.
Increased cash capital and decommissioning
expense reflected well programmes at Magnus
and Golden Eagle, in addition to well plug and
abandonment decommissioning activities at
Heather/Broom, and Thistle/Deveron.
Total CO
2
e emissions were marginally lower,
reflecting lower fuel gas and diesel usage.
C: Unit opex
2
$/Boe
-3.5
%
F: EnQuest net debt
2
$ million
-32.9
%
2022
22.7
2023
21.9
2021
20.5
2022
717.1
2023
480.9
2021
1,222.0
Average unit operating costs were primarily
impacted by work programme optimisation
across the portfolio, combined with higher
lease charter credits and lower diesel costs at
Kraken, partially offset by the strengthening
of Sterling against the US Dollar.
Strong free cash flow generation was utilised
to deleverage the Group’s balance sheet.
During 2023, the Group aligned debt
maturities to 2027 following a new term
loan being agreed and the settlement in
full of the 7.00% Sterling retail bond.
Our strategic focus
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 while
pursuing selective, capability-
led and value-accretive
acquisitions
05
04
Green Hydrogen Production
and e-derivatives
- GW scale
Wind turbines
- Renewable power
Carbon storage
- 10 million tonnes per annum
Renewable energy hub
4 Deep water jetties
- 24 metre draught
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2023
Group operations
EnQuest is an independent energy company.
We focus on mature late-life assets, responsibly optimising
production to provide energy security. Where we can, we repurpose
our infrastructure to deliver renewable energy and decarbonisation
projects before executing world-class decommissioning. We are
investing in infrastructure and new energy to drive the transition.
04
Read more in the Operational review
See Page 18
At a glance
1
Onshore processing
terminal
4
Decommissioning
assets
734
Global
employees
4
UK production
hubs
1
Reserves Replacement Ratio
calculated as Reserves Additions/
Production – as at 31 December 2023
Sullom Voe Terminal provides the Group with the infrastructure from which
to progress its new energy and decarbonisation ambitions including carbon
capture and storage, the production of green hydrogen and derivatives and
generation of renewable power
10
mtpa CO
2
storage
potential
4
carbon storage
licences
EXISTING OPERATIONS
TOP QUARTILE OPERATIONS
As an operator of mature assets, it is
imperative that EnQuest delivers top
quartile production efficiency to maintain
cash generation and extend asset lives.
In 2023, EnQuest achieved the following
production uptime performance at its
operated assets:
•
Magnus: 88%
•
Kraken: 86%
•
Greater Kittiwake Area: 83%
•
PM8/Seligi: 90%
Alma/Galia
Scolty/Crathes
Kraken
Magnus
Golden Eagle
UK North Sea
Aberdeen
Upstream
Decommissioning
Midstream
Heather/Broom
Sullom Voe
Terminal
PM8/Seligi
PM409
Undeveloped offshore licence
Producing asset
Kuala
Lumpur
Malaysia
Thistle/Deveron
Dons
Alba
Greater Kittiwake Area
RENEWABLE ENERGY AND
DECARBONISATION OPPORTUNITIES
Sullom Voe Terminal,
Shetland Islands
43,812
(Boepd) Production
175
(MMboe) 2P Reserves
389
(MMboe) 2C Resources
95%
Operated 2P
84%
UK North Sea 2P
1.5x
RRR
1
since IPO
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
energy transition company. We
believe in collaborating with local
communities, governments, and
partners to build a future where
energy needs are met sustainably
and equitably. The expertise which
resides today within traditional oil
and gas companies will deliver the
energy transition and we recognise
that our skilled and dedicated
workforce is our strength.
07
06
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2023
Chairman’s statement
Overview
The Group continues to achieve
operational excellence in a safe,
responsible manner, leveraging core
capabilities to create value through
the transition. By delivering against
2023 operational and financial targets,
EnQuest again generated material
free cash flow, facilitating further
reduction in the Group’s net debt
and the voluntary acceleration of
repayments against our senior secured
credit facility, in line with our strategic
objective to de-lever the business.
Against the backdrop of the
evolving UK fiscal environment, our
financial performance remained
robust, underscored by disciplined
cost management and a prudent
approach to capital allocation which
has enabled us to strengthen our
balance sheet, reduce debt levels,
and enhance financial flexibility. With
great progress made in recent years
against our stated aims to deliver and
de-lever, it is now time for the Group
to focus on value-accretive growth.
As the reality of the UK Energy Profits
Levy has impacted cash generation
and investment across the UK energy
sector, the Group’s significant tax
loss position creates a relative
advantage versus full tax paying
peers and 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 EnQuest to add
significant production and cash flow
to the portfolio 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 commodity mix within
our portfolio with more gas assets.
EnQuest’s Just Energy Transition
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 delivering
credible and potentially material
new energy and decarbonisation
opportunities which are now managed
by Veri, a wholly owned subsidiary of
EnQuest PLC, primarily through the
repurposing of existing infrastructure.
The Group also continues to
demonstrate its sector-leading
capability in decommissioning, which
is becoming an ever more significant
component of the competency
mix for a North Sea operator.
As we navigate the energy transition,
we are committed to strategies that
prioritise employee and community
wellbeing, professional growth, and
economic security. We have set
ambitious, time-bound targets to
reduce our emissions, consistently
updating internal and external
stakeholders on progress, and I was
delighted to see our efforts recognised
through a ‘B’ rating in the 2023 CDP
Climate Change Survey, which places
EnQuest among the sector leaders.
The Board added its support to the
Group’s sustainability plan during
2023 by approving a commitment to
reach net zero Scope 1 and Scope 2
emissions by 2040 and will work closely
with management to ensure that
appropriate and credible milestones
are set for the journey to net zero.
Board composition
As the Group’s strategy has evolved,
we have taken steps to align the
competencies of the Board more
closely with its delivery, culminating in
a process to reshape the composition
of our Board during 2023. As part of
that process, our three longest serving
Non-Executive Directors, Carl Hughes,
Howard Paver, and John Winterman,
stepped down from the Board at the
2023 Annual General Meeting and,
following an extensive recruitment
process, Michael Borrell and Karina
Litvack were appointed as Non-
Executive Directors. Unfortunately,
Karina had to step down from the
Board due to an unexpected conflict
arising. The recruitment process for
an additional Non-Executive Director
commenced in January 2024 and I
am delighted to welcome Rosalind
Kainyah to the Board ahead of the AGM.
The restructure also involved reviewing
the roles and responsibilities of the
Executive Directors and it was agreed
that Salman Malik, Chief Financial
Officer (‘CFO’) and Managing Director,
Infrastructure and New Energy, would
assume the role of Chief Executive
Officer (‘CEO’) of Veri Energy (‘Veri’),
a wholly owned subsidiary of
EnQuest. This was the logical next
step for the Group’s new energy and
decarbonisation ambitions and
provides the dedicated Veri team the
opportunity to leverage support from
financial and strategic partnerships.
We recruited Jonathan Copus as CFO
Designate in December 2023 and, after
a formal transition process, he became
CFO on 1 February 2024 and will be
proposed for election to the Board at
the Annual General Meeting (‘AGM’).
Jonathan was previously CFO at
Salamander Energy PLC, a production
and development business focused
in South East Asia and also served as
CEO at Getech Group PLC. Jonathan
has a strong technical background in
geoscience and geology, as well as
extensive capital markets experience.
As we look forward, I am pleased
to report that the Group 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.
Looking ahead
The Group remains firmly committed
to delivering long-term value for
our shareholders while embracing
the opportunities and challenges of
the evolving energy landscape. We
recognise the imperative to adapt
to changing market dynamics and
embrace innovation and sustainability
as catalysts for future growth.
As we embark on the next growth
phase of our journey, we are
confident in the resilience of our
business model, the capability
and dedication of our people, and
collective support at all levels of the
organisation to cement EnQuest as a
key player in a just energy transition.
Together, we will continue to build
on our successes, drive operational
excellence, and pursue sustainable
growth, guided by our strategic vision
to apply our core capabilities to
create value though the transition.
The Group’s strong track record of
delivering accretive acquisitions
through innovative transaction
structures places EnQuest in a good
position as other industry participants
reconsider their appetite for continued
investment in the UK North Sea
following changes to the prevailing
fiscal regime. 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. Coupled with the potential
for many of the Group’s distinct
capabilities that drive its Upstream and
Decommissioning businesses to be
effectively applied to renewable energy
and decarbonisation workstreams,
I am confident that EnQuest enjoys
a differentiated position that will
underpin success in the future.
Gareth Penny
Chairman
Fuelling the
just energy
transition
Gareth Penny
Chairman
“We recognise the evolving energy landscape
and are committed to leading a Just Energy
Transition, ensuring that our workers, the
communities we serve, and our stakeholders
benefit in the process.”
09
08
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2023
Market overview
Global trends
impacting our business
What does it mean for
our industry?
Commodity prices remained
supportive during 2023, with increased
demand for hydrocarbons as global
economies continued on the path of
industrial recovery post-pandemic.
An increase in US shale production, as
well as the emergence of additional
incremental non-OPEC supply led
OPEC to institute production cuts.
Supply concerns have escalated
and dissipated at various junctures
during the fourth quarter of 2023 and
continued into 2024 with an escalation
of tensions in the Middle East.
How are we responding?
EnQuest hedges a significant amount
of its production, predominantly
through put options, in order to
protect against downside risk, while
retaining the upside during periods
of increased commodity prices.
What does it mean for
our industry?
Fiscal regime volatility undermines
confidence and imposes significant
challenges on the sector, negatively
impacting the investment
environment. The extension of the
UK Energy Profits Levy (‘EPL’) to 2029,
which was announced in the Spring
Budget, represented the fourth
amendment to UK sector taxation in
the last two years. The EPL has resulted
in a number of industry participants
accelerating their shift in focus away
from the UK North Sea, with some
reducing investment and others
looking to depart the UK entirely.
How are we responding?
EnQuest remains committed to
the UK and the Group’s historic tax
loss position in the UK creates
a significant 2.6x relative tax
advantage versus full tax paying
operators. This provides the Group
with a strong foundation from which
to pursue value-accretive growth
through acquisition.
What does it mean for
our industry?
The Environmental, Social and
Governance (‘ESG’) landscape is
evolving and oil and gas companies
are expected to adopt principles of
environmental stewardship, resource
efficiency, social responsibility and
community engagement, and safety
and risk management. Above all,
transparency and accountability
are vital.
How are we responding?
EnQuest maintains collaborative
relationships with major shareholders,
lenders and other key stakeholders,
regularly seeking feedback on the
Group’s operational plans and ESG
performance. Demonstrating its
commitment to responsible and
sustainable operations, the Group
was awarded a ‘B’ rating in the 2023
CDP Climate Change Survey.
What does it mean for
our industry?
Within the oil and gas sector, a
credible transition plan is effectively
the licence to operate. Companies
will increasingly be asked to explain
how targets will be met and emphasis
will be applied to reporting against
interim milestone targets.
How are we responding?
EnQuest has a Board-approved
target to reach net zero in terms of
Scope 1 and Scope 2 emissions by
2040. The Group is progressing its
transition plans and aims to institute
a net zero roadmap during 2024. The
decarbonisation and new energy
opportunities at the Sullom Voe
Terminal add significant credibility
to the Group’s net zero ambitions.
What does it mean for
our industry?
The transition to just energy introduces
both challenges and opportunities for
the sector. Companies that adapt to
changing market dynamics, diversify
their portfolios, and embrace
sustainable practices will be better
positioned to thrive in a low-carbon
future. Investors are increasingly
considering ESG factors in their
investment decisions and companies
will face issues in attracting investment
if they are perceived as being
incompatible with sustainability goals.
How are we responding?
The Group recognises the evolving
energy landscape and is committed
to leading a Just Energy Transition,
ensuring that our workers, the
communities we serve, and our
stakeholders benefit in the process.
In shaping our
strategy we consider
a wide range of
issues, assessing
the potential
opportunities and
threats they pose
to our business.
Macroeconomic
uncertainty
Global markets impacted
by volatility of the
geopolitical environment,
with continued conflict in
Europe and escalating
tensions in the Middle East
due to Israel-Hamas war.
UK oil and gas
fiscal regime
The EPL has driven some
operators to shift focus
away from the UK North
Sea and has impacted
access to capital across
the sector.
Responsible
and sustainable
operation
Key stakeholders are
increasingly demanding
responsible and ethical
working practices that drive
positive impacts for society
and manage risk.
Climate change
and carbon
targets
Governments, regulators
and consumers are calling
for the reduction of
carbon-related emissions
and net zero targets are
coming under scrutiny.
The just energy
transition (‘JET’)
The JET has risen to
prominence, underscoring
the shift from fossil fuels to
renewables, prioritising
equity and support for
impacted people and
communities.
Read more in the
Financial review
See Page 26
Scope 1 and 2 emissions
tCO
2
e
-23%
2020
1,361.9
2023
1,042.6
11
10
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2023
“Our business model embodies the energy
transition and provides a platform for us to
display our top quartile capabilities across
the asset life cycle. We are value-led and
committed to playing our part in a just and
sustainable transition, with our people at
its heart.”
All figures quoted are in US Dollars and relate to
Business performance unless otherwise stated.
Overview
Since we set our strategic priorities
of ‘deliver, de-lever and grow’ at the
end of 2018, we have made significant
progress; consistently delivering
against production, operational
and cost targets, which in turn has
enabled us to generate material free
cash flows, even during periods of
reduced commodity prices. Against
the backdrop of a challenging fiscal
environment in the UK, we have
reduced EnQuest net debt by more
than $1.5 billion since its peak and
have aligned outstanding debt
maturities in 2027. Now is the time
for EnQuest to build on that strong
foundation as we pivot to growth
during 2024 and initiate our first ever
return of capital to shareholders.
During 2023, the Group once again
delivered a strong operational and
financial performance. Production
uptimes were high across the portfolio
while maintaining discipline in our cost
management and investment decisions
drove expenditure lower than 2023
guidance, generating free cash flow of
$300.0 million and enabling the reduction
of EnQuest net debt to $480.9 million.
From a growth perspective, we have
positioned ourselves well to transact
by ending 2023 with $498.8 million of
liquidity, representing a combination
of cash and headroom within our
borrowing facilities. The Group has an
established track record of executing
value-accretive, quick payback
acquisitions and, having extended
the economic lives of all nine of
the assets we have operated by a
minimum of ten years, we will look to
utilise our differentiated capabilities
and advantaged tax position to
grow the business through M&A.
We also realised value within the
existing portfolio by selling a 15.0%
share of both the Bressay licence
and the EnQuest Producer Floating,
Production, Storage and Offloading
(‘FPSO’); a transaction which
represents an important step in
moving the Bressay project forward.
Since 2018, we have materially reduced
our absolute Scope 1 and 2 emissions
and in 2023, we launched Veri Energy
(‘Veri’), a wholly owned subsidiary of
EnQuest, as the logical next step in
the strategic evolution of EnQuest’s
new energy and decarbonisation
ambitions, which are initially focused
on the strategically advantaged
Sullom Voe Terminal site.
Throughout the year, we reinforced
our position as a leading exponent
of decommissioning activities,
delivering another record year as
the most productive well plug and
abandonment (‘P&A’) campaign in the
northern North Sea, demonstrating our
differentiated capability through an
average well plug and abandonment
cost which leads our peer group.
Our enhanced business model
spans the energy transition, ensuring
that through time the transition is
managed in a just and sustainable
manner. By responsibly managing
existing assets, we will continue to
contribute to energy security today
while advancing our new energy and
decarbonisation opportunities through
Veri Energy 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 2023, global markets
predominantly operated within a price
range of $70/bbl to $90/bbl, except for a
short period of escalated prices during
September. This range reflected softer
pricing than that seen during 2022,
with a number of macroeconomic
and geopolitical impacts offsetting
each other. 2023 saw an increase in
demand for hydrocarbons as global
economies continued the path of
industrial recovery post-pandemic
but the impact on commodity prices
was offset by an increase in US shale
production of around 1.5 million
barrels of oil per day, as well as the
emergence of additional incremental
non-OPEC supply, predominantly from
Brazil, Guyana and Canada. These
supply impacts led OPEC to institute
production cuts, which drove the
September 2023 price spike but which
ultimately resulted in a stabilisation
of prices towards the end of the
year. The geopolitical environment
has also caused uncertainty within
global markets amid a continuation
of the Russia-Ukraine conflict in
Europe and escalating tensions in
the Middle East as war broke out
between Israel and Hamas in October.
Supply concerns have escalated
and dissipated at various junctures
during the fourth quarter of 2023 and
continued into 2024 with US-UK missile
strikes to protect the safe passage
of maritime trade in the Red Sea.
Fiscal uncertainty
Following the introduction, and
subsequent amendment, of the UK
Energy Profits Levy (‘EPL’) during 2022,
2023 represented the first full year of the
windfall tax on oil and gas producers,
at an increased headline rate of 35%,
impacting the Group’s profitability. As
expected, the EPL has impacted access
to capital across the sector, with the
most significant on EnQuest being
the reduced borrowing base within
the Group’s reserve based lending
(‘RBL’) facility. Our robust financial
performance has enabled EnQuest to
accelerate repayments against the RBL,
with the 2023 year-end drawn balance
of $140.0 million being further fully repaid
in the first quarter of 2024, while the
October 2023 7.00% Sterling retail bond
was settled and funds fully drawn under
a new $150.0 million term loan facility.
Going forward, with a strong balance
sheet, we have a fairway of opportunity
to grow the business, ahead of debt
maturities which are aligned in 2027.
Clearly, a volatile fiscal regime imposes
significant challenges on any business
and the extension of the EPL to 2029
announced in the Spring Budget
represented the fourth amendment to
UK sector taxation in the last two years.
However, EnQuest has a track record
of demonstrating resilience, creativity
and adaptability and can generate
opportunities in such circumstances.
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 that the
transfer of assets to EnQuest ownership
would increase their relative value to a
multiple of that in the hands of existing
owners. As such, I am confident we will
grow the business through M&A, initially
in the UK and then internationally.
Operational performance
EnQuest’s average production was in
line with the mid-point of guidance at
43,812 Boepd, underpinned by strong
production uptime across the portfolio,
including at Kraken where an efficient
return to service of the FPSO following
the anomalous failure of transformer
units limited the impact on production.
I was very proud of the EnQuest team
which, working alongside the vessel
owner, Bumi Armada, reinstated
production on a single train basis
within 30 days and then full production
capacity in around two months.
The well programme at Magnus
included the successful completion of
the North West Magnus injector well,
which came online in May to support
the 2022 producer well, alongside
two further infill wells which produced
first oil in August and December,
respectively. Demonstrating EnQuest’s
differentiated operating capability,
Magnus production efficiency
in 2023 was 88%, representing a
22% improvement versus 2022.
Primed for
growth
Amjad Bseisu
Chief Executive
Chief Executive’s report
13
12
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2023
Production
Boepd
43,812
Free cash flow
$ million
300.0
EnQuest net debt
$ million
480.9
2024 production guidance
Boepd
41,000–
45,000
In Malaysia, average production for
the year was 7,437 Boepd, representing
a 15% increase over 2022 volumes.
This increase includes c.600 Boepd
associated with Seligi 1a gas, to which
Petronas holds the entitlement, and
which is produced and handled
by EnQuest in exchange for a gas
handling and delivery fee, as well
as strong operational performance
and production uptime of 90%.
During 2023, we produced c.16 MMboe
of our year-end 2022 2P reserves
base. This reduction in 2P reserves
was partially offset by transfers from
2C resources at Magnus, net of other
technical revisions. As such, 2P reserves
at the end of the year were around
175 MMboe, down from c.190 MMboe
reported at the end of 2022. We
continue to have material 2C resources
of around 389 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 offshore Malaysia
also hold material 2C resources.
The launch of Veri in December 2023
recognises that our position at SVT
provides a strategically advantaged,
sustainable and tangible basis upon
which to expand the Group’s role
in the energy transition; a position
which is predicated on a capital-light
approach to investment and which
was further enhanced by the award
of four carbon storage licences in
the North Sea Transition Authority’s
(‘NSTA’) first UK licensing round.
Our UK decommissioning team
continued to demonstrate excellence
in the execution of well P&A activities
at an average cost of c.£2.5 million
per well, significantly below the NSTA
industry benchmark of c.£4.3 million.
This programme saw the successful
execution of 25 well P&As across the
Heather and Thistle fields, exceeding the
record for the most prolific multi-asset
P&A campaign in the northern North
Sea, previously set by EnQuest in 2022.
Financial performance
The Group’s adjusted EBITDA and
statutory gross profit decreased
by 15.8% to $824.7 million and 17.2%
to $540.7 million, respectively,
reflecting lower realised oil prices
and production. Operating costs for
the year of $347.2 million were 12.4%
lower than 2022, primarily due to
lower diesel costs and higher lease
charter credits associated with the
unplanned downtime at Kraken.
Unit operating costs decreased
3.5% to $21.9/Boe, reflecting the
impacts on costs noted above.
Cash generated from operations
decreased to $854.7 million, down
by 16.7% compared to 2022, although
free cash flow generation remained
robust, delivering $300.0 million.
The Group’s continued solid financial
and operating performance during
the year drove further strengthening
of the balance sheet and enabled
the focus of the business to pivot to
growth in 2024. We are also delighted
to announce our first shareholder
return programme and will deploy
$15.0 million of capital in a share
buyback programme during 2024.
Environmental, Social and
Governance
The health, safety and wellbeing
of our employees remains our top
priority. In 2023, we delivered another
upper quartile Lost Time Incident (‘LTI’)
frequency
1
rate but were disappointed
to see three LTIs during the year.
We remain laser focused on SAFE
Results with no harm to our staff and
contractors and have engaged in a
programme of intervention, assessing
root causes of incidents and working
closely with the contractors involved
to ensure that everyone is aligned
with our safety culture, trained on
equipment and procedures and
empowered to stop a task should
a safer method be identified.
As outlined earlier, we have made
excellent progress in reducing absolute
Scope 1 and 2 emissions in recent
years, with the Group’s CO
2
equivalent
emissions reduced by 23% since 2020
and the UK’s emissions down by c.41%
since 2018. This progress is significantly
ahead of the Group’s targeted
reductions and those set by the UK
Government’s North Sea Transition
Deal, providing a strong foundation for
our commitment to reach net zero by
2040. Looking ahead, the Group has
approved investments designed to
reduce future carbon emissions and
operating costs across the portfolio,
including the new stabilisation facility
and power generation projects at
SVT and the potential gas tie-back
solution from Bressay to Kraken. 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 Non-Executive
Directors Howard Paver, Carl Hughes
and John Winterman stepping down,
to be succeeded by Mike Borrell
and Karina Litvack, although Karina
unfortunately had to resign her position
due to a conflict. I would like to thank
Howard, Carl, John and Karina for their
contributions, and I look forward to
working with the refreshed Board as
we execute on our growth strategy.
2024 performance and outlook
Production performance to the
end of February was 44,498 Boepd.
Our full-year net production
guidance of between 41,000
and 45,000 Boepd includes the
impacts from drilling campaigns
at Magnus, PM8/Seligi and Golden
Eagle and required maintenance
activities across the portfolio.
Operating costs are expected to be
approximately $415.0 million, while
capital expenditure is expected
to be around $200.0 million, with
decommissioning expenditure expected
to total approximately $70.0 million.
Longer-term development
Our strategy and business model
have evolved to align to our aims
of delivering value-driven growth
and establishing EnQuest as a key
player in a just energy transition.
We have established a track record
of executing acquisitions and
optimising asset lives, underpinned
by our operating capabilities and
the transactional flexibility which is
derived from our improved liquidity.
Our position as a top quartile operator,
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 also believe that our core
capabilities and top quartile operating
performance can be replicated across
other geographies as we seek to
grow and diversify internationally.
2023 was a year of continued strong
performance for the Group which was
achieved with the support of all our
stakeholders; our people, shareholders,
investors, lenders, partners and
suppliers. I thank all for their
contributions throughout 2023 and I am
excited about delivering EnQuest’s next
growth phase during this pivotal year.
EnQuest operates the Sullom Voe
Terminal on Shetland, which will
be the focus of the Company’s
decarbonisation and new
energy projects
“Our differentiated operating
capability and strong balance
sheet make EnQuest the right
operator for mature assets in
the North Sea and beyond.”
Chief Executive’s report
continued
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)
15
14
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2023
How we are
differentiated
Our strengths
EnQuest is a top quartile
operator through the
life cycle of maturing
hydrocarbon assets
and its compelling
decarbonisation and
new energy strategy is
anchored in its unique
infrastructure position
and strong engineering
and subsurface
capability.
Distinct skills and
capabilities
Industry leading
sustainability
credentials, with
focus on safety
Differentiated UK
tax positioning
Uniquely
positioned to
capitalise on
transition projects
Track record of
delivering
accretive
acquisitions
•
Top quartile performance
across developments, wells,
operations, decommissioning
and technical support functions
• Transferable capabilities that
can be applied across all
aspects of the portfolio,
different geographies and
decarbonisation and new
energy opportunities
• Highly skilled, dedicated teams
with strong technical credentials
• Board-supported commitment
to reach net zero with regard to
Scope 1 and Scope 2 emissions
by 2040; ten years ahead of
UK target
•
UK Scope 1 and Scope 2 emissions
reduction of 41% versus 2018
baseline. EnQuest performance
tracking significantly ahead of
North Sea Transition Deal targets
• Lost time incident frequency of
0.52 in 2023. UK average is 1.31
•
EnQuest holds significant UK tax
loss position of $2.0 billion as at
31 December 2023
•
Inclusion of the UK Energy
Profits Levy enhances EnQuest’s
relative tax advantage versus
full tax-paying peers
•
EnQuest plans to accelerate tax
loss benefit through acquisition
of value-accretive assets, with
immediate M&A focus in the UK
• EnQuest has exclusive right
to develop new energy and
decarbonisation projects at
Sullom Voe Terminal
•
Launched Veri Energy, a wholly
owned EnQuest subsidiary,
during 2023 to provide dedicated
management of projects
• EnQuest will provide support
in a capital-light manner,
while enabling Veri Energy to
leverage support from financial
and strategic partnerships
•
Since inception, EnQuest has
extended the economic lives
of all nine operated assets
•
Asset acquisitions have
typically achieved payback
within 12-18 months
• Entrepreneurial, innovative
approach taken to structure
past deals with limited upfront
consideration and focus on
value
87%
Average asset production uptime
during 2023
41%
Reduction in UK Scope 1 and Scope
2 emissions versus 2018 baseline
10mtpa
Total anticipated annual carbon
storage potential from CCS project
2.6x
Comparative cash flow due to
tax advantage
1
10+ years
Life extension achieved at
Magnus, PM8/Seligi and Dons
following acquisition
1
2
3
4
5
Read more in the
Financial review
See Page 26
Differentiated capability -
case study
At Magnus, which celebrated its 40th anniversary during
2023, EnQuest’s differentiated operating capability has
delivered transformed performance
Following reduced investment and offshore resource restrictions during the low
commodity price environment and COVID-19 pandemic in 2020, EnQuest has
applied focused management of asset equipment to systematically eliminate
vulnerabilities, primarily related to power generation and gas compression.
2023 production efficiency at Magnus was 88%, 22% higher than the 2022
equivalent. With significant drilling planned in 2024 and 2025, Magnus
production is expected to grow year-on-year from 2022 to 2025.
1
Based on a full UK tax payer retaining
25% post-tax income vs EnQuest retaining
65% post-tax income given CT/SCT tax
loss position
17
16
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2023
Financial
Midstream and Veri
Energy
Our strategy
PROGRESS IN 2023
•
Production of 43,812 Boepd in line with mid-point of
2023 guidance
•
Top quartile production efficiency delivered across
operated portfolio
• Exemplary reinstatement of Kraken production
following anomalous failure of HSP transformers
OBJECTIVES FOR 2024
•
Production guidance of 41,000 to 45,000 Boepd
• Multi-well drilling and wellwork programmes at
Magnus, PM8/Seligi and Golden Eagle
•
Planning work ahead of expected return to drilling
at Kraken during 2025, as well as progress of gas
well tie-back from Bressay to Kraken
PROGRESS IN 2023
•
Launched Veri Energy, a wholly owned subsidiary
of EnQuest, in December 2023
•
Veri Energy will be responsible for the dedicated
management of new energy and decarbonisation
ambitions at Sullom Voe Terminal (‘SVT’)
•
Awarded four carbon storage licences in NSTA’s
inaugural UK licensing round, as well as grant of
£1.74 million in funding from UK Government to
progress 50 MW green hydrogen project at SVT
• Midstream team progressing two major right-sizing
projects at SVT. Together, these projects are
expected to reduce terminal emissions by 90%
OBJECTIVES FOR 2024
• Progress phased decommissioning of SVT terminal
facilities and major transformation projects,
including completion of new stabilisation facility
•
Active pursuit of financial and strategic
partnerships within Veri Energy
• Continue to prioritise capital-light approach
PROGRESS IN 2023
•
Free cash flow generation of $300.0 million, driving
year-end net debt of $480.9 million
•
Full repayment of reserve based lending facility
(‘RBL’), with year-end drawn balance of $140.0 million
repaid during February 2024
•
$150.0 million term loan facility replaced RBL
borrowing base and aligned 2027 debt maturities
• Full-year expenditures delivered lower than
guidance, driven by lower operating costs
OBJECTIVES FOR 2024
•
Group entered 2024 with c.$500 million liquidity and
clear target to deliver transformational growth
•
Continue to de-leverage the Group’s balance sheet
through disciplined capital allocation
• Execute shareholder return programme, with
$15.0 million share buyback programme approved
to commence in 2024
Managing assets to optimise
production while exercising
cost control and capital
discipline
Repurposing existing
infrastructure to deliver new
energy and decarbonisation
opportunities at scale
Continuing to reduce debt
while pursuing selective,
capability-led and
value-accretive acquisitions
Read more in the Operational review
See Page 18
Read more in the Operational review
See Page 18
Read more in the Operational review
See Page 18
Read more in the Financial review
See Page 26
Upstream
Key updates for 2023
Decommissioning
PROGRESS IN 2023
• Record-breaking well plug and abandonment
(‘P&A’) performance, executing 25 wells across
Heather and Thistle projects
•
Per North Sea Transition Authority review data,
EnQuest probabilistic average cost per well P&A
is £2.5 million versus industry benchmark of
£4.3 million
•
All heavy lift contracts awarded for major removals
projects
• Continued planning ahead of 33-well subsea
decommissioning activities
OBJECTIVES FOR 2024
•
Progress well P&A activity at Heather and Thistle
ahead of planned completion by end of 1Q 2025
•
Well P&A represents the critical path for these
projects, but work will continue to plan for execution
of heavy lifts during 2025 and 2026
Demonstrating leadership in
decommissioning - safely
and efficiently executing
abandonment activities
19
18
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2023
Operational review
Upstream operations
2023 Group performance summary
Production of 43,812 Boepd reflected
improved performances at Magnus
and at PM8/Seligi, strong production
uptimes across the operated portfolio
and the Group’s investment in low-cost,
quick-payback drilling and wellwork
campaigns, partially offsetting the
impact of natural field declines.
Magnus
2023 performance summary
2023 production of 15,933 Boepd was
26% higher than the 2022 figure of 12,641
Boepd, driven by significantly improved
production efficiency of 88% (2022: 66%)
following improvements to rotating
equipment performance, including gas
compressors and power generation
units. The Group executed an extensive
wellwork programme, with three wells
returned to service following P seal
repair/replacement works, execution of
a perforation scope and the completion
of an infill drilling programme which
included the North West Magnus injector
in May and two further infill wells which
came online in August and December,
respectively. In addition, slot recovery
activity continued to enable the delivery
of future infill drilling opportunities, with
the completion of the B6 well plug and
abandonment (‘P&A’) during July 2023.
The planned annual maintenance
shutdown was completed in 20 days,
versus the original planned duration
of 24 days, with all major scopes
executed. The shutdown involved 10,000
manhours of work being completed
with zero lost time incidents.
2024 outlook
The five-yearly rig recertification of the
Magnus platform rig commenced in
early January and is expected to run
until the second quarter of 2024, with
infill drilling activity to recommence
thereafter. 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 minimise platform
vulnerability. It is anticipated that
two wells will be drilled in the second
half of 2024, with the expectation that
Magnus production will be higher than
2023. With 2C resources of c.28 MMboe,
Magnus offers the Group significant
low-cost, quick payback drilling
opportunities in the medium term.
Kraken
2023 performance summary
Average net production in 2023 was
13,580 Boepd (2022: 18,394 Boepd),
which is reflective of high uptime
before and after the anomalous
failure of HSP transformer units during
May. Working alongside the vessel
owner, Bumi Armada, the EnQuest
asset team exemplified differentiated
operational capability by limiting
the impact of this outage, resuming
production on a phased basis within
30 days of the outage and then,
through the refurbishment/rebuild and
reinstatement of transformer units,
returned Kraken to full production
in early-August. Subsequently, the
Group oversaw a return to top quartile
performance, with the Floating,
Production, Storage and Offloading
(‘FPSO’) delivering production efficiency
and water injection efficiency of 98%
and 99%, respectively, for the final
four months of the year. For the full
year 2023, production efficiency was
86% (2022: 93%) and water injection
efficiency was 85% (2022: 93%).
Production in the second half of the
year benefited from the removal of
two planned periods of single train
operations, with the Group having
executed maintenance work while
production at the FPSO was shut-in.
In addition, delivery and deployment
of new HSP transformer units has
provided increased resilience to
production capacity, with further
HSP and water injector transformer
replacements planned during 2024.
The Group continues to optimise
Kraken cargo sales into the shipping
fuel market, with Kraken oil a key
component of International Maritime
Organization (‘IMO’) 2020 compliant
low-sulphur fuel oil while avoiding
refining-related emissions.
2024 outlook
No shutdown is planned during 2024
but it is expected that a ten-day period
of single processing train operations
will be undertaken in order to execute
safety-critical maintenance work.
The Group has procured a mobile
offshore drilling unit ahead of a planned
return to drilling at Kraken during 2025.
EnQuest will purchase selected long
lead equipment during 2024 required
to facilitate the two-well sidetrack
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, while Kraken production
will be subject to natural decline in 2024.
Golden Eagle
2023 performance summary
2023 net production was below
the Group’s expectations at 4,199
Boepd (2022: 6,323 Boepd), with
asset production efficiency in
excess of 90% (2022: 95%).
Following the arrival of the drilling
rig in August 2023, drilling of the
first well in the 2023-24 platform
drilling programme commenced
in October 2023 and the well was
brought online in January 2024. This
is the first well of an anticipated
four-well programme, which is due
to be completed in mid-2024.
2024 outlook
The operator has scheduled a
shutdown of around one week in the
summer of 2024, with subsequent
major shutdowns expected to be
required every two to three years.
Other North Sea assets
2023 performance summary
Production in 2023 averaged 2,663
Boepd (2022: 3,442 Boepd), largely in
line with expectations and reflecting
strong uptime of 83% (2022: 87%)
at the Greater Kittiwake Area.
At Alba, performance continued largely
in line with the Group’s expectations.
Work continued towards the
development of the wider Kraken
area, including a Bressay gas
tie-back solution and an early
production solution project at
Bressay, with RockRose Energy
now a joint venture partner on the
Bressay project with regulatory
approval granted in March 2024.
2024 outlook
At GKA, a one-week shutdown is planned
during the second quarter, as well as a
short shutdown of related infrastructure.
At Bressay, EnQuest continues to
actively explore further farm-down
opportunities and development
planning of the asset, with the aim
to utilise its expertise in heavy oil
developments to access the c.115
MMboe of 2C resources. In 2024, the
Group aims to progress the tie-
back of the Bressay field’s gas cap
to Kraken, displacing diesel that
currently powers Kraken operations.
PM8/Seligi
2023 performance summary
Average production of 7,437 Boepd
was 15% higher than 2022. This increase
includes 604 Boepd associated
with Seligi 1a gas, to which Petronas
holds the entitlement, and which is
produced and handled by EnQuest
in exchange for a gas handling
and delivery fee, as well as strong
operational performance and
production uptime of 90% (2022: 86%).
Following the drilling of the commitment
well at Block PM409, the well was
plugged and abandoned dry. Following
confirmation from Petronas that all well
requirements had been met by EnQuest,
no further drilling is planned for PM409.
2024 outlook
A two-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. To further improve compressor
reliability, turbine control panel
upgrade is planned for the second
train at the end of the third quarter.
The Group plans to drill three infill wells
and deliver three well workovers, with
six wells to be plugged and abandoned.
These well programmes will mobilise at
the end of the first quarter of the year.
EnQuest has significant 2P reserves
and 2C resources of c.28 MMboe and
c.80 MMboe, respectively, 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.
Steve Bowyer
General Manager, North Sea
UK Upstream operations
1
Daily average net production
(Boepd)
36,375
-11%
(2022: 40,801)
1
Includes Magnus, Kraken, Golden Eagle, the
Greater Kittiwake Area including Scolty/
Crathes and Alba
Malaysia operations
Daily average net production
(Boepd)
7,437
+15%
(2022: 6,458)
Daily average net entitlement
(Boepd)
4,552
(2022: 4,237)
The production reinstatement
project undertaken at Kraken,
following the anomalous failure
of HSP transformer units, illustrates
the differentiated operational
capability which exists at the
heart of everything we do.
Working alongside the vessel
owner, Bumi Armada, the EnQuest
asset team mitigated a potentially
significant impact on production,
initially on a single train basis and
then quickly ramping up to full
production, through the efficient
and effective refurbishment and
reinstatement of damaged
transformer units.
New transformer units were
proactively procured as critical
spares, providing further resilience
to production capacity. The Group
reacted quickly to further mitigate
production losses by executing
maintenance work, originally
planned for the Q3 shutdown,
during the outage period.
Following the reinstatement of full
production at Kraken, the asset has
delivered near-perfect uptime.
CASE STUDY
Kraken FPSO reinstatement
Differentiated operational capability
“We continue to
demonstrate our
differentiated, top
quartile operating
capability and are
focused on leveraging
this capability to deliver
transformational,
value-driven growth
through acquisition,
and to mature our
organic opportunity
set, as we become a
production operator
of scale.”
Steve Bowyer
North Sea General Manager
“2023 was a year of
record-breaking
performance
as EnQuest
demonstrated
its capability
as a North Sea
decommissioning
leader.”
John Allan
Decommissioning Director
21
20
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2023
Operational review
continued
Decommissioning
John Allan
Decommissioning Director
Decommissioning
operations
Thistle: successfully
abandoned
13
wells while Heather executed
12
wells, with partial completion
of a further two wells by year end
Performance summary
Within EnQuest’s decommissioning
team, 2023 represented another year
of record-breaking delivery, enhancing
the Group’s strong track record of
executing multi-asset abandonment
campaigns. As the Thistle and Heather
project teams look ahead to the
culmination of the respective well plug
and abandonment (‘P&A’) campaigns,
preparation is underway for the 2025
removals programmes at these two
major platforms in the North Sea.
Well decommissioning
At both the Heather and Thistle fields,
the extensive programme of well P&A
continued apace throughout the year.
Thistle successfully abandoned 13 wells
whilst Heather completed 12 wells by
year end, while a further well at each
asset was partially completed as at
31 December 2023. In addition to the
completion of 25 well abandonments
across the two platform rigs, the
Thistle project team implemented a
third activity string, in the form of a
hydraulic workover unit, to accelerate
the recovery of conductors on available
wells. This resulted in seven wells being
abandoned to the final stage of the
well P&A process, which focuses on
removing the surface infrastructure
and ensuring the well poses no future
environmental or safety risks, reducing
the critical path of the main rig activity
and resulting running costs of the asset.
Both the Thistle and Heather project
teams are targeting completion of their
well P&A campaigns by the end of the
first quarter of 2025 and remain on
target to permanently disembark the
respective platforms later that year.
Throughout 2023, EnQuest has also
progressed the detailed engineering
work on the subsea wells at Alma Galia,
Dons and Broom, while continuing to
discuss the future work programmes
with the North Sea Transition Authority.
Preparation for removal
Beyond well P&A activity, the Heather
project team plans to execute multiple
work scopes in 2024, including the
flushing of pipelines, preparing the
Broom riser for decommissioning and
other engineering and cleaning scopes.
In the second half of the year, the
contract award for the disposal of
the Heather topsides was awarded,
while the removal of the platform
topsides will be completed in a single
lift in 2025 utilising the Pioneering
Spirit heavy lift vessel (‘HLV’).
At Thistle, the project team
demonstrated its capability by
delivering multiple key scopes.
Subsea campaigns covering
essential IRM activities, preparatory
work for conductor removal and the
flushing and final disconnection of
pipeline PL166 were all completed
successfully. The team also
engaged a conductor pulling unit,
which enabled simultaneous P&A
operations alongside the main rig.
Following an extensive commercial
exercise, EnQuest awarded the contract
for the Thistle topsides and jacket
Engineering, Preparation, Removal and
Disposal (‘EPRD’) works to Saipem. The
removal operations are due to take
place from 2026 onwards and will see
all 32 modules of the Thistle platform
lifted onto the semi-submersible
heavy lift vessel S7000 and returned
to shore in four separate voyages.
Throughout 2024, the project teams
across Heather and Thistle will be
focused on the engineering required
to prepare for the heavy lift operations
as well as exploring opportunities to
further optimise schedule, cost and
delivery targets where possible.
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 so as to retain flexibility
and mitigate availability concern.
Collaborative approach
This project enhancement was
delivered against a tight timeline
and required a collaborative
effort from colleagues across
operations, wells, logistics, supply
chain and, of course, the core
Thistle project team, alongside
the contractor, WellGear.
CASE STUDY
Excellence in
decommissioning
Thistle simultaneous operations
In early 2023, the Thistle decommissioning team identified an opportunity
to accelerate plans to utilise a hydraulic workover unit (‘HWU’) at Thistle
to work alongside the main platform rig. The idea was that the HWU could
commence phase 3 abandonment activities (primarily conductor pulling) in
parallel to critical path well plug and abandonment tasks being undertaken
on the main rig. This plan removed activity from the main rig programme,
reducing time on the project critical path and reducing risk to the schedule.
Commitment to execution
The project team worked diligently to assess HWU options and market
offers, agree funding approvals with decommissioning partners, and then
execute mobilisation and construction of the 300 tonne HWU. The unit was
mobilised in July and was operational on Thistle activity in August. In all,
seven conductors were removed during 2023 and significant learnings were
taken from the campaign, which sets us up well for the 2024 programme.
23
22
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2023
Operational review
continued
Infrastructure –
Midstream
Salman Malik
CEO, Veri Energy
“A credible
transition plan
is the new licence
to operate and
Veri Energy will
be fundamental
to the Group’s
decarbonisation
ambitions.”
Salman Malik
CEO, Veri Energy
Within its Midstream directorate,
EnQuest operates the Sullom Voe
Terminal (‘SVT’) on Shetland and
around 1,000km of pipelines.
Safe, stable operations
Throughout 2023, the Group continued
to deliver safe, stable and effective
operations for both East of Shetland
and West of Shetland oil and gas,
delivering 100% uptime for both oil
streams, and 99% uptime for West of
Shetland gas. In addition, the SVT power
station achieved 100% power delivery
throughout the period. The terminal,
which celebrated its 45th anniversary
of oil production in November 2023,
also achieved four million man
hours Lost Time Incident (‘LTI’) free
during the third quarter of 2023.
Decarbonisation
The Group is focused on right-sizing
SVT for future operations. During
2023, EnQuest successfully matured
and gained support for two strategic
projects: to connect the terminal
to the UK’s electricity grid and the
construction of new stabilisation
facilities (‘NSF’). Completion of the
NSF is expected to enable the Group
to meet the North Sea Transition
Authority (‘NSTA’) target of zero routine
flaring obligations by 2030 while, taken
together, delivery of these two projects
is expected to result in a 90% reduction
in overall emissions from SVT and the
Engie-operated Sullom Voe power
station. The anticipated reduction in
future emissions set out within these
projects led to EnQuest’s SVT operation
being shortlisted for a 2023 Offshore
Energies UK Decarbonisation Award.
EnQuest has awarded a strategic
contract for the phased partial
decommissioning of the existing oil
stabilisation and processing facilities.
This will create space onsite for future
new energy projects such as carbon
storage, the production of green
hydrogen and offshore electrification.
People and community
The Group has an established
apprentice programme at SVT,
with three apprentices successfully
graduating in 2023. Further, EnQuest
renewed a four-year programme which
enables apprentices to be sponsored
at the terminal, with the adoption of
one apprentice into the programme
due to his site-based experience.
Separately, the Group launched a
new graduate programme in 2023,
with two graduates recruited into SVT,
one of whom is a resident of Shetland.
Also in 2023, the programme’s
most recent graduate attained
Chartered Engineer status with the
Institution of Chemical Engineers.
Key projects
Carbon capture and storage (‘CCS’)
Veri Energy is seeking to develop
a flexible carbon storage solution
that can transport and permanently
store up to 10mtpa of CO
2
from
isolated emitters in the UK and
Europe. CO
2
captured by emitters
will be transported via ship to SVT
from where it will be transported, via
repurposed pipeline infrastructure,
for permanent geological storage
in depleted oil and gas reservoirs.
In August 2023, EnQuest successfully
secured carbon storage licences as
part of the first round of UK carbon
sequestration licences issued by
the North Sea Transition Authority
(‘NSTA’). The licence areas CS013,
CS014, CS015 and CS016 are some
99 miles northeast of Shetland and
include fields currently operated
by EnQuest, the Magnus and Thistle
fields, as well as the non-operated
Tern, Otter and Eider fields. These sites
are large, well-characterised deep
storage formations connected by
significant existing infrastructure to
the Sullom Voe Terminal on Shetland.
Green hydrogen
Veri Energy is progressing evaluation
of a 50 megawatt green hydrogen
project at Sullom Voe. In February
2024, Veri received an award of
£1.74 million in grant funding from
the UK government’s Net Zero
Hydrogen Fund (‘NZHF’) to support
a front-end engineering and
design study for the project.
Renewable power
Veri Energy is also exploring the
potential to develop renewable power
to provide electrification for existing
and prospective oil and gas facilities.
CCS project storage
Up to (mtpa)
10
Total storage potential
In excess of (mtpa)
500
CASE STUDY
Veri Energy
Under the stewardship of EnQuest’s former CFO, Salman
Malik, the Group’s wholly owned subsidiary Veri Energy
(‘Veri’) was launched in December 2023. The company
is responsible for the Group’s infrastructure and new
energy business with a focused management structure.
This is a logical next step in the
strategic evolution of EnQuest’s
ambitions to progress world scale
decarbonisation and new energy
projects, including carbon
capture and storage, green
hydrogen, and electrification at
the Sullom Voe Terminal in a
capital-light manner, while
providing Veri the opportunity to
leverage support from financial
and strategic partnerships.
Veri Energy Projects
Carbon storage licences
awarded by NSTA in 2023
4
25
24
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2023
Oil and gas reserves
and resources
UKCS
Other regions
Total
MMboe
MMboe
MMboe
MMboe
MMboe
Proven and probable reserves
1, 2, 3
At 31 December 2022
160
30
190
Revisions of previous estimates
(4)
(0)
Transfers from contingent resources
4
4
0
0
0
0
Production:
Export meter
(13)
(3)
Volume adjustments
5
0
–
(13)
(3)
(16)
Total proven and probable reserves at 31 December 2023
6, 7
147
28
175
Contingent resources
1, 2, 8, 10
At 31 December 2022
312
81
393
Promoted to reserves
9
(4)
0
(4)
Total contingent resources at 31 December 2023
10
308
81
389
Notes:
1
Reserves and resources are quoted on a working interest basis
2
Proven and probable reserves and contingent resources have been assessed by the Group’s internal reservoir engineers, utilising geological, geophysical,
engineering and financial data
3
The Group’s proven and probable 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
4
Transfers from 2C resources at Magnus
5
Correction of export to sales volumes
6
The above proven and probable reserves include volumes that will be consumed as fuel gas, including c.6.9 MMboe at Magnus, c.0.8 MMboe at Kraken,
c.0.3 MMboe at Golden Eagle and c.0.1 MMboe at Scolty Crathes
7
The above proven and probable reserves on an entitlement basis is 165 MMboe (UKCS 147 MMboe and other regions 18 MMboe)
8
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
9 Magnus COP extension
10 2C contingent resources at 31 December 2023 do not reflect the transfer of a 15.0% share in the Bressay licence to RockRose that completed in March 2023
11 Rounding may apply
ENQUEST OIL AND GAS RESERVES AND RESOURCES
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
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
3
16/26a
8.0
Alba
As per working interests
P234/P493/P920/P977
3/28a, 3/28b, 3/27b, 9/2a, 9/3a
85
4
Bressay
P1078
9/3b
100
Bentley
P300/P928
3
14/26a, 20/1a
26.69
Golden Eagle
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
5
P236
211/18a
n/a
Thistle/Deveron
6.1
5
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
3
9/15a
33.3
n/a
Malaysia production and development
PM8/Seligi
6
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 Non-operated
4
In December 2023, EnQuest completed a transaction to sell 15% of the working interest in the Bressay licences to RockRose UKCS 10 Ltd, a subsidiary of Viaro Energy
5
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
6
The official reference is PM-8 Extension PSC, commonly referred to elsewhere as PM8/Seligi
ENQUEST’S ASSET BASE AS AT 31 DECEMBER 2023
Hydrocarbon
assets
Production
Boepd
47,259
Free cash flow
$ million
518.9
EnQuest net debt
$ million
717.1
27
26
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2023
Financial review
Free cash flow
$ million
1
300
EnQuest net debt
$ million
1
481
Improved
liquidity
position
Jonathan Copus
Chief Financial Officer
Introduction
Strong free cash flow generation
in the period of $300.0 million
(2022: $518.9 million) drove a reduction
in EnQuest net debt of 32.9%, to
$480.9 million (31 December 2022:
$717.1 million). At 31 December 2023, the
Group’s leverage ratio was 0.6x, close
to its target of 0.5x, while cash and
available facilities had increased to
$498.8 million (2022: $348.9 million)
with all debt now maturing in 2027.
During December, EnQuest announced
the sale of a 15.0% equity share in
the Bressay licence and the EnQuest
Producer Floating, Production,
Storage and Offloading (‘FPSO’) for
a total consideration of £46.0 million
(c.$57.0 million). Subsequently, the
Group received $85.6 million for a 15.0%
farm-down of capital items identified
as suitable for use on the Bressay
development. Through
these
transactions the Group has realised
near-term value, expecting to yield
c.$58.0 million post-tax cash flow in
2024, and delivered an important step
in moving the project forward.
The Group’s improved balance sheet,
liquidity position and significantly
advantaged tax position means EnQuest
is well placed to pursue growth
opportunities and deliver its first
programme of shareholder returns,
committing to a $15.0 million buy back
that will be completed during 2024.
Income statement
Revenue
Group production averaged 43,812
Boepd, with strong uptimes across the
portfolio and investment in low-cost,
quick-payback drilling and wellwork
campaigns partially offsetting the
impact of natural field declines
(2022: 47,259 Boepd).
Brent prices in the period averaged
$82.5/bbl (18.2% below 2022: $100.8/bbl)
and the average day ahead gas price
decreased to 98.9p/Therm (51.4% below
2022: 203.5p/Therm). Pre-hedging,
the average oil price realised by
EnQuest was $82.2/bbl (19.9% below
2022: $102.6/bbl). Post-hedging, realised
oil prices averaged $81.4/bbl, narrowing
the discount year-on-year to 8.4%
(2022: $88.9/bbl).
Reflecting these drivers, reported
revenue totalled $1,487.4 million, a
19.8% decline on 2022 ($1,853.6 million).
Within this figure, oil sales accounted
for $1,127.4 million, 25.7% below 2022
($1,517.7 million).
Realised losses on commodity hedges totalled $11.3 million
(2022: losses of $203.7 million). Unrealised gains on these
contracts (from mark-to-market movements) totalled
$28.5 million (2022: unrealised gains of $14.5 million).
Revenue from the sale of condensate and gas, totalling
$339.0 million (2022: $514.2 million), primarily relates to
the onward sale of third-party gas that was not required
for injection activities at Magnus. The contribution from
these third-party gas volumes is offset in Cost of sales.
Tariffs and other income generated a further $3.8 million
(2022: $11.0 million), including income from the transportation
of Seligi associated gas.
Cost of sales
2023
$ million
2022
$ million
Production costs
308.3
347.8
Tariff and transportation expenses
41.7
43.3
Realised (gain)/loss on derivatives
related to operating costs
(2.8)
5.4
Operating expenditures
1
347.2
396.5
Charge/(credit) relating to the
Group’s lifting position and inventory
(4.2)
(15.6)
Other cost of operations
305.9
487.9
Depletion of oil and gas assets
292.2
327.0
Other cost of sales
5.7
4.9
Cost of sales
946.8
1,200.7
Unit operating cost
2,3
$/Boe
$/Boe
– Production costs
19.3
20.2
– Tariff and transportation expenses
2.6
2.5
Average unit operating cost
21.9
22.7
The Group demonstrated effective cost control to mitigate
the effects of underlying inflationary pressures, through
extensive supplier engagement and agreeing fixed rate
contracts for certain services, and the strengthening
Sterling to US Dollar exchange rate with the Group’s foreign
exchange hedging delivering gains of $5.2 million in the
period, noting c.83% of Group operating costs are
denominated in Sterling.
Group operating costs of $347.2 million were 12.4% lower
than in 2022 ($396.5 million), with unit operating costs
(excluding foreign exchange hedging) decreasing to
$21.9/ Boe (2022: $22.7/Boe). The reduction in operating
costs was driven by work programme optimisation across
the portfolio, higher lease charter credits and lower diesel
costs at Kraken.
Other costs of operations of $305.9 million were significantly
lower than in 2022 ($487.8 million), driven predominantly
by lower gas prices impacting the cost of Magnus-related
third-party gas purchases which are sold on, of $294.0
million (2022: $452.8 million).
Depletion expense of $292.2 million was 10.6% lower than
in 2022 ($327.0 million), mainly reflecting the impact of
lower production.
Impairment
In the period, the Group recognised a non-cash net
impairment charge of $117.4 million (2022: $81.0 million
charge). This charge primarily reflected production and
cost profile updates on non-operated assets, partially
offset by higher forecast long-term oil prices.
Other income and expenses
The Group has recognised net income in the period of
$39.3 million (2022: net expense of $152.4 million).
The periodic review of the net fair value of the contingent
consideration owed to bp relating to the Magnus acquisition
led to $69.7 million of non-cash income (2022: $232.5
non-cash expense), driven by adjustments to the discount
rate (2023: 11.3%, 2022: 10.0%) and forward cost assumptions,
partially offset by higher forecast oil prices.
Against a backdrop of inflationary pressures and Sterling
strengthening against the US Dollar, a non-cash charge of
$32.8 million has been recognised to reflect a net increase in
the decommissioning provision of fully impaired non-
producing assets (including the Thistle decommissioning
linked liability) (2022: non-cash income of $42.8 million,
driven by an increase in the discount rate applied and
Sterling weakening against the US Dollar).
Also included within other expenses are costs associated
with EnQuest’s Veri Energy business of $1.6 million
(2022: $1.2 million).
Adjusted EBITDA
1
2023
$ million
2022
$ million
Profit from operations before tax and
finance income/(costs)
456.2
411.9
Unrealised hedge gain
(28.5)
(14.5)
Depletion and depreciation
298.3
333.2
Impairment
117.4
81.0
Net other (income)/expense
(33.7)
183.1
UKA forward purchase losses
3.8
4.9
Change in well inventories
(0.6)
0.8
Net foreign exchange loss/(gain)
11.8
(21.3)
Adjusted EBITDA
1
824.7
979.1
Adjusted EBITDA was $824.7 million, down 15.8% compared to
2022 ($979.1 million).
Finance costs
The Group’s overall finance costs of $230.9 million were 8.6%
higher than in 2022 ($212.6 million).
The net effect from the reduction in the Group’s outstanding
loans and borrowings and higher prevailing interest rates,
resulted in a higher overall interest charge for 2023 of
$89.7 million (2022: $77.2 million) - although this was partially
offset by lower fees associated with the Group’s refinancing
activities (2023: $7.9 million; 2022: $35.3 million).
Finance charges were also higher due to the unwinding of
discounting on contingent consideration related to the
acquisition of Magnus (2023: $58.9 million; 2022: $36.4 million)
and decommissioning and other provisions (2023: $25.4
million; 2022: $17.8 million).
Other charges included in finance costs are lease liability
interest of $43.8 million (2022: $39.2 million) and other
financial expenses of $5.3 million (2022: $6.8 million),
primarily being the cost for surety bonds to provide security
for decommissioning liabilities.
Notes:
1
See reconciliation of alternative performance measures within the ‘Glossary
– Non-GAAP Measures’ starting on page 193
2
Calculated on a working interest basis
3
Excludes realised (gain)/loss on derivatives related to operating costs
29
28
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2023
Financial review
continued
Profit/loss before tax
Reflecting the movements above, the Group’s profit before
tax of $231.8 million was $28.6 million higher than 2022
($203.2 million).
Taxation
The 2023 tax charge was impacted by the first full year of
the UK Energy Profits Levy (‘EPL’) at the higher rate of 35%
(2022 reflected seven months of UK EPL at 25%).
The $262.6 million total tax charge includes a $77.2 million EPL
charge, which is calculated on a higher profit before tax, and
the impact of limited corporation and supplementary
corporation tax relief on impairments related to assets where
historical initial recognition exemptions for deferred tax have
already been applied (2022: $244.4 million tax charge, which
included the initial recognition of a $178.8 million non-cash
deferred tax liability associated with the EPL partially offset
by a credit for the non-cash recognition of undiscounted
deferred tax assets of $127.0 million).
The Group’s effective tax rate for the period was a charge of
113.3% (2022: charge of 120.3%).
EnQuest has recognised UK North Sea corporate tax losses of
$2,007.9 million at 31 December 2023 - the reduction in the
period reflecting utilisation of ring-fence corporation tax
losses against the Group’s profits before tax. Unrecognised
tax losses are disclosed in note 7(d) on page 157.
Due to this recognised tax loss position, no significant
corporation tax or supplementary charge is expected to be
paid on UK operational activities for the foreseeable future.
The Group paid its 2022 EPL charge in October 2023 and is
expected to make further EPL payments in October each
year 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.
Profit/loss for the year
The Group’s total loss after tax was $30.8 million (2022: loss
of $41.2 million). The high effective tax rate was primarily
driven by the current tax impact of the EPL, reflecting its high
level of non-deductible expenditures related to financing
and decommissioning costs, and limited corporation and
supplementary corporation tax relief on impairments related
to assets where historical initial recognition exemptions have
been applied.
Earnings per share
The Group’s reported basic loss per share was 1.6 cents
(2022: loss of 2.2 cents) and reported diluted loss per share
was 1.6 cents (2022: loss of 2.2 cents).
Cash flow, EnQuest net debt and liquidity
Reflecting strong free cash flow generation in 2023
of $300.0 million (2022: $518.9 million), EnQuest net debt
at 31 December 2023 amounted to $480.9 million, a
$236.2 million year-on-year reduction (31 December 2022:
$717.1 million). The movement in EnQuest net debt was
as follows:
$ million
EnQuest net debt 1 January 2023
(717.1)
Net cash flows from operating activities
754.2
Cash capital expenditure
(152.2)
Magnus profit share payments
(65.5)
Golden Eagle contingent consideration payment
(50.0)
Finance lease payments
(135.7)
Proceeds from farm-down
141.4
Vendor financing facility
(141.4)
Net interest and finance costs paid
(100.0)
Other movements, including net foreign
exchange on cash and debt
(14.6)
EnQuest net debt 31 December 2023
1
(480.9)
Note:
1
See reconciliation of alternative performance measures within the ‘Glossary
– Non-GAAP Measures’ starting on page 193
The Group’s reported net cash flows from operating
activities were $754.2 million, down 19.0% compared to
2022 ($931.6 million). The overall reduction was primarily
driven by lower revenue, partially offset by lower cash opex.
In line with guidance, the Group’s reported net cash flows used
in investing activities increased $101.5 million to $262.7 million
(2022: $161.2 million). This increase principally reflects: higher
capital expenditures of $152.2 million (2022: $115.8 million), which
primarily related to the Magnus, Golden Eagle and Malaysia
well campaigns and Sullom Voe Terminal projects; the final
Golden Eagle Contingent consideration payment ($50.0
million) and an additional $19.5 million of Magnus profit share
payments (2023: $65.5 million; 2022: $46.0 million).
Cash outflow on capital expenditure is set out in the
table below:
Year ended
31 December
2023
$ million
Year ended
31 December
2022
$ million
North Sea
124.2
85.5
Malaysia
21.0
26.5
Exploration and evaluation
7.0
3.8
152.2
115.8
With the Bressay-related farm-down proceeds offset by a
vendor financing facility of $141.4 million (from EnQuest to
RockRose, arranged to manage the companies’ respective
working capital positions), the Bressay transactions were net
debt neutral at 31 December 2023. In the first quarter of 2024,
EnQuest received $108.8 million repayment of the vendor
financing facility. The remaining amount ($36.3 million) is
repayable through net cash flows from the Bressay field in
accordance with the agreed payment schedule. In the event,
however, that the project does not achieve regulatory
approval, there remains an option to deploy the assets on
alternative projects. As such, proceeds from the transaction
are reported within deferred income on the balance sheet.
The Group utilised $478.6 million of cash in financing
activities (2022: $731.2 million) - including further net
repayments of the Group’s loans and borrowings totalling
$237.1 million (2022: $479.8 million). In this figure, $260.0
million of the Group’s RBL facility was repaid, the October
2023 7.00% Sterling retail bond was settled (£111.3 million)
and funds were fully drawn under a new $150.0 million term
loan facility.
Associated with these borrowings, interest costs totalled
$105.9 million (2022: $103.4 million). In the year, $135.7 million
was also paid on finance leases (2022: $148.0 million).
EnQuest net debt
1
31 December
2023
$ million
31 December
2022
$ million
Bonds
474.7
600.7
RBL
140.0
400.0
Term loan
150.0
0.0
SVT working capital facility
29.8
12.3
Vendor loan facility
-
5.7
Cash and cash equivalents
(313.6)
(301.6)
EnQuest net debt
480.9
717.1
Note:
1
See reconciliation of alternative performance measures within the ‘Glossary
– Non-GAAP Measures’ starting on page 193
The Group ended the year with $313.6 million of cash and cash
equivalents (2022: $301.6 million), and cash and available
facilities totalling $498.8 million (2022: $348.9 million), with the
Group’s refinancing activities extending the Group’s debt
maturities to 2027.
In the first quarter of 2024, EnQuest repaid the outstanding
$140.0 million principal on its RBL facility. The facility remains
available to EnQuest for future drawdown.
Balance sheet
The Group’s strong cash generation, improved liquidity
position, including extended maturities of its available debt
facilities, and UK tax advantage, means EnQuest is well
positioned to continue delivering its foundation programmes
of capital investment – whilst also pursuing transformational
North Sea and international production acquisitions, and
delivering its first programme of shareholder returns.
Assets
Total assets at 31 December 2023 reduced by 6.4% to
$3,765.8 million (2022: $4,024.3 million). This movement is
primarily driven by: a reduction of $165.7 million in the Group’s
deferred tax asset (largely reflecting the impact of utilising
ring-fence corporation tax losses in the period (see note 7));
lower net PP&E of $180.2 million, including a non-cash net
impairment charge of $117.4 million (see note 10); and a partial
offset from recognition of the Bressay vendor financing facility
receivable of $145.1 million (see note 19).
Liabilities
Total liabilities reduced by 6.5% to $3,309.0 million
(2022: $3,540.0 million) - the Group continued to make
material repayments of its debt, resulting in a materially
lower carrying value of $775.2 million (2022: $1,000.3 million)
(see note 18).
Contingent consideration payments related to the
acquisitions of Magnus and Golden Eagle totalled
$115.5 million (2022: $46.0 million for Magnus, nil for Golden
Eagle), and a net change in the fair value estimate for
Magnus resulted in a lower outstanding contingent
consideration estimate of $507.8 million (2022: $636.9 million)
(see note 22).
Offsetting these reductions are a $57.7 million net increase in
the Group’s current and deferred tax liabilities - UK EPL driving
a higher income tax payable provision of $185.5 million
(2022: $39.2 million payable) offset by a $88.7 million lower
deferred tax liability of $77.6 million (2022: $166.3 million).
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 28 of the financial statements.
Going concern disclosure
In recent years, given the prevailing macroeconomic and
fiscal environment, the Group has prioritised deleverage -
reducing gross debt (excluding leases) by c.$1.4 billion
since 2017 to $794.5 million at 31 December 2023. During
2023, EnQuest net debt was reduced by $236.2 million
(to $480.9 million) and the Group strengthened its net debt
to adjusted EBITDA ratio to 0.6x, close to EnQuest’s target of
0.5x. In this 12-month period, cash and available facilities
increased by $149.9 million, to $498.8 million at 31 December
2023, and medium-term liquidity is secured, with all the
Group’s debt maturities now in 2027.
Against this robust backdrop, EnQuest continues to closely
monitor and manage 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.
The Group’s latest approved business plan underpins
management’s base case (‘Base Case’) and is in line with
the Group’s production guidance using oil price assumptions
of $80.0/bbl for 2024 and $75.0/bbl for 2025.
A reverse stress test has been performed on the Base Case
indicating that an average oil price of c.$63.0/bbl over the
going concern period maintains covenant compliance,
reflecting the Group’s strong liquidity position.
The Base Case has also been subjected to further testing
through a scenario reflecting the impact of the following
plausible downside risks (the ‘Downside Case’):
•
10% discount to Base Case prices resulting in Downside
Case prices of $72.0/bbl for 2024 and $67.5/bbl for 2025;
• Production risking of 5.0%; and
•
2.5% increase in operating, capital and decommissioning
expenditure
The Base Case and Downside 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.
31
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Strategic Report
EnQuest PLC –
Annual Report and Accounts 2023
Financial review
continued
After making appropriate enquiries and assessing the
progress against the forecast and projections, 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 2027. The viability assumptions
are consistent with the going concern assessment, with the
additional inclusion of an oil price of $75.0/bbl for 2026 and
2027 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 27 March
2024, 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 is taking to mitigate these risks are
outlined on pages 46 to 64. 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. Under the Group’s Base
Case 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
March 2027.
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. 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, from 1 April 2024 the Directors have hedged a total
of 5.0 MMbbls for the remainder of 2024, with 4.1 MMbbls
through the use of put options with an average floor price of
c. $60/bbl and 0.9 MMbbls through swaps at an average
price of $86/bbl, and 1.6 MMbbls in 2025 using 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 EPL introduced in the Autumn Statement
2022 materially impacted the RBL borrowing base and
associated amortisation schedule. In the 2023 Autumn
Statement on 22 November, the UK Government confirmed that
it will bring in legislation for the Energy Security Investment
Mechanism and have agreed to index link the trigger floor price
to CPI from April 2024. The Government also announced that
once the decarbonisation allowance of 80% against EPL is
withdrawn (currently in March 2028), that it will replace this with
a new allowance at the same effective rate against the
industry tax regime. In March 2024, the UK Government
announced that the sunset clause for EPL would be extended
by a year to 31 March 2029, although no date has yet been set
for when this will be legislated. Further fiscal changes could be
enacted should there be a change in UK Government at the
next general election. The Group will continue to monitor
developments and any potential related impacts.
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 dates of July 2027 for
the $150.0 million term loan and November 2027 for the
$305.0 million high yield bond and the £133.3 million retail
bond provide a material level of funding throughout the
assessed viability period ending March 2027. The Group has
continued to prioritise debt reduction from free cash flows as
evidenced with the RBL being fully repaid in the first quarter
of 2024, materially ahead of schedule.
In assessing viability, the Directors recognise that in a
Downside Case limited additional liquidity would be required,
which may necessitate limited mitigations, such as working
capital management, amendments to capital work
programmes, asset farm-downs or other financing options.
Given the extended duration of the viability period, the
Directors believe such measures can be executed
successfully in the necessary timeframe to maintain liquidity.
Notwithstanding the principal risks and uncertainties
described above, after making enquiries and assessing the
progress against the forecast, projections and 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 March 2027. Accordingly, the
Directors therefore support this viability statement.
Group non-financial and sustainability 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 business
model can be found on page 01, while its key performance
indicators can be found on page 03.
Environmental (see pages 36 to 39, and 66 to 75)
•
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
•
Having progressed three significant new energy and
decarbonisation opportunities at Sullom Voe Terminal, the
Group launched Veri, with responsibility for delivering the
Group’s short- and medium-term emission reduction
objectives and advancing longer-term renewable energy
and decarbonisation opportunities
•
In 2023, the Group was awarded four CCS licences for East
of Shetland reservoirs
•
During 2023, EnQuest’s Board approved a commitment to
reach net zero in respect of Scope 1 and Scope 2 emissions
by 2040
•
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.41%, 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
•
For 2023, a baseline of ‘Waste generated in operations’
(Category 5) has formed part of the Group’s SECR in the UK
•
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
•
EnQuest was awarded an improved score of ‘B’ for its
2023 CDP Climate Change submission
Our people (see pages 43 to 44)
•
EnQuest is committed to providing an inclusive culture that
recognises and celebrates difference and sees a diverse
culture as an enabler of creativity and performance
improvement
•
The Group-wide diversity and inclusion (‘D&I’) strategy is
firmly embedded in the overall strategy of the business
•
The mental and physical welfare of all employees
continues to be a major focus across the business. During
2023 a Mental Health and Wellbeing policy was developed
and launched
•
A broad programme of job-specific training was undertaken
to ensure high levels of skill, competence and safety are
maintained across our operations
Community (see pages 42 to 43)
•
EnQuest is fully committed to active community
engagement programmes, encouraging and supporting
charitable donations in the areas of improving health,
education and welfare within the communities in which
it works
•
Throughout 2023, the Group continued to provide support
to a wide range of local organisations and communities in
the UK and Malaysia
•
In Aberdeen, EnQuest was able to donate to a range of
charities including its two core charities in the North Sea,
CLAN Cancer Support and the Archie Foundation
•
There was continued support for a range of cultural events,
charitable donations
and educational awards in Shetland
throughout the year
•
In Malaysia, EnQuest maintained its support of the Sungai
Pergam Orang Asli Primary School in Terengganu, by
contributing to student bursaries for 48 students through
the MyKasih ‘Love My School’ programme, alongside a
university scholarship programme
Business conduct (see page 65)
•
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
•
The Group is committed to ensuring that it respects
(and never participates in the violation of) international
human rights. It does this through strict adherence to the
Code of Conduct, its Modern Slavery Statement and the
EnQuest Values
•
The highest potential risk of modern slavery would be in
the supply chain. As such, risk based due diligence may be
conducted on suppliers before allowing them to become a
preferred/pre-qualified supplier, with on-site audits
undertaken where appropriate. EnQuest also conducts
training for its procurement teams so that they understand
the signs of modern slavery and how to raise any concerns
they may have.
•
EnQuest is not aware of any slavery or human trafficking
within its business or supply chains and no issue in relation
to modern slavery has been raised
A view across Sullom Voe to the port of Sella Ness showing the
four deep-water jetties at SVT
33
32
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2023
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
Environmental, Social and Governance
Environmental
Read more in Environmental
See Page 36
Managing emissions from existing
operations and advancing new
energy opportunities
At EnQuest, we have monitored the evolving 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
Incorporate carbon costs into
investment evaluations
Our sustainability highlights for 2023
Reduction
in Group Scope 1
and Scope 2 emissions vs 2020
baseline
23%
Reduction
in UK Scope 1 and
2 emissions vs 2018 NSTD
baseline
41%
Top quartile LTIF
1
performance
0.52
Female representation
at Board level
43%
Social
Governance
Read more in Social
See Page 40
Read more in Governance
See Page 46
Our culture defines how we approach
safety and ensures that our people,
EnQuest’s most important asset, return
home from work safe and well
We are committed to operating within a
robust Risk Management Framework
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
A forward-thinking approach
EnQuest PLC –
Annual Report and Accounts 2023
Note:
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
34
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2023
Environmental, Social and Governance
continued
Taking a long-term view
Our ESG strategy focuses on factors that are applicable to our purpose
and business model and relevant for our stakeholders.
• 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
• Contribute positively towards the
drive to net zero
• Reduce absolute Group Scope 1
and Scope 2 emission reductions
by 10% across three-year period
• Improve CDP Climate Change
survey rating
• Board-approved 2040 net zero
commitment
•
24% reduction in Group Scope 1 and
Scope 2 emissions versus 2020 baseline
• Scope 3 reporting commenced
against category 5, ‘Waste generated
in operations’
•
Achieved B rating for the 2023 CDP
Climate Change survey (2022: C). This
rating places EnQuest among oil and
gas sector leaders
• Board composition compliant with FTSE
Women Leaders Review and Listing Rule
9.8.6 (9) which targets at least 40% of
Board members to be women
• Farina Khan appointed Senior
Independent Director
• Board remains ahead of the Parker
Review requirement with respect to
ethnic minority representation
•
Group loss time incident frequency was
0.52 (2022: 0.57). UK average was 1.31
• Launched EnQuest apprentice
programme in the UK
• Group Mental Health Policy published
in 2023
Ambitions for
2024
How we performed
in the year
Objectives
Long-term goals
•
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
Environmental
Social
Governance
10%
Three-year emission reduction
target vs 2023 baseline
5%
Reduction in production asset
flare performance versus 2023
2040
Deliver net zero in terms of Scope
1 and Scope 2 emissions
Target 12.2 – By 2030, achieve the
sustainable management and
efficient use of natural resources
0.52
Maintain LTIF performance
below industry benchmarks
>40%
Female Board
level representation
Committed to operating with high
ethical standards, overseen by a
diverse and knowledgeable Board
Our skilled and dedicated
workforce is our strength. As we
navigate the energy transition, we
are committed to strategies that
prioritise their wellbeing,
professional growth and
economic security
37
36
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2023
Environmental, Social and Governance
continued
Environmental
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 having
committed to net zero Scope 1 and
2 emissions by 2040, with the Veri
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 Scope 2 emissions from its own
business operations where practicable.
EnQuest recognises the complexity and
scope of EnQuest’s value chain and has
carefully considered how reporting of
Scope 3 emissions can be introduced.
For 2023, a baseline of ‘Waste
generated in operations’ (Category
5) has formed part of the Group’s
Streamlined Energy & Carbon Reporting
(‘SECR’) in the UK. The expansion
of Scope 3 emissions reporting to
other categories such as ‘Use of sold
production’ (Category 11) is included in
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
Veri Energy subsidiary 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 53 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 (see
pages 109 and 110 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.
EnQuest’s Climate Change oversight
is stewarded through the 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 23% versus the 2020
baseline, reflecting operational and
facilities improvements and lower
flaring and diesel usage. Since 2018, UK
emissions have reduced by 41%, driven
by the decisions to cease production
at a number of the Group’s assets
and the further reductions achieved
in 2023, 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 UK
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
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
energy transition 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 66 to 75. 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 46).
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 and
is aligned with the requirements of
the International Organization for
Standardization’s environmental
management system standard – ISO
14001. 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).
“We have a credible plan to progress our
business towards net zero, transforming the
carbon footprint of our existing portfolio and
developing decarbonisation projects at scale
at SVT.
”
Amjad Bseisu
Chief Executive Officer
Managing emissions from existing
operations and advancing new
energy opportunities.
Reduction in Group
Scope 1 and 2 emissions
23%
vs 2020 baseline
Reduction in UK
Scope 1 and 2 emissions
41%
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
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.
39
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Strategic Report
EnQuest PLC –
Annual Report and Accounts 2023
Environmental, Social and Governance
continued
“EnQuest is committed to a Just Energy Transition, working
to meet the UK’s oil and gas demand while delivering the
cleanest energy available.”
Steve Bowyer
General Manager, North Sea
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.
Emissions management is an
important feature during the
decommissioning phase of an asset’s
life cycle which can take a number
of years and requires careful project
management. During this phase,
wells will be plugged and abandoned,
while the production and processing
facilities and any relevant infrastructure
will be flushed and cleaned prior
to being removed. EnQuest’s UK
Decommissioning directorate oversees
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
and innovative power generation
solution on the Thistle and Heather
assets to reduce emission levels
to a level below the regulatory
limits to remain within UK ETS. The
UK Decommissioning directorate
continues to welcome creative ways
with respect to emission reduction
from all stakeholders appropriate to
our timeline of decommissioning.
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.
Since 2020, there has been an
improvement in EnQuest’s flare
performance as demonstrated in the
graph below.
EnQuest continues to mature
renewable energy and decarbonisation
opportunities at SVT, including those
involving the repurposing of existing
site infrastructure through the
subsidiary Veri Energy. In particular,
the initiative focused on CCS could
see the Group’s carbon footprint
move to a position of negative net
emissions. In 2023, the Group was
awarded four CCS licences for East
of Shetland reservoirs by 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.
EnQuest’s Emissions Management
Team continues to develop and
drive a continuous improvement
process focusing on Scope 1 and 2
emission reduction opportunities in
line with the Group’s overall target.
This improved performance has been
driven by improved levels of operational
efficiency. Examples of this include:
• Kittiwake achieving an 84% 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 41% reduction
(from 2020) 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 37% emission
reduction versus 2020 following
improvements to the compression
system contributed by the ongoing
TCP upgrade programme which has
resulted in improved compression
uptime and consistent optimal
performance, leading to emission
reduction in flaring and fuel gas.
Future reductions in the short term are
expected from:
• Stable plant operations, improved
restart procedures and facilities
improvement projects resulted in
significant improvements to flare
performance at Magnus in 2023. A
compressor cross-over project and
improvements to seal oil systems
and glycol regeneration are being
progressed that have the potential to
materially reduce routine flaring from
the asset; and
•
A trial was completed in Q4 2023
at Kraken which successfully
demonstrated the stability of the main
power generation engines in fuel gas
mode. This confirms the feasibility of
emissions reduction opportunities,
including flare gas reduction, to
increase the availability and usage
of fuel gas in place of diesel.
EnQuest was awarded an improved
score of B (from C) for its 2023
CDP Climate Change submission,
demonstrating that it continues to
integrate climate change impacts
into the fabric of the business. The
overall improvement was driven by
recognition of the Group’s credible
transition plan and defined actions to
pursue progress towards net zero.
2018
2019
2020
2021
2023
2022
350
200
250
300
150
100
50
0
SVT
Kittiwake
Magnus
PMB/Seligi
Kraken
EnQuest’s flare performance (Kt CO
2
e) 2018–2023
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 for 2023 in accordance with this request:
North Sea Transition Authority – UK short-term quantitative metrics
Scope 1 and 2 Emissions (MTCO
2
e)
765,206
Fugitive Emissions as % of Marketed Gas
0.015%
Carbon Intensity Total UK (MTCO
2
e/Boe)
0.042
Water Pollution Risks (million m
3
)
9.88
Waste Management & Disposal (MT)
3,486
Flaring & Venting (MTCO
2
e/Boe)
0.010
Regulatory Fines
0
Lost Time Injury Frequency Rate
0.86
Recordable Injury Frequency Rate
3.16
Restricted Workday Case
5
Medical Treatment Case
3
Lost Work Day Case
3
View of Central Avenue Sullom Voe
Terminal
41
40
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2023
Environmental, Social and Governance
continued
Social
• Audit of the Business Management
System with improvement plans
identified;
• 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 recognises the benefits
of promoting positive health and
wellbeing within the workplace and
a Mental Health Policy describing
EnQuest’s commitment to protecting
and maintaining the health, safety
and wellbeing of its workforce was
published in 2023. The employee-led
Wellbeing Committee implemented
a number of activities such as
Step Challenges and Menopause
Awareness and participation in
the Corporate Games, of which
EnQuest was a main sponsor.
Personal safety
Management of late-life assets through
production operations, drilling and
decommissioning activities requires
constant vigilance and attention to
detail. During the year, three LTIs were
reported across the Group, which was
consistent with 2022, resulting in a
Group LTI frequency
1
of 0.52 against a
backdrop of 5,806,681 million hours
worked (2022 LTIF of 0.57).
Various notable milestones were
achieved across the Group’s asset base:
• The asset team at Kittiwake recorded
18 years LTI free;
•
SVT achieved two significant
milestones in August: four million
manhours LTI free and 12 months
rolling total recordable incident rate of
zero; and
• The PM8E/Seligi team achieved the
milestone of 12 months LTI free in
August with over 3 million manhours
performed on production operations,
drilling, well operations and shutdown
activities.
The LTIs in 2023 primarily occurred
during routine activities, including load
handling. In response, management
emphasised the need for increased
focus on leadership and accountability,
continued focus on hazards and
controls and dynamic risk assessment.
Process safety
Process safety continued to be a focus
in 2023. In conjunction with the asset
integrity review, there has been progress
achieved in risk review processes, such
as the maturation of the major accident
hazard barrier model which enables the
extraction of real-time inspection and
maintenance data.
This has enabled 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 was
two in 2023 (2022: three; 2021: one;
2020: four;), while Malaysia had
a single hydrocarbon release
(2022: zero; 2021: one; 2020: two).
Hydrocarbon release prevention
remains a focus area for 2024.
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. An IN was received
in late 2022 with regard to a previously
applied isolation scheme. This IN was
closed ahead of the agreed due date.
An IN was issued in June 2023 in relation
to one of the hydrocarbon releases,
associated with the management of
temporary pipework. This IN was closed
in September following a revision to the
Management of Engineering Change
procedure. The Group ends the year
with no outstanding improvement
notices. 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.
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 2023, 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 performed a Group-wide
asset integrity review in 2023 which
identified significant improvements in
risk-based decision making associated
with integrity management helping to
ensure asset integrity status and cost
allocation remain visible since the
previous review in 2021. Several
improvements were made in people,
plant and process safety, including:
“We aim to deliver SAFE Results by ensuring that
everyone who works at our sites is provided
with the training, equipment and processes
to execute their work safely. We all have a
personal responsibility for safety and we
expect procedural compliance while
empowering anyone to stop a task if a safer
or more efficient method is identified.”
Ian McKimmie
Corporate Head of HSE
Our culture defines how we
approach safety and ensures that
our people, our most important
asset, go home safe and well.
LTI frequency
1
performance
0.52
Tier 1 hydrocarbon
releases across the Group
2
3
Notes above:
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
Tier 1 Hydrocarbon release, 10kg gas
or 100kg oil
• Shutdowns undertaken across the
Group’s operated asset base
continued to focus on driving
improved asset integrity and
reliability;
• Risk-based approach applied to
global audit and assurance plans
and activities, to focus efforts on key
areas of the business; and
•
Maturation of the process safety
barrier model improving the visibility of
integrity status to prioritise allocation
of resources based upon risk.
EnQuest Malaysia was recognised
for its effective implementation of
Offshore Self Regulations (‘OSR’) by the
Department of Occupational Safety
and Health and PETRONAS, and given
two awards for no overdue actions
and fastest action closure rate.
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 2023, including:
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)
43
42
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2023
Environmental, Social and Governance
continued
Community
EnQuest has an established culture of
supporting the communities in which
we operate.
UK
EnQuest made a series of charitable
donations throughout the year:
• Onshore and at SVT, our charitable
donation scheme is directly linked to
positive health and safety
performance on our assets. Through
these schemes EnQuest was able to
donate to a wide range of charities
including three Scottish hospices, as
well as Fighting for Sight, which funds
research to prevent blindness, and
Teen Challenge UK which provides
support to young people suffering
from drug addiction;
•
SVT also supported a range of cultural
and sporting events in Shetland in
2023, including sponsoring the Tall
Ships Race, a yacht race between
European and UK ports that includes
Lerwick and takes place every five
years. In addition, EnQuest sponsored
a Sail Training Shetland event for 70
young people, Shetland Rugby’s
mid-summer event for children,
women’s and men’s matches and the
Shetland Junior Golf Open;
• Seven educational awards for the
academic year 2022-2023 were
made by the Trustees of the Sullom
Voe Terminal Participants’ Tenth
Anniversary Fund. Now in it’s 35th
year, the Trust 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. This year,
students are engaged in disciplines
as wide ranging as medicine,
primary education, marine and fresh
water biology and electrical and
mechanical engineering. As operator,
EnQuest also offers a scholarship
opportunity to a student studying in
a technical or commercial discipline
that is relevant to SVT, where they
take part in a work placement at the
terminal during the summer break;
•
In Aberdeen, EnQuest was able to
donate to a range of charities
including our two core charities in the
North Sea, CLAN Cancer Support and
the Archie Foundation. EnQuest also
donated to Befriend a Child, a charity
that supports disadvantaged children
in Aberdeen City and Shire, the
Camphill School which cares for
children and young people with
learning disabilities and complex
additional support needs in Aberdeen,
as well as matching employee funding
for a range of charities from the First
Scottish Women’s Junior Cycle team to
Duchenne UK, a muscular dystrophy
disease that targets young boys aged
between three and six years; and
• EnQuest also offered 14 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 Wells and New
Energy business. Since September
2023, EnQuest has committed to
sponsor a Mechanical Engineering
student from Aberdeen University for
the duration of their five-year degree
course. This funding goes towards
educational materials and
subsistence for the student. This
student will be invited to participate
in our intern programme during their
studies. EnQuest is planning to
expand its commitment to develop
new talent in the industry and has
already committed to a graduate
and intern programme for 2024.
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 Orang Asli primary
school, Sekolah Kebangsaan
Sungai Pergam, in Terengganu by
contributing RM39,305.84 to student
bursaries for 48 students through
MyKasih ‘Love My School’ cashless
programme this 2023. The bursaries
enabled students to make cashless
purchases of daily canteen meals
and classroom necessities at school;
•
EnQuest Malaysia has supported the
school since June 2019, with the school
being one of only two Orang Asli
primary schools in the state. Having
funded the refurbishment of the school
canteen in 2019, EnQuest committed to
paying RM60,550 for upgrades to
classrooms and the school’s roof. This
included refurbishing a classroom for
after-school sessions to ensure no
child is left behind in their studies;
• EnQuest also sponsored ‘Back to
School’ sets worth RM9,150, including
school uniforms, for students as they
prepared to start the school year in
March 2023;
• In 2023, 11 local university students
were selected for internship
placements in a variety of disciplines
and an additional one from a US
university; and
•
EnQuest Malaysia now has a total of
six graduates of our scholarship
awards, a joint sponsorship between
EnQuest and The Amjad and Suha
Bseisu Foundation. Disciplines
include geology as well as chemical,
mechanical, and petroleum
engineering at courses offered at the
Universiti Malaya and Universiti
Teknologi Malaysia. Currently we
have two active scholarship
recipients under the joint
programme, and in December 2023,
four students were selected to enter
the programme.
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.
The UK’s EnQlusion workforce group
promoted a number of initiatives
during 2023, including continued
support for the Association for Black
and Minority Ethnic Engineers and
International Women’s Day, as well as
engaging in a variety of cultural
celebration events through the year.
Recruitment
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 pursue our strategy.
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.
Charitable donations in 2023
($000)
c.155
We remain committed to fair treatment
of people with disabilities in relation
to job applications. Full and ffair
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,
career development and promotion for
the relevant individual.
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 2023, we continued to
celebrate and recognise those who had
demonstrably lived our Values through
Values awards presented at our Global
Town Hall events.
“At EnQuest, our people will always
be our most important asset.”
Amjad Bseisu
Chief Executive Officer
Aberdeen Corporate Games 2023
Directors
Senior managers
Employees
88.14%
11.86%
57.15%
42.86%
80%
20%
Female
Male
0
20
40
60
80
100
The chart below illustrates gender breakdown of EnQuest’s Directors and
workforce as at 31 December 2023
1
.
Note:
1
Breakdown of percentages: Directors (3 female, 4 male); Senior managers (7 female, 52 male); Employees
(123 female, 492 male). Senior management and total employee figures include EnQuest’s employees in
Dubai, Malaysia and the UK
44
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2023
45
Environmental, Social and Governance
continued
EnQuest’s Chairman, Gareth Penny, is
the Company’s formally designated
Non-Executive Director for workforce
engagement and, as well as meeting
with staff during his first year, he also
attended the EnQuest Global
Employee Forum three times during
2023 and was engaged in follow-up
sessions with Forum members. The
Forum functions as a useful interface
between employees and management
for constructive two-way dialogue.
Areas discussed and reviewed during
the year included:
• Hybrid working;
• Communications; and
• Organisational change.
In addition, during 2023, our Non-
Executive Directors maintained a broad
approach for employee engagement,
such as through face-to-face meetings
in specifically arranged, small group
sessions. Further details of how the
Company engages with its workforce
can be found in the Corporate
governance statement on page 84.
Our commitment to wellbeing
The mental and physical welfare of all
employees continues to be a major
focus across the business. During 2023
a Mental Health and Wellbeing policy
was developed and launched with the
aim of protecting and maintaining the
health, safety and welfare of
employees by promoting positive
health and wellbeing in the workplace.
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 such as Mental
Health Awareness week and
introducing dignity baskets in female
bathrooms, as well as social events
such as our annual children’s
Christmas party. In 2023, EnQuest was
a main sponsor of the Aberdeen
Corporate Games and saw excellent
participation from colleagues across
the organisation in a variety of sporting
events. We also use our internal social
media channel to promote these
initiatives and others, such as 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 remained a key
focus during 2023 with a multi-phase
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 2023.
Identifying succession plans for our
business-critical roles continued in
2023 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
When EnQuest published its first
report on the gender pay gap in 2017,
it highlighted a noticeable gap
between what our male and female
employees were being paid. Since then,
the Company has worked hard on
addressing and reducing the gap from
a mean difference of men being paid
38.7% more in 2017 down to 21.0% in
2023. Compared to 2022 however, our
mean gender pay gap has increased
from 17.8% in 2022 to 21.0% in 2023.
Analysis suggests that this increase
in gender pay gap has been driven
by fewer higher paid female workers
in the Company compared to 2022
and an increase in the number of male
employees in senior grades who are
consequently paid at higher levels
relative to the wider population.
Looking ahead, we remain committed
to building on the progress made in the
areas of diversity and inclusion within
our workforce and this commitment
is underpinned by a full review of
progress and strategy with the Board
in the first quarter of 2024.
Step Challenge participants, the ‘Dubai Steppers’
P
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Strategic Report
EnQuest PLC –
Annual Report and Accounts 2023
Environmental, Social and Governance
continued
Governance
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 and launched as Veri Energy, a
wholly owned subsidiary of the Group,
in 2023. 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’
(being those assets no longer able
to earn an economic return as a
result of changes associated with the
transition to a low-carbon economy).
Within the Group’s RMF, the
Sustainability 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 Sustainability
Committee, has reviewed the Group’s
system of risk management and
internal control for the period from
1 January 2023 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 Sustainability Committee
meeting in support of this review.
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
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 Board confirms that the
Group complies with the Financial
Reporting Council’s ‘Guidance
on Risk Management, Internal
Control and Related Financial
and Business Reporting’.
”
Robust Risk Management
Framework
• 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
Board also periodically reviews (with
senior management) the 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’) 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
Sustainability 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 92 to 98 and the Sustainability
Committee report on pages 118 to 119).
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, the evolution
of the fiscal regime, developments
in technology, 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
EnQuest Risk Bowtie
ENQUEST RISK MANAGEMENT FRAMEWORK
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EnQuest PLC –
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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 Sustainability 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
Sustainability 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 80 to 81)
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 92 to 98)
•
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.
Sustainability Committee (pages 118 to 119)
•
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;
•
Conducts detailed reviews of key non-financial risks not
reviewed within the Audit Committee; and
•
Reviews technical and reserves matters.
Business leadership teams
•
Regularly reviews operating
performance against stretching targets
and agreed KPIs; and
•
Regularly reviews 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
Near-term and emerging risks
As outlined previously, the Group’s RMF is embedded at 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, and how these ultimately impact on the
enterprise-level risk and their associated ‘Risk Bowties’. 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 Sustainability Committee, which are now integrated
into the Group’s internal audit programme for review. During
the year, five Risk Bowties were reviewed, ensuring that all 19
of the Group’s identified risks have been reviewed within the
targeted cycle.
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 66.
CLIMATE CHANGE
RISK
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, 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 66 to 75.
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
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
Sustainability Committee of the Board. An emissions
reduction of 24% was achieved over this three-year period
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 Veri Energy business in
2023, 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 123 to 124 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
Unanticipated changes in the regulatory or fiscal
environment can affect the Group’s ability to access
funding and liquidity. The change to the UK Energy Profits
Levy (‘EPL’) introduced in the Autumn Budget Statement
2022 materially impacted the Group’s RBL borrowing base
and associated amortisation schedule. In the 2023
Autumn Budget Statement on 22 November, the UK
Government confirmed that it will bring in legislation for
the Energy Security Investment Mechanism and has
agreed to index link the trigger floor price to CPI from
April 2024. The Government also announced that once
the decarbonisation allowance of 80% against EPL is
withdrawn in March 2028, it will replace this with a new
allowance at the same effective rate against the
permanent tax regime. Further fiscal changes could be
enacted should there be a change in UK government at
the next general election. The Group will continue to
monitor developments and any potential related impacts.
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.
Other near-term risks being monitored
51
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Environmental, Social and Governance
continued
HEALTH, SAFETY
AND ENVIRONMENT (‘HSE’)
RISK
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.
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 2023, EnQuest’s Lost Time Incident frequency rate
1
(‘LTIF’) of
0.52 and three hydrocarbon releases, reported on page 40,
challenged this objective. The lost time injuries were all
associated with routine repetitive tasks across three assets.
The root causes have been assessed and the Group is
working closely with the contractors involved to ensure that
everyone is aligned with EnQuest’s safety culture, trained on
equipment and procedures and empowered to stop a task
should a safer method be identified. None of the hydrocarbon
releases had common root causes and occurred at three
different locations and, after thorough investigation, no
systemic failure was identified within EnQuest systems.
The incidents occurred in the first part of the year and,
since then, corrective and preventative actions have been
implemented, no further LTIs or hydrocarbon release
occurred in the remainder 2023.
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’s HSE Policy is fully integrated across its operated
sites and this enables a consistent focus on HSE. There is a
strong assurance programme in place to ensure that the
Group complies with its policy and principles and regulatory
commitments.
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. The
Group-aligned HSE Continuous Improvement Plan promotes
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 Sustainability Committee. During
2023, 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.
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 its 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 52),
and/or a materially lower than expected production
performance for a prolonged period (see ‘Production’
risk on page 53 and ‘Subsurface risk and reserves
replacement’ on page 58), and/or further changes in
the fiscal environment (see ‘Financial’ risk on page 54
and ‘Fiscal risk and government take’ on page 60),
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.
POTENTIAL IMPACT
Medium (2022 Medium)
LIKELIHOOD
Medium (2022 Medium)
CHANGE FROM LAST YEAR
Reflecting the hazards associated with oil and gas
development and production in harsh environments,
the potential impact has increased albeit the likelihood
of this risk has not changed. Through our HSE processes,
there is continuous focus on the management of the
barriers that prevent hazards occurring. 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 and is achieved by working closely and
openly with contractors, verifiers and regulators to
identify potential improvements through an active
assurance process and implement plans to close any
gaps in a timely manner.
RISK APPETITE
Low (2022 Low)
LINK TO STRATEGY
See Page 16
RELATED KPIS:
A
B
C
D
E
F
G
H
See Page 03
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)
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Strategic Report
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Annual Report and Accounts 2023
Environmental, Social and Governance
continued
OIL AND GAS PRICES
RISK
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.
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
(‘RBL’) 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 178) and the terms of the Group’s reserve
based lending facility, which requires hedging of EnQuest’s
entitlement sales volumes (see page 178). From 1 April 2024,
the Group had hedged approximately 6.6 MMbbls for 2024
and 2025. 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.
PRODUCTION
RISK
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.
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
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.
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)
POTENTIAL IMPACT
High (2022 High)
LIKELIHOOD
High (2022 High)
CHANGE FROM LAST YEAR
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.
RISK APPETITE
Medium (2022 Medium)
LINK TO STRATEGY
See Page 16
RELATED KPIs:
B
D
E
F
G
See Page 03
POTENTIAL IMPACT
High (2022 High)
LIKELIHOOD
Medium (2022 Medium)
CHANGE FROM LAST YEAR
There has been no material change in the potential
impact or likelihood. The Group met its 2023 production
guidance and continues to focus on key maintenance
activities during planned shutdowns and procuring a
stock of critical spares to support facility uptime.
RISK APPETITE
Low (2022 Low)
LINK TO STRATEGY
See Page 16
RELATED KPIs:
B
C
D
E
F
G
H
See Page 03
55
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Strategic Report
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Annual Report and Accounts 2023
Environmental, Social and Governance
continued
FINANCIAL
RISK
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 29 and 30.
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 2023,
the Group’s strong free cash flow generation drove a
$236.2 million reduction in EnQuest net debt to $480.9 million
at 31 December 2023, with an EnQuest net debt to adjusted
EBITDA ratio of 0.6x. During the year, EnQuest also entered into
a term loan facility of up to $150 million and repaid its 2023
retail bonds, thus extending and aligning all debt maturities
to 2027. At 27 March 2024, the Group’s RBL facility was
undrawn following repayments totalling $140.0 million in the
first quarter of 2024, 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.
COMPETITION
RISK
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.
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 $2.0 billion of UK tax losses, as
may be appropriate. The Group maintains good relations
with oil and gas service providers and constantly keeps the
market under review. EnQuest has a dedicated marketing
and trading group of experienced professionals responsible
for maintaining relationships across relevant energy
markets, thereby ensuring the Group achieves the highest
possible value for its production.
Key Performance Indicators (‘KPIs’):
A
HSEA (LTI)
B
Production (Boepd)
C
Unit opex ($/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)
POTENTIAL IMPACT
High (2022 High)
LIKELIHOOD
High (2022 High)
CHANGE FROM LAST YEAR
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 and
entered into a new term facility in 2023, which extends
the Group’s debt 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 29).
Factors such as climate change, other 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 upward 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.
RISK APPETITE
Medium (2022 Medium)
LINK TO STRATEGY
See Page 16
RELATED KPIs:
B
C
D
E
F
G
H
See Page 03
POTENTIAL IMPACT
High (2022 High)
LIKELIHOOD
High (2022 High)
CHANGE FROM LAST YEAR
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.
RISK APPETITE
Medium (2022 Medium)
LINK TO STRATEGY
See Page 16
RELATED KPIs:
B
C
D
E
F
G
H
See Page 03
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Strategic Report
EnQuest PLC –
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Environmental, Social and Governance
continued
IT SECURITY AND RESILIENCE
RISK
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.
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,
Viva Engage 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 (including internal audit reviews)
and implementing improvements as necessary has
continued during 2023.
PORTFOLIO CONCENTRATION
RISK
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.
APPETITE
Although the extent of portfolio concentration is moderated
by production generated in Malaysia, the majority of the
Group’s assets remain 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)
POTENTIAL IMPACT
Medium (2022 Medium)
LIKELIHOOD
High (2022 Medium)
CHANGE FROM LAST YEAR
The current geopolitical environment and the
increased number of cyber attacks against companies
in the sector in which the Group operates, and beyond,
increases the likelihood of attempted cyber incursions
against EnQuest. The Group continues to evolve its IT
systems and resilience to mitigate this. There is no
change to the impact of this risk.
RISK APPETITE
Low (2022 Low)
LINK TO STRATEGY
See Page 16
RELATED KPIs:
A
B
See Page 03
POTENTIAL IMPACT
High (2022 High)
LIKELIHOOD
High (2022 High)
CHANGE FROM LAST YEAR
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.
RISK APPETITE
Medium (2022 Medium)
LINK TO STRATEGY
See Page 16
RELATED KPIs:
B
C
D
See Page 03
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Environmental, Social and Governance
continued
SUBSURFACE RISK AND
RESERVES REPLACEMENT
RISK
Failure to develop its contingent and prospective resources
or secure new licences and/or asset acquisitions and realise
their expected value.
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.
The Group continues to consider potential opportunities
to acquire new production resources that meet its
investment criteria.
PROJECT EXECUTION
AND DELIVERY
RISK
The Group’s success will be partially dependent upon the
successful execution and delivery of potential future projects
that are undertaken, including decommissioning,
decarbonisation and new energy opportunities in the UK.
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.
Within Veri 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.
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)
POTENTIAL IMPACT
High (2022 High)
LIKELIHOOD
Medium (2022 Medium)
CHANGE FROM LAST YEAR
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.
RISK APPETITE
Medium (2022 Medium)
LINK TO STRATEGY
See Page 16
RELATED KPIs:
B
C
E
F
G
See Page 03
POTENTIAL IMPACT
Medium (2022 Medium)
LIKELIHOOD
Low (2022 Low)
CHANGE FROM LAST YEAR
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.
RISK APPETITE
Medium (2022 Medium)
LINK TO STRATEGY
See Page 16
RELATED KPIs:
A
B
D
E
F
G
H
See Page 03
61
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Environmental, Social and Governance
continued
FISCAL RISK AND
GOVERNMENT TAKE
RISK
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.
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 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.
INTERNATIONAL BUSINESS
RISK
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.
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)
POTENTIAL IMPACT
High (2022 High)
LIKELIHOOD
High (2022 Medium)
CHANGE FROM LAST YEAR
There has been no material change in the potential
impact; however, the likelihood has increased given the
implementation of, and subsequent change to the 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.
RISK APPETITE
Medium (2022 Medium)
LINK TO STRATEGY
See Page 16
RELATED KPIs:
D
E
F
See Page 03
POTENTIAL IMPACT
Medium (2022 Medium)
LIKELIHOOD
Medium (2022 Medium)
CHANGE FROM LAST YEAR
There has been no material change in the impact or
likelihood.
RISK APPETITE
Medium (2022 Medium)
LINK TO STRATEGY
See Page 16
RELATED KPIs:
A
B
D
E
F
G
H
See Page 03
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Environmental, Social and Governance
continued
JOINT VENTURE PARTNERS
RISK
Failure by joint venture parties to fund their obligations.
Dependence on other parties where the Group is non-operator.
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.
REPUTATION
RISK
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.
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
undertake 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.
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)
POTENTIAL IMPACT
Medium (2022 Medium)
LIKELIHOOD
Low (2022 Low)
CHANGE FROM LAST YEAR
There has been no material change in the potential
impact or likelihood.
RISK APPETITE
Medium (2022 Medium)
LINK TO STRATEGY
See Page 16
RELATED KPIs:
B
C
E
F
G
See Page 03
POTENTIAL IMPACT
High (2022 High)
LIKELIHOOD
Low (2022 Low)
CHANGE FROM LAST YEAR
There has been no material change in the potential
impact or likelihood.
RISK APPETITE
Low (2022 Low)
LINK TO STRATEGY
See Page 16
RELATED KPIs:
A
B
D
E
F
G
H
See Page 03
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Environmental, Social and Governance
continued
HUMAN RESOURCES
RISK
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.
APPETITE
As a 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 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 is therefore 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 each 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 feedback is frequently sought to understand
employees’ views on areas, including diversity and inclusion
and wellbeing in order to develop appropriate action plans.
Although it was anticipated that fewer young people may
join the industry due to climate change-related factors, 2023
saw a rise in the number of young professionals joining
EnQuest. We believe the Group’s decarbonisation ambitions
as well as the graduate programme, introduced in 2023,
has contributed to this change. EnQuest aims to attract
and sustain the best talent, recognising the value and
importance of diversity. The emphasis around improved
diversity in the Group’s management and leadership is a
main focal point for the Board; further details on these are
set out on page 31. 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.
POTENTIAL IMPACT
Medium (2022 Medium)
LIKELIHOOD
Medium (2022 Medium)
CHANGE FROM LAST YEAR
There has been no material change to potential impact
or likelihood.
RISK APPETITE
Medium (2022 Medium)
LINK TO STRATEGY
See Page 16
RELATED KPIs:
A
B
C
D
E
F
G
H
See Page 03
The Group 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. EnQuest has now moved to a 4–1 office to work
from home ratio to enhance productivity and motivate staff.
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.
Business conduct
EnQuest has a Code of Conduct (which has been reviewed
and refreshed in 2023) 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 of Conduct addresses our requirements in
a number of areas, including the importance of health and
safety, compliance with applicable law, anti-corruption,
anti-facilitation of tax evasion, anti-slavery, anti-competition,
sanctions, export and import controls, 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 its continual
improvement planning in the space of business conduct,
the Group is currently spearheading a project to enhance
accessibility to materials and training on a broad range
of ethics and compliance topics relevant to personnel
including on fraud, money laundering, competition law
and sanctions.
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
46 to 64 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 laws. The Group has
zero tolerance for practices that breach applicable laws 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 various laws
(including anti-slavery, tax and employment) before being
qualified to supply the Group.
The Group has also 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 conducting
our business in accordance with
our Values and to upholding the
highest ethical standards, acting
with integrity and adhering to
the laws and regulations in the
countries in which we operate.”
The control room aboard EnQuest’s Kraken FPSO
67
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Strategic Report
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(b) Describe management’s role in assessing and managing climate-related risks and opportunities.
EnQuest’s Chief Executive Officer has ultimate responsibility for assessing and managing climate-related risks and
opportunities and is supported in this endeavour by the CEO of Veri Energy (a wholly-owned subsidiary of EnQuest), 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 CFO is responsible for ensuring the Group also recognises
the impacts of climate-related risks and opportunities appropriately in its financial statements, including judgements and
estimates, such as future oil and emission trading certificate prices and the costs and benefits associated with emissions
reduction projects, and other relevant disclosures.
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 Sustainability 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 disclosure
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 its 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; Veri Energy aims to leverage repurposed 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. 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 Sustainability Committee
if required.
See pages 3 to 13
(KPIs, Chairman
and CEO
statements), 22
to 23 (Veri Energy
review), 26 to 30
(Financial
review), 36 to 39
(Environmental),
46 to 64 (Risks)
and 138
(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
jointly for this one sector and both geographies. Exceptions are detailed in the table on the next page.
EnQuest considers within one year to be short-term (which aligns with the Group’s budgeting process and assessment of
going concern), one to three years to be medium-term (which is in line with the Group’s assessment of viability 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).
Using a mix of quantitative and qualitative measures, the Group has made an assessment of the potential impact and
likelihood of the climate-related risks or opportunities set out in the table on the following page. This is in line with common
enterprise risk management system practice.
Task Force on Climate-related
Financial Disclosures
The Group supports good 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 meaningful disclosure, such as those recommended by the Task Force on Climate-related Financial
Disclosures (‘TCFD’) and those required by the Companies Act via Climate-related Financial Disclosures (‘CFD’). Listing Rule
9.8.6R requires companies to include climate-related financial disclosures consistent with the TCFD recommendations.
EnQuest has complied with these requirements save for:
•
Quantification of risks and opportunities within Strategy (b) and the associated Metrics and Targets; and
•
Scope 3 recommendations within Metrics and Targets.
With regard to the quantification of risks and opportunities, through the Group’s financial planning and liquidity management
processes EnQuest has mature and well-established processes by which it quantifies the impacts of changing commodity
prices and cost of emissions trading certificates on its business. These quantification processes are being expanded to assess
the potential impact of various other risks and opportunities, details of which are set out below.
For Scope 3 recommendations, EnQuest has made progress towards compliance through the inclusion of certain Scope 3
emissions within the metrics and targets section (items (a) and (b)) on a phased basis. During 2023, the Group has
incorporated verified Scope 3 emission category 5 ‘waste generated in operations’ data. In line with both the Group’s
Continuous Improvement Plan (‘CIP’) and the United Nations-adopted Sustainable Development Goal (‘SDG’) 12, Responsible
Consumption & Production, EnQuest will commence reporting on this category from 1 January 2023. The Group is also
now capturing data per category 4 ‘upstream transportation and distribution’ and is exploring the potential for reporting
category 11 ‘use of sold products’. The Group is planning, therefore, to report against three categories of Scope 3 emissions
in the 2024 Annual Report and Accounts.
EnQuest disclosure
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. This model has been further enhanced during 2023 by the launch
of Veri Energy, a wholly owned subsidiary of EnQuest, to provide dedicated
management of the Group’s new energy and decarbonisation projects.
An organogram outlining the Group’s Risk Management Framework can be
found on page 48.
See pages
36 to 39
(Environmental),
46 to 64 (Risks),
76 to 78 (s172),
92 to 98 (Audit
Committee
report), 99 to 117
(Directors’
Remuneration
Report), 118 to 119
(Sustainability
Committee
report) and 120
to 124 (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 Sustainability Committee (previously named 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 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, and monitors performance against
Group emission reduction targets. Progress in developing these growth opportunities is linked to reward as a component of
the Company Performance Contract (see page 109 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 Brindex and Offshore Energies UK.
69
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Strategic Report
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Task Force on Climate-related
Financial Disclosures
continued
Risk
type Climate-related risk
EnQuest risk management
Transition
Market (all geographies and 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 54): The
Group has substantial existing credit facilities, needs
to invest in its asset base and aims to pursue value-
accretive M&A. Wider market forces, including interest
rates, investor sentiment and ESG requirements,
impact the Group’s ability to raise capital
• Supply-side constraints due to competing demand
for equipment and/or services as supply chain
migrates to support alternative sectors could increase
costs and/or result in delayed work programmes,
ultimately impacting revenue generation (long-term)
•
Planning and investment decision process caters for low oil
price scenarios and includes a carbon cost associated with
forecast emissions (see metrics and targets (a) – Transition
risks and carbon prices)
•
The Group actively monitors current and future oil prices (see
Oil and gas prices risk on page 52) through its Marketing and
Trading organisation, which is also responsible for purchases
of emissions trading allowances (see metrics and targets (a)
– Transition risks and carbon prices)
• The Group closely monitors and manages its funding
position and liquidity risk throughout the year (see Financial
risk on page 54). EnQuest’s new energy and
decarbonisation opportunities were a significant factor in
attracting new investors in the Group’s 2022 and 2023
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 and
long-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)
• Each of the above could require additional capital
investment, potentially at a lower return than
traditional projects, or increase costs
• Targeted emission reductions and assessing opportunities
to reduce flaring, for example (see page 123) (see metrics
and targets (a) – Scope 1, 2 and 3 absolute emissions and
emissions intensity)
•
The UK Energy Profits Levy includes incentives for both oil
and gas and decarbonisation investments, which the
Group aims to utilise (see metrics and targets (a) –
Climate-related opportunities)
• 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 and timeframes, unless
otherwise noted)
• Negative perception of the oil and gas industry
• Lack of credible transition plan
• Failure to adhere to regulatory or legislative
requirements (medium and long-term)
• The perception of the oil industry has already
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 Veri linked to reward (see metrics and
targets (a) – Scope 1, 2 and 3 absolute emissions and
emissions intensity, Climate-related opportunities, Capital
deployment and Remuneration)
•
Clear and credible emission reduction targets linked to reward
(see metrics and targets (a) – Scope 1, 2 and 3 absolute
emissions and emissions intensity, and Remuneration)
• 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 North Sea Transition Authority
•
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 (see
metrics and targets (a) – Scope 1, 2 and 3 absolute emissions
and emissions intensity)
•
Emissions Management Team is also responsible for
development of Group reporting on Scope 3, including
verified reporting on category 5 ‘waste generated in
operations’ for 2018–2023 (see metrics and targets (a) –
Scope 1, 2 and 3 absolute emissions and emissions intensity)
• Regular asset-level emissions measurement, monitoring and
reporting with timely corrective action taken if necessary
(see metrics and targets (a) – Scope 1, 2 and 3 absolute
emissions and emissions intensity, Transition risks and
carbon prices and Capital deployment)
• High standards of business conduct (see page 65)
Risk
type Climate-related risk
EnQuest risk management
Transition
Technology (all geographies, 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
(see metrics and targets (a) – Climate-related opportunities
and Capital deployment)
• Continued engagement with relevant new energy and
decarbonisation stakeholders, including potential strategic
and financial partners (see metrics and targets (a) –
Climate-related opportunities and Capital deployment)
• Continued engagement with suppliers, requiring provision
of services with a lower emissions footprint (see metrics
and targets (a) – Climate-related opportunities and
Capital deployment)
Physical
Acute (all geographies, short- and medium-term)
• Adverse and/or severe weather (storms, cyclones,
extreme heat or cold) resulting in asset downtime and
impacting revenue, or increasing health and safety
risk to staff
• Action and response plans, including effective supply
change management, to manage risks and extent of
downtime to as low as reasonably possible (see metrics
and targets (a) – Physical risks)
Chronic (all geographies long-term)
•
Rising sea levels, tidal impacts and other extreme
weather causes extensive/irreparable damage to assets
impacting capital and/or operating costs or early
decommissioning of 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 see metrics and targets (a) –
Physical risks)
71
70
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2023
(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 5% of the Group’s operating
costs in 2024.
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.
Following the establishment of the Infrastructure and New Energy (‘I&NE’) business in 2021 and having progressed three
significant new energy and decarbonisation opportunities at Sullom Voe Terminal, the Group launched Veri 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.
Veri represents the logical next step in the strategic evolution of EnQuest’s new energy and decarbonisation ambitions,
enabling the project team to move forward with a focused management structure and the potential to leverage financial
and strategic partnerships.
During 2023, EnQuest’s Board approved a commitment to reach net zero in respect of Scope 1 and Scope 2 emissions by
2040. The Group set interim targets, linked to reward, to reduce Group-wide Scope 1 and Scope 2 emissions by 10% by 2023
against a 2020 baseline; achieving a 23% reduction. A further 10% reduction target has been set over the next three-year
period, 2021-2024. 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 and require reductions against a 2018 baseline of 10% by 2027,
25% by 2030 and 50% by 2030. At the end of 2023, EnQuest had reduced UK Scope 1 and Scope 2 emissions by 41%. 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 again as part of its 2023 full
year results process, having previously updated scenario analysis 12 months ago. In its scenario modelling, the Group
incorporates 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 assumes that all RAS climate commitments made by governments and industries around the world
by the end of August 2023, for both 2030 targets and longer-term net zero or carbon neutrality pledges will be met in full and
on time and shows how close current pledges get the world to the target of limiting global warming to 1.5°c, while the NZE
shows an accelerated pathway for the global energy sector to achieve net zero CO
2
emissions by 2050 and is consistent with
limiting the global temperature rise to 1.5°c. The Group continues to generate positive free cash flow when using assumptions
based on the APS, although cash flow becomes negative when using assumptions based on the NZE. As outlined in the
Group’s viability statement on page 30, should oil prices be lower than assumed in its Plausible Downside Case projections,
the Group may be required to undertake mitigating actions to meet its various 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 by Veri.
Task Force on Climate-related
Financial Disclosures
continued
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 towards decentralised energy
generation
• Use of supportive policy incentives
• Use of new technologies
•
Progressing the potential to facilitate the electrification
of nearby offshore oil and gas assets and planned
developments
• Assessing onshore wind potential on Shetland
• Commencement of project to deliver new grid-connected
power solution for Sullom Voe Terminal (‘SVT’)
• Assessing initial 50MW green hydrogen project at SVT
supported by government-backed fund matching worth
£1.74 million
• Progressing gas tie-back from Bressay to Kraken to
displace diesel as Kraken FPSO primary fuel
•
Completion of modifications to the Heather asset power
generation equipment to minimise emissions during
decommisioning
Resilience (all
geographies and
timeframes, unless
otherwise stated)
•
Resource substitutes/diversification
(UK only at present)
• Participation in renewable energy
programmes and adoption of
energy efficiency measures
• Access to M&A opportunities: Noting
other industry participants need to
dispose of assets to meet their own
ESG targets
•
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
Products and
services (all
geographies and
timeframes, unless
otherwise stated)
• 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 geographies
and timeframes)
•
Use of more efficient production
and distribution processes
• Use of recycling
• Focused on absolute emission reductions in all operations
see metrics and targets section)
• Measurement of waste generated in operations, with 2023
reporting in line with Category 5 Scope 3 emissions (see
metrics and targets section)
• 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
73
72
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2023
Task Force on Climate-related
Financial Disclosures
continued
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 disclosure
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 net zero commitment in respect of Scope 1 and Scope 2
emissions by 2040 and its desire 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 03
(KPIs), 22 to 23
(Infrastructure
- Midstream
review), 36
(Environmental),
76 (s172), 109, 110
and 111 (CPC and
PSP disclosures
within the
Directors’
Remuneration
Report) and 123
(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.
Metrics – consistent with prior year
unless otherwise stated
Description
Scope 1, 2 and 3 absolute
emissions and emissions
intensity
Scope 1 and 2 metrics are
consistent with prior years.
Scope 3 metrics are new
additions in 2023.
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 also embarked on the reporting of selected Scope 3
emissions, with verified data on Category 5 ‘waste generated in
operations’ included within the 2023 Annual Report and Accounts. The
Group is also collating data relating to Category 4 ‘upstream
transportation and distribution’ and exploring Category 11 ‘use of sold
products’. The Group expects, therefore, to report against three
categories of Scope 3 emissions in the 2024 Annual Report and Accounts.
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 123), recognising the impact this metric has
on certain risks and opportunities, such as reputation, access to
capital and M&A opportunities.
EnQuest disclosure
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 Sustainability 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
48 and cover long-term macro factors and near-term and emerging risks.
See pages 46 to
64 (Risks) and 118
to 119
(Sustainability
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 Sustainability 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 is targeting being net zero by 2040 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 and requires an assessment of value associated with a given
risk. 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 Sustainability 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 Sustainability 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, (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).
75
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Strategic Report
EnQuest PLC –
Annual Report and Accounts 2023
Task Force on Climate-related
Financial Disclosures
continued
EnQuest disclosure
(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)
Metrics – consistent with prior year
unless otherwise stated
Description
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 2024, the Group’s
forecast carbon price is £40 per tonne.
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 Veri, 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.
During 2023, the Group was awarded four licences across two licence
areas in the NSTA’s first UK carbon storage licensing round, while in
2024 the Group secured £1.74 million of funding from the UK
government’s Net Zero Hydrogen Fund to initiate study work for a
50MW green hydrogen project at SVT.
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 (see pages 109 to 112).
(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 also discloses limited Scope 3
emission data, aligned to Category 5 ‘waste generated in operations’ and has plans to collate
additional Scope 3 data in 2024. The Group’s GHG emissions data disclosed in the Directors’ report
and throughout the ARA is verified by Lucideon. 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.
EnQuest disclosure
(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 2023, Group emissions had
been reduced by c.23% against the 2020 baseline. In both 2022 and 2023, further emission
reduction targets over a three-year period were set as part of the Group’s Performance Share Plan
measures (see page 110 of the Directors’ Remuneration Report).
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 (see the
Directors’ Remuneration Report in the Group’s 2022 ARA).
As at 31 December 2023, UK emissions had been reduced by c.41% 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 2023, the Group committed to reach net zero in terms of Scope 1 and Scope 2 emissions
by 2040.
In 2023, the Group made excellent progress in each of its new energy and decarbonisation
opportunities. In carbon capture and storage, the Group was awarded carbon storage licences
which are intended for use in delivering the potential to store up to 10mtpa of CO
2
from stranded
emitters in depleted North Sea reservoirs. Further, EnQuest’s electrification ambitions, as well as
plans to produce green hydrogen and its derivatives could harness renewable energy to help
decarbonise offshore developments and a number of other industries, respectively. The Group
secured £1.74 million of funding from the UK government’s Net Zero Hydrogen Fund to initiate study
work for a 50MW green hydrogen project at SVT, 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.
77
76
Strategic Report
EnQuest PLC –
Annual Report and Accounts 2023
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 78) 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
Direct Board level engagement in 2023
Other engagement activities in 2023
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.
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 78
and pages 43 to 44 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.
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.
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 78 and
the Strategic report on pages 02 to 78, which explains the
Group’s performance and investment decisions during
the year.
Page 85 of the Corporate governance statement outlines
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 54.
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 new energy and decarbonisation
ambitions, we also engage with potential strategic and
financial partners.
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 18 to 23 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 62.
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.
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 78 and the Group’s
Principal risks and uncertainties on pages 46 to 64, which
outline EnQuest’s strong relationships with governments
and regulators. Pages 36, 38 to 41 and 46 of the ESG section
and pages 120 to 124 of the Directors’ report outline further
details on the Group’s regulatory compliance activities.
E
Suppliers
EnQuest relies on its suppliers to provide specialist
equipment and services, including skilled personnel,
to assist in the delivery of SAFE Results.
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 46 to 64, a number of which are impacted by the
Group’s supplier relationships.
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.
None
See pages 42 to 43 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 63.
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.
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.
Stakeholder engagement
79
78
EnQuest PLC –
Annual Report and Accounts 2023
Corporate Governance
Principal decision and
impacted stakeholders
Stakeholder considerations and impact on the long-term sustainable success of the Company
Launch of Veri Energy
and Net Zero
Commitment
Impacted stakeholders:
A
B
C
D
E
F
G
Following the establishment of the Infrastructure and New Energy business in 2021 and having further
progressed three world scale new energy and decarbonisation opportunities at the Sullom Voe Terminal,
EnQuest’s Board decided to launch Veri Energy (‘Veri’) – a wholly owned subsidiary of the Group, with
Salman Malik appointed as its Chief Executive Officer.
This was considered to be the logical next step in the strategic evolution of EnQuest’s infrastructure and
new energy ambitions – Veri moving forward with a focused management structure and the potential
to leverage financial and strategic partnerships.
Having materially reduced EnQuest’s emissions over several years, ahead of the UK’s North Sea Transition
Deal targets, the award of carbon capture and storage licences expanded and further defined EnQuest’s
role in the energy transition. As the Group works to advance and deliver its transition plan, the Board has
established a commitment for EnQuest to reach net zero for Scope 1 and Scope 2 emissions by 2040.
The Board considers new energy and decarbonisation activities important in for the long-term success
of EnQuest and potentially provides several shared stakeholder benefits.
For more information on the progress made throughout 2023, see the ‘Veri Energy’ section on page 23.
Bressay and EnQuest
Producer FPSO equity
interest farm-down
Impacted stakeholders:
A
B
C
D
As one of the largest undeveloped oil fields in the UK continental shelf, with an estimated stock-tank oil
initially in place (‘STOIIP’) of 600 to 1,050 MMbbls, Bressay represents an opportunity for EnQuest to develop
material indigenous UK reserves and support the UK’s energy security. The EnQuest Producer Floating,
Production, Storage and Offloading (‘FPSO’), which has been in warm-stack storage since 2020, is seen
as a credible option to be utilised as an early production system for the Bressay development.
By farming-down a portion of this integrated project, EnQuest’s Board recognised the opportunity to
advance a project with the potential to both unlock material reserves and lower Kraken emissions (via
a gas tie-back). Partial monetisation of EnQuest’s position also manages the Group’s exposure to any
project or financial risks.
The decision was therefore made to sell a 15% working interest in each of the Bressay field and the EnQuest
Producer. For more information on this transaction, please see pages 26 and 28.
Delisting from the
Nasdaq Stockholm
stock exchange
Impacted stakeholders:
B
D
EnQuest has maintained a Nasdaq Stockholm stock exchange listing since 2010, when it issued shares to
Swedish resident shareholders as consideration for the acquisition of a former Lundin entity. Whilst the UK
was a member of the European Union (‘EU’), London was the Group’s primary listing for EU purposes and
Swedish listing requirements were minimal. Post the UK’s exit from the EU, the UK however no longer qualifies
as a primary EU listing – which has exposed EnQuest to material additional regulatory and compliance
requirements. With no legal or physical presence in Sweden, EnQuest has been reliant on external advisers
to manage its compliance obligations. Having considered the additional risk and cost that has resulted from
this position – and in consultation with management and external advisers – EnQuest’s Board decided to
delist EnQuest shares from the Nasdaq Stockholm.
Following the requisite announcements and communication with affected shareholders, the Group funded
a process to cross-border transfer shares to UK equivalents before formally delisting its shares in Sweden
on 19 December 2023.
Board skills mapping
and succession
Impacted stakeholders:
A
B
D
Effective succession planning remains a key focus area to ensure the Company has a diverse and
experienced Board that can support management in the execution of its strategy for the benefit of its
stakeholders. In 2023, following Board direction, the Governance and Nomination Committee engaged
Spencer Stuart to carry out a skills mapping exercise, review organisational design and recruit new
candidates to join the Board.
As set out in the Governance and Nomination Committee report, Spencer Stuart’s review highlighted
areas which could be strengthened by the introduction of new skills and experience to the Board. As a
consequence, three Directors stood down following the 2023 AGM and a focused recruitment programme
was undertaken – which resulted in the Governance and Nomination Committee recommending Michael
Borrell and Karina Litvack be appointed to the Board as Independent Non-Executive Directors, with Karina
assuming the role of Senior Independent Director (‘SID’). Unfortunately, due to an unexpected conflict arising
through a board position held in the EU, Karina stepped down from the Board in December. In addition to the
Committee’s recommendation that Farina Khan assume the role of Audit Committee Chair given her
financial experience and previous Committee membership, they also recommended she become SID
following Karina’s resignation.
With Veri Energy expected to be a key contributor in the Group’s energy transition plans, it was also agreed
that Salman Malik, previously Chief Financial Officer (‘CFO’) as well as Managing Director of the Group’s
Infrastructure and New Energy business, would become Chief Executive Officer of Veri Energy. Following a
further extensive recruitment programme, Jonathan Copus was identified as the successor to Salman Malik
as the Group’s CFO. Jonathan joined EnQuest in December 2023 to allow for an effective and orderly
transition. It is proposed to nominate Jonathan for election as a Director at the Company’s AGM in 2024.
For more information, see page 13 of this Strategic report and pages 82 to 91 of the 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 27 March 2024.
Stakeholder groups:
A
People
B
Investors
C
Partners
D
Host government and regulators
E
Suppliers
F
Communities
G
Customers
Executive Committee
Key strengths and experience
•
Broad background in the energy
and natural resource sectors
built through technical, finance,
operational and commercial
roles in both large and small
organisations
•
Significant capital markets
experience
•
Strong technical knowledge in
geology and geoscience
Jonathan joined EnQuest in
December 2023 as CFO Designate,
becoming EnQuest CFO on
1 February 2024. Jonathan has
a strong technical background
in geology and geoscience
alongside ten years’ capital
markets experience. In his time in
the City, Jonathan was the number
one ranked energy analyst and
co-authored a well-respected
industry handbook, ‘Oil and Gas
for Beginners’. Jonathan spent
four years as CFO of Salamander
Energy PLC, a production and
development business focused
in South East Asia. While there,
Jonathan more than doubled the
post-tax margin against a flat
oil price. For the last seven years,
Jonathan was CEO of Getech
Group PLC, where he repositioned
and recapitalised the business as
a data and analytics specialist,
while also decarbonising more
than one-third of revenues.
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, Company Secretary
and Chief Risk Officer.
Key strengths and experience
•
MBA in Finance
• Extensive international
experience
Ali joined EnQuest in July 2012
from Schlumberger where
he held the role of Regional
Procurement & Sourcing
Manager for the North Sea.
He has over 22 years of procurement
and shared services function
experience for both E&P operators
and oilfield service providers.
Ali has an MBA in Finance and has
diverse experience of working
in different industries in large
well-established organisations as
well as medium sized start-ups
in the Middle East, South Asia,
Europe and the Caspian region.
Ali has also held leadership
positions at various industry
groups, including Chair of Oil and
Gas UK’s Supply Chain Forum,
member of the Oil and Gas
Authority’s Supply Chain & Exports
Board and currently Chair of
World Economic Forum’s Resource
Sharing Hub in the North Sea.
Key strengths and experience
•
Over 30 years of international
upstream experience in
technical and leadership roles
across the full value chain of oil
& gas exploration, development,
and production operations
•
MSc in Petroleum Engineering
from Imperial College, London
Jason joined EnQuest in November
2023 as Technical Director from
Petrofac’s Integrated Energy
Services division where, over the
previous decade, he held various
technical leadership roles in the
UK, Mexico and Malaysia. Prior
to that, Jason spent seven years
with Hess, initially managing all
subsurface activity associated
with Hess’ UK and Russia portfolio,
before transferring to the United
States. Jason began his career
with Chevron in the UKCS working
on the Alba and Ninian fields
before taking international
roles to work a wide variety of
subsurface developments.
Jason is a registered Chartered
Engineer and a member of the
Society for Petroleum Engineers ‘SPE’.
Key strengths and experience
•
Senior operational leadership
positions held onshore and
offshore during 28-year career
•
15 years in executive roles (MD,
CEO and Chair)
•
Involved in over $5 billion of E&P
transactions
•
Founded Decipher Energy,
which was successfully sold
within five years
•
Steve is a director on the board
of Offshore Energies UK
Steve joined EnQuest PLC in
October 2023. Prior to joining the
Group he was a technical adviser
to global financial institutions and
investors. Steve commenced his
career in subsea engineering/
installation before moving to
Talisman as a reservoir engineer,
offshore team leader and asset
manager. Steve then set up Taqa’s
UK operation before moving
to First Oil as MD, acquiring an
interest in the Kraken field prior
to the successful appraisal well.
Steve was the founding director
of Decipher Energy, a full life
cycle operating company, safely
drilling and completing an 18,500
ft well, delivering Orlando first
oil within two years of founding
the company and overseeing its
sale to Tailwind Energy in 2021.
Jonathan Copus
Chief Financial Officer
Chris Sawyer
General Counsel and
Company Secretary
Ali Talpur
Business Development
Director
Jason Ewles
Technical Director
Steve Bowyer
General Manager,
North Sea
Note:
The Chief Executive Officer and CEO Veri Energy are also members of the Executive Committee. You can see their profiles on page 80. Jonathan Copus will join the
Board of Directors at the 2024 Annual General Meeting, subject to shareholder approval.
81
80
EnQuest PLC –
Annual Report and Accounts 2023
Corporate Governance
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 the chairman
of Ninety One Plc and Ltd and was previously 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.
He 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.
Key strengths and experience
•
Technical, project management and executive management roles
in major energy companies, working on six continents
Rani has 25 years’ experience working within large multinational,
independent and start-up energy companies. These include
Shell International, Hess Corporation and Tullow Oil plc 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.
Key strengths and experience
•
Significant experience across the energy value chain
Salman joined EnQuest in 2013 and has since made considerable strides
in leading the Group’s transition towards sustainable energy solutions.
As the CEO of Veri Energy, and formerly the CFO of EnQuest, Salman
has been pivotal in shaping and delivering the Company’s strategy,
especially in areas of corporate finance, mergers and acquisitions,
and establishment of an infrastructure and new energy business. His
extensive experience in establishing and managing new businesses,
garnered from previous roles in private equity and investment banking,
has been instrumental in advancing EnQuest’s position in the energy
sector, focusing on sustainability and just energy transition. Salman
currently sits on the EnQuest Board as an Executive Director.
Key strengths and experience
•
Significant global exploration and production experience
Michael is an experienced operator of large-scale exploration
and production assets, having worked for over 35 years with
TotalEnergies, including managing the integration of the Maersk
Oil business. His international career with TotalEnergies has
spanned Europe, Asia, North and South America, culminating in his
appointment as senior vice president North Sea and Russia, and
as Denmark country chair in 2020. Michael was a non-executive
director of Novatek OAO, which was listed on the London Stock
Exchange and Moscow Stock Exchange, between 2015 and 2021.
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 with 30 years’ working experience primarily in the
oil and gas industry. She started her career with Coopers & Lybrand,
Australia, before returning to Malaysia to join PETRONAS in strategic
planning and finance roles. She held various senior positions in
PETRONAS including as CFO of an upstream subsidiary, PETRONAS
Carigali Sdn. Bhd in 2006, and CFO at PETRONAS Exploration and
Production in 2010. From 2013, Farina was the CFO of PETRONAS
Chemical Group Berhad, the largest listed entity of PETRONAS. Farina
left PETRONAS in 2015 to pursue non-executive opportunities.
Principal external appointments
None.
Principal external appointments
None.
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 and
Icon Offshore Berhad. Farina
currently sits also on the boards
of Ambank Islamic Berhad and
KLCC REIT Management Sdn. Bhd.
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 and
was British Business Ambassador for Energy from 2013 to 2015.
Key strengths and experience
•
Extensive experience of the energy industry, public policy and
governance
Liv Monica has over 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 re-
joined 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.
Gareth Penny
Non-Executive Chairman
Appointed 6 December 2022
Rani Koya
Non-Executive Director
Appointed 1 January 2022
Salman Malik
CEO Veri Energy
Appointed 15 August 2022
Michael Borrell
Non-Executive Director
Appointed 5 September 2023
Farina Khan
Senior Independent Director
Appointed 1 November 2020
Amjad Bseisu
Chief Executive
Appointed 22 February 2010
Liv Monica Stubholt
Non-Executive Director
Appointed 15 February 2021
Committees key
A
Audit
G
Governance and Nominatio
n
R
Remuneration and Social Responsibility
S
Sustainability
Denotes Committee Chair
A
G
S
A
G
R
R
S
S
G
A
Principal external appointments
Chair of the independent
energy community for the World
Economic Forum since 2016.
Director of The Amjad and Suha
Bseisu Foundation since 2011.
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 Silex Gas Norway and
Morrow Batteries. Member of
the board of Vår Energi (listed
on the Oslo Børs Main Market).
Principal external appointments
Chairman of Ninety-One Plc
and Ltd.
Principal external appointments
CEO and director of OGL
Geothermal and Trustee of
Lloyds Register Foundation.
Board of Directors
83
82
EnQuest PLC –
Annual Report and Accounts 2023
Corporate Governance
Dear shareholder
On behalf of the Board of Directors (the ‘Board’) I am pleased
to introduce EnQuest’s Corporate Governance Report for 2023.
The Board’s role is to set the purpose, tone and culture of the
organisation. At the start of the year, the Board reviewed the
results of its annual evaluation and concluded that we needed
to focus on refining our strategy and aligning the competencies
of the Board more closely with its delivery. Recognising the
need to foster trust, develop succession planning and prioritise
smart execution, we engaged in a thorough review of our
strategy and the requisite Board member skills. This culminated
in a collaborative effort, supported by Spencer Stuart, to
reshape the composition of our Board.
This review entailed a detailed and candid discussion with
each Director to align our mutual expectations for the future.
Collectively, we recognised that the skills which served us
well in the past would need to evolve and be augmented
to match our strategy. As a result, our three longest serving
Non-Executive Directors, Carl Hughes, Howard Paver, and John
Winterman, stepped down from the Board at the 2023 Annual
General Meeting (‘AGM’). On behalf of the Board, I thank them
for their considerable contribution to the running of the Group.
Subsequently, the Governance and Nomination Committee
carried out a comprehensive search for independent
Non-Executive Directors to join the Board, resulting in the
appointment of Michael Borrell and Karina Litvack. Michael
joined as an independent Non-Executive Director and Karina
as the Senior Independent Director. Unfortunately, in December,
Karina had to step down from the Board due to an unexpected
conflict arising through the EU Unbundling Directive, which
prohibits any director of a European power transmission
company from also serving on the board of an upstream
operator. As such, we started the recruitment process for an
additional Non-Executive Director in January 2024. On 28 March
2024 we announced the intention to appoint Rosalind Kainyah
to the Board at the Company’s 2024 AGM. Recruitment
details and the process undertaken by the Governance
and Nomination Committee is set out in the Committee
report on pages 86 to 89.
Separately, both Liv Monica Stubholt and Rani Koya have
advised that they will be stepping down at the Company’s 2024
AGM. Liv Monica has served on the Board for a full three-year
term and has opted to focus on her Norwegian portfolio, and
Rani has advised of competing work priorities. Both have been
of huge support during the time that I have been Chair of the
Company and I thank them.
The Board restructure also involved reviewing the roles of
the Executive Directors and it was agreed that Salman Malik,
Chief Financial Officer (‘CFO’) and Managing Director,
Infrastructure and New Energy, would assume the role of
Chief Executive Officer (‘CEO’) of Veri Energy (‘Veri’), a wholly
owned subsidiary of EnQuest. As a result, Salman now has
the opportunity to wholly devote his time to developing our
new energy and decarbonisation business. One of the
outcomes of his appointment as CEO is that he will step
down as a Director at the AGM.
We recruited Jonathan Copus as CFO Designate in
December 2023, and after a formal transition process, he
became CFO on 1 February 2024. He will be proposed for
election to the Board at the AGM. Details regarding his
appointment can be found on page 89.
I am convinced that the resulting Board is well placed to
oversee the delivery of the Group’s strategic goals and I look
forward to working with the Directors over the coming years.
Following the departure of the UK from the European Union,
EnQuest encountered additional material compliance
requirements due to its listing in Sweden on Nasdaq Stockholm.
Therefore, the Directors agreed to delist from the Swedish
exchange and this was announced to the market in September
2023. The delisting took effect on 19 December 2023.
Lastly, in addition to the changes to the Board, and the work
undertaken to implement the strategy, the Group agreed a
new term loan facility resulting in an increase of up to $150
million in available funds. Whilst some of the proceeds were
used for general corporate purposes, the funding provided
an additional source of liquidity for the October settlement of
the 7% GBP retail bond. For more detail, see page 29 of the
Financial Review.
My first year at EnQuest has been productive and fulfilling and
I am pleased to be entering into my second year with a strong
and supportive Board. I am confident that my fellow Directors,
senior management and the wider EnQuest team will deliver
our strategy and create a strong future for the Group.
Gareth Penny
Chairman
27 March 2024
Chairman’s letter
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 and later resignation of Karina Litvack as Non-Executive
Director and Senior Independent Director. Chair of the Remuneration
and Social Responsibility Committee
•
Appointment of Michael Borrell as Non-Executive Director. Member of
the Audit, Sustainability and Governance and Nomination Committees
•
Appointment of Farina Khan as Senior Independent Director and Chair
of the Audit Committee
• Proposed appointment of Rosalind Kainyah as Non-Executive Director
•
Appointment of Jonathan Copus as Chief Financial Officer and
proposed for election as an Executive Director at the AGM
Committee
structure
Ensuring the appropriate
support is provided to the Board
•
Restructured Committees to combine Technical and Reserves and Safety,
Sustainability and Risk Committees into the Sustainability Committee
Strategy
review
Defining the Group’s role in
the energy transition
•
Holistic review of strategy and drivers for success including
establishment of Veri Energy
Refinancing
Strengthening the balance
sheet
• Approval of £150 million term loan agreement
• All debt maturity now aligned in 2027
Business
development
Ensure funding of opportunities
to support the strategy
•
Approval of investments in Magnus for well development; Golden
Eagle infill wells; Bressay and EnQuest Producer FPSO equity interest
farm-down; SVT new stabilisation facility; and other M&A opportunities
Governance
To align the culture with
strategy and enable effective
delivery
•
Code of Conduct and associated policies refresh. Review of Committee
terms of reference. Delisting from Nasdaq Stockholm
• Remuneration Policy review
Further details of the Board’s activities and how they support compliance with the Code are shown in the table on page 86.
Investment
Committee
HSEA
Directorate
1
During the year, the Safety, Sustainability and Risk Committee merged with the Technical and Reserves Committee and became the Sustainability Committee
2 Committee Chair
3
Interim Committee Chair. It is the intention that Rosalind Kainyah will chair the Remuneration and Social Responsibility Committee on her appointment
Remuneration
and Social
Responsibility
Committee
Gareth Penny
3
Farina Khan
Sustainability
Committee
1
Rani Koya
2
Michael Borrell
Liv Monica Stubholt
Audit
Committee
Farina Khan
2
Michael Borrell
Liv Monica Stubholt
EnQuest PLC
Board of Directors
Governance and
Nomination
Committee
Gareth Penny
2
Amjad Bseisu
Michael Borrell
Executive
Committee
North Sea
Leadership
Team
Chief
Executive
EnQuest Structure
“EnQuest has a strong
governance culture that
continues to evolve with the
changing energy industry.”
Gareth Penny
Chairman
85
84
EnQuest PLC –
Annual Report and Accounts 2023
Corporate Governance
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 understand and respect
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 (‘2023 ARA’). The Section 172 Statement can be found on page 76.
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 Provisions 12 and 32 of the Code, details of which may be found on page 89. 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. To avoid duplication, cross-references to appropriate sections within the 2023 ARA are provided. EnQuest notes
that the new Corporate Governance Code is due to take effect on 1 January 2025 and intends to report against the revised
provisions in the 2025 Annual Report and Accounts.
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 84)
• Strategic report (page 02)
Division of responsibilities
• Corporate governance statement (page 86)
Composition, succession and evaluation
• Governance and Nomination Committee report (page 88)
Audit, risk and internal control
• Strategic report (page 46)
• Audit Committee report (page 92)
• Sustainability Committee report (page 118)
Remuneration
• Directors’ Remuneration Report (page 99)
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 within the ‘Who we are and what we do’ section on the inside front
cover and page 01.
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, inclusive and SAFE culture. The Board
believes that engaged and committed employees are integral to the delivery of the Group’s business plan and strategy and,
to assist this, the Chairman of EnQuest took on the role of designated Director for employee engagement during the year. In
2023 he met with the Global Employee Forum (the ‘Forum’) and attended a Global Town Hall meeting. More information can
be found on page 44. In addition, Board members met for breakfast with London office staff and matters such as risk and
strategy were discussed.
EnQuest’s Code of Conduct underpins the governance and culture 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 Code of Conduct was recently reviewed and updated to ensure it supports ethics and compliance best practice. The
Group’s Values complement the behaviours contained within the Code of Conduct 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 General Counsel and Chair of the Audit Committee, with
follow-up action taken as soon as practicable thereafter.
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.
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 performance against guidance and overall
debt management strategy;
•
A selection of the Group’s larger shareholders directly with Gareth Penny upon his appointment as Board Chair; and
• Retail investors at the Company’s AGM.
The Group also delivered presentations alongside its half-year and full-year results, including separate sessions designed
to give retail investors an opportunity to engage on the Group’s results, copies of which are available on the Group’s website,
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 also has a team 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 page 78 for
more details).
Board agenda and key activities throughout 2023
During 2023 Board meetings have been held both virtually and in person, taking advantage of technology to ensure that
decision making can be carried out efficiently and in a cost-effective manner. However, being cognisant of the importance
of personal connections and the need to build relationships, three face-to-face meetings were held during the year. These
meetings were aligned with Committee meetings to maximise the benefit of travel. Along with the Board meetings, three
board dinners took place, where directors were able to explore issues and exchange ideas informally.
Directors’ attendance at Board meetings in 2023
Meetings
attended
Scheduled meetings 2023
Executive Directors
Amjad Bseisu
6/6
Salman Malik
6/6
Non-Executive Directors
1
Gareth Penny
6/6
Michael Borrell
2
2/2
Farina Khan
6/6
Rani Koya
6/6
Liv Monica Stubholt
6/6
1
Karina Litvack served a Director from 13 September 2023 to 15 December 2023. Carl Hughes, Howard Paver and John Winterman stepped down as Directors on
5 June 2023
2 Michael Borrell has been in attendance for all meetings held since his appointment on 5 September 2023
87
86
EnQuest PLC –
Annual Report and Accounts 2023
Corporate Governance
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 2023
Strategy
Operations
Governance
Stakeholders
• Key projects, their status
and progress made
• Strategy update
• Key transactions
• Financial reports and
statements
•
Liquidity and financing
• HSEA
• Production
• Operational issues and
highlights
• HR matters
• Key legal updates
• Emission reductions
• Succession planning
• Assurance and risk
management
• Key governance
developments
• 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 dealt with 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, data protection 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 63 and in the Code of Conduct which is available on the Group’s website. The General Counsel is also
leading a project to enhance access within the Group to materials and training on a broad range of ethics and compliance
topics including fraud, money laundering, competition law and sanctions.
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 and anti-corruption and bribery, and also
on responsibilities under the Market Abuse Regulations and corporate governance matters pertinent to the discharge of
Non-Executive Directors’ duties. In addition, a recent session was held on compliance trends and developments which
covered matters such as the Economic Crime and Corporate Transparency Act 2023.
2023 Annual Report and Accounts (‘ARA’)
The Directors are responsible for preparing the 2023 ARA and consider that, taken as a whole, the 2023 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. The 2024 AGM will be held on 30 May 2024 at Ashurst LLP, London Fruit & Wool Exchange,
1 Duval Square, London, E1 6PW, United Kingdom.
Division of responsibilities
There is a clear division of responsibilities between 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. Following
the resignation of Howard Paver on 5 June 2023, the Company was without a SID until the appointment of Karina Litvack on
13 September 2023. Karina resigned on 18 December 2023 and it was agreed that Farina Khan be appointed to this position.
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
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
seven Directors, consisting of two Executive Directors and five independent Non-Executive Directors (including the Chairman).
It is recommended that Jonathan Copus is elected as an Executive Director and that Rosalind Kainyah is elected as a
Non-Executive Director at the 2024 AGM.
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. 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 80 and 81.
Committees
The Board has four Committees which meet on a regular basis and report back to the Directors at each Board meeting. This
allows for the Board to be informed 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, including the adequacy of the Company’s arrangements for whistleblowing and procedures for
detecting fraud. 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 92 to 98.
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 in alignment to the Group’s Remuneration Policy and the
Code. It reviews and takes note of institutional shareholder guidelines. During 2023 as part of the triennial review timetable,
the Committee reviewed the existing shareholder-approved Remuneration Policy ahead of issuing the Remuneration Policy
for shareholder vote in 2024. The work of the Remuneration and Social Responsibility Committee is set out on pages 99 to 117.
The Chair of the Remuneration and Social Responsibility Committee resigned as a Director in December 2023 and Gareth
Penny, Chairman of EnQuest, stepped into the role as interim Chair of the Committee. It is intended that Rosalind Kainyah is
appointed as Chair of the Committee on appointment to the Board. More information can be found on page 89.
Sustainability Committee
As noted above, during the year the Technical and Risk Committee and Safety, Sustainability and Risk Committee were
combined to form the Sustainability Committee. This 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 50 to
64 of the Strategic report. The work of the Committee, which includes monitoring HSEA issues and oversight of decarbonisation
matters, is on pages 118 to 119. This Committee is also responsible for providing the Board with additional technical insight when
making Board decisions.
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. Following the resignation of Howard Paver, the Committee comprised two Board members,
Gareth Penny, who was regarded as independent on appointment, and Amjad Bseisu, the CEO. Following the appointment of
Michael Borrell on 5 September 2023, the Committee composition fully complies with 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 pages 89 to 91.
89
88
EnQuest PLC –
Annual Report and Accounts 2023
Corporate Governance
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 and knowledge refresh
• The Board discusses growth
opportunities at every Board meeting,
including at the opportunity costs of
pursuing ventures
• Training on corporate governance and
compliance; anti-corruption and
bribery; and on Directors’
responsibilities
• Establishing and aligning purpose,
Values and strategy with culture
• Culture, Values and ESG are included
in Company Performance Indicators
• Board members are embedded in the
Employee Forum, which drives staff
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
• Evolution of the Risk Management
Framework
• 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
• Debt investor engagement
• Ensuring workforce policies and
practices are consistent with the
Company’s Values
• Ethics and compliance
• Company Code of Conduct and
associated policies updated
• Appointments are subject to formal
rigorous and transparent procedure
with effective succession plan for
Board and senior management
• Use of external consultants for Board
appointments
• Appointment of CFO
• Detailed discussions on succession
planning and review of roles and
accountabilities of Executive
Committee
Governance and Nomination Committee
The composition of the Governance and Nomination Committee is set out below, along with appointment and termination
dates and attendance at the scheduled meetings:
Appointment dates and attendance at the nine scheduled meetings are set out below:
Member
Date appointed
Committee member
Attendance
at meetings
during the year
3
Gareth Penny
6 December 2022
9/9
Amjad Bseisu
22 February 2010
9/9
Howard Paver
1
15 October 2019
3/3
Michael Borrell
2
5 September 2023
2/2
Notes:
1
Howard Paver stepped down from the Board on 5 June 2023
2
Michael Borrell joined the Board and the Governance and Nomination Committee on 5 September 2023
3
The Committee did not meet between Howard Paver’s departure and Michael Borrell’s appointment. Therefore the Committee was majority independent when
convened
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. Following the refresh of the Board this year, it currently comprises seven members; five Non-Executive
Directors and two Executive Directors. The proposed Board changes at the 2024 AGM will result in the same number of
Directors. The Board is characterised by a collaborative approach which works to create strong leadership with individual
Directors who collectively bring a diverse mix of skills and experience to the Company.
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 nine times in 2023. Its key activities included:
Board appointments
In 2023, following Board direction, the Committee engaged Spencer Stuart, an external search consultancy, to carry out a
skills mapping exercise; review organisational design; and recruit new candidates to join the Board. Other than these
activities, Spencer Stuart has no other connection with the Company and individual Directors.
This review of structure, composition and skills demonstrated that the Company had a depth of skills around the table, but
that there were some areas that were over-represented and certain aspects which could benefit by further additions. It was
agreed that interaction with regulators and understanding of new energy were areas to prioritise. As part of the process,
each Director had the opportunity to discuss the findings directly with Spencer Stuart. The report from Spencer Stuart, and
its recommendations, were endorsed and subsequently presented to the Board.
With three Non-Executive Directors standing down following the 2023 AGM, Spencer Stuart was briefed to find candidates to
serve on the Board and Committees who met the additional skills that had been identified, whilst bearing in mind the need to
ensure diversity of thought around the table. As the Committee had reduced membership following the AGM, each of the
candidates met all the Board members, who provided their thoughts to the Committee Chair. After deliberation, the Committee
recommended Michael Borrell and Karina Litvack to the Board, and both were subsequently appointed as Non-Executive
Directors. Following Karina’s resignation in December 2023, the Committee agreed that another Non-Executive Director was
needed and reviewed candidates from the recent searches and additional candidates recommended by Spencer Stuart.
On 28 March 2024, it was announced that Rosalind Kainyah would be proposed for election at the AGM. The Board is seeking
to appoint a further Director and will provide an update when appropriate.
As Farina Khan was appointed in 2020, her contract was due for renewal in 2023. The Committee reviewed her tenure and
concluded that she was an effective member of the Board and that her audit and accounting experience in the energy
sector complemented the skills of the Board as a whole. As such it was agreed to recommend to the Board that, subject to
continued re-election at the 2024 AGM, her tenure be extended for a further three years.
In addition to Non-Executive Directors, Jonathan Copus was appointed as CFO Designate in December 2023 and became
CFO on 1 February 2024. It is intended that, subject to shareholder approval, Jonathan be appointed as an Executive Director
at the 2024 AGM.
Committee appointments
The Committee reviewed the composition of the Board Committees at various stages during the year. It agreed to
recommend to the Board the appointment of Gareth Penny to the Remuneration and Social Responsibility Committee.
Furthermore, following the departure of Carl Hughes, the Committee recommended the appointment of Farina Khan as
Chair of the Audit Committee. Farina’s financial expertise and current membership of the Committee made this appointment
appropriate. The Committee considered which Committees would best be served by the newly appointed Non-Executive
Directors and recommended to the Board that Michael Borrell join the Governance and Nomination Committee and the
Sustainability Committee. In December 2023 it was also decided that Michael join as a member of the Audit Committee.
Given Karina Litvack’s experience on the remuneration committee of a listed company, the Committee recommended that
she join and Chair the Remuneration and Social Responsibility Committee. However, following her departure it was agreed
that an additional Board member be sought for the position and a search commenced.
As explained on page 87, on Karina Litvack’s resignation as a Director in December 2023, Gareth Penny, Chairman of EnQuest,
stepped into the role as interim Chair of the Committee. This is not recommended under Code Provision 32 which stipulates
that the chair of a company may not chair a remuneration committee. The Governance and Nomination Committee
considered the matter very carefully and considered whether a current member of the Board was a suitable candidate for
the role. On reviewing internal capabilities and also availability of time to devote to the position, it was decided that the
Chairman of EnQuest should chair the Remuneration and Social Responsibility Committee on an interim basis until an
external candidate, with the relevant experience, was found. It is intended that Rosalind Kainyah be appointed as Chair
of the Committee on election as a Director at the Company’s AGM.
Senior Independent Director
Provision 12 of the Code recommends that a Senior Independent Director (‘SID’) be appointed, however, for a period of three
months following the Company’s AGM, the Company did not have a SID owing to the changes in Board composition. As part
of its brief, Spencer Stuart was asked by the Committee to identify board candidates who were suitably experienced to take
on this role. Karina Litvack had the appropriate experience and the Committee recommended to the Board that she be
appointed as SID on appointment as a Director of the Company. As Karina subsequently resigned from the Board, it was
decided to review the current Board members as to suitability for the role. After due consideration, it was agreed that
Farina Khan be appointed Senior Independent Director.
91
90
EnQuest PLC –
Annual Report and Accounts 2023
Corporate Governance
Corporate governance statement
continued
The tables below set out information, as required by Listing Rule 9.8.6R(10), at 31 December 2023. Data was gathered by asking
each Director and member of the Executive Committee to self-report via email their response to the information required by
the Listing Rule.
Number of
board members
Percentage of
the board
Number of
senior positions
on the board
(CEO, CFO
1
, SID
and Chair)
Number in
executive
management
Percentage of
executive
management
Men
4
57.15%
2
5
100%
Women
3
42.86%
1
0
0%
Not specified/prefer not to say
-
-
-
-
-
Number of
board members
Percentage of
the board
Number of
senior positions
on the board
(CEO, CFO, SID
and Chair)
Number in
executive
management
Percentage of
executive
management
White British or other White
(including minority-white groups)
3
42.86%
1
4
80%
Mixed/Multiple Ethnic Groups
-
-
-
-
-
Asian/Asian British
3
42.86%
1
1
20%
Black/African/Caribbean/Black British
-
-
-
-
-
Other ethnic group, including Arab
1
14.28%
1
-
-
Not specified/prefer not to say
-
-
-
-
-
Note:
1
CFO is a member of the Executive Committee and will be appointed to the Board, subject to shareholder approval, at the 2024 AGM
It is intended that Rosalind Kainyah and Jonathan Copus are appointed as Directors at the 2024 AGM and that Liv Monica
Stubholt, Rani Koya and Salman Malik stand down. The Committee is cognisant that this will change the gender and diversity
composition of the Board and is seeking to appoint another Director.
The chart below illustrates gender breakdown of EnQuest’s Directors and workforce as at 31 December 2023
1
.
Directors
Senior managers
Employees
88.14%
11.86%
57.15%
42.86%
80%
20%
Female
Male
0
20
40
60
80
100
Note:
1
Breakdown of percentages: Directors (3 female, 4 male); senior managers (7 female, 52 male); employees (123 female, 492 male). Senior management and total
employee figures include EnQuest’s employees in Dubai, Malaysia and the UK
Gareth Penny
Chairman of the Governance and Nomination Committee
27 March 2024
Structured Board succession planning
EnQuest prides itself in delivering successful leaders and has prioritised succession planning to ensure its leadership remains
diverse and well equipped to navigate the challenges of the evolving business landscape. Succession planning is an
important part of the Committee and the Board’s deliberations and is aimed at both senior management and the wider
organisation, such as identifying and developing high potential individuals. 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 a Board composition which best serves 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 industry and other industries, including those supporting the energy transition. See pages 80 to 81 for biographies.
Given the need to facilitate energy transition ambitions, the Group established Veri Energy (‘Veri’) in December 2023. Veri is a
wholly owned subsidiary of the Group, focused on progressing decarbonisation and new energy projects, including carbon
capture and storage, green hydrogen, and electrification by leveraging Sullom Voe Terminal to create a best-in-class new
energy hub in Shetland. The Board recommended Salman Malik, to take on the role of CEO of Veri, enabling him to provide
focused leadership to deliver a meaningful contribution to a just energy transition. To best serve Veri, Salman will step down
as an Executive Director of EnQuest PLC at the 2024 AGM.
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 Board and the
Committees are also satisfied that the establishment of Veri Energy is within the Group’s strategy and are excited to see the
benefits of a focused new energy business. The Group continues to work to identify capability strengths and development
gaps and to develop the process for encouraging and supporting high-potential employees.
Board performance review
The 2023 Board performance review was conducted internally via online questionnaire, supported by BoardClic, an online
evaluation portal. The next external performance review will take place in 2024. The results from the review, which were
discussed in detail at the February 2024 Board meeting, reflect the strategic changes that occurred during the year and
provide a clear guide to the priorities in 2024. The Board agreed that the key themes for development were: value creation
and strategy; diversity within the organisation; employee engagement, talent and culture and ongoing monitoring of
Board composition. It was concluded that the Directors worked well together and contributed effectively to the Company.
Farina Khan, SID of EnQuest led the Chairman’s review. The Chairman, appointed in December 2022, is considered to be an
effective and collaborative member of the Board who has positively impacted the Company since his appointment.
The key areas from the 2022 review were kept under review and progressed during the year. These included setting the new
strategy; ensuring that the Board had access to good quality information; improvement of the governance processes and
structures, which resulted in the Sustainability Committee being established; and developing and clarifying the succession
planning process.
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 80 to 81.
Priorities for the coming year
The main focus of the Committee in 2024 will be continued oversight of Board and Committee composition.
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 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. In February 2024, the
Board considered the diversity of the organisation, targets and the means to improve diversity. This will be discussed more
fully in the 2024 Annual Report.
The Board Diversity Policy is aligned with the expectations of Listing Rule 9.8.6R (9). As at 31 December 2023 (being the
reference date chosen for the purposes of Listing Rule 9.8.6R (9) (c)) at least 40% of the individuals on the Board are women
(42.86%); the role of CEO, CFO, Chair or SID is a woman (the SID is Farina Khan); and at least one individual is from a minority
ethnic background (four members). Recent appointments have been made with diversity of age, gender, ethnicity, sexual
orientation, disability or educational, professional and socio-economic backgrounds in mind. There is currently no
specification as to diversity of the Committees due to the size of the Board, however, this will be reviewed going forward.
Although not a FTSE 350, The Board and Committee is cognisant of the FTSE Women Leaders Review targets and remains
ahead of the Parker Review target with respect to minority ethnic representation.
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EnQuest PLC –
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Corporate Governance
Audit Committee report
Dear fellow shareholder
I am pleased to present the Audit Committee report
for the year ended 31 December 2023, 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 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: assessing and supporting the Group’s ongoing
evolution and strengthening of its capital structure and
business development activities; reviewing the impact
of the introduction of the Energy Security Investment
Mechanism (‘ESIM’) to the UK Energy Profits Levy (‘EPL’);
reviewing corporate governance updates, including the
Financial Reporting Council’s (‘FRC’) thematic reviews and
the introduction of additional climate-related reporting
in the UK; the evolving cyber security landscape and
the Group’s response; internal audit resourcing; and
simplification of the Group’s legal entity structure. While
the UK corporate reform proposals through Companies
Act 2006 amendments were withdrawn in October 2023,
the Committee and management are conscious of
changes to the UK Corporate Governance Code (the ‘Code’)
and remain committed to driving improvements in the
Group’s control environment and external reporting.
There was continued challenge on and review of the
finance function’s resourcing requirements and progress
against improvements identified in conjunction with
the Group’s external auditor. It was pleasing to see that
significant progress during the year was made in this
regard by management, including enhanced processes
and controls and additional resource being added to the
finance team with the recruitment of new team members.
A recruitment exercise was undertaken during 2023
to recruit a new Internal Audit Manager with the
internal audit function having been outsourced to
PricewaterhouseCoopers LLP (‘PwC’) to complete the 2023
audit plan. The appointment in October 2023 of a Certified
Internal Auditor with extensive experience across a range
of industries, including energy, and risk management,
will strengthen the Group’s internal audit function.
As previously announced at EnQuest’s Annual General
Meeting (‘AGM’) in June 2023, Carl Hughes and Howard
Paver retired from the Board and Committee. Liv Monica
Stubholt has also notified the Board of her intention to step
down from the Board and the Committee following the 2024
AGM. I would like to thank Carl, Liv Monica and Howard for
their contributions during their tenure and specifically to
Carl in his role as Chair of the Committee since the start
of 2017. While a recruitment process is underway to find a
replacement for Liv Monica, Mike Borrell, who brings a wealth
of experience from his extensive career in the oil and gas
industry, was appointed a member of the Audit Committee
in December 2023. I look forward to working with Mike in the
coming years as we continue to support and challenge
management in its drive for continuous improvement in
the Group’s financial reporting and control environment. I
would also like to thank James Leigh, the retiring lead audit
partner, for his contribution since Deloitte LLP were appointed
external auditor in 2020, and welcome David Paterson
as EnQuest’s lead audit partner for 2024 and beyond.
As discussed within the Corporate governance statement,
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.
Farina Khan
Chair of the Audit Committee
27 March 2024
“The Committee has continued
to provide robust review and
challenge of the Group’s
financial reporting, system of
internal controls and the wider
risk management framework.”
Farina Khan
Chair of the Audit Committee
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 80 and 81. The Board is satisfied that the Chair of the Committee, Farina Khan, previously Chief
Financial Officer at PETRONAS Chemical Group Berhad, and a Fellow of the Institute of Chartered Accountants in Australia
and New Zealand, 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 2023 is provided in the table below:
Member
Date appointed
Committee member
Attendance at
meetings during
the year
Carl Hughes
1
1 January 2017
3/3
Howard Paver
1
1 May 2019
3/3
Farina Khan
1
1 November 2020
5/5
Liv Monica Stubholt
15 February 2021
4/5
Michael Borrell
6 December 2023
n/a
Note:
1
Following EnQuest’s Annual General Meeting on 5 June 2023 both Carl Hughes and Howard Paver stepped down from the Board of Directors and their positions on
the Audit Committee. On that date, Farina Khan assumed the Chair of the Audit Committee
2
Liv Monica Stubholt was unable to attend the additional March 2023 meeting due to other commitments
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. PwC, in its role as internal auditor
during 2023, attended the meetings as appropriate. The Chair of the Committee regularly meets with the external lead audit
partner and internal audit (which for 2023 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 76). 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 2024 to review and approve the draft 2023 Annual Report and Accounts
in advance of the final sign-off by the Board.
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EnQuest PLC –
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Corporate Governance
Audit Committee report
continued
Audit Committee meetings
There were five Committee meetings in 2023. A summary of the main items discussed in each meeting is set out in the table
below:
Agenda item
March
2023
Additional
March
2023
May
2023
August
2023
December
2023
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 2023 plan, including findings
since last meeting
Independence and objectivity of internal audit
Joint venture audit plan for 2023, including summary findings
since last meeting
Cyber security update
Capital structure and business development
Annual external audit plan
External (Deloitte) audit fees subject to the audit plan
Level of non-audit service fees for Deloitte including review of policy
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 corporate governance,
fraud risk assessment, FRC thematic reviews and climate-related matters
Key risks, judgements and uncertainties, including the consideration of
climate change, impacting the half-year or year-end financial
statements (reports from both management and external auditor)
Presentation on the reserves audit and evaluation of the Competent
Person’s independence and objectivity
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 the development of the Group’s
internal control framework
IT resourcing and controls progress against IT audit findings
Financial reporting and significant financial statement reporting issues
The primary role of the Committee in relation to financial reporting is to assess, amongst 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 relevant Committee meeting. The significant accounting and reporting areas considered, including those related to
EnQuest’s 2023 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
the reserves-based lending borrowing base forecasts.
These are, in turn, underpinned by forecasts and
assumptions in respect of:
•
Production and costs for the next three years, based on the
Group’s approved 2023 business plan and forecasts; and
•
The oil price assumption, based on a forward curve of
$80/bbl (2024), $75/bbl (2025) and $75/bbl (2026).
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 2024 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, macroeconomic assumptions, including
those associated with oil prices and inflation, stress tests and
the achievability of any mitigations that may be required in a
Downside Case scenario to ensure that the Group would have
sufficient headroom to continue as a going concern. 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 29 to 30)
were reviewed and approved at the March 2024 meeting for
recommendation to the Board.
Potential misstatement of oil and gas reserves
The Group has total proved and probable reserves as at
31 December 2023 of c.175 MMboe. The estimation of these
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 2024 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 consistently applied to
the financial statements.
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 future
prices of $80/bbl (2024), $80/bbl (2025), $75/bbl (2026)
and $75/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 also 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 $117.4 million.
At the March 2024 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 oil price and discount rate used, and potential impacts
of climate change and 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 oil price reductions were reviewed.
Consideration was also given to Deloitte’s view of the work
performed by management.
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Corporate Governance
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 acquisition. See note 22 for further details.
At the March 2024 meeting, the key judgements and
estimates and result of the fair value calculations, explanation
of movements in the year and the associated disclosures,
including sensitivity analysis, were presented to and
challenged by the Committee, noting the key assumptions,
other than the discount rate which is specific to the liability,
were aligned with those used in the Group’s impairment
testing and tax estimates. 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 and CFD 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 2023 financial statements.
The Committee also reviewed the results of 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 $755.8 million at
31 December 2023 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 and
inflation rates 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 inputs and their impact on the
provision. The Committee and the Group’s external auditor
focused on cost assumptions, as well as the inflation and
discount rates used, alongside sensitivity analysis and
disclosure estimating the effect of a change in discount
rates given the uncertain macroeconomic environment.
Regard was also given to the observations made by Deloitte
as to the appropriateness of the estimates made.
Taxation
At 31 December 2023, the Group carried deferred tax balances
comprising $540.1 million of tax assets (primarily related to
previous years’ tax losses) and $77.6 million of tax liabilities
primarily related to deferred taxes associated with the UK
Energy Profits Levy.
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 $2,007.9
million ($695.9 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 46 to 48 provide more detail on how the Board, and its Sustainability
Committee, has discharged its responsibility in this regard.
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 Sustainability 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 was conscious of the need to ensure an ongoing programme of assurance and maintain internal audit’s
independence while recruitment for a new Internal Audit Manager was undertaken. As such, PwC undertook the full internal
audit programme with the new Internal Audit Manager appointed in October 2023. The Committee received reports from
internal audit at each scheduled Committee meeting in 2023 and meets privately with the internal auditor from time to time.
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, day-to-day management oversight being 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. In October 2023, the UK Government withdrew secondary legislation on changes to the UK Corporate Governance
Code relating to a material fraud statement, capital maintenance disclosures, the Audit and Assurance Policy and the resilience
statement. A subsequent policy announcement by the FRC in November 2023 stated that several of its previously proposed
amendments would no longer be pursued. However, the requirement for boards to make a specific declaration within the ARA
as to the effectiveness of a company’s risk management and internal control systems will remain, and come into effect from
1 January 2026. As such, the Committee will continue to monitor the development of an Audit and Assurance Policy and
consider FRC guidance on the required control declaration to focus attention on the level of assurance relating to all material
controls, with specific attention being paid to cyber security given its impact on the wider control environment. Management
has also continued its assessment of the potential for fraud risk across the business, ensuring mitigating controls are in place
and operating as expected as well as identifying and implementing specific actions to ensure the Group maintains a strong
control environment following the ‘failure to prevent fraud’ offence receiving Royal Assent in October 2023.
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 Sustainability Committee. During 2023,
internal audit activities were undertaken for various areas, including reviews of:
• Cyber security;
•
‘Purchase to pay’ (Maximo) upgrade project (readiness for go-live);
•
HSSE and asset integrity – maintenance processes;
• Malaysia contract compliance; 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 has continued to have 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, alongside a report
from the auditor to the Committee confirming their independence. Additionally, Committee members take into account their
own view of the external auditor’s performance and independence, including the level of professional scepticism displayed,
when determining whether or not to recommend reappointment. The Committee also held several private meetings with the
external auditor during the year.
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Corporate Governance
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 2023 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 fourth year as auditor and
has maintained its independence and objectivity. As required under UK auditing standards, Deloitte confirmed their
independence to the Committee.
In 2023, the external lead audit partner notified the Committee of his plan to retire in 2024. As such, an experienced
replacement was introduced to the Committee and management, and will assume the role of lead audit partner at the
conclusion of the 2023 audit.
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 2023, the shareholders
approved a resolution to reappoint Deloitte as external auditor, with the same resolution to be proposed for the 2024 AGM.
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 the Group’s 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 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. 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. 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
The scope of the non-audit services contracted with the external auditor in 2023 consisted mainly of the interim review, debt
facility activities and G&A assurance.
Directors’ Remuneration Report
Dear fellow shareholder
On behalf of the Board and the Remuneration and Social
Responsibility Committee, I am pleased to present EnQuest’s
Directors’ Remuneration Report (‘DRR’) for the financial year
ended 31 December 2023.
Overview
During the year the Committee has continued to ensure the
appropriateness of the Group’s overall reward package
available for Executive Directors and to reflect on the
effectiveness of the Directors Remuneration Policy (the
‘Policy’) against the UK Corporate Governance Code (the
‘Code’) and market best practice. These core principles of
appropriate and effective reward were at the forefront when
the Committee set the compensation of Jonathan Copus as
the new Chief Financial Officer (‘CFO’) of the Group in 2023.
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 2024, 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 the Company’s DRR since 2019, the chosen
calculation for the 2023 Chief Executive Officer (‘CEO’) pay ratio
has been calculated in line with single figure methodology, also
known as ‘Option A’, resulting in a CEO pay ratio of 11:1 in 2023.
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.
Details of the Policy presented for approval at the 2024
AGM; and
3.
The Annual Report on Remuneration of the Executive
Directors and Non-Executive Directors for 2023, which will be
subject to an advisory shareholder vote at the 2024 AGM.
Executive Director changes
Following the announcement in late 2023, Salman Malik
has transitioned into the role of Chief Executive Officer of
Veri Energy and Jonathan Copus was appointed as CFO
Designate of EnQuest. Jonathan joined the Company on
7 December 2023 after a rigorous selection process and
became CFO on 1 February 2024. His remuneration is set at a
level l aligned to a group of external comparators that reflect
the role, size of the Company and Jonathan’s experience.
Further information on Jonathan’s remuneration can be
found on pages 100, 106 and 115.
Committee changes
As announced at the AGM on 5 June 2023, Howard Paver
stood down as a Non-Executive Director of the Board, Senior
Independent Director and as Chair of the Committee. He was
succeeded as Chair of the Committee by Karina Litvack, who
joined EnQuest’s Board of Directors as a Non-Executive Director
and the Senior Independent Director on 15 September 2023.
As detailed on pages 105, 107 and 108 of this report, Ms Litvack
unfortunately needed to step down from the Board on
18 December 2023. Gareth Penny shall act as the interim
Chair of the Committee until a suitable replacement can
be appointed.
Directors’ Remuneration Policy
As part of our required triennial review of the Policy, the
Committee has engaged independent advisers to review the
existing Policy and help the Committee set an appropriate
path for the future. After detailed reflection of the
appropriateness of the current Policy, and in light of the
ongoing work to establish a suitable management incentive
plan to implement for Veri Energy, we propose that the
existing Policy is brought back to shareholders for approval
at the AGM in 2024 when the current Policy expires. In 2021,
the Policy was approved by 95.4% of shareholders and we
believe the Policy remains effective in driving our business
strategy and is largely reflective of best practice.
“The Committee’s focus
remains on ensuring reward
programmes incentivise
employees to deliver
EnQuest’s strategy and
performance goals.”
Gareth Penny
Chairman and interim Chair of the Remuneration
and Social Responsibility Committee
101
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EnQuest PLC –
Annual Report and Accounts 2023
Corporate Governance
We propose to operate the Policy in 2024 in exactly the same
way as we have done for the past three years, while also
committing to bring a further revised Policy to discuss with
shareholders within the next 12 months. The revised Policy will
include enhancements to acknowledge changes in the market
and best practices since the last review as well as the proposed
management incentive for our new subsidiary, Veri Energy.
Performance and remuneration outcomes for 2023
Group production in 2023 averaged 43.8 Kboed, in line with
the mid-point of guidance. Significantly, the Company has
also continued to de-lever, with debt reduced by $236 million
in 2023 to $481 million by the end of the year, providing a
strong foundation from which the business can pivot to focus
on the future. During 2023, we have continued to demonstrate
our commitment to reducing emissions on our producing
assets with an impressive 22% reduction in flaring over the
year. We have continued to make strong progress in our
Growth agenda across Upstream and in the Infrastructure
and New Energies sphere in 2023, with the delivery of a
number of projects that position us well for future growth.
2023 annual bonus – payable in 2024
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 and Salman Malik was based
on achievement against the Company Performance
Contract (‘CPC’).
In 2023, the target and maximum bonus potential for the
Executive Directors remained unchanged at 75% and 125% of
salary, respectively, with the final bonus award being equal
to 83.4% of base salary (66.7% of the maximum award). The
Committee believes that the awards 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 outside of the HSE&A performance
deductor was not required. Full details of how these awards
were determined are included on page 109 of this report.
Performance Share Plan (‘PSP’)
The PSP is the primary long-term incentive awarded to
Executive Directors, senior management and other key talent
in the Company. The three-year performance period for the
PSP awarded in 2021 ended on 31 December 2023 and for which
was based 80% on EnQuest’s total shareholder return (‘TSR’)
performance relative to a group of sector comparators and
20% on reduction of emissions over the performance period.
Over this period, EnQuest’s TSR ranked below the threshold
performance level, whereas the emissions reduction exceeded
the stretch target. As a result, 20.0% of the original award will
vest for Executive Directors in April 2024. In line with the current
Policy, vested awards will be subject to a mandatory two-year
holding period commencing on 25 April 2024 and further
details are included on page 110 of this report.
During the year, a PSP award calculated at 250% of salary for
Amjad Bseisu and Salman Malik was granted on 10 July 2023,
measuring 80% against relative 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 relatively new Executive
Directors, Salman Malik and Jonathan Copus, are expected
to build up to this level within five years of appointment.
Executive Director remuneration in 2024
2024 base salaries
For 2024, the Committee has increased Amjad Bseisu’s salary
to be more consistent with market median by 17%, to £600,000;
While we recognise that this is significantly above the average
increase for the UK workforce, the increase is considered
necessary to align the CEO’s salary with the Policy and market
median. The Committee explored a range of options when
discussing the salary for the CEO, including phasing the
increase over time, but on balance of historic increases for the
CEO being below the workforce average (Amjad’s salary has
risen at an equivalent of 2.4% since 2010), bottom quartile
market position of his salary and misalignment to Policy, the
Committee felt this was the best outcome for the Company.
Further information is included on pages 113 to 115. The salary of
Salman Malik will not be increased in 2024 pending a further
review of his remuneration package as CEO of Veri Energy.
Additionally, Jonathan Copus’ salary set on his appointment in
December 2023 is considered well aligned to the market and
Policy and shall not be increased further in 2024.
2024 annual performance bonus
For 2024, the annual bonus for the CEO will be based 100% on
the 2024 CPC outcome and for the CFO will be based 50%
on the 2024 CPC outcome, and 50% on additional objectives.
Both have 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 116. For Salman Malik, the
annual performance bonus will initially remain aligned to the
existing Policy, pending a further review that will include
shareholder consultation.
2024 PSP awards
In accordance with the Policy, PSP awards for Executive
Directors are typically granted with a face value of 250%
of salary. For 2024, in order to reflect the volatility of the
Company’s share price and ensure Executive Directors do not
benefit from potential future ‘windfall gains’, the grant level will
be scaled back c.26% to c.185% of salary (reflecting the fall in
EnQuest’s average share price between Q4 2022 and the
same period in 2023). Vesting of these 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 2024), and 20% on emissions reduction over the
performance period. Further details are set out on page 116.
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 and proposed Policy at the forthcoming AGM.
Gareth Penny
Chairman and Interim Chair of the Remuneration
and Social Responsibility Committee
27 March 2024
Directors’ Remuneration Report
continued
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.
2024 Directors’ Remuneration Policy
The forthcoming 2024 AGM marks the third anniversary of the approval of the Directors’ Remuneration Policy (the ‘Policy’) and
as such, we are required to put a new Policy to a binding shareholder vote. The Policy is the framework on which Executive
Directors and the broader senior management team are remunerated and the Committee has focused a significant
proportion of its time in the year in reviewing the existing Policy. In conducting the review, the Committee was conscious of
the launch of subsidiary Veri Energy and the potential impact this could have on the Group’s approach to remuneration with
Salman Malik remaining as an Executive Director of the Group. Save for minor wording amendments to enhance clarity and
readability, and to remove references to pre-2020 legacy arrangements, there are no changes proposed to the existing
Policy for 2024. This allows the Committee to establish during 2024 greater clarity on how to best structure remuneration
relating to Executive Directors and the Committee will take this opportunity to put a new Policy to a shareholder vote ahead
of the typical three-year anniversary.
Remuneration principles and objectives of the Policy
The previous Policy was approved by shareholders at the 2021 AGM with 95.35% voting in favour and operated from 2021 to 2023.
In reapplying the Policy from 2024, we believe 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 Policy is operating as intended and well aligned to the principles of remuneration in the Corporate
Governance Code with a core understanding that remuneration for Executive Directors should:
• Support alignment of executives with stakeholders;
•
Be fair, reflective of best practice, and be market competitive;
•
Comprise fixed pay set around the median and variable pay capable of delivering remuneration at upper quartile against
a comparator group; 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
the 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 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.
Remuneration Policy for 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 cash allowance in lieu of pension aligned to the wider workforce.
When setting remuneration for the Executive Directors, the Committee takes into account the performance and experience
of the Director, as well as the performance of the Group, 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.
103
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EnQuest PLC –
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Corporate Governance
The following table details EnQuest’s Remuneration Policy which will become binding from 30 May 2024, subject to approval
at the 2024 AGM.
Component
Purpose and operation/
key features
Maximum potential
opportunity
Applicable performance
measures
Base salary
To enable the recruitment and retention of Executive
Directors who possess the appropriate experience,
knowledge, commercial acumen and capabilities required
to deliver sustained long-term shareholder value.
•
Set at or below median when compared to a comparator
group generally of the same size and industry as
EnQuest and who have a similar level of enterprise value.
•
Salaries are typically reviewed by the Remuneration
Committee in January each year.
Typically, the conditions and
pay of all employees within
the Company are factors
considered by the Committee
in its review. Increases in
excess of the general
workforce may be made
where there is a significant
change in duties, contribution
to Company performance,
personal performance, or
external market conditions.
None.
Pension and
other benefits
Provide market competitive employee benefits that are in
line with the marketplace and enable EnQuest to attract
and retain high-calibre employees, as well as providing
tax-efficient provision for retirement income.
•
Pension delivered as cash in lieu, with remaining benefits
provided by the Group.
•
Executive Directors may participate in the HMRC-
approved Sharesave Scheme and benefit from share
price growth.
•
Benefits reviewed periodically by the Remuneration
Committee and adjusted to meet typical market
conditions.
•
Additional benefits offered when required, in line with
local practice.
•
Any reasonable business-related expenses (including
tax thereon) which are determined to be a taxable
benefit can be reimbursed.
The maximum pension
allowance that may be
offered is the lesser of 10% of
salary or £50,000, plus private
medical insurance, life
assurance and personal
accident insurance, the costs
of which are determined by
third-party providers.
None.
Annual bonus
Incentivises and rewards short-term performance (over no
more than one financial year) through the achievement of
pre-determined annual targets which support Company
strategy and shareholder value.
•
Bonus in excess of 100% of salary deferred into EnQuest
shares for two years, otherwise paid in cash.
•
The Committee has discretion to allow Executive
Directors to receive dividends that would otherwise have
been paid on deferred shares at the time of vesting.
•
Cash and share elements subject to malus and
clawback in the event of a material misstatement of the
Company’s accounts, errors in the calculation of
performance, or gross misconduct by an individual for
up to three years following the determination of
performance.
•
Target payout at 75%
of salary.
•
Maximum payout is 125%
of salary.
•
A scorecard is set annually by
the Committee to include key
performance objectives such
as financial, operational,
project delivery, HSEA targets
and net debt. The Committee
agrees the specific objectives
and appropriate weightings.
•
Performance against key
objectives has threshold,
target and stretch
components.
•
Where the threshold level of
performance is met for each
element, bonuses will begin
to accrue on a sliding scale
from 0%.
Component
Purpose and operation/
key features
Maximum potential
opportunity
Applicable performance
measures
Performance
Share Plan
(‘PSP’)
Encourages alignment with shareholders on delivery of the
longer-term strategy of the Company. Enhances delivery
of shareholder returns by encouraging higher levels of
Company performance. Encourages executives to build
a shareholding.
•
Awarded annually and may take account of the
performance of the Company and the Executive Director
in the prior year.
•
Awards vest after three years provided performance
conditions have been achieved.
•
Awards vesting 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.
•
Dividend equivalent on unvested awards will accrue in
shares only.
•
The Committee has discretion to allow Executive
Directors to receive dividends that would otherwise have
been paid on shares at the time of vesting.
•
Awards may take the form of conditional awards, nil cost
options or joint interests in shares. Where joint interests in
shares are awarded, the participants and the Employee
Benefit Trust (‘EBT’) acquire separate beneficial interests
in shares in the Company.
•
Awards are subject to malus or clawback in the event of:
•
Material misstatement of the Company’s accounts;
•
Errors in the calculation of performance;
•
Gross misconduct by an individual for up to three
years following the determination of performance;
•
Material error in the information on which the size of
awards or the extent of achievement of performance
conditions was based;
•
Material risk management failure;
•
Material corporate failure;
•
Fraud and financial impropriety;
•
Serious reputational damage or material loss caused
by the participant’s actions;
•
Material contravention by the participant of the
Company’s Values and ethics.
•
Normal maximum: 250%
of salary.
• Exceptional maximum:
350% of salary.
•
Vesting of awards will be
based on a blend of
measures including, but not
limited to, relative TSR and
ESG measures.
•
Maximum of 25% vesting
at threshold.
• Performance conditions
applied to awards granted
in the year under review and
for the awards to be granted
in the forthcoming year are
set out in the Annual Report
on Remuneration.
•
The number, type and
weighting of performance
measures may vary for future
awards to help drive the
business strategy.
•
The Committee will
normally consult with
major shareholders before
introducing any material
new metrics.
Shareholding
requirements
To ensure sustained alignment between the interests of
Executive Directors and our shareholders.
•
Executive Directors are required to maintain a shareholding
of at least 200% of salary, with a requirement that this level
is attained within five years of appointment.
•
Shareholding to be retained for a period of two years
post-employment at the lower of the actual
shareholding and the in-post requirement (200% of
salary), including both vested and unvested shares.
n/a
None.
Chairman
and Non-
Executive
Director fees
To attract Non-Executive Directors of the calibre and
experience required for a company of EnQuest’s size.
•
Fees for the Non-Executive Directors are reviewed
annually by the Chairman and Executive Directors and
take into account typical practice at other companies of
a similar size and complexity, the time commitment
required to fulfil the role, and salary increases awarded
to employees throughout the Company.
•
Non-Executive Directors receive a base fee, with
additional fees being paid to the Senior Independent
Director and Committee Chairs, to reflect the additional
time commitments and responsibilities these roles entail.
•
Additional fees may be paid if there is a material
increase in time commitment and the Board wishes to
recognise this additional workload.
•
Any reasonable business-related expenses (including
tax thereon) which are determined to be a taxable
benefit can be reimbursed.
•
The Non-Executive Directors are not eligible to
participate in any of the Company incentive schemes.
•
The Chairman’s fee is set by the Committee and consists
of an all-inclusive fee.
•
Reviewed periodically and
limited by the Company’s
Articles of Association.
None.
Directors’ Remuneration Report
continued
105
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Corporate Governance
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.
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 EnQuest’s CEO are typically based solely on the Group scorecard, referred to as the Company Performance
Contract (‘CPC’) of EnQuest. Bonus objectives for other Executive Directors are also primarily based on the CPC for EnQuest,
but may also include up to 50% based on additional objectives that cover specific key accountabilities and responsibilities of
these roles.
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. Since 2019, awards granted have
been 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
Each Executive Director entered into their service agreement (which are available for inspection at the Group’s London office)
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
Jonathan Copus
7 December 2023
12 months
Note:
1
Jonathan Copus was employed by the Group from 7 December 2023 and became CFO of the Group on 1 February 2024. The notice period shown will be
implemented on confirmation of appointment as an Executive Director of the Board
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
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
Michael Borrell
5 September 2023
3 months
3 years
Note:
1
Carl Hughes, John Winterman and Howard Paver stood down as Non-Executive Directors on 5 June 2023. Karina Litvack stood down as Non-Executive Director on
18 December 2023
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 (noting no such payments were made in 2023). 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;
Directors’ Remuneration Report
continued
107
106
EnQuest PLC –
Annual Report and Accounts 2023
Corporate Governance
•
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.
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 2024 in line with the proposed 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 2024 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 (maximum payout)
•
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)
£2,901
Chief Executive Officer
Below
Threshold
Target
Maximum
Maximum +
50% share
appreciation
44%
31%
25%
100%
£651
£1,476
22%
26%
18%
20%
52%
62%
£3,651
Long-term incentives
Annual bonus
Fixed pay
Remuneration (£’000s)
0
500
1,000
1,500
2,000
2,500
3,500
4,000
3,000
Chief Financial Officer
Below
Threshold
Target
Maximum
Maximum +
50% share
appreciation
Chief Executive Officer – Veri Energy
Below
Threshold
Target
Maximum
Maximum +
50% share
appreciation
45%
30%
25%
100%
£441
£991
23%
26%
18%
21%
51%
61%
£1,941
£2,441
45%
30%
25%
100%
£508
£1,113
24%
25%
19%
20%
51%
61%
£2,158
£2,708
Notes:
For the CEO of EnQuest, Amjad Bseisu, fixed pay comprises salary from 1 January 2024, a pension allowance of £50,000 plus medical insurance benefit of £1,252.
For the CFO, Jonathan Copus, fixed pay comprises salary from 1 January 2024, a pension allowance of £40,000 plus medical insurance benefit of £1,252.
For the CEO – Veri Energy, Salman Malik, fixed pay comprises salary from 1 January 2024, a pension allowance of £44,000, international medical insurance benefit of
£12,594 with an additional £11,168 in respect of grossing up the value of this premium in respect of taxation.
In 2024, the PSP awards granted will be scaled back by c.26% to 185% of base salary.
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.
Annual Report on Remuneration for 2023
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 2023
The Committee has four scheduled meetings per year. During 2023, it met on four occasions to review and discuss the Policy
renewal, appropriate compensation for Jonathan Copus as the incoming CFO, base salary adjustments for 2024, 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
1 May 2019
2 of 2
Farina Khan
1 November 2020
4 of 4
Gareth Penny
15 February 2023
4 of 4
Karina Litvack
2
15 September 2023
1 of 1
Notes:
1
Howard Paver stepped down as Non-Executive Director and as a Chair of the Committee on 5 June 2023
2
Karina Litvack was appointed as a Non-Executive Director and Chair of the Committee on 15 September 2023 and resigned as a Non-Executive Director on
18 December 2023
Advisers to the Remuneration and Social Responsibility Committee
The Committee invites individuals to attend meetings to provide advice 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;
•
The Chief Financial Officer;
• The Company Secretary;
•
A representative from the Group’s Human Resources department; and
•
A representative from Ellason LLP, appointed as remuneration adviser by the Committee in April 2022.
No Director takes part in any decision directly affecting their own remuneration.
Directors’ Remuneration Report
continued
109
108
EnQuest PLC –
Annual Report and Accounts 2023
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 2023, together with comparative figures for 2022 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
2023
513
1
50
565
428
215
643
1,208
2022
494
1
50
545
458
779
1,237
1,782
Salman Malik
2
2023
440
77
44
561
367
34
401
962
2022
207
53
20
280
156
143
299
579
Total
2023
953
78
94
1,126
795
249
1,044
2,169
2022
701
54
70
825
614
922
1,536
2,361
Notes:
1
Rounding may apply on the numbers provided
2
Salman Malik was appointed CFO on 15 August 2022 and his salary, benefits and variable incentives for 2022 are shown on a pro-rata basis, with the LTIP value
based on an award made prior to his appointment. Taxable benefits for Salman Malik in 2022 and 2023 include international private medical insurance
grossed-up for income tax and National Insurance
3 Cash was provided in lieu of a 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 27 April 2021 that vests on 25 April 2024: the LTIP value shown in the 2023 single figure is calculated by taking the number of performance shares
that will vest (20%) multiplied by the average value of the EnQuest share price between 1 October 2023 and 31 December 2023 (14.5 pence), as the share price that
will apply on 27 April 2024 is not known at the time of this report. As the share price declined over the period, none of the value above is attributable to share price
appreciation. This number of shares has been adjusted in line with the open offer dated 26 July 2021
The PSP awarded on 10 September 2020 which vested on 11 September 2023: the LTIP value shown in the 2022 single figure is calculated by taking the number of
performance shares that vested (74.8%) multiplied by the actual opening share price of 14.7 pence on the next business day following the vesting date of
11 September 2023. The 2022 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
Single total figure of remuneration – Non-Executive Directors
The remuneration of the Non-Executive Directors for the year ended 31 December 2023 was as follows, together with
comparative figures for 2022:
‘Single figure’ of remuneration – £’000s
Director
Salary
and fees
2023
Salary
and fees
2022
7
All taxable
benefits
2023
All taxable
benefits
2022
Total for
2023
Total for
2022
Gareth Penny
1
200
14
–
–
200
14
Howard Paver
2
54
105
–
–
54
105
Carl Hughes
2,3
47
95
–
–
47
95
John Winterman
2
47
95
–
–
47
95
Farina Khan
66
85
–
–
66
85
Liv Monica Stubholt
60
85
–
–
60
85
Rani Koya
4
70
88
–
–
70
88
Michael Borrell
5
19
–
–
–
19
–
Karina Litvack
6
20
–
–
–
20
–
Total
585
567
–
–
585
567
Notes:
1
Gareth Penny was appointed as Non-Executive Chairman on 6 December 2022
2
Howard Paver, Carl Hughes and John Winterman stepped down from their roles as Non-Executive Directors on 5 June 2023
3
After stepping down from the Board, Carl Hughes began a separate short-term consultancy agreement with EnQuest that ended on 31 December 2023 to provide
ad-hoc support on general finance and audit matters, as well as to enable a smooth transition of responsibilities. The total fee for this separate engagement paid
to Mr Hughes was £30,000 and is not included in the single figure above as it was compensation received after leaving the Board
4
Rani Koya was appointed Chair of the Sustainability Committee on 1 September 2022
5
Michael Borrell was appointed to the Board on 5 September 2023
6
Karina Litvack was appointed to the Board on 15 September 2023 and stepped down from the Board on 18 December 2023. Her fee includes the additional fees
payable as the Senior Independent Director and Chair of the Remuneration and Social Responsibility Committee
7
Non-Executive Directors were each paid an additional one-off fee of £25,000 in July 2022. Further details were provided in the 2022 Annual Report
Annual bonus 2023 – paid in 2024
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 2023 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 2023 was wholly based on
the CPC results.
Company Performance Contract (‘CPC’)
The details of the CPC for both Amjad Bseisu and Salman Malik in 2023 are set out in the following tables, showing the
performance conditions and respective weightings against which the bonus outcome was assessed.
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 below-target performance in relation to HSEA metrics in 2023, it was the view of the Committee
that the scorecard outcome should be adjusted in line with HSEA performance for the Group.
The annual bonus summary for the Executive Directors for 2023 is shown in the table below based on the achievement of the
performance conditions against the CPC for both Amjad Bseisu and Salman Malik.
Performance targets
Performance measure
Weighting
Threshold
Target
Maximum
Actual
outturn
Actual
outturn
(% of
maximum)
1
Production
(Kboed)
25.0%
42.0
44.0
46.0
43.8
57.0%
Expenditure
2
Cash opex/capex/abex ($ million)
15.0%
715.0
650.0
617.5
604.0
100.0%
ESG, culture and D&I
Emissions: reduce flaring on producing assets
against 2022
5.0%
2.5%
reduction
5.0%
reduction
7.5%
reduction
22.0%
reduction
100.0%
ESG, culture and D&I
Manage voluntary employee attrition rates
5.0%
12.0%
8.0%
6.0%
9.8%
33.0%
Liquidity management
Reduce leverage year-on-year from 2022, whilst
maintaining adequate liquidity ($ million)
20.0%
717.0
514.0
463.0
481.0
3
92.9%
Upstream organic and inorganic growth
Deliver projects that contribute to
ongoing growth of the Company
15.0%
Deliver
one
Deliver
two
Deliver
three of
more
Delivered
two
60.0%
Infrastructure and New Energy growth projects
10.0%
Deliver
one
Deliver
two
Deliver
three of
more
Delivered
two
60.0%
Alignment to strategic objectives
Based on report by corporate broker
5.0%
Red/
0.0
Amber/
1.0
Green/
1.5
Between
threshold
and target
30.0%
Total bonus outturn before HSE&A deductor (% of maximum)
71.0%
HSE&A performance deductor
94.0%
Total bonus outturn (% of maximum)
66.7%
Notes:
1
Rounding has been applied to percentages
2
In relation to the financial measures, threshold, target and stretch performance pays out at 0%, 60% and 100% of maximum respectively and on a straight-line
basis in between threshold and target performance and between target and stretch performance. For other measures, threshold performance pays out at 30%
of maximum
3
Final outturn included the creation of a term loan during 2023
2023 Annual bonus outcome
Name
Salary
Maximum
annual bonus
(% of salary)
Total
bonus outturn
(% of maximum)
Total
bonus outturn
(% of salary)
Total
2023 bonus
(£)
Paid as cash
(£)
Deferred in
shares
(£)
Amjad Bseisu
£513,300
125.0%
66.7%
83.4%
£428,150
£428,150
£0
Salman Malik
£440,000
125.0%
66.7%
83.4%
£367,009
£367,009
£0
Directors’ Remuneration Report
continued
111
110
EnQuest PLC –
Annual Report and Accounts 2023
Corporate Governance
2021 PSP awards that vest in 2024
The LTIP award made to Executive Directors on 24 April 2021 was based on the performance to the year ended 31 December
2023 and will vest on 25 April 2024.
Targets applying to the 2021 PSP award were set by the Committee in March 2021.
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)
Performance
outcome
Vesting outcome
(% of maximum)
Relative TSR over the period
1 January 2021 to 31 December 2023
80.0%
50th
percentile
75th
percentile
30th
percentile
0.0%
Emission reduction over the period
1 January 2021 to 31 December 2023
20.0%
10%
reduction
12%
reduction
24%
reduction
100.0%
Total vesting outcome
20.0%
Note:
The TSR comparators for the 2021 PSP cycle are shown in the table on page 111
The table below shows the number of nil cost options awarded on 24 April 2021 that will vest on 24 April 2024 and their value
as at 31 December 2023. This figure is calculated by taking the average closing share price on each trading day of the period
1 October 2023 to 31 December 2023 and is used as the basis for reporting the 2023 ‘single figure’ of remuneration. The actual
value of these shares recorded in the remuneration table will be updated in 2024 to represent the actual value received on
the day of vesting.
Name
Original
number of
shares
Adjusted
number of
shares
1
Portion
vesting
Number of
shares
vesting
Average
share price
£
Value at
31 Dec 2023
£
Amjad Bseisu
7,407,792
7,442,048
20.0%
1,488,409
0.1446
215,151
Salman Malik
2
1,157,869
1,163,223
20.0%
232,644
0.1446
33,629
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 as an Executive Director in August 2022 and are not
subject to the mandatory two-year holding period
April 2023 PSP award grant
After due consideration of Business performance in 2022, the Remuneration and Social Responsibility Committee awarded
the Executive Directors the following performance shares on 10 July 2023:
Face value
(% of salary)
Face value at
date of grant
£
Number
of shares
1
Performance period
Amjad Bseisu
250.0%
1,233,777
8,102,723
1 Jan 2023–31 Dec 2025
Salman Malik
250.0%
1,100,002
7,224,166
1 Jan 2023–31 Dec 2025
Note:
1
Based on the average middle market quote for the three days preceding the date of grant on 10 July 2023 of 15.23 pence
Summary of performance measures and targets – April 2023 PSP grant
The 2023 PSP share awards granted on 10 July 2023 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 2023 to 31 December 2025 and thereafter subject to a mandatory two-year holding period.
2023 PSP – schedule for vesting in 2026
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
Note:
1
Linear between threshold and maximum
PSP measure – base levels
The table below summarises the historical base levels that emission reduction performance is measured from, for a three-
year period for each annual PSP grant, up to and including the PSP award granted in 2023:
Year of grant
Emissions –
base level
2021 80% relative TSR/20% emission reduction
1,343 ktCO
2
e
2022 80% relative TSR/20% emission reduction
1,145 ktCO
2
e
2023 80% relative TSR/20% emission reduction
1,052 ktCO
2
e
The comparator group companies for the TSR performance condition relating to the 2021 and 2022 awards are as follows:
Africa Oil
DNO
Hurricane Energy
4
Orrön Energy
3
Aker BP ASA
Energean
Jadestone
Pharos Energy
BW Energy
Genel Energy
Kosmos
Santos
Capricorn Energy
1
Harbour Energy
2
Maurel & Prom
Serica
Diversified Energy
Hibiscus Petroleum
Okea
Tullow Oil
2023 PSP award TSR comparator group
Africa Oil
Energean
Hurricane Energy
4
Maurel & Prom
Aker BP
Genel Energy
Ithaca Energy
OKEA
BW Energy
Gulf Keystone Petroleum
Jadestone Energy
Pharos Energy
Capricorn Energy
1
Harbour Energy
2
Kistos
Serica Energy
DNO
Hibiscus Petroleum
Kosmos Energy
Tullow Oil
Notes:
1
Capricorn Energy formerly known as Cairn Energy
2
Harbour Energy formerly known as Premier Oil
3
Orrön Energy formerly known as Lundin Petroleum. It was tracked as a comparator until June 2022 and thereafter the median of the remaining comparator group
is tracked instead
4
Hurricane Energy was tracked as a comparator until delisting in June 2023 when it was acquired by Prax Group. Thereafter the median of the remaining
comparator group is tracked instead
The number of PSP awards outstanding as at 31 December 2023 is as follows:
Total shares
awarded
Adjusted shares
awarded
1
Performance period
Performance conditions
(and weighting)
Vesting date
Grant date – April 2021
Amjad Bseisu
7,407,792
7,442,048
1 Jan 2021–31 Dec 2023
TSR (80%)
25 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%)
25 Apr 2025
Salman Malik
1,619,078
n/a
Emission reduction (20%)
Grant date – July 2023
Amjad Bseisu
8,102,723
n/a
1 Jan 2023–31 Dec 2025
TSR (80%)
25 Apr 2026
Salman Malik
7,224,166
n/a
Emission reduction (20%)
Note:
1.
Total shares awarded are shown following an adjustment made in relation to the open offer of 26 July 2021
Pension allowance
Executive Directors who do not participate in the EnQuest pension plan instead receive cash in lieu. Amjad Bseisu received
£50,000, and Salman Malik received £44,000 in 2023. This was equivalent to 9.7% of Amjad Bseisu’s 2023 salary and 10.0% of
Salman Malik’s 2023 Executive Director salary.
Directors’ Remuneration Report
continued
113
112
EnQuest PLC –
Annual Report and Accounts 2023
Corporate Governance
Statement of Directors’ shareholding and share interests
The interests of the Directors in the share capital of the Company as at 31 December 2023 are shown below:
PSP
31 December
2022
Granted
Lapsed
31 December
2023
Vesting period
Expiry date
Amjad Bseisu
7,090,042
1,786,691
5,303,351
10 Sep 2020–9 Sep 2023
9 Sep 2030
7,442,048
7,442,048
27 Apr 2021–25 Apr 2024
26 Apr 2031
3,343,689
3,343,689
25 Apr 2022–24 Apr 2025
24 Apr 2032
8,102,723
8,102,723
25 Apr 2023–24 Apr 2026
25 Apr 2033
PSP
31 December
2022
Granted
Lapsed
31 December
2023
Vesting period
Expiry date
Salman Malik
1,303,405
328,459
974,946
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
7,224,166
7,224,166
25 Apr 2023–24 Apr 2026
24 Apr 2033
The table above shows for the unvested awards 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 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.
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
2023
Value of
shareholding
as a % of
salary
1,2
Amjad Bseisu
3
234,732,857
6,610%
12,934,821
9,907,361
–
–
72,475
257,647,514
6,751%
Salman Malik
565,705
19%
9,075,888
1,419,032
–
–
–
11,060,625
42%
Gareth Penny
4
137,047
n/a
n/a
n/a
n/a
n/a
n/a
137,047
n/a
Farina Khan
211,235
n/a
n/a
n/a
n/a
n/a
n/a
211,235
n/a
Liv Monica Stubholt
–
n/a
n/a
n/a
n/a
n/a
n/a
–
n/a
Rani Koya
–
n/a
n/a
n/a
n/a
n/a
n/a
–
n/a
Michael Borrell
–
n/a
n/a
n/a
n/a
n/a
n/a
–
n/a
Notes:
1
Shares are valued by taking the average closing share price on each trading day of the period 1 October 2023 to 31 December 2023
2
The value of shareholding as a percentage of salary is calculated by combining the number of legally owned shares with a forward projection that 50% of
unvested share awards will vest. The resultant projected number of shares is then valued by applying the share valuation process detailed in note 1 above
3
As at 31 December 2023, 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
4
62,500 shares are held by Gareth Penny, 74,547 shares are held by Kate Penny, his wife
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 22
01 Jan 23
31 Dec 23
01 Jan 21
01 Jan 20
EnQuest
FTSE AIM – Oil & Gas
01 Jan 14
01 Jan 15
01 Jan 16
01 Jan 17
01 Jan 18
01 Jan 19
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 2023 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:
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
‘Single figure’ of total remuneration
(£’000s)
817
884
941
998
1,306
1,275
1,244
1,658
1,782
1
1,208
2
Annual bonus (as a % of maximum)
24
27
33
57
79
81
60
65
74
67
Long-term incentive vesting rate
(as a % of maximum PSP)
79
77
56
11
56
50
64
44
75
20
Notes:
1
Confirmed outcome updated after applying share price on PSP vesting date in 2023
2
Forecast outcome based on applying three-month average share price to expected PSP awards scheduled to vest in April 2024
CEO pay ratio 2023
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 2023 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)
2023
A
STFR
13:1
11:1
9:1
2022
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 2023, with
remuneration of part-time employees and those employees on statutory leave included on a full-time equivalent basis. The
reduction in the CEO pay ratio in 2023 can be attributed to the lower value of the PSP at vest driven by the lower share price
and the reduced performance outturn of the 2021 PSP award relative to the 2020 PSP award in the prior year.
Directors’ Remuneration Report
continued
115
114
EnQuest PLC –
Annual Report and Accounts 2023
Corporate Governance
Data points reflect the 25th, 50th and 75th percentile of all UK employees’ total remuneration as follows:
CEO
1
UK STFR
Financial year
Methodology
P25
(lower quartile)
P50
(median)
P75
(upper quartile)
2023
A
STFR
£1,207,852
£96,054
£109,402
£129,382
2022
£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
2023
A
Base salary
£513,300
£86,474
£96,917
£100,320
2022
£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
Note:
1
The single total figure of remuneration shown above is based on the forecast PSP outcome as reported in the relevant Directors’ Remuneration Report at the time
and has not been updated after vesting
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:
2022
$ million
2023
$ million
Adjusted EBITDA
1
979
825
EnQuest net debt
717
481
Distribution to shareholders
0
0
Total employee pay
93
88
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
(see Glossary – Non-GAAP measures on page 193 for how these are calculated)
Change in Directors’ pay relative to the workforce
Base salary/fees
%
Bonus
%
Benefits
%
2022 to
2023
2021 to
2022
2020 to
2021
2019 to
2020
2022 to
2023
2021 to
2022
2020 to
2021
2019 to
2020
2022 to
2023
2021 to
2022
2020 to
2021
2019 to
2020
Amjad Bseisu
4
3
5
(3)
(7)
17
9
(25)
10
0
0
0
Salman Malik
1
6
–
–
–
18
–
–
–
(27)
–
–
–
Gareth Penny
2
0
–
–
–
–
–
–
–
–
–
–
–
Farina Khan
3
(23)
42
–
–
–
–
–
–
–
–
–
–
Liv Monica Stubholt
3
(29)
42
–
–
–
–
–
–
–
–
–
–
Rani Koya
3
(20)
–
–
–
–
–
–
–
–
–
–
Michael Borrell
4
-
–
–
–
–
–
–
–
–
–
–
–
UK employees (average)
5
4
3
0
3
10
(7)
3
(21)
10
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 2022 and 2023. Benefits include employer pension contribution and/or allowance.
1
Salman Malik became an Executive Director in July 2022 and the change in pay is calculated on a full-year equivalent amount
2
Gareth Penny was appointed to the Board in December 2022 and the change in pay is calculated on a full-year equivalent amount
3
Non-Executive Directors were each paid an additional one-off fee of £25,000 in 2022; the percentage change in fee from 2022 to 2023 reflects this payment
4
Michael Borrell was appointed to the Board in September 2023
5
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 reflected in their annual bonus payment
Statement of implementation of the Remuneration Policy for the year ending 31 December 2024
Base salary and 2024 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 well as
the performance of the Executive Director. The table below shows the changes applied to salaries for 2024.
Name
Salary for 2023
£
Salary for 2024
£
Increase
%
Amjad Bseisu
513,300
600,000
16.9%
Salman Malik
440,000
440,000
0.0%
Jonathan Copus
1
400,000
400,000
0.0%
Note:
1
Jonathan Copus will be nominated as an Executive Director from the AGM in 2024. His salary is included here for completeness
The salary for EnQuest’s CEO, Amjad Bseisu, will be increased in 2024 to be more consistent with the market median. As part
of the review process, the Committee commissioned a benchmarking study to review the competitiveness of the current
remuneration arrangements. The analysis suggested that the remuneration package is notably below market for both similarly
sized UK-listed peers and other peers operating in the sector. The CEO’s salary in particular is bottom quartile when compared
to market and whilst a competitive long-term incentive opportunity partially makes up for this, the result is a fair value ‘Total
Remuneration’ package that sits below the 25th percentile. The below market salary positioning of the CEO reflects a number of
factors. Amjad is a long-serving executive by FTSE standards, with his salary increases generally tracking below those awarded
to the broader workforce. Since listing in 2010, Amjad’s salary has risen as an equivalent of 2.4% per annum, including four years
of salary freezes. Over this period, the Committee believes the CEO has performed strongly as a leader as the scope and
complexity of his role has evolved, whilst executive pay across the wider FTSE market has been on an upward trajectory.
The average salary uplift for Group employees was 3.9%, although individual uplifts varied according to market position,
and individual experience and performance.
Joining arrangements for Jonathan Copus
Jonathan began employment with EnQuest on 7 December 2023 as CFO Designate and became CFO on 1 February 2024.
Subject to shareholder approval, he will be appointed an Executive Director of the Group at the 2024 AGM. The Committee
approved the remuneration package as described in this section that came into effect from his appointment. His
remuneration was set in accordance with the Policy in place.
Jonathan’s annual base salary has been set at £400,000 and he will be entitled to an annual performance bonus and PSP
awards aligned to the Policy for Executive Directors as described in this report. In addition, Jonathan will receive the other
standard benefits including private medical insurance, life assurance cover and payment in lieu of a pension contribution
equal to 10% of his annual base salary that apply to other Executive Directors. There was no requirement for joining or other
buy-out awards to secure Jonathan’s appointment with the Group.
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 receives 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 to reflect the multi-country residence of his dependents.
Annual bonus
For the year ended 31 December 2024, the annual bonus opportunities for the Executive Directors will remain unchanged and
in line with the proposed Policy of 75% of salary at target and 125% of salary at maximum.
The annual bonus scheme for 2024 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.
Directors’ Remuneration Report
continued
117
116
EnQuest PLC –
Annual Report and Accounts 2023
Corporate Governance
The 2024 metrics and weightings, which will determine the level of short-term incentive awards for the Executive Directors, are
set out below.
Group 2024 performance measures scorecard
Metric
Weighting
Production
20.0%
Expenditure
10.0%
Regulatory, ESG and culture
12.5%
Liquidity management
10.0%
Balance sheet management
10.0%
Growth
37.5%
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 be payable only 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
2024 PSP awards
In order to reflect the volatility of the Company’s share price and ensure Executive Directors do not benefit from ‘windfall gains’,
the grant level of the PSP awards in 2024 will be scaled back c.26% to c.185% of salary (reflecting the fall of the Company’s
average share price between Q4 2022 and the same period in 2023.
Summary of 2024 PSP performance measures and targets
In line with recent awards, the PSP share awards granted in 2024 will have two performance metrics, both measured over a
three-year financial period starting 1 January 2024:
•
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.
2024 PSP – scheduled for 2027 vesting
Measure
Weighting
Threshold
(25% vesting)
Maximum
(100% vesting)
Relative TSR over the period
1 January 2024 to 31 December 2026
80.0%
50th percentile
75th percentile
or higher
Emission reduction over the period
1 January 2024 to 31 December 2026
20.0%
10% reduction
12% reduction
or more
2024 PSP award TSR comparator group
Africa Oil
Energean
Ithaca Energy
Maurel & Prom
Aker BP
Genel Energy
Jadestone
OKEA
BW Energy
Gulf Keystone Petroleum
Jersey Oil and Gas
1
Pharos Energy
Capricorn Energy
Harbour Energy
Kistos
Serica Energy
DNO
Hibiscus Petroleum
Kosmos Energy
Tullow Oil
Note:
1
New addition for 2024 comparator group
Non-Executive Directors
The fees for the Non-Executive Directors with effect from 1 January 2024 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 2023 levels following a benchmark review.
Advisers to the Committee
Ellason LLP, who were appointed in August 2022 following a competitive tender process, provided advice to the Remuneration
and Social Responsibility Committee during 2023. The Committee satisfied itself that the advice given was objective and
independent, with Ellason LLP being a signatory to the Remuneration Consultants Group Code of Conduct, which sets out
guidelines for managing conflicts of interest. Ellason LLP do not provide any other services to the Group.
The fees paid to Ellason LLP in 2023 totalled £62,520 (excluding VAT). The fees were charged on the basis of the number of
hours worked. In 2022, fees paid to the advisers to the Committee totalled £61,815 (excluding VAT).
Statement of voting at the Annual General Meeting
The table below summarises the voting at the AGM held on 5 June 2023 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 (2023)
765,121,393
85.73%
127,331,465
14.27%
898,640,021
6,187,163
The Directors’ Remuneration Report was approved by the Board and signed on its behalf by Gareth Penny.
Gareth Penny
Chairman and Interim Chair of the Remuneration
and Social Responsibility Committee
27 March 2024
Directors’ Remuneration Report
continued
119
118
EnQuest PLC –
Annual Report and Accounts 2023
Corporate Governance
Sustainability Committee report
Dear shareholders
In 2023, the Board approved the merger of the Group’s
Technical and Reserves Committee and the Safety,
Sustainability and Risk Committee to be restructured as a
single Sustainability Committee that would maintain
focused oversight over areas that were previously
segregated between the two committees. This approach is
designed to enhance the efficiency of oversight by the Board
whilst empowering relevant teams to conduct detailed work
in relation to all technical matters, asset integrity, review of
reserves as well as the key areas of energy transition, health
and safety, environment, assurance and risk.
On behalf of the Board and my fellow Committee members,
I am therefore pleased to present the report for the newly
convened Sustainability Committee.
Climate, new energy and decarbonisation
During the year, the Committee continued to reflect and
focus on climate change, and I am delighted to announce
that in September 2023, the Board announced the Group’s
commitment to reach net zero for Scope 1 and Scope 2
emissions by 2040. In terms of emissions, the UK Government’s
North Sea Transition Deal requires the industry to deliver
material CO
2
equivalent reductions progressively by 2025,
2027 and 2030, 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 is considering a strategic roadmap identifying the
steps required to move towards net zero and is reviewing the
suitability of a number of Scope 3 emission categories, thus
allowing for further improvement in our emission reduction
targets. A baseline has been developed for emissions
associated with waste in 2023 under Scope 3 emissions.
The Committee has reviewed the plans for the Group’s new
energy and decarbonisation business, both in its emission
reduction objectives and longer-term renewable energy
opportunities. It sees exciting opportunities in this area for the
Group, particularly with respect to the Group’s ambition to
play a pivotal part in the energy transition.
Technical and reserves
During the year, the Technical and Reserves Committee
reviewed several business development opportunities, and
the technical assumptions underpinning these and was
satisfied with the process and outcome of the exercises.
Additionally, the Committee also concluded the post-
investment review of the 2021 Golden Eagle acquisition.
With the renewed focus of the Sustainability Committee, I am
confident that this Committee will continue to make a very
positive impact with regard to the Group’s asset strategy, risk
framework, investment opportunities and net zero ambition.
Rani Koya
Chair of the Sustainability Committee
27 March 2024
Sustainability Committee membership
Membership of the Committee, established 5 September
2023, and attendance at the one meeting held during 2023
is provided in the table below:
Member
Date appointed
Committee member
Attendance at
meetings during
the year
Rani Koya
30 August 2023
1/1
Liv Monica Stubholt
30 August 2023
1/1
Mike Borrell
5 September 2023
1/1
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, sustainable business practice
expectations, and the energy transition and review
actions to mitigate these risks in line with its assessment
of other risks;
•
Review and monitor the Group’s decarbonisation activities
and emission reduction actions, including reviewing the
adequacy of the associated framework and its alignment
with the evolving regulatory environment;
•
Review targets and milestones for the achievement of
decarbonisation objectives;
•
Review and monitor any material changes in reserves
or changes in assumptions and/or forecasts and make
appropriate Board recommendations;
•
Review annually asset integrity matters within the
Group; and
•
Undertake such other specific actions as the Board may
require in relation to technical, reserves, business
development, HSE, risk and sustainability issues.
The Committee’s full terms of reference can be found on the
Group’s website, www.enquest.com/investors/Corporate-
Governance.
Committee activities during the year
Over the year, the Technical and Reserves Committee; Safety,
Risk and Sustainability Committee; and the newly formed
Sustainability Committee covered the following matters:
•
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 ‘compliance with regulation,
legislation and ethical conduct’, ‘IT security and resilience’
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;
•
Received routine updates on the Group’s emission
reduction targets and strategy for further enhancing its
contributions to the United Nations SDG 12;
•
Received routine updates on the Group’s reserves,
business development efforts and business planning; and
•
Received routine updates on the market opportunities to
promote the Group’s strategy.
For further information on these risks, please see the Risks
and uncertainties section on pages 46 to 64.
Priorities for the coming year
In 2024, the Committee will continue to focus on detailed
analysis of key risk areas, including those relating to the
Group’s activity on technical and reserves matters and safety,
sustainability and risk in support of its strategic purpose to
provide creative solutions through the energy transition.
HSE & Asset Integrity (‘HSEA’)
The health and safety of our personnel remains a key priority
for the Group. Throughout 2023, the Committee continued to
undertake detailed analysis of specific risk areas to ensure
that asset integrity and the safety of our personnel are not
compromised.
The Committee believes that significant progress has been
made in relation to this risk and it is evident that asset integrity
management within the Group is risk based, proportionate and
focused and relevant risks were indeed being considered in the
budget process. Engagement with the Health and Safety
Executive (‘HSE’) remained positive throughout the year and the
HSE Improvement Notices (‘INs’) received in December 2022
and May 2023 were successfully closed out ahead of the
agreed deadline. Whilst receiving INs is undoubtedly
disappointing, it represents an opportunity for the Group to
identify and drive further improvements. The North Sea
business took part in a Process Safety Leadership inspection in
2023 and received positive feedback; it was noted that EnQuest
is creating a foundation within the organisation on which to
build on in terms of people, process and plant.
Whilst there has been some deterioration in HSEA
performance during 2023, particularly in lagging indicators
associated with routine tasks at site, the Committee
considers that the learning culture within the Group ensures
that the causes of incidents are established, shared and
action plans implemented to prevent recurrence. Reflecting
the desire for improved performance, the Group’s integrated
HSEA Continuous Improvement Plan focuses on the key areas
to drive enhanced performance in 2024 and beyond.
Risk Management Framework
The Group has a robust Risk Management Framework,
which the Committee reviews regularly to ensure that it
adequately recognises the full extent of risks and
associated controls in a complex and rapidly changing
landscape for the sector. In 2023, the Committee
incorporated enhancement in the Group’s activity on
safety, sustainability and risk in support of its strategic
ambition to provide creative solutions through the energy
transition. The Committee has also reviewed and approved
risk management improvements in specific risk areas.
“The Committee is enthused
about the exciting opportunities
for the Group in the energy
transition.”
Rani Koya
Chair of the Sustainability Committee
121
120
EnQuest PLC –
Annual Report and Accounts 2023
Corporate Governance
Directors’ report
Corporate governance statement
The Group’s corporate governance statement is set out on pages 84 to 91 and is incorporated into the Directors’ report
by reference.
Directors
The biographical details of persons who served as Directors of the Company during the financial year ended 31 December
2023 are set out on pages 80 to 81. Michael Borrell, Rosalind Kainyah and Jonathan Copus will stand for election at the
Annual General Meeting (‘AGM’) on 30 May 2024, 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 provisions were in force during the financial year ended 31 December 2023 and
remain in force as at the date of approving the Directors’ report. Former Directors also received indemnities for the period for
which they were Directors of the Company. 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
2023
% of issued
share capital
held at
31 December
2023
2
Number of
Ordinary shares
held as at
27 March
2024
3
% of issued
share capital
held as at
7 March
2024
3
Bseisu consolidated interests
1
234,732,857
12.27
234,732,857
12.25
Aberforth Partners LLP
153,772,216
8.04
153,772,216
8.03
Hargreaves Lansdown Asset Management
98,766,289
5.16
97,212,807
5.07
Cobas Asset Management
98,303,830
5.14
121,410,900
6.34
BlackRock Inc
75,603,519
3.95
56,406,167
2.95
Baillie Gifford & Co Ltd
74,008,480
3.87
72,963,091
3.81
Avanza Bank AB
66,137,102
3.46
64,217,101
3.35
Schroder Investment Management Ltd
64,104,521
3.35
64,854,521
3.39
Dimensional Fund Advisors
59,272,582
3.10
59,375,044
3.10
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
3
In February 2024, the share capital of the Company was increased (see page 121)
Directors’ interests
The interests of the Directors and their connected persons in the Ordinary shares of the Company, which are unchanged
between 31 December 2023 and 27 March 2024, are shown below:
Name
At
31 December
2023
At
27 March
2024
Amjad Bseisu
1
234,732,857
234,732,857
Gareth Penny
2
137,047
137,047
Michael Borrell
-
-
Farina Khan
211,235
211,235
Rani Koya
-
-
Salman Malik
565,705
565,705
Liv Monica Stubholt
-
-
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
2
62,500 shares are held by Gareth Penny, and 74,547 shares are held by his wife, Kate Penny
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. At the start of 2023, there were 1,885,924,339 Ordinary shares in issue. In December 2023 26,379,774
shares were issued at par to the Employee Benefit Trust (‘EBT’), resulting in a total of 1,912,304,113 Ordinary shares in issue at the
year end. 3,620,226 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 170. No person has any special rights with respect to control of the Company.
The Company’s Ordinary shares are listed on the London Stock Exchange. At the start of 2023, Ordinary shares were also listed
on Nasdaq Stockholm. However, on 5 September 2023 the Company announced its intention to delist the Ordinary shares
from Nasdaq Stockholm and this process was formally completed on 19 December 2023.
The Company was authorised by shareholders at the 2023 AGM to purchase its own Ordinary shares in the market of up to
a limit of 10% of its issued share capital, subject to certain conditions laid out in the authorising resolution. The Company
did not purchase any of its own shares during 2023 or up to and including 27 March 2024, being the date of this Directors’
report. At the 2024 AGM, shareholders will be asked to renew authorities relating to the issue and purchase of Company
shares. Details of the resolutions are contained in the Notice of AGM, which can be found on the Company’s website at
www.enquest.com/shareholder-information/annual-general-meetings.
Company share schemes
The trustees of the EBT subscribed for 43,905,387 Ordinary shares in the Company at par during 2023. At year end, the EBT held 1.41%
of the issued share capital of the Company (2022: 1.36%) for the benefit of employees and their dependants. The voting rights in
relation to these shares are exercised by the trustees. Subsequent to the year end, the EBT was allotted a further 3,620,226 shares.
Employee engagement
Employees are informed about significant business issues and other matters of concern via country-level Town Hall
meetings, Global Town Hall meetings (whereby staff in all geographic locations are invited to attend), email and other
in-person and electronic communications, particularly the Company’s intranet and internal ‘Viva Engage’ channel.
Face-to-face briefing meetings are used along with virtual communications to ensure all employees have the opportunity to
participate. Appropriate consultations take place with employees when business change is undertaken.
Gareth Penny replaced Rani Koya as Designated Director for Employee Engagement during the year. During his time as Designated
Director, Gareth has met staff in Aberdeen and London offices and has had discussions with Employee Forum representatives across
the organisation. As a Designated Director, Gareth has the responsibility to ensure the Board gets a clear understanding of the views
of employees in accordance with the requirement of the Corporate Governance Code. Further details are given on page 84.
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. 52.6% of eligible employees currently participate in 2023 SAYE.
Eligibility for participation in other share schemes depends on a number of factors, such as seniority within the Company.
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.
The Company only has Ordinary shares in issue. In accordance with the Company’s Articles, any share in the Company may be
issued with such rights (including preferred, deferred or other special rights) or such restrictions whether in regard to dividend,
voting, return of capital or otherwise as the Company may from time to time by ordinary resolution determine (or in the absence
of such determination, as the Directors may determine). There are no specific rights or obligations attaching to the Ordinary
shares and there are no restrictions on the transfer of shares.
“The Directors of EnQuest
present their Annual Report
together with the Group and
Company audited financial
statements for the year ended
31 December 2023.”
Chris Sawyer
Company Secretary
123
122
EnQuest PLC –
Annual Report and Accounts 2023
Corporate Governance
Directors’ report
continued
Annual General Meeting
The Company’s AGM will be held at Ashurst LLP, London Fruit & Wool Exchange, 1 Duval Square, London, E1 6PW United Kingdom on
30 May 2024. 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.
Registrars
The Company’s Ordinary shares are traded on the London Stock Exchange. The Company’s share registrar is Link Asset
Services, details of which can be found in the Company information section on the inside back cover of the Annual Report.
Shares that were traded on Nasdaq Stockholm and not transferred to London are no longer tradeable.
Political donations
At the 2023 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 2023 by the Company, or any of its subsidiaries (2022: no donations).
Dividends
The Company has not declared or paid any dividends since incorporation. However, the Board of Directors are proposing
making an up to $15.0 million share buy-back, to be executed during 2024. This distribution will be below the limit granted at
the 2023 AGM allowing the Company to purchase up to 10% of its issued Ordinary share capital in the market. Any future
shareholder distributions will be reviewed in the context of the Company’s expected future cash flows and the Board’s aims
of preserving a balanced programme of value-led and growth-focused organic and inorganic investment. Future
distributions remain subject to the earnings and financial condition of the Company meeting the conditions for shareholder
distributions which the Company has agreed with its lenders and such other factors as the Board of Directors of the
Company consider appropriate.
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 senior facility agreement, 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 term loan facility agreement, 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 borrower (EnQuest Heather Limited) under the facility;
(c) the deeds of indemnity, originally dated 10 June 2021 (as amended and restated on 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 indenture governing the Company’s high yield notes originally due 2027, which at the date of this report have an
aggregate nominal amount of approximately $305.0 million, under which 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, which together constitute the management report (for the purposes of DTR 4.1.8R),
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 page 98.
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 78. The financial position of the Group, its cash flow, liquidity position and
borrowing facilities are described in the Financial review on pages 26 to 30. The Board’s assessment of going concern and
viability for the Group is set out on pages 30 and 31. In addition, note 28 to the financial statements on page 178 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
2023
SECR
2022
5, 6
SECR
2018
baseline
Total emissions tCO
2
e
2
1,042,610
1,051,869
1,704,893
Scope 1
Extraction emissions tCO
2
e
2
894,844
949,275
1,562,507
Scope 2
Extraction emissions tCO
2
e
2
679
796
1,515
Scope 3
Extraction emissions tCO
2
e
2
567
N/A
N/A
Extraction intensity ratio kgCO
2
e/Boe
2
44.70
45.01
47.54
Scope 1
Terminal (SVT) emissions tCO
2
e
2
,
3
72,229
29,794
54,859
Scope 2
Terminal (SVT) emissions tCO
2
e
2
,
3
74,113
72,003
86,011
Scope 3
Terminal (SVT) emissions tCO
2
e
2
,
3
177
N/A
N/A
Terminal (SVT) intensity ratio kgCO
2
e/Boe
8
throughput
2,3
3.42
2.28
4.65
Energy
Consumption
4
2023
SECR
2022
SECR
Total kWh
4,353,231,637
4,455,083,433
Scope 1
Extraction kWh
3,678,072,239
3,924,133,320
Scope 2
Extraction kWh
1,855,745
2,548,727
Scope 3
Extraction kWh
0
N/A
Extraction intensity ratio kWh/Boe
2
183.67
186.04
Scope 1
Terminal (SVT) kWh
2, 3
270,349,367
116,158,249
Scope 2
Terminal (SVT) kWh
2, 3
402,954,286
412,243,137
Scope 3
Terminal (SVT) kWh
2, 3
0
N/A
Terminal (SVT) intensity ratio kWh/Boe8 throughput
2,3
15.72
11.84
UK and Overseas Breakdown
2023
SECR (operational
control) scope
2022
SECR (operational
control) scope
Scope 1
UK onshore tCO
2
e
72,242
29,823
UK offshore tCO
2
e
618,587
637,070
Non-UK tCO
2
e
276,243
312,176
Scope 2
UK onshore tCO
2
e
74,377
72,384
UK offshore tCO
2
e
0
0
Non-UK tCO
2
e
416
416
Scope 3
UK onshore tCO
2
e
187
N/A
UK offshore tCO
2
e
453
N/A
Non-UK tCO
2
e
105
N/A
Scope 1
UK onshore kWh
270,417,800
116,302,182
UK offshore kWh
2,488,418,862
2,599,376,955
Non-UK kWh
1,189,584,945
1,324,612,431
Scope 2
UK onshore kWh
404,226,950
414,208,783
UK offshore kWh
0
0
Non-UK kWh
583,081
583,081
Scope 3
UK onshore kWh
0
N/A
UK offshore kWh
0
N/A
Non-UK kWh
0
N/A
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
Scope 3 emission Category 5 ‘waste generated in operations’ is reported for the first time in 2023. Prior year data is unavailable
6
2022 was the first year that the PM8/Seligi (Malaysian) asset was included within the verified scope due to availability of supportable metering uncertainty
documentation. The 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 the 2018 baseline
7
Scope 3 emission Category 5 ‘waste generated in operations’ is reported for the first time in 2023. As this is a waste category, there is no associated kWh measure.
8
Intensity ratios are calculated against Scope 1 and Scope 2 emissions only and, as such, exclude Scope 3 emissions
125
124
EnQuest PLC –
Annual Report and Accounts 2023
Corporate Governance
Directors’ report
continued
Energy efficiency strategy
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. EnQuest aims to reduce emissions
generated through its operations by utilising a detailed project delivery process. The status of emission reduction
opportunities and projects is discussed at regular Emissions Reduction Workshops and reviewed at Board level via the
Sustainability Committee. Emission reduction projects managed through this established process include compressor
re-mapping at the Greater Kittiwake Area, the commissioning of waste heat recovery units on Kraken and the delivery of both
a flare purge reduction and a flare passing valve replacement programme on Magnus. In the longer term, Veri Energy,
EnQuest’s wholly owned subsidiary, is developing cost-effective and efficient plans to repurpose the terminal site and
connected offshore infrastructure to fulfil its ambition of creating a new energy and decarbonisation hub at the Sullom Voe
Terminal (‘SVT’).
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
06-13
Acquisitions and disposals
19, 28
Fair treatment of disabled employees
43
Anti-slavery disclosure
65
Corporate governance statement
84-91
Gender diversity
43, 91
Financial risk and financial instruments
178
Important events subsequent to year end
n/a
Branches outside of the UK
29
s.172 statement and stakeholder engagement
76-77
Research and development
n/a
Related party transactions
27
The Directors’ report was approved by the Board and signed on its behalf by the Company Secretary on 27 March 2024.
Chris Sawyer
Company Secretary
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 93 of the Annual Report.
127
126
EnQuest PLC –
Annual Report and Accounts 2023
Financial Statements
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 2023 and of the group’s profit for the
year then ended;
•
the group financial statements have been properly prepared in accordance with United Kingdom adopted International
Financial Reporting Standards;
•
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 Balance Sheet;
•
the Group Statement of Changes in Equity;
• the Group Statement of Cash Flows;
•
the related notes 1 to 31 to the Group Financial Statements;
• the Company Balance Sheet;
•
the Company Statement of Changes in Equity; and
•
the related notes 1 to 14 to the Company Financial Statements.
The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law
and United Kingdom adopted International Financial Reporting Standards. 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
group 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 $23m which was determined on the
basis of 2.8% of adjusted EBITDA (earnings before interest, tax, depreciation, amortisation, remeasurements
and exceptional items).
Scoping
EnQuest PLC has two components, being the North Sea and Malaysia. They account 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.
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:
•
assessing the reasonableness of the assumptions used in the cash flow forecasts, in particular commodity prices,
production levels and cash costs;
•
assessing the historical accuracy of forecasts prepared by management;
•
assessing the financing facilities throughout the going concern period, including repayment terms and financial covenants;
•
considering the levels of cash and covenant headroom throughout the going concern period, including sensitivity analysis
and reverse stress testing;
•
assessing the mathematical accuracy of the forecasts and the going concern model, involving our modelling specialists;
and
•
assessing the appropriateness of the group’s and parent company’s going concern related financial statement disclosures.
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.
129
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Financial Statements
5.1. Valuation of oil and gas related assets and liabilities
Key audit matter
description
Management is required to assess the carrying value of oil and gas related assets and liabilities, in
line with the relevant accounting standard, at each balance sheet date. In order to appropriately
value these assets and liabilities, management is required to forecast future cash flows. These
forecast cash flows are used consistently across the:
•
Impairment assessment of oil and gas assets;
• Impairment assessment of goodwill;
•
Impairment assessment of the parent company investments;
• Valuation of Magnus contingent consideration; and
• Valuation of the deferred tax asset.
The forecast future cash flows contain a high level of management judgment and estimation,
particularly in relation to the following significant assumptions:
• Forecast commodity prices;
• Discount rate applied; and
•
Reserve estimates and production profiles.
In addition to the above, the assumed cost savings on the Kraken CGU as a result of alternative fuel
sources was a key judgment during the year.
Commodity prices, reserve estimates and production profiles are also impacted by climate-related
risks, which increases the level of estimation uncertainty.
Given the level of management judgment and estimation applied in determining the recoverable value
of the oil and gas related assets and liabilities, including estimation uncertainty within the significant
assumptions outlined above, we consider this to be a key audit matter related to the potential risk of fraud.
Impairment assessment of oil and gas assets, goodwill and parent company investments
Management performed an impairment assessment for oil and gas assets and goodwill carrying value,
by reference to IAS 36 Impairment of Assets. As at 31 December 2023, the net book value of oil and gas
assets was $1,880 million (2022: $2,037 million) and management have recorded a pre-tax impairment
of $117 million (2022: $81 million) against certain oil and gas assets, including related right of use assets,
as disclosed in note 10.
As at 31 December 2023, the net book value of goodwill was $134 million (2022: $134 million). No goodwill
impairment charge has been recorded in 2023 (2022: nil), as disclosed in note 11.
Management also performed an assessment of the carrying values of the parent company’s investment
in subsidiaries by reference to IAS36 Impairment of Assets and IFRS9 Financial Instruments. As at
31 December 2023, the net book value of investments recognised in the parent company balance sheet
was $300 million (2022: $370 million) and management have recorded an impairment of $74 million
(2022: $31 million impairment), as disclosed in note 3 to the parent company financial statements.
Valuation of Magnus contingent consideration
The valuation of Magnus contingent consideration was $488 million (2022: $567 million) as at
31 December 2023, based on the estimated future cash flows for the Magnus oil and gas asset,
as disclosed in note 22.
Valuation of the deferred tax asset
As at 31 December 2023, a deferred tax asset of $540m (2022: $706m) was recognised, based on the
expected utilisation of historical tax losses, underpinned by forecasts of future profitability. The forecast
cash flows used to value the deferred tax asset are consistent with the cash flows used for impairment
purposes. Further details on the deferred tax asset are disclosed in note 7(c).
Given the interrelated nature of the key areas noted above, management have applied consistent
assumptions across all of these valuations where appropriate. Further details on this matter have
been disclosed in the audit committee report on page 95 and 96.
How the scope
of our audit
responded to the
key audit matter
Our procedures comprised the following:
Procedures on internal controls and valuation models
•
obtaining an understanding of relevant controls over management’s process for identifying
indicators of impairment and for performing their impairment assessment and related valuations;
•
assessing management’s forecasting accuracy through a retrospective review of previous forecasts;
•
assessing whether forecast cash flows were consistent with board approved forecasts and budgets,
and forecasts used elsewhere, including for going concern and viability purposes;
•
challenging the reasonableness of the operating and capital cost assumptions within the models;
•
assessing, with input from our tax specialists, whether the models appropriately incorporate tax cash
flows, including the Energy Profits Levy;
•
working with our modelling specialists to evaluate the arithmetical accuracy of the models;
•
challenging management’s determination of oil and gas cash generating units for impairment
purposes, in comparison to the requirements of IAS36;
•
assessing the reasonableness of the various valuations on an aggregate basis, as part of our
stand-back procedures;
•
evaluating compliance with the relevant accounting standards, including IAS12 Income taxes, IAS36
Impairment of assets and IFRS13 Fair Value Measurements; and
•
evaluating the adequacy of management’s disclosures in relation to impairment and related
valuations, including related sensitivity analysis and climate-related disclosures.
Procedures related to the key assumptions used for valuation purposes
Our procedures related to the key assumptions in this key audit matter are:
Forecast commodity prices
•
assessing the appropriateness of management’s forecast commodity prices, through benchmarking
against forward curves, peer information and market data;
•
performing sensitivity analysis on the pricing assumptions to determine the impact on the valuation
conclusions of reasonably possible changes; and
•
evaluating whether management’s pricing assumptions have adequately considered the impact of
lower oil and gas demand due to climate change.
Discount rate
•
evaluating, with input from our valuations specialists, the group’s discount rates used in impairment
tests and valuations; and
•
assessing whether country risks and tax adjustments are appropriately reflected in the group’s
discount rate.
Reserves estimates and production profiles
•
comparing management’s reserves estimate and production profile to those of their management’s
independent reserves expert;
•
assessing the technical competence, capabilities and objectivity of management’s internal and
external experts;
•
evaluating, with involvement from our oil and gas reserves specialist, the reasonableness of reserves
estimates and production profiles; and
•
working with our oil and gas reserves specialist to challenge management on significant changes in
the reserves estimates and production profiles.
Kraken cost savings
•
We challenged management on the inclusion of the assumed cost savings on Kraken as a result of
alternative fuel sources, with reference to available external evidence.
Key observations
We are satisfied with management’s conclusions in respect of the valuation of oil and gas related
assets and liabilities, including the related impairment charges.
In reaching this conclusion, we observed that:
•
Future commodity price assumptions are within our acceptable range;
•
Impairment discount rates were within our acceptable range, calculated by our valuations specialist;
•
Reserves estimates and production profiles were concluded as reasonable, based on estimates from
management’s reserves expert;
•
The carrying value of the oil and gas assets and goodwill, including the related impairment charge,
is reasonable;
•
The carrying value of the investment in subsidiaries, including the related impairment charge,
is reasonable;
•
The carrying value of the Magnus contingent consideration is reasonable; and
•
The deferred tax asset recognition is appropriate and the carrying value is a reasonable estimate.
Independent auditor’s report
to the members of EnQuest PLC
continued
5.1. Valuation of oil and gas related assets and liabilities
continued
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Financial Statements
5.2. Valuation of decommissioning liability
Key audit matter
description
The group is required by law to decommission the oil and gas assets and associated infrastructure at
the end of their operating life. An estimate of the future cost of decommissioning is required to be
provided for in accordance with IAS37 Provisions, Contingent Liabilities and Contingent Assets.
The decommissioning provision at 31 December 2023 is $781 million (2022: $724 million).
The provision
represents the present value of decommissioning costs which are expected to be incurred during the
decommissioning period, which is assumed to run to 2048, assuming no further development of 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. This key audit matter is considered to be a risk
due to fraud.
Decommissioning liabilities are inherently judgemental areas, particularly in relation to cost
estimates and the related assumptions. The key management estimates containing the most
estimation uncertainty, and therefore the focus of our key audit matter, are:
•
internal well cost estimates included in the decommissioning model; and
•
internal cost reduction factors applied to the gross decommissioning cost estimates to reflect
anticipated cost savings.
The Group’s Audit Committee has considered this key audit matter in their Audit Committee Report for
the year ended 31 December 2023 on page 96. Further detail on decommissioning provisions is included
in note 23.
How the scope
of our audit
responded to the
key audit matter
Our procedures comprised the following:
Procedures on internal controls and the decommissioning model
•
obtaining an understanding of the relevant controls relating to the decommissioning provision;
•
assessing the technical competence, capabilities and objectivity of management’s internal and
external experts;
•
assessing the decommissioning provision for compliance with IAS 37 Provisions, Contingent Liabilities
and Contingent Assets;
•
working with our modelling specialists to evaluate the arithmetical accuracy of the decommissioning
model;
•
assessing available benchmarking reports for indications of developments in industry practice in
light of climate change goals;
•
testing a sample of actual decommissioning spend incurred during the period, by agreeing to
invoices and payments from bank statements;
•
assessing the historical forecasting accuracy of management for decommissioning expenditure, by
comparing actual spend with historical estimates;
•
re-calculating the closing decommissioning provision from the gross decommissioning cost
estimate, and agreeing this to the group’s financial records; and
•
evaluating the adequacy of management’s disclosures, including the key sources of estimation
uncertainty and associated sensitivity analysis of decommissioning assumptions.
Procedures on cost estimates and related assumptions
Internal well cost estimates
•
challenging the group’s assumptions within the cost estimate by referencing to available third-party
data and benchmarking to peer and market rates; and
•
assessing the assumed durations for plug and abandonment of wells, by comparison to available
benchmarking data and potential contradictory evidence available from active decommissioning
projects or operator estimates.
Internal cost reduction factors
•
challenging the group’s cost reduction factors applied to the decommissioning model, through
comparison with available evidence for the factors applied;
•
benchmarking cost reduction factors to peers and other applicable sources; and
•
considering potentially contradictory evidence from actual decommissioning spend, changes in
market rates and industry publications.
Key observations
•
The key assumptions within the well cost estimates are reasonable;
•
Cost reduction factors are reasonable, albeit considered to be towards the optimistic end of an
acceptable range;
•
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 adequate.
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
$23 million (2022: $30 million)
$11.4m (2022: $12.7 million)
Basis for
determining
materiality
2.8% of adjusted EBITDA (earnings before
interest, tax, depreciation, amortisation,
remeasurements and exceptional items)
(2022: 3% of adjusted EBITDA).
Management have presented a reconciliation
of $825 million adjusted EBITDA to profit from
operations before tax and interest in the glossary
to the financial statements on page 193.
3% of net assets (2022: 3% of net assets)
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. It
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.
Adjusted EBITDA
$825m
Group materiality
Component materiality range
$11.5m to $20.6m
Audit Committee reporting threshold $1.5m
Group materiality $23.0m
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% (2022: 70%) of group materiality
70% (2022: 70%) of parent company materiality
Basis and rationale
for determining
performance
materiality
In determining performance materiality, we considered the following factors:
•
the quality of the control environment and whether we were able to rely on controls;
•
the nature, volume and size of corrected and uncorrected 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.
6.3.Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of $1.15m
(2022: $1.5m), 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.
Independent auditor’s report
to the members of EnQuest PLC
continued
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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 $11.5 million (2022: $15.0 million). The materiality applied for the
North Sea component was $20.6 million (2022: $27.0 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.
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 IT control environment. Weaknesses were identified and as a result of this we were unable to
place reliance on the general IT controls. Where appropriate, we adapted our audit procedures in response.
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 66 and 75.
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 are complete and challenged assumptions impacting the financial statements. The key piece of climate-
related regulation enacted to date and impacting the group continues 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.
There continues to be a physical climate-related risk relating to the early cessation of production of oil and gas assets, which
would impact all of the judgments and estimates outlined above. This is disclosed in the annual report on page 69.
We performed a review of the climate disclosures within the Annual Report, including the climate-related financial
disclosures referred to on page 66 to 75, with the involvement of our climate specialists. We considered whether these were
materially consistent with the financial disclosures 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 risks to commodity prices and cessation of production, 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
We engaged Deloitte Malaysia as our component auditor, directed and supervised by the group engagement team in the
UK. Detailed referral instructions were sent to the component audit team as part of planning procedures.
The group engagement team directed and supervised the component team throughout the year via attendance at planning
meetings, regular communication between the teams and attendance at closing meetings. The group engagement team
reviewed and challenged the reporting deliverables and audit file as part of concluding procedures.
We are satisfied that the level of involvement of the lead audit partner and team in the component audit has been
appropriate 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 Statement of Directors’ responsibilities, 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.
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.
Independent auditor’s report
to the members of EnQuest PLC
continued
135
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Financial Statements
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;
•
the group’s own assessment of the risks that irregularities may occur, either as a result of fraud or error, that was approved
by the board;
•
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 environmental laws and regulations in the countries in which the group operates.
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 2023 and January 2024 sales; 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 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 the component audit team, and remained alert to any indications of fraud
or non-compliance with laws and regulations throughout the audit.
Independent auditor’s report
to the members of EnQuest PLC
continued
137
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Financial Statements
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 29 and 30;
•
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 29 and 30;
•
the directors’ statement on fair, balanced and understandable set out on page 93;
•
the board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on
pages 46 to 64;
•
the section of the annual report that describes the review of effectiveness of risk management and internal control
systems set out on page 97; and
•
the section describing the work of the audit committee set out on pages 92 and 93.
14. Matters on which we are required to report by exception
14.1. Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
•
we have not received all the information and explanations we require for our audit; or
•
adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been
received from branches not visited by us; or
•
the parent company financial statements are not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
14.2. Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors’ remuneration
have not been made or the part of the directors’ remuneration report to be audited is not in agreement with the accounting
records and returns.
We have nothing to report in respect of these matters.
15. Other matters which we are required to address
15.1. Auditor tenure
Following the recommendation of the Audit Committee, we were appointed by 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 four years, covering the years
ended 31 December 2020 to 31 December 2023.
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) 4.1.15R – DTR 4.1.18R,
these financial statements form part of the Electronic Format Annual Financial Report filed on the National Storage
Mechanism of the FCA in accordance with DTR 4.1.15R – DTR 4.1.18R. This auditor’s report provides no assurance over whether
the Electronic Format Annual Financial Report has been prepared in compliance with DTR 4.1.15R – DTR 4.1.18R.
James Leigh FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
27 March 2024
Independent auditor’s report
to the members of EnQuest PLC
continued
139
138
EnQuest PLC –
Annual Report and Accounts 2023
Financial Statements
Group Income Statement
For the year ended 31 December 2023
Group Balance Sheet
At 31 December 2023
2023
2022
Notes
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)
1,458,956
28,463
1,839,147
14,475
Cost of sales
5(b)
(941,102)
(5,650)
(946,752 )
(1,195,806)
(4,900) (1,200,706 )
Gross profit/(loss)
517,854
22,813
643,341
9,575
Net impairment (charge)/
reversal to oil and gas assets
4,10
–
(117,396)
(117,396 )
–
(81,049)
(81,049 )
General and administration
expenses
5(c)
(6,348)
–
(6,348 )
(7,553)
–
(7,553 )
Other income
5(d)
17,897
78,984
76,247
7,706
Other expenses
5(e)
(46,846)
(10,731)
(57,577 )
(2,810)
(233,570)
(236,380 )
Profit/(loss) from operations
before tax and finance income/
(costs)
482,557
(26,330)
709,225
(297,338)
Finance costs
6
(172,087)
(58,854)
(230,941 )
(176,227)
(36,410)
(212,637 )
Finance income
6
6,493
–
1,816
2,148
Profit/(loss) before tax
316,963
(85,184)
534,814
(331,600)
Income tax
7
(287,750)
25,138
(262,612 )
(322,468)
78,020
(244,448 )
Profit/(loss) for the year
attributable to owners of
the parent
29,213
(60,046)
(30,833 )
212,346
(253,580)
(41,234 )
Total comprehensive profit/
(loss) for the year, attributable
to owners of the parent
(30,833 )
(41,234 )
There is no comprehensive income attributable to the shareholders of the Group other than the profit/(loss) for the period.
Revenue and operating profit/(loss) are all derived from continuing operations.
Earnings per share
8
$
$
$
$
Basic
0.016
(0.016 )
0.114
(0.022 )
Diluted
0.016
(0.016 )
0.112
(0.022 )
The attached notes 1 to 31 form part of these Group financial statements.
Notes
2023
$’000
2022
$’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
Intangible assets
12
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 payments reserve
Retained earnings
20
TOTAL EQUITY
Non-current liabilities
Borrowings
18
Bonds
18
Lease liabilities
24
Contingent consideration
22
Provisions
23
Deferred income
25
Trade and other payables
17
Deferred tax liabilities
7(c)
Current liabilities
Borrowings
18
Bonds
18
Lease 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 27 March 2024 and signed on
its behalf by:
Amjad Bseisu
141
140
EnQuest PLC –
Annual Report and Accounts 2023
Financial Statements
Group Statement of Changes in Equity
For the year ended 31 December 2023
Group Statement of Cash Flows
For the year ended 31 December 2023
Notes
Share
capital and
share
premium
$’000
Share–
based
payments
reserve
$’000
Retained
earnings
$’000
Total
$’000
Balance at 1 January 2022
Loss for the year
(41,234 )
(41,234 )
Total comprehensive expense for the year
(41,234 )
(41,234 )
Share-based payment
Balance at 31 December 2022
Loss for the year
(30,833 )
(30,833 )
Total comprehensive expense for the year
(30,833 )
(30,833 )
Issue of shares to Employee Benefit Trust
20
(1,635 )
Share-based payment
21
Balance at 31 December 2023
The attached notes 1 to 31 form part of these Group financial statements.
Notes
2023
$’000
2022
$’000
CASH FLOW FROM OPERATING ACTIVITIES
Cash generated from operations
30
Cash received from insurance
Cash (paid)/received on purchase of financial instruments
(5,795 )
(1,354 )
Decommissioning spend
(58,911 )
(58,964 )
Income taxes paid
(40,986 )
(49,293 )
Net cash flows from/(used in) operating activities
INVESTING ACTIVITIES
Purchase of property, plant and equipment
(141,741 )
(107,668 )
Proceeds from farm-down
25
Vendor financing facility
25
(141,360 )
Purchase of intangible oil and gas assets
(10,467 )
(8,168 )
Purchase of other intangible assets
12
(876 )
(1,199 )
Payment of Magnus contingent consideration – Profit share
22
(65,506 )
(45,975 )
Payment of Golden Eagle contingent consideration – Acquisition
22
(50,000 )
Interest received
Net cash flows (used in)/from investing activities
(262,695 )
(161,247 )
FINANCING ACTIVITIES
Proceeds from loans and borrowings
Repayment of loans and borrowings
(427,736 )
(567,020 )
Payment of obligations under financing leases
24
(135,675 )
(147,971 )
Interest paid
(105,877 )
(103,387 )
Net cash flows (used in)/from financing activities
(478,631 )
(731,163 )
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
Net foreign exchange on cash and cash equivalents
(957 )
(24,193 )
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 31 form part of these Group financial statements.
Notes to the Group Financial Statements
For the year ended 31 December 2023
142
Financial Statements
Annual Report and Accounts 2023
EnQuest PLC –
143
the Companies Act and is registered in England and Wales and listed on the London Stock Exchange. The address of the
Company’s registered office is shown on the inside back cover.
‘Group’) are to responsibly optimise production, leverage existing infrastructure, deliver a strong decommissioning
The Group’s financial statements for the year ended 31 December 2023 were authorised for issue in accordance with a
resolution of the Board of Directors on 27 March 2024.
The consolidated financial statements have been prepared in accordance with UK-adopted International Financial Reporting
Standards (‘IFRS’) 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 2023.
The Group financial information has been prepared on a 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.
In recent years, given the prevailing macroeconomic and fiscal environment, the Group has prioritised deleverage - reducing
gross debt (excluding leases) by c.$1.4 billion since 2017 to $794.5 million at 31 December 2023. During 2023, EnQuest net debt
was reduced by $236.2 million (to $480.9 million) and the Group strengthened its net debt to adjusted EBITDA ratio to 0.6x,
close to EnQuest’s target of 0.5x. In this 12-month period, cash and available facilities increased by $149.9 million, to $498.8
million at 31 December 2023, and medium-term liquidity is secured, with all the Group’s debt maturities now in 2027.
Against this robust backdrop, EnQuest continues to closely monitor and manage 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.
The Group’s latest approved business plan underpins management’s base case (‘Base Case’) and is in line with the Group’s
production guidance using oil price assumptions of $80.0/bbl for 2024 and $75.0/bbl for 2025.
A reverse stress test has been performed on the Base Case indicating that an average oil price of c.$63.0/bbl over the going
concern period maintains covenant compliance, reflecting the Group’s strong liquidity position.
The Base Case has also been subjected to further testing through a scenario reflecting the impact of the following
plausible downside risks (the ‘Downside Case’):
•
10% discount to Base Case prices resulting in Downside Case prices of $72.0/bbl for 2024 and $67.5/bbl for 2025;
• Production risking of 5.0%; and
•
2.5% increase in operating, capital and decommissioning expenditure.
The Base Case and Downside Case indicate 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.
After making appropriate enquiries and assessing the progress against the forecast and projections, the Directors have a
reasonable expectation that the Group will continue in operation and meet its commitments as they fall due over the going
New standards and interpretations
The following new standards became applicable for the current reporting period. No material impact was recognised
upon application:
• Insurance contracts (IFRS 17)
•
Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2)
•
Definition of Accounting Estimates (Amendments to IAS 8)
•
Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12)
•
International Tax reform – Pillar Two Model Rules (Amendments to IAS 12)
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 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 |
Amendments to IAS 1 | Non-current Liabilities with Covenants |
Amendments to IAS 7 and IFRS 7 | Supplier Finance Arrangements |
Amendments to IFRS 16 | Lease Liability in a Sale and Leaseback |
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 flows
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 2023, the Group did not have any material interests in joint ventures or in associates as defined
continued
Notes to the Group Financial Statements
For the year ended 31 December 2023
144
Financial Statements
Annual Report and Accounts 2023
EnQuest PLC –
145
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 determined. All foreign
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 of assets and liabilities
Climate change and energy transition
As covered in the Group’s principal risks on oil and gas prices on page 52, 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 within the next financial year 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.
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, cost profile changes including
those related to emission reduction initiatives such as alternative fuel provision at Kraken, 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. Such estimates reflect management’s best estimate of the
related cash flows based on management’s plans for the assets and their future development.
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, life of field production profiles, 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 2023 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 2023, the post-tax discount
rate was estimated at 11.0% (2022: 11.0%) with the effect of the Group’s reduced debt position offset by the impact of the
general increase in interest rates.
Oil prices
The price assumptions used for FVLCD impairment testing were based on latest internal forecasts as at 31 December 2023,
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, the Audit Committee and the Board of Directors.
EnQuest revised its oil price assumptions for FVLCD impairment testing compared to those used in 2022. The Group’s long-term
price assumption was increased to better align with external forecasts. 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 on Climate-related Financial Disclosures report on pages 66 to 75.
Discounts or premiums are applied to price assumptions based on the characteristics of the oil produced and the terms
of the relevant sales contracts.
An inflation rate of 2% (2022: 2%) is applied from 2027 onwards to determine the price assumptions in nominal terms (see
table below). The price assumptions used in 2022 were $84.0/bbl (2023), $80.0/bbl (2024), $75.0/bbl (2025) and $70.0/bbl real
thereafter, inflated at 2.0% per annum from 2026.
2024 | 2025 | 2026 | 2027>* | |
Brent oil ($/bbl) | 80 | 80 | 75 | 77 |
* Inflated at 2% from 2027
continued
Notes to the Group Financial Statements
For the year ended 31 December 2023
146
Financial Statements
Annual Report and Accounts 2023
EnQuest PLC –
147
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 24) 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, which it believes to be a reasonably possible change given the prevailing macroeconomic environment.
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 $224.1 million, which is approximately 10% of the net book value of property,
plant and equipment as at 31 December 2023.
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 of 11% 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
2023 would have been approximately $51.3 million higher. If the discount rate was one percentage point lower, the net
impairment charge would have been approximately $56.0 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 (2022:
$134.4 million), principally relating to the acquistion of Magnus oil field. Sensitivities and additional information relating to
impairment testing of goodwill are provided in note 11.
The Group assesses the recoverability of its deferred tax assets at each period end. Sensitivities and additional information
75% Magnus acquisition contingent consideration
Estimates:
Following the rising interest rate environment seen in 2023, the Group reassessed the fair value discount rate
associated with the Magnus contingent consideration. This was estimated to be 11.3% as at the end of 2023 (2022: 10.0%), 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 rate used in discounting the cash flows is reviewed half-yearly. The nominal discount rate used to determine the balance
sheet obligations at the end of 2023 was 3.5% (2022: 3.5%), reflecting the wider interest rate environment. 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 at 2.5% for 2024 and a long-term inflation rate of 2% thereafter
(2022: 4% (2023), 3% (2024) and a long-term inflation rate of 2% thereafter) 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 one percentage point decrease in the nominal discount rate applied, which is considered a reasonably
possible change given the prevailing macroeconomic environment, could increase the Group’s provision balances by
approximately $68.0 million (2022: $54.0 million). The pre-tax impact on the Group income statement would be a charge of
approximately $67.1 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 have not reached
continued
Notes to the Group Financial Statements
For the year ended 31 December 2023
148
Financial Statements
Annual Report and Accounts 2023
EnQuest PLC –
149
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 2023, 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 2023. The North Sea’s activities include Upstream, Midstream,
Decommissioning and Veri Energy. Veri Energy is not considered a separate operating segment as it does not yet earn
revenues and does not yet have material capital and resources. Malaysia’s activities include Upstream and
Decommissioning. 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 paragraph 23.
Adjustments | ||||||
Year ended 31 December 2023 | All other | Total | and | |||
$’000 | North Sea | Malaysia | segments | segments | eliminations (i), (ii) | Consolidated |
Revenue and other operating income: | ||||||
Revenue from contracts with customers | 1,325,200 | 142,510 | – | 1,467,710 | – | 1,467,710 |
Other operating income/(expense) | 2,229 | – | 281 | 2,510 | 17,199 | 19,709 |
Total revenue and other operating | ||||||
income/(expense) | 1,327,429 | 142,510 | 281 | 1,470,220 | 17,199 | 1,487,419 |
Income/(expenses) line items: | ||||||
Depreciation and depletion | (278,280) | (19,923) | (105) (298,308) | – | (298,308) | |
Net impairment (charge)/reversal to oil and | ||||||
gas assets | (117,396) | – | – | (117,396) | – | (117,396) |
Exploration write-off and impairments | – | (5,640) | – | (5,640) | – | (5,640) |
Segment profit/(loss) (ii) | 389,355 | 46,192 | 4,474 | 440,021 | 16,206 | 456,227 |
Other disclosures: | ||||||
Capital expenditure (iii) | 149,093 | 11,817 | 12 | 160,922 | – | 160,922 |
Adjustments | ||||||
Year ended 31 December 2022 | All other | Total | and | |||
$’000 | North Sea | Malaysia | segments | segments | eliminations (i), (ii) | Consolidated |
Revenue and other operating income: | ||||||
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 |
(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
Reconciliation of profit/(loss):
Year ended | Year ended | |
31 December | 31 December | |
2023 | 2022 | |
$’000 | $’000 | |
Segment profit/(loss) before tax and finance income/(costs) | 440,021 | 611,471 |
Finance costs | (230,941) | (212,637) |
Finance income | 6,493 | 3,964 |
Gain/(loss) on oil and foreign exchange derivatives (i) | 16,206 | (199,584) |
Profit/(loss) before tax | 231,779 | 203,214 |
(i) Includes $8.4 million realised losses on derivatives (2022: $209.2 million) and $24.6 million unrealised gains on derivatives (2022: $9.6 million)
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 $491.2 million and $201.3 million per each single customer
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
Impairments | ||||
Year ended 31 December 2023 | Fair value | and | ||
$’000 | remeasurement (i) | write-offs (ii) | Other (iii) | Total |
Revenue and other operating income | 28,463 | – | – | 28,463 |
Cost of sales | (3,832) | – | (1,818) | (5,650) |
Net impairment (charge)/reversal on oil and gas assets | – | (117,396) | – | (117,396) |
Other income | 69,665 | – | 9,319 | 78,984 |
Other expense | – | (5,640) | (5,091) | (10,731) |
Finance costs | – | – | (58,854) | (58,854) |
94,296 | (123,036) | (56,444) | (85,184) | |
Corporation tax on items above | (37,788) | 181 | 21,790 | (15,817) |
UK Energy Profits Levy (v) | (38,560) | 22,518 | 56,997 | 40,955 |
17,948 | (100,337) | 22,343 | (60,046) |
continued
Notes to the Group Financial Statements
For the year ended 31 December 2023
150
Financial Statements
Annual Report and Accounts 2023
EnQuest PLC –
151
Year ended 31 December 2022 | Fair value | Impairments | ||
$’000 | remeasurement (i) | 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 expenses | (233,570) | – | – | (233,570) |
Finance costs | – | – | (36,410) | (36,410) |
Finance income | – | – | 2,148 | 2,148 |
(222,925) | (81,049) | (27,626) | (331,600) | |
Corporation tax on items above | 89,599 | 32,420 | 7,817 | 129,836 |
Recognition of undiscounted deferred tax asset (iv) | – | 127,024 | – | 127,024 |
UK Energy Profits Levy (v) | – | – | (178,840) | (178,840) |
(133,326) | 78,395 | (198,649) | (253,581) |
(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 $24.6 million (2022: $9.6 million). Other
income relates to the fair value remeasurement of contingent consideration relating to the acquisition of Magnus and associated infrastructure of $69.7 million
(note 22) (2022: net other expense of $232.5 million)
(ii) Impairments and write-offs include a net impairment charge of tangible oil and gas assets and right-of-use assets totalling $117.4 million (note 10) (2022: charge
of $81.0 million) and write-off of exploration costs in Malaysia of $5.6 million (2022: nil)
(iii)
Other items are made up of the following: other costs of sales includes $1.8 million related to an increase in a provision for a dispute with a third-party
contractor (2022: nil). Other net income primarily includes $4.1 million recognition of insurance income related to the PM8/Seligi riser incident (2022: $6.6 million)
and $0.1 million movement in other provisions (2022: nil). Finance costs relates to the finance cost element of the 75% acquisition of Magnus and associated
infrastructure of $58.9 million (note 22) (2022: $36.4 million). In 2022, finance income of $2.1 million 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 is due to the Group’s higher oil price assumptions
(v)In 2022, UK Energy Profits Levy (‘EPL’) represented the charge on initial recognition. In 2023, the related assumptions were refined, resulting in a credit of $32.7 million
(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 normal credit
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 operating revenue is recognised to the extent that it is probable economic benefits will flow to the Group and the
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 | Year ended | |
31 December | 31 December | |
2023 | 2022 | |
$’000 | $’000 | |
Revenue from contracts with customers: | ||
Revenue from crude oil sales | 1,127,419 | 1,517,666 |
Revenue from gas and condensate sales (i) | 338,973 | 514,206 |
Tariff revenue | 1,318 | 920 |
Total revenue from contracts with customers | 1,467,710 | 2,032,792 |
Realised gains/(losses) on oil derivative contracts (see note 19) | (11,264) | (203,741) |
Other | 2,510 | 10,096 |
Business performance revenue and other operating income | 1,458,956 | 1,839,147 |
Unrealised gains/(losses) on oil derivative contracts (ii) (see note 19) | 28,463 | 14,475 |
Total revenue and other operating income | 1,487,419 | 1,853,622 |
(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 | Year ended | |||||
31 December 2023 | 31 December 2022 | |||||
$’000 | $’000 | |||||
North Sea | Malaysia | Total | North Sea | Malaysia | Total | |
Revenue from contracts with customers: | ||||||
Revenue from crude oil sales | 987,610 | 139,809 | 1,127,419 | 1,360,228 | 157,438 | 1,517,666 |
Revenue from gas and condensate sales (i) | 336,902 | 2,071 | 338,973 | 512,066 | 2,140 | 514,206 |
Tariff revenue | 689 | 629 | 1,318 | 920 | – | 920 |
Total revenue from contracts with customers | 1,325,201 | 142,509 | 1,467,710 | 1,873,214 | 159,578 | 2,032,792 |
(i) Includes onward sale of third-party gas purchases not required for injection activities at Magnus (see note 5(b))
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 (‘NRV’),
consistent with IAS 2, to represent a right to additional physical inventory. An under-lift of production from a field is included in
Year ended | Year ended | |
31 December | 31 December | |
2023 | 2022 | |
$’000 | $’000 | |
Production costs | 308,331 | 347,832 |
Tariff and transportation expenses | 41,736 | 43,266 |
Realised (gain)/loss on derivative contracts related to operating costs (see note 19) | (2,839) | 5,418 |
Change in lifting position | (2,669) | (18,790) |
Crude oil inventory movement | (1,575) | 3,222 |
Depletion of oil and gas assets (i) | 292,199 | 327,027 |
Other cost of operations (ii) | 305,919 | 487,831 |
Business performance cost of sales | 941,102 | 1,195,806 |
Unrealised losses/(gains) on derivative contracts related to operating costs (iii) (see note 19) | 3,832 | 4,900 |
Movement in contractor dispute provision (see note 23) | 1,818 | – |
Total cost of sales | 946,752 | 1,200,706 |
(i) Includes $28.6 million (2022: $38.7 million) Kraken FPSO right-of-use asset depreciation charge and $24.0 million (2022: $15.8 million) of other right-of-use assets
depreciation charge
(ii) Includes $294.0 million (2022: $452.8 million) of purchases and associated costs of third-party gas not required for injection activities at Magnus which is sold on
(iii)
continued
Notes to the Group Financial Statements
For the year ended 31 December 2023
152
Financial Statements
Annual Report and Accounts 2023
EnQuest PLC –
153
Year ended | Year ended | |
31 December | 31 December | |
2023 | 2022 | |
$’000 | $’000 | |
Staff costs (see note 5(f)) | 77,517 | 75,266 |
Depreciation (i) | 6,109 | 6,222 |
Other general and administration costs | 25,490 | 21,740 |
Recharge of costs to operations and joint venture partners | (102,768) | (95,675) |
Total general and administration expenses | 6,348 | 7,553 |
Year ended | Year ended | |
31 December | 31 December | |
2023 | 2022 | |
$’000 | $’000 | |
Net foreign exchange gains | – | 21,329 |
Change in decommissioning provisions (see note 23) | – | 36,763 |
Change in Thistle decommissioning provisions (see note 23) | – | 6,060 |
Rental income from office sublease | 2,286 | 1,549 |
Other | 15,611 | 10,546 |
Business performance other income | 17,897 | 76,247 |
Fair value changes in contingent consideration (see note 22) | 69,665 | 1,070 |
Other non-business performance (see note 4) | 9,319 | 6,636 |
Total other income | 96,881 | 83,953 |
Year ended | Year ended | |
31 December | 31 December | |
2023 | 2022 | |
$’000 | $’000 | |
Net foreign exchange losses | 11,659 | – |
Change in decommissioning provisions (see note 23) | 31,159 | – |
Change in Thistle decommissioning provisions (see note 23) | 1,605 | – |
Other | 2,423 | 2,810 |
Business performance other expenses | 46,846 | 2,810 |
Fair value changes in contingent consideration (see note 22) | – | 233,570 |
Other non-business performance (see note 4) | 10,731 | – |
Total other expenses | 57,577 | 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 | Year ended | |
31 December | 31 December | |
2023 | 2022 | |
$’000 | $’000 | |
Wages and salaries | 63,458 | 63,430 |
Social security costs | 5,457 | 6,547 |
Defined contribution pension costs | 5,038 | 4,968 |
Expense of share-based payments (see note 21) | 3,320 | 4,719 |
Other staff costs | 11,079 | 12,984 |
Total employee costs | 88,352 | 92,648 |
Contractor costs | 38,304 | 33,661 |
Total staff costs | 126,656 | 126,309 |
General and administration staff costs (see note 5(c)) | 77,517 | 75,266 |
Non-general and administration costs | 49,139 | 51,043 |
Total staff costs | 126,656 | 126,309 |
The monthly average number of persons, excluding contractors, employed by the Group during the year was 697, with 343 in
the general and administration staff costs and 354 directly attributable to assets (2022: 715 of which 335 in general and
administration and 380 directly attributable to assets). Compensation of key management personnel is disclosed in note 26
The following amounts for the year ended 31 December 2023 and for the comparative year ended 31 December 2022 were
payable by the Group to Deloitte:
Year ended | Year ended | |
31 December | 31 December | |
2023 | 2022 | |
$’000 | $’000 | |
Fees payable to the Company’s auditor for the audit of the parent company and | ||
Group financial statements | 1,239 | 1,064 |
The audit of the Company’s subsidiaries | 177 | 274 |
Total audit | 1,416 | 1,338 |
Audit-related assurance services (i) | 314 | 649 |
Total audit and audit-related assurance services | 1,730 | 1,987 |
Total auditor’s remuneration | 1,730 | 1,987 |
continued
Notes to the Group Financial Statements
For the year ended 31 December 2023
154
Financial Statements
Annual Report and Accounts 2023
EnQuest PLC –
155
Year ended | Year ended | |
31 December | 31 December | |
2023 | 2022 | |
$’000 | $’000 | |
Finance costs: | ||
Loan interest payable | 30,708 | 14,906 |
Bond interest payable | 58,999 | 62,260 |
Unwinding of discount on decommissioning provisions (see note 23) | 24,236 | 16,995 |
Unwinding of discount on other provisions (see note 23) | 1,145 | 777 |
Finance charges payable under leases (see note 24) | 43,801 | 39,172 |
Amortisation of finance fees on loans and bonds | 7,899 | 35,287 |
Other financial expenses (i) | 5,299 | 6,830 |
Business performance finance expenses | 172,087 | 176,227 |
Unwinding of discount on Magnus-related contingent consideration (see note 22) | 58,854 | 36,410 |
Total finance costs | 230,941 | 212,637 |
Finance income: | ||
Bank interest receivable | 6,493 | 1,816 |
Business performance finance income | 6,493 | 1,816 |
Other financial income (see note 4) | – | 2,148 |
Total finance income | 6,493 | 3,964 |
(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.
amounts in the Group financial statements. However, deferred tax is not accounted for if a temporary difference arises from
initial recognition of other assets or liabilities 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 income
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
Energy Profits Levy
The Energy (Oil & Gas) Profits Levy Act 2022 (‘EPL’) applies an additional tax on the profits earned by oil and gas companies
from the production of oil and gas on the United Kingdom Continental Shelf until 31 March 2028 (see note 7(e) for extension to
31 March 2029). This 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 UK companies.
The major components of income tax expense/(credit) are as follows:
Year ended | Year ended | |
31 December | 31 December | |
2023 | 2022 | |
$’000 | $’000 | |
Current UK income tax | ||
Current income tax charge | – | – |
Adjustments in respect of current income tax of previous years | (14) | (243) |
Current overseas income tax | ||
Current income tax charge | 24,685 | 19,017 |
Adjustments in respect of current income tax of previous years | (2,567) | (6,551) |
UK Energy Profits Levy | ||
Current year charge | 175,118 | 72,147 |
Adjustments in respect of current charge of previous years | (11,605) | – |
Total current income tax | 185,617 | 84,370 |
Deferred UK income tax | ||
Relating to origination and reversal of temporary differences | 160,712 | 1,784 |
Adjustments in respect of changes in tax rates | – | 45 |
Adjustments in respect of deferred income tax of previous years | 4,974 | (4,668) |
Deferred overseas income tax | ||
Relating to origination and reversal of temporary differences | (3,761) | 6,884 |
Adjustments in respect of deferred income tax of previous years | 1,430 | 2,363 |
Deferred UK Energy Profits Levy | ||
Relating to origination and reversal of temporary differences | (58,661) | 153,670 |
Adjustments in respect of deferred charge of previous years | (27,699) | – |
Total deferred income tax | 76,995 | 160,078 |
Income tax expense reported in profit or loss | 262,612 | 244,448 |
continued
Notes to the Group Financial Statements
For the year ended 31 December 2023
156
Financial Statements
Annual Report and Accounts 2023
EnQuest PLC –
157
(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 | Year ended | |
31 December | 31 December | |
2023 | 2022 | |
$’000 | $’000 | |
Profit/(loss) before tax | 231,779 | 203,214 |
UK statutory tax rate applying to North Sea oil and gas activities of 40% (2022: 40%) | 92,712 | 81,284 |
Supplementary corporation tax non-deductible expenditure | 10,580 | 11,486 |
Non-deductible expenditure (i) | 69,494 | 47,951 |
Petroleum revenue tax (net of income tax benefit) | (8,200) | – |
Tax in respect of non-ring-fence trade | 7,418 | 8,892 |
Deferred tax asset impairment in respect of non-ring-fence trade | 11,696 | 8,563 |
Deferred tax asset recognition in respect of ring-fence trade | – | (127,022) |
UK Energy Profits Levy (ii) | 116,457 | 225,817 |
Adjustments in respect of prior years | (35,481) | (9,098) |
Overseas tax rate differences | (1,114) | (1,264) |
Share-based payments | (90) | (1,345) |
Other differences | (860) | (816) |
At the effective income tax rate of 113% (2022: 120%) | 262,612 | 244,448 |
(i) Predominantly in relation to non-qualifying expenditure relating to the initial recognition exemption utilised under IAS 12 upon acquisition of Golden Eagle given
that at the time of the transaction, it affected neither accounting profit nor taxable profit
(ii) Includes current EPL charge of $175.1 million (2022: $72.1 million charge) and deferred EPL credit of $58.7 million (2022: $153.7 million charge)
Deferred income tax relates to the following:
Group balance sheet | Charge/(credit) for the year | |||
recognised in profit or loss | ||||
2023 | 2022 | 2023 | 2022 | |
$’000 | $’000 | $’000 | $’000 | |
Deferred tax liability | ||||
Accelerated capital allowances | 877,800 | 963,816 | (86,015) | 195,185 |
877,800 | 963,816 | |||
Deferred tax asset | ||||
Losses | (695,888) | (902,101) | 206,213 | 114,996 |
Decommissioning liability | (265,800) | (238,624) | (27,176) | 47,421 |
Other temporary differences | (378,592) | (362,565) | (16,027) | (197,524) |
(1,340,280) | (1,503,290) | 76,995 | 160,078 | |
Net deferred tax (assets) | (462,479) | (539,474) | ||
Reflected in the balance sheet as follows: | ||||
Deferred tax assets | (540,122) | (705,808) | ||
Deferred tax liabilities | 77,643 | 166,334 | ||
Net deferred tax (assets) | (462,479) | (539,474) | ||
Reconciliation of net deferred tax assets/(liabilities)
2023 | 2022 | |
$’000 | $’000 | |
At 1 January | 539,474 | 699,552 |
Tax expense during the period recognised in profit or loss | (76,995) | (160,078) |
At 31 December | 462,479 | 539,474 |
(d) Tax losses
The Group’s deferred tax assets at 31 December 2023 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. 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 $62.5 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 $442.1 million (2022: $389.7 million) and ring-fence tax losses
of $1,163.0 million (2022: $1,163.0 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 $8.5
million (2022: $10.7 million) remaining unrecognised.
The Group has unused Malaysian income tax losses of $14.3 million (2022: $14.3 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
Finance Act 2001 amended the mainstream corporation tax rate to 25% from 1 April 2023. The change had no impact in the
current year as UK mainstream corporation tax losses are not recognised.
In the Autumn Statement on 22 November 2023, the UK Government confirmed that it will bring in legislation for the Energy
Security Investment Mechanism and has agreed to index link the trigger floor price to the CPI from April 2024. The
Government also announced that once the decarbonisation allowance of 80% against EPL is withdrawn in March 2028, it will
replace this with a new allowance at the same effective rate against the permanent tax regime. In March 2024, the UK
Government announced that the sunset clause for EPL would be extended by a year to 31 March 2029, the impact on the
current year financial statements would be an increase in the tax charge and deferred tax for EPL by $44.6 million. The Group
will continue to monitor developments and any potential related impacts.
The UK has introduced legislation implementing the Organisation for Economic Co-operation and Development’s (‘OECD’)
proposals for a global minimum corporation tax rate (Pillar Two) which is effective for periods beginning on or after
31 December 2023. This legislation will ensure that profits earned internationally are subject to a minimum tax rate of 15%. The
Group has performed an assessment of the potential exposure to Pillar Two income taxes from 1 January 2024 and as the
only material overseas jurisdiction in which the Group operates is Malaysia, which is subject to a tax rate of 38%, the Group
does not expect a material exposure to Pillar Two income taxes in any jurisdictions. The Group has applied the mandatory
exception to recognising and disclosing information about the deferred tax assets and liabilities related to Pillar Two income
taxes in accordance with the amendments to IAS 12 published by the International Accounting Standards Board (‘IASB’) on
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) | Weighted average number | Earnings | ||||
after tax | of Ordinary shares | per share | ||||
Year ended 31 December | Year ended 31 December | Year ended 31 December | ||||
2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |
$’000 | $’000 | million | million | $ | $ | |
Basic | (30,833) | (41,234) | 1,871.9 | 1,855.0 | (0.016) | (0.022) |
Dilutive potential of Ordinary shares granted | ||||||
under share-based incentive schemes | – | – | 4.9 | 39.2 | – | – |
Diluted (i) | (30,833) | (41,234) | 1,876.8 | 1,894.2 | (0.016) | (0.022) |
Basic (excluding remeasurements and | ||||||
exceptional items) | 29,213 | 212,346 | 1,871.9 | 1,855.0 | 0.016 | 0.114 |
Diluted (excluding remeasurements and | ||||||
exceptional items) (i) | 29,213 | 212,346 | 1,876.8 | 1,894.2 | 0.016 | 0.112 |
continued
Notes to the Group Financial Statements
For the year ended 31 December 2023
158
Financial Statements
Annual Report and Accounts 2023
EnQuest PLC –
159
The Company paid no dividends during the year ended 31 December 2023 (2022: none). At 31 December 2023, there are no
proposed dividends (2022: none). The Board of Directors of EnQuest PLC are proposing making a $15.0 million share buy back,
to be executed during 2024. The distribution will be below the limit granted at the 2023 Annual General Meeting allowing the
Property, plant and equipment is stated at cost less accumulated depreciation and accumulated impairment charges.
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
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 until
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 each
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 loss is
Office | ||||
furniture, | Right-of- | |||
Oil and gas | fixtures and | use assets | ||
assets | fittings | (note 24) | Total | |
$’000 | $’000 | $’000 | $’000 | |
Cost: | ||||
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 | (75,917) | – | – | (75,917) |
Disposal | – | – | (19,428) | (19,428) |
At 1 January 2023 | 9,037,851 | 67,321 | 876,859 | 9,982,031 |
Additions | 120,820 | 1,257 | 28,378 | 150,455 |
Change in decommissioning provision (note 23) | 53,333 | – | – | 53,333 |
Disposal | – | – | (243) | (243) |
Reclassification from intangible assets (note 12) | 31,803 | – | – | 31,803 |
At 31 December 2023 | 9,243,807 | 68,578 | 904,994 | 10,217,379 |
Accumulated depreciation, depletion and impairment: | ||||
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 1 January 2023 | 7,000,950 | 56,625 | 447,481 | 7,505,056 |
Charge for the year | 239,640 | 2,689 | 55,979 | 298,308 |
Net impairment charge/(reversal) for the year | 123,473 | – | (6,077) | 117,396 |
Disposal | – | – | (121) | (121) |
At 31 December 2023 | 7,364,063 | 59,314 | 497,262 | 7,920,639 |
Net carrying amount: | ||||
At 31 December 2023 | 1,879,744 | 9,264 | 407,732 | 2,296,740 |
At 31 December 2022 | 2,036,901 | 10,696 | 429,378 2,476,975 | |
At 1 January 2022 | 2,347,049 | 11,556 | 463,393 | 2,821,998 |
The amount of borrowing costs capitalised during the year ended 31 December 2023 was nil (2022: nil), reflecting the
short-term nature of the Group’s capital expenditure programmes.
Impairments to the Group’s producing assets and reversals of impairments are set out in the table below:
Impairment | ||||
reversal/(charge) | Recoverable amount (i) | |||
Year ended | Year ended | |||
31 December | 31 December | 31 December | 31 December | |
2023 | 2022 | 2023 | 2022 | |
$’000 | $’000 | $’000 | $’000 | |
North Sea | (117,396) | (81,049) | 1,323,009 | 1,448,391 |
Net pre-tax impairment reversal/(charge) | (117,396) | (81,049) | ||
(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, along with sensitivity analysis,
see Use of judgements, estimates and assumptions: recoverability of asset carrying values within note 2.
The 2023 net impairment charge of $117.4 million relates to producing assets in the UK North Sea. Impairment charges/
reversals were primarily driven by changes in production and cost profile updates on non-operated assets, partially offset by
higher forecast oil prices. The 2022 net impairment charge was primarily driven by the introduction of EPL, changes in
continued
Notes to the Group Financial Statements
For the year ended 31 December 2023
160
Financial Statements
Annual Report and Accounts 2023
EnQuest PLC –
161
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
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:
2023 | 2022 | |
$’000 | $’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 relates to the 75% acquisition of the Magnus oil field and associated interests. The remaining
balance relates to the acquisition of the GKA and Scolty Crathes fields.
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 2023 (2022: nil) based on a fair value less costs to
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 assumptions, 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 (2022: 10% reduction would not result in an impairment charge). A 20% reduction in oil price would fully impair goodwill
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
During the year ended 31 December 2023, there was no impairment of historical exploration and appraisal expenditures
(2022: nil), although $31.8 million of intangible assets associated with the Kraken field were transferred to property, plant and
equipment, reflecting updated drilling plans following assessment of previous seismic survey information. During 2023,
Malaysia drilled an exploration well on the PM409 licence. The results indicated that there were no commercial prospects
and as a result costs of $5.6 million have been written off through the income statement.
Other intangibles
UK emissions allowances (‘UKAs’) purchased to settle the Group’s liability related to emissions are recognised on the balance
Exploration and | |||
appraisal | UK emissions | ||
assets | allowances | Total | |
$’000 | $’000 | $’000 | |
Cost : | |||
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 1 January 2023 | 154,937 | 1,199 | 156,136 |
Additions | 10,467 | 876 | 11,343 |
Write-off of relinquished licences previously impaired | (485) | – | (485) |
Write-off of unsuccessful exploration expenditure | (5,640) | – | (5,640) |
Transfer to property, plant and equipment (note 10) | (31,803) | – | (31,803) |
Disposal | – | (1,199) | (1,199) |
At 31 December 2023 | 127,476 | 876 | 128,352 |
Accumulated impairment: | |||
At 1 January 2022 | (134,766) | – | (134,766) |
Write-off of relinquished licences previously impaired | 25,128 | – | 25,128 |
At 1 January 2023 | (109,638) | – | (109,638) |
Write-off of relinquished licences previously impaired | 485 | – | 485 |
At 31 December 2023 | (109,153) | – | (109,153) |
Net carrying amount: | |||
At 31 December 2023 | 18,323 | 876 | 19,199 |
At 31 December 2022 | 45,299 | 1,199 | 46,498 |
At 1 January 2022 | 37,615 | 10,052 | 47,667 |
continued
Notes to the Group Financial Statements
For the year ended 31 December 2023
162
Financial Statements
Annual Report and Accounts 2023
EnQuest PLC –
163
Inventories of consumable well supplies and inventories of hydrocarbons are stated at the lower of cost and NRV, cost being
2023 | 2022 | |
$’000 | $’000 | |
Hydrocarbon inventories | 21,189 | 19,613 |
Well supplies | 63,608 | 56,805 |
84,797 | 76,418 |
During 2023, a net gain of $2.2 million was recognised within cost of sales in the Group income statement relating to inventory
(2022: net loss of $4.0 million). The $8.4 million increase in well supplies was primarily driven by increased drilling activities.
The inventory valuation at 31 December 2023 is stated net of a provision of $36.3 million (2022: $38.9 million) to write-down
well supplies to their estimated net realisable value.
Cash and cash equivalents includes cash at bank, cash in hand, outstanding bank overdrafts and highly liquid interest-
2023 | 2022 | |
$’000 | $’000 | |
Available cash | 313,028 | 293,866 |
Restricted cash | 544 | 7,745 |
Cash and cash equivalents | 313,572 | 301,611 |
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 2023 is restricted cash of $0.5 million placed on deposit in relation to bank
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 the
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 loss allowance 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 one year
Financial liabilities are classified, at initial recognition, as amortised cost or at FVPL.
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 28. 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.
Financial assets with cash flows that are not solely payments of principal and interest are classified and measured at FVPL,
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 of
continued
Notes to the Group Financial Statements
For the year ended 31 December 2023
164
Financial Statements
Annual Report and Accounts 2023
EnQuest PLC –
165
The following table provides the fair value measurement hierarchy of the Group’s assets and liabilities:
Quoted | ||||||
prices in | Significant | Significant | ||||
active | observable | unobservable | ||||
Amortised | markets | inputs | inputs | |||
Total | cost | (Level 1) | (Level 2) | (Level 3) | ||
31 December 2023 | Notes | $’000 | $’000 | $’000 | $’000 | $’000 |
Financial assets measured at fair value: | ||||||
Derivative financial assets measured at FVPL | ||||||
Gas commodity contracts | 19(a) | 4,499 | – | – | 4,499 | – |
Other financial assets measured at FVPL | ||||||
Quoted equity shares | 6 | – | 6 | – | – | |
Total financial assets measured at fair value | 4,505 | – | 6 | 4,499 | – | |
Financial assets measured at amortised cost: | ||||||
Vendor financing facility | 19(f) | 145,103 | 145,103 | – | – | – |
Total financial assets measured at amortised cost (ii) | 145,103 | 145,103 | – | – | – | |
Liabilities measured at fair value: | ||||||
Derivative financial liabilities measured at FVPL | ||||||
Oil commodity derivative contracts | 19(a) | 18,418 | – | – | 18,418 | – |
Forward UKA contracts | 19(a) | 8,261 | – | – | 8,261 | – |
Other financial liabilities measured at FVPL | ||||||
Contingent consideration | 22 | 507,796 | – | – | – | 507,796 |
Total liabilities measured at fair value | 534,475 | – | – | 26,679 | 507,796 | |
Liabilities measured at amortised cost: | ||||||
Interest-bearing loans and borrowings (ii) | 18(a) | 319,784 | 319,784 | – | – | – |
Retail bond 9.00% | 18(b) | 158,683 | – | 158,683 | – | – |
High yield bond 11.625% | 18(b) | 292,419 | – | 292,419 | – | – |
Total liabilities measured at amortised cost (i) | 770,886 | 319,784 | 451,102 | – | – |
(i) Excludes related fees
(ii) Amortised cost is a reasonable approximation of the fair value
Quoted | ||||||
prices in | Significant | Significant | ||||
active | observable | unobservable | ||||
Amortised | markets | inputs | inputs | |||
Total | cost | (Level 1) | (Level 2) | (Level 3) | ||
31 December 2022 | Notes | $’000 | $’000 | $’000 | $’000 | $’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(a) | 46,537 | – | – | 46,537 | – |
Forward UKA contracts | 19(a) | 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: | ||||||
Interest-bearing loans and borrowings (ii) | 18(a) | 417,967 | 417,967 | – | – | – |
Retail bond 7.00% | 18(b) | 133,535 | – | 133,535 | – | – |
Retail bond 9.00% | 18(b) | 153,754 | – | 153,754 | – | – |
High yield bond 11.625% | 18(b) | 297,528 | – | 297,528 | – | – |
Total liabilities measured at amortised cost (i) | 1,002,784 | 417,967 | 584,817 | – | – |
(i) Excludes related fees
(ii) Amortised cost is a reasonable approximation of the fair value
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. prices) or indirectly (i.e. derived from prices) observable; and
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,
details of which and a reconciliation of movements are disclosed in note 22. There have been no transfers between Level 1
and Level 2 during the period (2022: no transfers).
For the financial assets and 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, while interest-bearing
loans and borrowings and the vendor financing facility were calculated at amortised cost using the effective interest method
continued
Notes to the Group Financial Statements
For the year ended 31 December 2023
166
Financial Statements
Annual Report and Accounts 2023
EnQuest PLC –
167
2023 | 2022 | |
$’000 | $’000 | |
Current | ||
Trade receivables | 31,905 | 69,508 |
Joint venture receivables | 79,036 | 95,854 |
Under-lift position | 22,309 | 26,474 |
VAT receivable | 3,314 | – |
Other receivables | 3,715 | 4,141 |
Prepayments | 2,781 | 1,271 |
Accrued income | 82,426 | 79,115 |
225,486 | 276,363 |
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
2023 | 2022 | |
$’000 | $’000 | |
Current | ||
Trade payables | 75,981 | 82,897 |
Accrued expenses | 228,664 | 300,317 |
Over-lift position | 18,824 | 25,658 |
Joint venture creditors | 20,262 | 11,957 |
VAT payable | – | 5,282 |
Other payables | 3,678 | 536 |
Total Current | 347,409 | 426,647 |
Non-current | ||
Joint venture creditors | 32,917 | – |
Total Non-current | 32,917 | – |
The carrying value of the Group’s current 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
accruals.
The carrying value of the Group’s non-current trade and other payables as stated above is considered to be a reasonable
approximation to their fair value as this is a specific bi-lateral agreement between counterparties with the liability
2023 | 2022 | |
$’000 | $’000 | |
Borrowings | 311,231 | 413,358 |
Bonds | 463,945 | 586,930 |
775,176 | 1,000,288 |
(a) Borrowings
The Group’s borrowings are carried at amortised cost as follows:
2023 | 2022 | |||||
Principal | Fees | Total | Principal | Fees | Total | |
$’000 | $’000 | $’000 | $’000 | $’000 | $’000 | |
RBL facility | 140,000 | (4,920) | 135,080 | 400,000 | (4,609) | 395,391 |
Term Loan facility | 150,000 | (3,633) | 146,367 | – | – | – |
SVT working capital facility | 29,784 | – | 29,784 | 12,275 | – | 12,275 |
Vendor loan facility | – | – | – | 5,692 | – | 5,692 |
Total borrowings | 319,784 | (8,553) | 311,231 | 417,967 | (4,609) | 413,358 |
Due within one year | 27,364 | 131,936 | ||||
Due after more than one year | 283,867 | 281,422 | ||||
Total borrowings | 311,231 | 413,358 | ||||
See liquidity risk – note 28 for the timing of cash outflows relating to loans and borrowings.
Reserve Based Lending (‘RBL’) 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 accrues at 4.00%
plus a combination of an agreed credit adjustment spread and Secured Overnight Financing Rate (‘SOFR’).
As at 31 December 2023, the carrying value of the facility was $135.1 million (2022: $395.4 million), comprising the principal of
$140.0 million out of accessible commitments of $309.0 million (2022: $400.0 million out of commitments of $500.0 million)
and unamortised fees of $4.9 million (2022: $4.6 million).
At 31 December 2023, $166.2 million (2022: $47.3 million) remained available for drawdown under the RBL.
At 31 December 2023, the Letter of Credit utilisation was $43.5 million (2022: $52.7 million).
By the end of February 2024, the Group had fully repaid the outstanding $140.0 million of its Reserve Based Lending Facility.
Term Loan facility
In August 2023, the Group agreed a second lien US Dollar Term Loan facility of $150.0 million. This facility, which was drawn
down in full in September 2023, matures in July 2027 and incurs interest at SOFR +7.90%. As at 31 December 2023, the carrying
amount of the facility was $146.4 million (2022: nil), comprising the principal of $150.0 million and unamortised fees of $3.6
million. See note 27.
SVT working capital facility
EnQuest has extended 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 until April 2024. Agreements to transfer the facility to a
replacement bank are expected to be executed in April 2024. 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 June 2023, the Group agreed an amended and restated facility with a third-party vendor providing capacity for refinancing
the payment of existing invoices up to an amount of £15.0 million, with interest payable monthly at a rate of 9.00% per annum.
At 31 December 2023, nil was drawn down on the facility and so this facility expired on 1 January 2024 in accordance with the
terms of the 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, £4.7 million was drawn down. This amount was fully repaid in May 2023. Interest
was payable monthly at a rate of 8.00% per annum.
continued
Notes to the Group Financial Statements
For the year ended 31 December 2023
168
Financial Statements
Annual Report and Accounts 2023
EnQuest PLC –
169
(b) Bonds
The Group’s bonds are carried at amortised cost as follows:
2023 | 2022 | |||||
Fees and | Fees and | |||||
Principal | discount | Total | Principal | discount | Total | |
$’000 | $’000 | $’000 | $’000 | $’000 | $’000 | |
High yield bond 11.625% | 305,000 | (10,724) | 294,276 | 305,000 | (13,815) | 291,185 |
Retail bond 7.00% | – | – | – | 134,544 | – | 134,544 |
Retail bond 9.00% | 169,669 | – | 169,669 | 161,201 | – | 161,201 |
Total | 474,669 | (10,724) | 463,945 | 600,745 | (13,815) | 586,930 |
Due within one year | – | 134,544 | ||||
Due after more than one year | 463,945 | 452,386 | ||||
Total | 463,945 | 586,930 |
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 2023 is $294.3 million (2022: $291.2 million). This includes bond
principal of $305.0 million (2022: $305.0 million) less the unamortised original issue discount (‘OID’) of $3.3 million (2022: $4.2
million) and unamortised fees of $7.4 million (2022: $9.6 million). The high yield bond does not include accrued interest of $5.8
million (2022: $6.5 million), which is reported within trade and other payables. The fair value of the high yield bond is disclosed
in note 15.
Retail bond 7.00%
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 an outstanding principal of £111.3 million. On 13 October 2023, the outstanding
principal of £111.3 million was repaid in full.
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 2023 is $169.7 million (2022: $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 $2.7
million (2022: $2.6 million), which is reported within trade and other payables. The fair value of the retail bond 9.00% is
(a) Summary as at year end
2023 | 2022 | ||||
Assets | Liabilities | Assets | Liabilities | ||
Notes | $’000 | $’000 | $’000 | $’000 | |
Fair value through profit or loss: | |||||
Derivative commodity contracts | 4,499 | 18,418 | 4,705 | 46,537 | |
Derivative UKA contracts | – | 8,261 | – | 4,429 | |
Amortised cost: | |||||
Other receivables (Vendor financing facility) (i) | 19(f), 25 | 108,827 | – | – | – |
Total current | 113,326 | 26,679 | 4,705 | 50,966 | |
Fair value through profit or loss: | |||||
Quoted equity shares | 6 | – | 6 | – | |
Amortised cost: | |||||
Other receivables (Vendor financing facility) | 19(f), 25 | 36,276 | – | – | – |
Total non-current | 36,282 | – | 6 | – | |
Total other financial assets and liabilities | 149,608 | 26,679 | 4,711 | 50,966 | |
(i) Repayment of $108.8 million was received in the first quarter of 2024 in accordance with the agreed payment schedule between EnQuest and RockRose
(b) Income statement impact
The income/(expense) recognised for derivatives are as follows:
Revenue and other | ||||
operating income | Cost of sales | |||
Realised | Unrealised | Realised | Unrealised | |
Year ended 31 December 2023 | $’000 | $’000 | $’000 | $’000 |
Commodity options | (21,463) | 19,148 | – | – |
Commodity swaps | 12,474 | 9,315 | – | – |
Commodity futures | (2,275) | – | – | – |
Foreign exchange contracts | – | – | 5,695 | – |
UKA contracts | – | – | (2,856) | (3,832) |
(11,264) | 28,463 | 2,839 | (3,832) | |
Revenue and other | ||||
operating income | Cost of sales | |||
Realised | Unrealised | Realised | Unrealised | |
Year ended 31 December 2022 | $’000 | $’000 | $’000 | $’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) | |
(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 2023, gains totalling $17.2 million (2022: losses of $189.3 million) were recognised in respect of
commodity contracts designated as FVPL. This included losses totalling $11.3 million (2022: losses of $203.7 million) realised on
contracts that matured during the year, and mark-to-market unrealised gains totalling $28.5 million (2022: gains of $14.5 million).
The mark-to-market value of the Group’s open commodity contracts as at 31 December 2023 was a net liability of $13.9
million (2022: net liability of $41.8 million).
continued
Notes to the Group Financial Statements
For the year ended 31 December 2023
170
Financial Statements
Annual Report and Accounts 2023
EnQuest PLC –
171
(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 2023, gains totalling $5.7 million (2022: losses of $5.4 million) were recognised in the Group income statement.
This included realised gains totalling $5.7 million (2022: losses of $5.2 million) on contracts that matured in the year.
The mark-to-market value of the Group’s open contracts as at 31 December 2023 was nil (2022: nil).
(e) UK emissions allowance forward contracts
The Group enters into forward contracts for the purchase of UKAs to manage its exposure to carbon emission credit prices.
The mark-to-market value of the Group’s open contracts as at 31 December 2023 was $8.3 million (2022: $4.4 million).
(f) Other receivables
Other | Equity | ||
receivables | shares | Total | |
$’000 | $’000 | $’000 | |
At 1 January 2022 and 2023 | – | 6 | 6 |
Additions (i) | 145,103 | – | 145,103 |
At 31 December 2023 | 145,103 | 6 | 145,109 |
Current | 108,827 | ||
Non-current | 36,282 | ||
145,109 |
(i) Additions relate to a vendor financing facility entered into with RockRose Energy Limited on 29 December 2023 following the farm-down of a 15.0% share in the
EnQuest Producer FPSO and capital items associated with the Bressay development. $108.8 million was repaid in the first quarter of 2024 with the remainder of
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
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 (‘EBT’) 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
Ordinary | ||||
shares of | Share | Share | ||
£0.05 each | capital | premium | Total | |
Authorised, issued and fully paid | Number | $’000 | $’000 | $’000 |
At 1 January 2023 | 1,885,924,339 | 131,650 | 260,546 | 392,196 |
Issue of new shares to EBT | 26,379,774 | 1,635 | – | 1,635 |
At 31 December 2023 | 1,912,304,113 | 133,285 | 260,546 | 393,831 |
At 31 December 2023, there were 8,449,793 shares held by the Employee Benefit Trust (2022: 21,663,181). The movement in the
year was shares used to satisfy awards made under the Company’s share-based incentive schemes offset by a subscription
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 110 to 111.
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
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:
2023 | 2022 | |
$’000 | $’000 | |
Performance Share Plan | 2,120 | 3,264 |
Other performance share plans | 231 | 261 |
Sharesave Plan | 969 | 1,194 |
3,320 | 4,719 |
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.
2023 | 2022 | |
Share plans | Number | Number |
Outstanding at 1 January | 102,271,264 | 125,493,995 |
Granted during the year | 33,940,859 | 17,368,011 |
Exercised during the year | (19,459,260) | (15,712,039) |
Forfeited during the year | (29,385,408) | (24,878,703) |
Outstanding at 31 December | 87,367,455 | 102,271,264 |
Exercisable at 31 December | 17,944,371 | 10,490,719 |
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.
continued
Notes to the Group Financial Statements
For the year ended 31 December 2023
172
Financial Statements
Annual Report and Accounts 2023
EnQuest PLC –
173
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.
2023 | 2022 | |||
Weighted | Weighted | |||
average | average | |||
exercise price | exercise price | |||
Share options | Number | $ | Number | $ |
Outstanding at 1 January | 33,308,249 | 0.14 | 37,518,927 | 0.14 |
Granted during the year | 10,268,853 | 0.14 | 1,292,788 | 0.32 |
Exercised during the year | (19,977,354) | 0.13 | (2,150,313) | 0.17 |
Forfeited during the year | (4,941,604) | 0.17 | (3,353,153) | 0.14 |
Outstanding at 31 December | 18,658,144 | 0.16 | 33,308,249 | 0.14 |
Exercisable at 31 December | 6,553,159 | 0.13 | 445,318 | 0.17 |
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 | |||||
decommissioning- | |||||
Magnus 75% | linked liability | Golden Eagle | Total | ||
Notes | $’000 | $’000 | $’000 | $’000 | |
At 31 December 2022 | 566,685 | 21,853 | 48,337 | 636,875 | |
Change in fair value | 5(d) | (69,840) | 175 | – | (69,665) |
Unwinding of discount | 6 | 56,668 | 2,186 | 1,663 | 60,517 |
Utilisation | (65,506) | (4,425) | (50,000) | (119,931) | |
At 31 December 2023 | 488,007 | 19,789 | – | 507,796 | |
Classified as: | |||||
Current | 43,073 | 3,452 | – | 46,525 | |
Non-current | 444,934 | 16,337 | – | 461,271 | |
488,007 | 19,789 | – | 507,796 |
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 profit share arrangement with bp
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. This contingent consideration is a financial liability classified as measured at FVPL. 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 2023, which resulted in a decrease in fair value of $69.8 million (2022: increase of $233.6 million). The decrease in
fair value in 2023 reflects a 1.3% increase in the discount rate to 11.3% (2022: 10.0%) and changes in the asset cost profile, partially
offset by the Group’s increased oil price assumptions. The increase in 2022 reflected the Group’s higher long-term oil price
assumptions and changes in asset profiles and cost assumptions. The fair value accounting effect and finance costs of $56.7
million (2022: $34.5 million) on the contingent consideration were recognised through remeasurements and exceptional items
in the Group income statement. At 31 December 2023, the contingent profit-sharing arrangement cap of $1.0 billion was forecast
to be met in the present value calculations (31 December 2022: cap was forecast to be met). Within the statement of cash flows,
the profit share element of the repayment, $65.5 million (2022: $46.0 million) is disclosed separately under investing activities. At
31 December 2023, the contingent consideration for Magnus was $488.0 million (31 December 2022: $566.7 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 reported contingent consideration by $19.9 million.
A 1.0% increase would decrease reported contingent consideration by $18.6 million. As the profit-sharing cap of $1.0 billion is
forecast to be met 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 $83.3 million to the
contingent consideration (2022: reduction of $73.6 million).
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 2023, the maturity analysis of the contingent consideration is disclosed in
Risk management and financial instruments: liquidity risk (note 28).
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 2023, the amount due to bp calculated on an after-tax basis by
reference to 30% of bp’s decommissioning costs on Magnus was $19.8 million (2022: $21.9 million). Any reasonably possible
change in assumptions would not have a material impact on the provision.
Golden Eagle contingent consideration
Part of the Golden Eagle acquisition consideration included an amount that was contingent on the average oil price between
July 2021 and June 2023. Over the period July 2021 to June 2023, the average oil price was $89.6/bbl. As such, at 30 June 2023,
the contingent consideration was valued at $50.0 million with settlement of this liability completing in July 2023 (2022: liability
continued
Notes to the Group Financial Statements
For the year ended 31 December 2023
174
Financial Statements
Annual Report and Accounts 2023
EnQuest PLC –
175
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: provisions
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.
Thistle | ||||
Decommissioning | decommissioning | |||
provision | provision | Other provisions | Total | |
$’000 | $’000 | $’000 | $’000 | |
At 31 December 2022 | 691,584 | 32,720 | 13,366 | 737,670 |
Additions during the year (i) | 6,245 | – | 7,017 | 13,262 |
Changes in estimates (i) | 78,247 | 1,605 | (5,192) | 74,660 |
Unwinding of discount | 24,236 | 1,145 | – | 25,381 |
Utilisation | (44,550) | (10,160) | (797) | (55,507) |
Foreign exchange | – | 45 | (214) | (169) |
At 31 December 2023 | 755,762 | 25,355 | 14,180 | 795,297 |
Classified as: | ||||
Current | 55,924 | 9,757 | 14,180 | 79,861 |
Non-current | 699,838 | 15,598 | – | 715,436 |
755,762 | 25,355 | 14,180 | 795,297 |
(i) Includes $31.2 million relating to assets in decommissioning disclosed in note 5(e) and $53.3 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 primarily 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 the net effect of $61.0 million increase in the underlying cost estimates and $35.0 million
foreign exchange impact due to the strengthening Sterling to US Dollar exchange rates. At 31 December 2023, an estimated
$175.7 million is expected to be utilised between one and five years (2022: $407.0 million), $355.6 million within six to ten years
(2022: $67.6 million), and the remainder in later periods. For sensitivity analysis see Use of judgements, estimates and
assumptions within note 2.
The Group enters into surety bonds principally to provide security for its decommissioning obligations. The surety bond
facilities, which expired in December 2022, were renewed for 12 months, subject to ongoing compliance with the terms of the
Group’s borrowings. At 31 December 2023, the Group held surety bonds totalling $250.4 million (2022: $227.6 million).
Thistle decommissioning provision
In 2018, EnQuest exercised 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 the Thistle and Deveron fields, with the liability recognised within provisions. At 31 December 2023, the amount due to
bp by reference to 7.5% of bp’s decommissioning costs on Thistle and Deveron was $25.4 million (2022: $32.7 million), with the
reduction mainly reflecting the utilisation in the period. Change in estimates of $1.6 million are included within other expense (2022:
$6.1 million other income) and unwinding of discount of $1.1 million is included within finance income (2022: $0.8 million).
Other provisions
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 2023, the provision was increased to $9.1 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:
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 (see note 10).
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.
continued
Notes to the Group Financial Statements
For the year ended 31 December 2023
176
Financial Statements
Annual Report and Accounts 2023
EnQuest PLC –
177
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.
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- | Lease | ||
use assets | liabilities | ||
Notes | $’000 | $’000 | |
As at 31 December 2021 | 463,393 | 570,781 | |
Additions in the period | 28,394 | 28,130 | |
Depreciation expense | (57,864) | – | |
Impairment charge | (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 | |
Additions in the period | 10 | 28,378 | 28,378 |
Depreciation expense | 10 | (55,979) | – |
Impairment reversal | 10 | 6,077 | – |
Disposal | (122) | – | |
Interest expense | – | 43,801 | |
Payments | – | (135,675) | |
Foreign exchange movements | – | 3,604 | |
As at 31 December 2023 | 407,732 | 422,174 | |
Current | 133,282 | ||
Non-current | 288,892 | ||
422,174 |
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 28.
Amounts recognised in profit or loss
Year ended | Year ended | |
31 December | 31 December | |
2023 | 2022 | |
$’000 | $’000 | |
Depreciation expense of right-of-use assets | 55,979 | 57,864 |
Interest expense on lease liabilities | 43,801 | 39,172 |
Rent expense – short-term leases | 5,153 | 7,116 |
Rent expense – leases of low-value assets | 113 | 50 |
Total amounts recognised in profit or loss | 105,046 | 104,202 |
Amounts recognised in statement of cash flows
Year ended | Year ended | |
31 December | 31 December | |
2023 | 2022 | |
$’000 | $’000 | |
Total cash outflow for leases | 135,675 | 147,971 |
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 2023 was $2.3 million (2022: $1.5 million).
The following table sets out a maturity analysis of lease payments, showing the undiscounted lease payments to be received
after the reporting date:
2023 | 2022 | |
$’000 | $’000 | |
Less than one year | 2,682 | 2,313 |
One to two years | 2,011 | 2,542 |
Two to three years | 872 | 1,905 |
Three to four years | 873 | 822 |
Four to five years | 889 | 824 |
More than five years | 2,790 | 3,710 |
Total undiscounted lease payments | 10,117 | 12,116 |
Income is not recognised in the income statement until it is highly probable that the conditions attached to the income will
Year ended | Year ended | |
31 December | 31 December | |
2023 | 2022 | |
$’000 | $’000 | |
Deferred income | 138,416 | – |
In December 2023 a farm-down of an equity interest in the EnQuest Producer FPSO and certain capital spares related to the
Bressay development was completed and cash received of $141.3 million. The same amount was lent back to the acquirer in
December 2023 as vendor financing (see note 19(f)). Proceeds from the transaction are reported within deferred income, as
these are contingent upon the Bressay development project achieving regulatory approval. Both parties are committed to
delivering the development, however should the project not achieve regulatory approval there remains the option to deploy
Capital commitments
At 31 December 2023, the Group had commitments for future capital expenditure amounting to $43.8 million (2022: $9.5 million).
The key components of this relate to drilling commitments for the Kraken and Golden Eagle fields and commitments for the new
stabilisation facility at Sullom Voe Terminal. Where the commitment relates to a joint venture, the amount represents the
Group’s net share of the commitment. Where the Group is not the operator of the joint venture then the amounts are based on
the Group’s net share of committed future work programmes.
Other commitments
In the normal course of business, the Group will obtain surety bonds, Letters of Credit and guarantees. At 31 December 2023,
the Group held surety bonds totalling $250.4 million (2022: $227.6 million) to provide security for its decommissioning
continued
Notes to the Group Financial Statements
For the year ended 31 December 2023
178
Financial Statements
Annual Report and Accounts 2023
EnQuest PLC –
179
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 proceedings
pending or threatened.
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 29 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 2023 (2022: none).
Within the $150.0 million Term Loan, Double A Limited, a company beneficially owned by the extended family of Amjad Bseisu,
lent $9.0 million on the same terms and conditions as all other lending parties. This is considered a smaller related party
transaction under Listing Rule 11.1.10.
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.
2023 | 2022 | |
$’000 | $’000 | |
Short-term employee benefits | 5,360 | 6,195 |
Share-based payments | 144 | 3,049 |
Post-employment pension benefits | 241 | 164 |
Termination payments | 367 | 228 |
6,112 | 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 2023 and 2022, 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 2023 are disclosed in note 19. As of
31 December 2023, the Group held financial instruments (options and swaps) related to crude oil that covered 5.2 MMbbls of
2024 production and 1.6 MMbbls of 2025 production. The instruments have an effective average floor price of around $60/bbl in
both 2024 and 2025. 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 2023.
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 | -$10/bbl | |
increase | decrease | |
$’000 | $’000 | |
31 December 2023 | (4,000) | 7,400 |
31 December 2022 | (25,321) | 19,922 |
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 9.00% 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 22% (2022: 26%) of
the Group’s sales and 95% (2022: 85%) 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.
GBP | MYR | Other | Total | |
Year ended 31 December 2023 | $’000 | $’000 | $’000 | $’000 |
Total financial assets | 241,844 | 42,233 | 954 | 285,031 |
Total financial liabilities | 618,235 | 9,801 | 1,295 | 629,331 |
GBP | MYR | Other | Total | |
Year ended 31 December 2022 | $’000 | $’000 | $’000 | $’000 |
Total financial assets | 45,732 | 38,664 | 746 | 85,142 |
Total financial liabilities | 502,307 | 13,202 | 151 | 515,660 |
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 | 10% rate | |
increase | decrease | |
$’000 | $’000 | |
31 December 2023 | (34,908) | 34,908 |
31 December 2022 | (50,615) | 50,615 |
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 2023, there were no trade receivables past due but not impaired (2022: nil) and no joint venture
receivables past due (2022: $0.1 million) but not impaired. Receivable balances are monitored on an ongoing basis with
appropriate follow-up action taken where necessary. Any impact from ECL is disclosed in note 16.
Ageing of past due | 2023 | 2022 |
but not impaired receivables | $’000 | $’000 |
Less than 30 days | – | – |
30–60 days | – | – |
60–90 days | – | – |
90–120 days | – | – |
120+ days | – | 123 |
– | 123 |
At 31 December 2023, the Group had one customer accounting for 58% of outstanding trade receivables (2022: two customers, 79%)
continued
Notes to the Group Financial Statements
For the year ended 31 December 2023
180
Financial Statements
Annual Report and Accounts 2023
EnQuest PLC –
181
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 2023, $166.2 million (2022: $47.3 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 and Term Loan
facilities, are unsecured.
On | Up to 1 | 1 to 2 | 2 to 5 | Over 5 | ||
demand | year | years | years | years | Total | |
Year ended 31 December 2023 | $’000 | $’000 | $’000 | $’000 | $’000 | $’000 |
Loans and borrowings | – | 64,518 | 131,081 | 221,311 | – | 416,910 |
Bonds | – | 50,749 | 50,749 | 576,415 | – | 677,913 |
Contingent consideration | – | 46,555 | 95,335 | 289,823 | 393,187 | 824,900 |
Obligations under finance leases | – | 160,341 | 70,062 | 229,310 | 36,322 | 496,035 |
Trade and other payables | – | 347,408 | 13,167 | 19,750 | – | 380,325 |
– | 669,571 | 360,394 | 1,336,609 | 429,509 | 2,796,083 |
On | Up to 1 | 1 to 2 | 2 to 5 | Over 5 | ||
demand | year | years | years | years | Total | |
Year ended 31 December 2022 | $’000 | $’000 | $’000 | $’000 | $’000 | $’000 |
Loans and borrowings | – | 163,223 | 175,400 | 152,000 | – | 490,623 |
Bonds | – | 194,991 | 49,919 | 615,449 | – | 860,359 |
Contingent consideration | – | 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 |
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.
On | Less than 3 | 3 to 12 | 1 to 2 | Over 2 | ||
demand | months | months | years | years | Total | |
Year ended 31 December 2023 | $’000 | $’000 | $’000 | $’000 | $’000 | $’000 |
Commodity derivative contracts | 414 | 3,111 | 17,264 | 1,000 | – | 21,789 |
Other derivative contracts | – | 8,261 | – | – | – | 8,261 |
414 | 11,372 | 17,264 | 1,000 | – | 30,050 |
On | Less than 3 | 3 to 12 | 1 to 2 | Over 2 | ||
demand | months | months | years | years | Total | |
Year ended 31 December 2022 | $’000 | $’000 | $’000 | $’000 | $’000 | $’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 |
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
shareholder distributions are 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 26 to 30).
2023 | 2022 | ||
Notes | $’000 | $’000 | |
Loans, borrowings and bond (i) (A) | 18 | 794,453 | 1,018,712 |
Cash and short-term deposits | 14 | (313,572) | (301,611) |
EnQuest net debt (ii) (B) | 480,881 | 717,101 | |
Equity attributable to EnQuest PLC shareholders (C) | 456,728 | 484,241 | |
Profit/(loss) for the year attributable to EnQuest PLC shareholders (D) | (30,833) | (41,234) | |
Profit/(loss) for the year attributable to EnQuest PLC shareholders excluding | |||
remeasurements and exceptionals (E) | 29,213 | 212,346 | |
Adjusted EBITDA (ii) (F) | 824,666 | 979,084 | |
Gross gearing ratio (A/C) | 1.7 | 2.1 | |
Net gearing ratio (B/C) | 1.1 | 1.5 | |
EnQuest net debt/adjusted EBITDA (ii) (B/F) | 0.6 | 0.7 | |
Shareholders’ return on investment (D/C) | N/A | N/A | |
Shareholders’ return on investment excluding exceptionals (E/C) | 6% | 44% |
(i) Principal amounts drawn, excludes netting off of fees (see note 18)
continued
Notes to the Group Financial Statements
For the year ended 31 December 2023
182
Financial Statements
Annual Report and Accounts 2023
EnQuest PLC –
183
At 31 December 2023, EnQuest PLC had investments in the following subsidiaries:
Proportion of | |||
nominal value | |||
of issued | |||
Ordinary shares | |||
Country of | controlled by | ||
Name of company | Principal activity | incorporation | the Group |
Intermediate holding company and provision of Group | |||
EnQuest Britain Limited | 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% |
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% |
Construction, ownership and operation of an oil | |||
NSIP (GKA) Limited 1 | pipeline | Scotland | 100% |
Provision of Group manpower and contracting/ | |||
EnQuest Global Services Limited (i)2 | 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)3 | 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% |
Assessment and development of new energy and | |||
Veri Energy (CCS) Limited (i) | decarbonisation opportunities | England | 100% |
Assessment and development of new energy and | |||
Veri Energy (Hydrogen) Limited (i) | decarbonisation opportunities | England | 100% |
Veri Energy Holdings Limited | Intermediate holding company | England | 100% |
Assessment and development of new energy and | |||
Veri Energy Limited (i) | decarbonisation opportunities | 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
Annan House, Palmerston Road, Aberdeen, Scotland, AB11 5QP, United Kingdom
2
Ground Floor, Colomberie House, St Helier, JE4 0RX, Jersey
3
Cash generated from operations
Year ended | Year ended | ||
31 December | 31 December | ||
2023 | 2022 | ||
Notes | $’000 | $’000 | |
Profit/(loss) before tax | 231,779 | 203,214 | |
Depreciation | 5(c) | 6,109 | 6,222 |
Depletion | 5(b) | 292,199 | 327,026 |
Exploration and appraisal expense | 5,640 | – | |
Net impairment charge to oil and gas assets | 4 | 117,396 | 81,049 |
Net (write back)/disposal of inventory | (622) | 762 | |
Share-based payment charge | 5(f) | 3,320 | 4,719 |
Change in Magnus related contingent consideration | 22 | (10,811) | 268,910 |
Change in provisions | 23 | 59,970 | (25,001) |
Other non-cash income | 5(d) | (4,058) | (6,636) |
Change in Golden Eagle related contingent consideration | 22 | 1,663 | 3,162 |
Option premium recognition | – | 1,331 | |
Unrealised (gain)/loss on commodity financial instruments | 5(a) | (28,463) | (14,475) |
Unrealised loss/(gain) on other financial instruments | 5(b) | 3,832 | 4,900 |
Unrealised exchange loss/(gain) | 12,401 | (13,588) | |
Net finance expense | 140,213 | 154,492 | |
Operating cash flow before working capital changes | 830,568 | 996,087 | |
Decrease in trade and other receivables | 51,724 | 12,714 | |
Increase in inventories | (9,518) | (5,388) | |
(Decrease)/increase in trade and other payables | (18,028) | 22,736 | |
Cash generated from operations | 854,746 | 1,026,149 |
continued
Notes to the Group Financial Statements
For the year ended 31 December 2023
184
Financial Statements
Annual Report and Accounts 2023
EnQuest PLC –
185
Changes in liabilities arising from financing activities
Loans and | Lease | |||
borrowings | Bonds | liabilities | Total | |
$’000 | $’000 | $’000 | $’000 | |
At 1 January 2022 | (402,065) | (1,109,920) | (570,781) | (2,082,766) |
Cash movements: | ||||
Repayments of loans and borrowings | 415,000 | 827,166 | – | 1,242,166 |
Proceeds from loans and borrowings | (409,180) | (376,163) | – | (785,343) |
Payment 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) |
Cash movements: | ||||
Repayments of loans and borrowings | 265,809 | 138,052 | – | 403,861 |
Proceeds from loans and borrowings | (166,782) | – | – | (166,782) |
Payment of lease liabilities | – | – | 135,675 | 135,675 |
Cash interest paid in year | 36,285 | 62,130 | – | 98,415 |
Non-cash movements: | ||||
Additions | – | – | (28,377) | (28,377) |
Interest/finance charge payable | (30,708) | (58,999) | (43,801) | (133,508) |
Fee amortisation | (1,476) | (3,091) | – | (4,567) |
Foreign exchange and other non-cash movements | (810) | (11,828) | (3,605) | (16,243) |
At 31 December 2023 | (311,210) | (471,019) | (422,174) | (1,204,403) |
Reconciliation of carrying value
Loans and | Lease | ||||
borrowings (see | Bonds | liabilities | |||
note 18) | (see note 18) | (see note 24) | Total | ||
Notes | $’000 | $’000 | $’000 | $’000 | |
Principal | (417,967) | (600,745) | (482,066) | (1,500,778) | |
Unamortised fees | 4,609 | 13,815 | – | 18,424 | |
Accrued interest | 17 | (170) | (10,353) | – | (10,523) |
At 31 December 2022 | (413,528) | (597,283) | (482,066) | (1,492,877) | |
Principal | (319,784) | (474,669) | (422,174) | (1,216,627) | |
Unamortised fees | 8,553 | 10,724 | – | 19,277 | |
Accrued interest | 17 | 21 | (7,074) | – | (7,053) |
At 31 December 2023 | (311,210) | (471,019) | (422,174) | (1,204,403) |
In March 2024, the UK Government announced that the sunset clause for EPL would be extended by a year to 31 March 2029,
although no date has yet been set for when this will be legislated. The Group estimates the impact of this one year extension
to be an additional deferred tax liability of approximately $44.6 million, with a reduction in the carrying value of the Group’s
assets of approximately $22.3 million.
In February 2024, the regulator approved the 15.0% disposal of a share in the Bressay licence to RockRose.
By the end of February 2024, the Group had fully repaid the outstanding $140.0 million of its Reserve Based Lending Facility.
The Board of Directors of EnQuest PLC are proposing making a $15.0 million share buy back, to be executed during 2024. The
distribution will be below the limit granted at the 2023 Annual General Meeting allowing the Company to purchase up to 10%
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.
The Directors are responsible for the maintenance and integrity of the Company’s specific corporate and financial
information included on the Group’s website. Legislation in the United Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in other jurisdictions.
Statement of Directors’ Responsibilities
for the Parent Company Financial Statements
(Registered number: 07140891)
At 31 December 2023
2023 | 2022 | ||
Notes | $’000 | $’000 | |
Fixed assets | |||
Investments | 3 | 299,770 | 370,355 |
Current assets | |||
Trade and other debtors | |||
– due within one year | 4 | 108,878 | 3 |
– due after one year | 4 | 589,029 | 700,243 |
Cash at bank and in hand | 178 | 89 | |
698,085 | 700,335 | ||
Trade and other creditors: amounts falling due within one year | 6 | (152,634) | (12,398) |
Net current assets | 545,451 | 687,937 | |
Total assets less current liabilities | 845,221 | 1,058,292 | |
Trade and other creditors: amounts falling due after one year | 7 | (463,946) | (586,930) |
Net assets | 381,275 | 471,362 | |
Share capital and reserves | |||
Share capital and premium | 8 | 393,831 | 392,196 |
Other reserve | 40,143 | 40,143 | |
Share-based payment reserve | 13,195 | 11,510 | |
Profit and loss account | (65,894) | 27,513 | |
Shareholders’ funds | 381,275 | 471,362 |
The attached notes 1 to 14 form part of these Company financial statements.
The Company reported a loss for the financial year ended 31 December 2023 of $93.4 million (2022: profit of $8.3 million).
There were no other recognised gains or losses in the period (2022: nil).
The financial statements were approved by the Board of Directors and authorised for issue on 27 March 2024 and signed on
its behalf by:
Amjad Bseisu
Chief Executive Officer
For the year ended 31 December 2023
Share capital | Share–based | |||||
and share | payments | Profit and loss | ||||
premium | Other reserve | reserve | account | Total | ||
Notes | $’000 | $’000 | $’000 | $’000 | $’000 | |
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 income 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 | |
Profit/(loss) for the year | – | – | – | (93,407) | (93,407) | |
Total comprehensive expense for the year | – | – | – | (93,407) | (93,407) | |
Issue of shares to Employee Benefit Trust | 8 | 1,635 | – | (1,635) | – | – |
Share-based payment charge | – | – | 3,320 | – | 3,320 | |
At 31 December 2023 | 393,831 | 40,143 | 13,195 | (65,894) | 381,275 |
186
Financial Statements
Annual Report and Accounts 2023
EnQuest PLC –
187
189
188
EnQuest PLC –
Annual Report and Accounts 2023
Financial Statements
Notes to the Financial Statements
For the year ended 31 December 2023
1. Corporate information
The separate parent company financial statements of EnQuest PLC (‘EnQuest’ or the ‘Company’) for the year ended
31 December 2023 were authorised for issue in accordance with a resolution of the Directors on 27 March 2024.
EnQuest PLC is a public limited company incorporated and registered in England and is the holding and ultimate controlling
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. For new standards and interpretations see note 2 of the Group financial statements. No material impact was
recognised upon application in the Company financial statements.
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 2023.
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:
Key sources of estimation uncertainty: Impairment/reversal 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 note 3 for recoverable values and
sensitivities). See Group critical accounting estimates and judgements in note 2 for recoverability of oil and gas subsidiary
asset carrying values.
No critical accounting judgements have been identified in the preparation of these financial statements.
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
2023
$’000
2022
$’000
Subsidiary undertakings
299,764
370,349
Other financial assets at FVPL
6
6
Total
299,770
370,355
(b) Subsidiary undertakings
$’000
Cost
At 1 January 2022
1,394,157
Additions
4,719
At 31 December 2022
1,398,876
Additions
3,320
At 31 December 2023
1,402,196
Provision for impairment
At 1 January 2022
997,432
Impairment charge for the year
31,095
At 31 December 2022
1,028,527
Impairment charge for the year
73,905
At 31 December 2023
1,102,432
Net book value
At 31 December 2023
299,764
At 31 December 2022
370,349
At 31 December 2021
396,725
The Company has recognised an impairment charge of its investment in subsidiary undertakings of $73.9 million (2022:
impairment charge of $31.1 million). The impairment charge for the year ended 31 December 2023 is primarily driven by
changes in production and cost profiles and an increase in EnQuest’s long-term oil price assumption.
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 $162.5 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 2023 are provided in note 29 of the Group financial statements.
(c) Other financial assets at fair value through profit or loss
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.
191
190
EnQuest PLC –
Annual Report and Accounts 2023
Financial Statements
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.
Impairment of financial assets
The Company recognises a loss allowance 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 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 $nil for the year ended 31 December 2023, as required by
IFRS 9’s expected credit loss model (2022: $2.2 million).
2023
$’000
2022
$’000
Due within one year
Prepayments
51
3
Other receivables – vendor financing facility
108,827
–
108,878
3
Due after one year
Amounts due from subsidiaries
552,753
698,462
Other receivables – vendor financing facility
36,276
–
589,029
698,462
Included within the amounts due from Group undertakings are balances of $512.4 million (2022: $667.2 million) on which
interest was charged at between 9.0%-11.625% (2022: 7.0%-11.625%). 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.
A vendor financing facility was entered into with RockRose Energy Limited on 29 December 2023 following the farm-down of a
15.0% share in the EnQuest Producer FPSO and capital items associated with the Bressay development. $108.8 million was
repaid in the first quarter of 2024 with the remainder of $36.3 million repayable through future net cash flows from the
Bressay field. Interest on the outstanding amount accrues at 2.5% plus the Bank of England’s Base Rate.
5. Deferred tax
The Company has unused UK mainstream corporation tax losses of $67.8 million (2022: $23.6 million) for which no deferred
tax asset has been recognised at the balance sheet date due to the uncertainty of recovery of these losses.
Notes to the Financial Statements
continued
For the year ended 31 December 2023
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 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.
2023
$’000
2022
$’000
Bond and other interest
7,073
10,353
Amounts due to subsidiaries
145,434
1,934
Accruals
127
111
152,634
12,398
Included within the amounts owed to Group undertakings are balances of $7.9 million (2022: nil) on which interest was
charged at 10.98% (2022: 9.89%). All other balances are interest free.
All amounts owed to Group undertakings are unsecured and repayable on demand.
7. Trade and other creditors: amounts falling due after one year
2023
$’000
2022
$’000
Bonds
463,946
586,930
At 31 December 2023, bonds comprise a high yield bond and a retail bond. The carrying value of the high yield bond is $294.3
million (2022: $291.2 million) and pays a coupon of 11.625% bi-annually with a maturity date of November 2027. The retail bond
has a carrying value of $169.7 million (2022: $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 28 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 2023
1,885,924,339
131,650
260,546
392,196
Issue of shares to Employee Benefit Trust
26,379,774
1,635
–
1,635
At 31 December 2023
1,912,304,113
133,285
260,546
393,831
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 2023, there were 8,449,793 shares held by the Employee Benefit Trust (2022: 21,663,181). The movement in the
year was due to shares used to satisfy awards made under the Company’s share-based incentive schemes offset by the
subscription for additional Ordinary shares.
193
192
EnQuest PLC –
Annual Report and Accounts 2023
Financial Statements
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 99 to 117.
12. Distributions proposed
Further details are disclosed in note 9 of the Group financial statements.
13. Contingencies
The Company provides a number of parent company guarantees. These have been assessed as having no material value.
14. Subsequent events
In March 2024, the Company received $106.8 million of dividends from subsidiary undertakings.
Notes to the Financial Statements
continued
For the year ended 31 December 2023
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 but consistent with accounting
policies applied in the financial statements. 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 142.
Business performance net profit attributable to EnQuest PLC shareholders
Notes
2023
$’000
2022
$’000
Reported net profit/(loss) (A)
(30,833)
(41,234)
Adjustments – remeasurements and exceptional items
4
Unrealised gains on derivative contracts
19
24,631
9,575
Net impairment (charge)/reversal to oil and gas assets
10,11,12
(117,396)
(81,049)
Finance costs on Magnus contingent consideration
6
(58,854)
(36,410)
Change in Magnus contingent consideration
2023: 5(d); 2022: 5(d),5(e)
69,665
(232,500)
Movement in other provisions
3,374
–
Other exceptional income
5(d)
4,127
6,636
Other exceptional expenses
5(e)
(10,731)
–
Other exceptional finance income
6
–
2,148
Pre-tax remeasurements and exceptional items (B)
(85,184)
(331,600)
Tax on remeasurements and exceptional items (C)
25,138
78,020
Post-tax remeasurements and exceptional items (D = B + C)
(60,046)
(253,580)
Business performance net profit attributable to EnQuest PLC shareholders (A – D)
29,213
212,346
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 reserve based lending (‘RBL’) facility and term loan. 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/(loss) before tax and finance income/(costs).
Adjusted EBITDA
Notes
2023
$’000
2022
$’000
Reported profit from operations before tax and finance income/(costs)
456,227
411,887
Adjustments:
Remeasurements and exceptional items
4
26,330
297,338
Depletion and depreciation
5(b),5(c)
298,308
333,248
Inventory revaluation
(622)
763
Change in provision
5(d),5(e)
32,764
(42,823)
Net foreign exchange loss/(gain)
5(d),5(e)
11,659
(21,329)
Adjusted EBITDA (E)
824,666
979,084
195
194
EnQuest PLC –
Annual Report and Accounts 2023
Financial Statements
Glossary – Non-GAAP Measures
continued
Cash capital expenditure (nearest equivalent measure on an IFRS basis is purchase of property, plant and equipment)
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
materiality of the work programme and the focus on the Group’s liquidity position and ability to reduce its debt.
Cash capital and decommissioning expense
2023
$’000
2022
$’000
Reported net cash flows from/(used in) investing activities
(206,895)
(161,247)
Adjustments:
Purchase of other intangible assets
876
1,199
Payment of Magnus contingent consideration – Profit share
65,506
45,975
Payment of Golden Eagle contingent consideration – Acquisition costs
50,000
–
Proceeds received from farm-down of equity interest in the EnQuest Producer FPSO
(55,800)
–
Interest received
(5,895)
(1,763)
Cash capital expenditure
(152,208)
(115,836)
Decommissioning expenditure
(58,911)
(58,964)
Cash capital and decommissioning expense
(211,119)
(174,800)
Free cash flow (‘FCF’) represents the cash a company generates, after accounting for cash outflows to support operations
and 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.
Free cash flow
2023
$’000
2022
$’000
Net cash flows from/(used in) operating activities
754,244
931,553
Net cash flows (used in)/from investing activities
(262,695)
(161,247)
Net cash flows (used in)/from financing activities
(478,631)
(731,163)
Adjustments:
Proceeds from loans and borrowings
(166,782)
(65,473)
Repayment of loans and borrowings
403,861
545,278
Payment of Golden Eagle contingent consideration – Acquisition costs
50,000
–
Free cash flow
299,997
518,948
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.
Revenue sales
Notes
2023
$’000
2022
$’000
Revenue from crude oil sales (M)
5(a)
1,127,419
1,517,666
Revenue from gas and condensate sales (N)
5(a)
338,973
514,206
Realised (losses)/gains on oil derivative contracts (P)
5(a)
(11,264)
(203,741)
Barrels equivalent sales
2023
kboe
2022
kboe
Sales of crude oil (Q)
13,714
14,786
Sales of gas and condensate
(i)
4,107
3,366
Total sales (R)
17,821
18,152
(i) Includes volumes related to onward sale of third-party gas purchases not required for injection activities at Magnus
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 29 to 30.
Total cash and available facilities
Notes
2023
$’000
2022
$’000
Available cash
313,028
293,866
Restricted cash
544
7,745
Total cash and cash equivalents (F)
14
313,572
301,611
Available credit facilities
518,794
505,692
Credit facility – drawn down
(290,000)
(405,692)
Letter of credit
18
(43,545)
(52,700)
Available undrawn facility (G)
185,249
47,300
Total cash and available facilities (F + G)
(i)
498,821
348,911
(i) Includes $19.0 million in relation to a vendor loan facility which expired on 1 January 2024.
This facility is currently being renegotiated.
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 deleveraging 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 29
to 30. 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
Notes
2023
$’000
2022
$’000
Borrowings:
18
RBL facility
135,080
395,391
Term Loan facility
146,367
–
SVT working capital facility
29,784
12,275
Vendor loan facility
–
5,692
Borrowings (H)
311,231
413,358
Bonds:
18
High yield bond
294,276
291,185
Retail bonds
169,669
295,745
Bonds (I)
463,945
586,930
Non-cash accounting adjustments:
18
Unamortised fees on loans and borrowings
8,553
4,609
Unamortised fees on bonds
10,724
13,815
Non-cash accounting adjustments (J)
19,277
18,424
Debt (H + I + J) (K)
794,453
1,018,712
Less: Cash and cash equivalents (E)
14
313,572
301,611
EnQuest net debt (K – F) (L)
480,881
717,101
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 the Group’s ability to settle its debt. This is a helpful metric to monitor the Group’s
progress against its strategic objective of deleveraging.
EnQuest net debt/adjusted EBITDA
2023
$’000
2022
$’000
EnQuest net debt (L)
480,881
717,101
Adjusted EBITDA (E)
824,666
979,084
EnQuest net debt/adjusted EBITDA (L/E)
0.6
0.7
196
Glossary – Non-GAAP Measures
continued
Average realised prices
2023
$/Boe
2022
$/Boe
Average realised oil price, excluding hedging (M/Q)
82.2
102.6
Average realised oil price, including hedging ((M + P)/Q)
81.4
88.9
Operating costs (‘opex’) is a measure of the Group’s cost management performance (reconciled to reported cost of sales,
the nearest equivalent measure on an IFRS basis). 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
Notes
2023
$’000
2022
$’000
Reported cost of sales
5(b)
946,752
1,200,706
Adjustments:
Remeasurements and exceptional items
5(b)
(5,650)
(4,900)
Depletion of oil and gas assets
5(b)
(292,199)
(327,027)
Credit/(charge) relating to the Group’s lifting position and inventory
5(b)
4,244
15,568
Other cost of operations
(i)
5(b)
(305,919)
(487,831)
Operating costs
347,228
396,516
Less: realised loss/(gain) on derivative contracts (S)
5(b)
2,839
(5,418)
Operating costs directly attributable to production
350,067
391,098
Comprising of:
Production costs (T)
5(b)
308,331
347,832
Tariff and transportation expenses (U)
5(b)
41,736
43,266
Operating costs directly attributable to production
350,067
391,098
(i) Includes $294.0 million (2022: $452.8 million) of purchases and associated costs of third-party gas not required for injection activities at Magnus which is sold on
Barrels equivalent produced
2023
kboe
2022
kboe
Total produced (working interest) (V)
(i)
15,992
17,250
(i) Production for 2023 includes 604 kboe associated with Seligi gas
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
2023
$/Boe
2022
$/Boe
Production costs (T/V)
19.3
20.2
Tariff and transportation expenses (U/V)
2.6
2.5
Total unit opex ((T + U)/V)
21.9
22.7
Realised (gain)/loss on derivative contracts (S/V)
(0.2)
0.3
Total unit opex including hedging ((S + T+ U)/V)
21.7
23.0
Company information
Registered office
5–11 Regent Street
London
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 using the code ‘ENQ’.
Registrar
Link Group
10th Floor
Central Square
29 Wellington Street
Leeds
LS1 4DL
Financial calendar
30 May 2024: Annual General Meeting
September 2024: 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.
This book has been printed on paper from well-managed forests, approved by the Forest Stewardship
Council®, using vegetable inks. Our printer holds ISO 14001 and FSC® environmental certifications.
Printed by a CarbonNeutral® Company certified to ISO 14001 environmental management system.
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requirements of the Nordic Ecolabel (Nordic Swan) for printing companies, 95% of press chemicals are
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and the remaining 1% used to generate energy.
The paper is Carbon Balanced with World Land Trust, an international conservation charity, who offset
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protecting standing forests, under threat of clearance, carbon is locked-in, that would otherwise be released.
CBP00019082504183028
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
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1st Floor, Office #102
Emaar Square Building #2
Downtown Dubai
Dubai, UAE
T +971 4 550 7100
More information at
www.enquest.com